EAIC Source-Industry Spotlight: Automotive

When it comes to employment, investment, internationalization and spending on research and development, there is hardly an industry capable of matching the importance of the global automotive industry. After the throes of the financial crisis a decade ago, the industry is now reaching new heights: global sales of passenger cars hit 79.2 million vehicles in 2017 and are forecast to reach 81.57 million units in 2018. The United States is one of the largest automobile markets worldwide, both in terms of production and sales. About 6.9 million passenger cars were sold to U.S. customers in 2016 and around 4 million cars were produced in the U.S. that same year. At the same time, German car makers Volkswagen, Daimler and BMW were among the leading automobile manufacturers in terms of revenue and among the top 15 car manufacturers worldwide in 2016. Although motor vehicles are typically sold under a brand name, virtually all automotive manufacturing companies restrict themselves to designing and assembling automotive parts or component groups, most of which are provided by external suppliers. German industry giant Bosch ranked first in the automotive supplier industry, followed by Continental and Magna.

According to the European Automobile Manufacturers Association (ACEA), car-related trade between the European Union (EU) and the United States currently accounts for around 10% of total trade between the two regions. Together, the EU and the U.S. account for 32% of the global car production and 35% of the global car sales. The United States remained the number one destination of EU car exports in 2016, both in terms of units (21.3% share) and of value (30.2% share). In 2017, EU car exports to the U.S. roughly amounted to USD 32 billion. In the period from January to September 2017, passenger car exports in volume terms from the EU to the U.S. dropped 2.2%, from roughly 847 million to 829 million units, compared to the same period in 2016.

In Europe, the auto industry is the largest private investor in research and development (R&D), with more than USD 58.8 billion invested annually. Since several countries around the world are implementing stricter emission controls, automakers are beginning to expand their business into the electric mobility sector. Germany is expected to lead the way with projected electric car production to reach 1.3 million units by 2021. In light of growing environmental awareness and an increasing desire to connect vehicles to the internet, automotive suppliers are faced with a variety of new challenges. Market trends such as the shift to lighter materials and alternative fuel powertrains, together with the affinity towards electric as well as autonomous vehicles, are set to shake up the automotive industry. It is expected that automotive suppliers will respond to changing market trends by increased spending on R&D activities. In a 2016 survey, 40% of U.S. respondents stated that they were willing to use fully autonomous vehicles, presumably because they consider autonomous vehicles to be safer than conventional cars. Thus, the global market for autonomous driving hardware components is expected to grow from USD 400 million in 2015 to 40 billion in 2030. These developments will have a strong impact on FDI flows from Europe to the United States.

The decision of the U.S. administration under President Trump to introduce a 25 percent tariff on imports of steel and a corresponding 10 percent tariff on aluminum entering the United states has caused uncertainty among the European business community. Although the impact of the tariffs was regarded as limited, the ensuing retaliatory tariffs from the European Union and other major trading partners of the United States threatens a tit-for-tat dynamic that has the potential to significantly affect the workings of the transatlantic market. Especially with regard to a proposed U.S. tariffs on European cars, many companies, including German car-maker BMW and General Motors in the United States, sounded the alarm, alerting all stakeholders to the welfare cost of disrupting an industry that depends on a heavily interconnected transatlantic supply chain. On July 25th, President Trump and EU Commission President Jean-Claude Juncker announced a preliminary agreement after a joint meeting in the White House, in which both parties agreed to halt the implementation of any additional tariffs while talks are ongoing. Meanwhile, the European Union will import additional U.S. soybeans and liquefied natural gas (LNG), and both sides agreed to work towards zero tariffs on non-auto industrial goods. The deal was welcomed on both sides, with German automotive industry association VDA (statement in German) calling the agreement “a big step forward” and “good news for industry and consumers of both sides of the Atlantic”. Given that the preliminary agreement between the United States and the European Union echoes many goals of the now dormant Transatlantic Trade and Investment Partnership (TTIP) - especially regarding the zero-tariffs on industrial goods - European business leaders have expressed hope that the ongoing dialogue might revitalize the momentum for a larger agreement.