Vulnerabilities and capabilities in the EU Automotive industry: Leveraging Input-Output Analysis and Economic Complexity

Abstract:

The EU automotive sector, a traditional global leader, contributes nearly 10% to the region's manufacturing value added and provides employment to 13.8 million Europeans. However, the transition to electric mobility presents significant challenges, requiring substantial reorganization of production processes and increased reliance on batteries, electrochemical cells, and critical raw materials. China's dominance in processing battery materials and manufacturing electric vehicle components has heightened the EU's vulnerability, as reliance on Chinese suppliers spans multiple stages of the value chain. In response, policymakers have proposed provisional tariffs on Chinese electric vehicle imports as part of the Open Strategic Autonomy framework, which seeks to balance trade openness with reduced supply chain vulnerabilities, addressing risks exposed by the COVID-19 pandemic and the broader electric mobility transition.
Against this backdrop, this paper investigates the EU27 automotive industry’s input dependencies, productive capabilities, and structural vulnerabilities, with a special focus on the fragmentation of production processes across global value chains and the shift to electric mobility. We propose a novel empirical strategy that simultaneously analyses supply chain dependencies and export capabilities integrating granular product-level trade data with inter-sectoral linkages—two dimensions rarely examined together in supply chain studies. To this aim, we propose a novel a microdata-validated list of 63 harmonized system (HS) intermediate automotive products.
In our empirical analysis, we first examine the industry's dependence on key trade partners and products, highlighting a shift in suppliers through input-output analysis and product-level trade. China, along with Turkey, South Korea, and Mexico, has gained importance, while countries like the UK and Japan have seen a decline in relevance. Notably, imports of electrical parts, especially electric accumulators, have surged, with China as the EU’s primary supplier. Second, using the Economic Fitness and Complexity metric, we evaluate the competitiveness of EU27 countries in automotive-related exports. Our analysis shows that Eastern European nations—particularly Poland, Hungary, and Czechia—improved their competitiveness in automotive components, surpassing Germany, and, along with Italy, display the highest probability of developing future comparative advantages in automotive components. Third, we focus on the electric mobility transition: while EU27 exports of electric and hybrid vehicles have grown, internal combustion engine vehicles still dominate, and the region lags behind in battery production capabilities, remaining heavily reliant on lithium-ion battery imports from China. Some EU countries are positioned to become competitive in certain types of batteries, though very few are positioned to become competitive in lithium-ion battery exporters by 2027. Finally, we conduct a vulnerability assessment of the EU27 automotive supply chain, combining product-level data on net exposure to extra-EU27 inputs and supply chain import concentration. Products in the Electrical and Electric Parts and Engines and Parts categories are identified as the most vulnerable, with lithium-ion batteries and electric accumulators posing significant risks due to high external dependency and supply concentration.