Europe's electric vehicle (EV) transition by 2035 might bring in an additional €300 billion, or potentially cost €400 billion, depending on the participation and actions of various industries.
In the rapidly evolving world of electric vehicles (EVs), Europe finds itself at a pivotal moment. McKinsey's latest report outlines three possible scenarios for the continent's automotive industry, each with significant implications for the future.
The first scenario, a disruptive one, paints a challenging picture. Europe could lose €400 billion in automotive value by 2035, as domestic BEV market share falls to 45%, leading to a decline in vehicle production by 20-25%. This would result in a rise in imports by 1.2 million cars.
However, the report underscores the risks if European automakers do not innovate or invest to maintain competitiveness in the global EV race. The next decade will determine whether Europe capitalises on this transformative moment or risks falling behind.
The second scenario, a balanced one, offers a more optimistic outlook. Europe could add €280 billion in downstream value through EV-related services and infrastructure, while upstream GVA could decline by €130 billion. Key measures for this scenario include expanding Europe's battery production, strengthening control over raw materials, and encouraging partnerships between traditional automakers and new EV players.
Companies expected to be involved in the scenario of 35 planned new gigafactories for European battery production between 2025 and 2035 include key players like BYD, which is expanding its battery technology and energy supply presence globally, as well as startups like Offgrid Energy Labs developing alternatives to lithium-ion batteries. European industrial and energy companies like Enel Group are also in discussions, reflecting a broad involvement of automotive, energy, and tech firms in this expansion.
The right investments, partnerships, and policies can help Europe emerge as a leader in the EV era. Simplifying permitting processes for EV infrastructure, such as charging stations, could accelerate progress and attract investment. The report estimates that €70-€100 billion could be generated from installing and maintaining charging infrastructure.
Moreover, €30-€70 billion could be generated from digital and connected vehicle services. Upskilling the workforce in areas like artificial intelligence and battery technology will be essential for Europe's success in the EV era.
However, high energy costs pose a challenge. With electricity prices in Europe averaging twice those in the United States, expanding renewable energy sources and reducing costs are critical for maintaining competitiveness. McKinsey estimates that €15 billion could be generated from battery recycling, which could help source over half of key materials from recycled components.
The automotive sector currently contributes €1.9 trillion to Europe's gross value added (GVA), making up 8% of its GDP and supporting 5.5 million jobs. The rise of EVs brings new competition, supply chain challenges, and the need for significant investment in technology and infrastructure. But with bold action across several areas, Europe's automotive sector could maintain upstream GVA at €1.1 trillion and add €300 billion in downstream value, making it a key player in the global EV race.
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