European carmakers face Nexperia chip provide shock – DW – 10/23/2025 | EUROtoday

As if European carmakers wanted extra reminders of their dependency on China, new ones preserve popping up.

The business is bracing for manufacturing stops after chip provider Nexperia warned {that a} spat between the Netherlands, the place the agency is situated, and the agency’s Chinese homeowners may hit provide.

They’re additionally getting ready for a squeeze on uncooked supplies key for electrical motors after new figures from China’s customs workplace launched final week confirmed China’s rare-earth exports fell 31% in September from August.

On Wednesday, German automobile big Volkswagen warned that the most recent provide chain points may result in manufacturing stoppages. Production has not but been impacted by chip shortages, the corporate stated in an inside letter to its staff, based on a spokesperson quoted by Reuters.

“In view of the dynamic situation, however, we cannot rule out an impact on production in the short term,” the spokesperson stated.

Chip and uncooked materials points are available a yr of plunging income and job cuts and level to the bigger conundrum dealing with the continent: Domestic suppliers constructed on the success of the combustion engine are struggling, whereas suppliers for vital parts of electrical automobiles, corresponding to magnets, chips and batteries, are centered elsewhere.

For Germany specifically, Europe’s largest carmaker, the implications of that disparity transcend the manufacturing line and threaten its very prosperity.

“The combustion engine is not just part of a car, it’s the ultimate competitive advantage of the automotive industry in Germany,” stated Andreas Herrmann of the St. Gallen University in Zurich. “Obviously this industry needs more time to develop new areas, new parts for competitive advantage,” he informed DW.

Rarer uncommon earths

Large automakers are already closely reliant on China for gross sales, the biggest single marketplace for Germany’s large three automakers, Volkswagen (VW), Mercedes and BMW. But it is international dominance in sure automobile parts and provides that threatens the business’s base at house.

This previous spring marked the primary slowdown in rare-earth magnet exports from China, as Beijing struck again at new US commerce tariffs.

According to a examine by the Mercator Institute for China Studies (Merics) in Berlin, China accounts for greater than 90% of rare-earth exports into the EU.

Exports rebounded in the summertime following a deal between the US and China. Now Beijing is returning to a tougher line.

Earlier this month, it created a licensing regime for a lot of rare-earth exports, a measure that consultants say may additional sluggish imports into Europe.

Chip shortages

Chip shortages had been speculated to be an issue of the previous. After a run on provide through the COVID-19 pandemic led to pricey manufacturing stops in 2021, carmakers vowed to diversify their sourcing.

On a political degree, coaxing manufacturing away from Taiwan, Korea, Japan and China has been a giant a part of automakers’ plans, with Germany convincing chip big TSMC set to open a fab in Dresden in 2027.

The chip panorama is difficult, nevertheless, with hundreds of semiconductors now utilized in some fashionable vehicles. As the beforehand little-known Nexperia reveals, even a single scarcity could be damaging.

The head of the European Automobile Manufacturers’ Association (ACEA), Sigrid de Vries, famous in a press launch not too long ago that automakers had “taken steps over the last years to diversify supply chains,” however added that the danger “cannot be mitigated down to zero.”

A battery technique in progress

Unlike chips and uncommon earths, batteries signify a big a part of the electrical automobile worth chain, near 30%, based on the European Association of Automotive Suppliers (CLEPA).

European automobile corporations wish to manufacture batteries as an alternative of sourcing them elsewhere. They at the moment depend on exports from Korea and China, who personal a lot of the market share.

The largest European battery effort to this point, Swedish battery maker Northvolt, resulted in spectacular failure as the corporate declared chapter in 2024.

Other efforts now stand in Northvolt’s place, together with PowerCo from Volkswagen and Verkor, led by Renault. Whether they’ll attain the economies of scale essential to match upfront prices stays a query, particularly in a down marketplace for electrical automobiles.

Porsche not too long ago introduced it was giving up its objective of battery manufacturing, saying it was now not worthwhile within the present market.

Another query is the function of China, which has put new export restrictions on know-how sharing and know-how on its most fashionable battery know-how.

Prosperity driver combustion engine

The stakes for Europe’s auto business have solely develop into clearer, in the meantime, with Germany specifically struggling.

The German Association of the Automobile Industry (VDA) estimates that roughly 773,000 folks had been employed within the sector in 2024. That quantity, declining lately, is now dropping rapidly.

According to 1 new estimate51,500 auto business jobs disappeared between summer season 2024 and summer season 2025. That’s near the 61,000 jobs that disappeared in your complete six years earlier than.

Although these cuts are set to happen over years, the business’s issues are already hitting cities and households. Ingolstadt, house to Audi, is attempting to patch a finances gap of as much as €80 million ($92.9 million) after company taxes got here far under expectations, a direct results of the Volkswagen-owned carmaker’s troubles.

The Association of Automotive Suppliers predicted in September that as a lot as 23% of the EU worth creation per automobile may transfer elsewhere by 2030 if nothing modifications.

Reason for optimism?

Battery initiatives are shifting forward. Volkswagen is advancing its first gigafactory in Salzgitter, Germany, as is the Renault-led Verkor battery alliance, which is constructing an analogous manufacturing corridor in Dunkirk, France.

New know-how and extra environment friendly recycling may cut back the quantity of rare-earth magnet imports wanted for electrical automobiles. In Friedrichshafen, ZF has even developed an electrical motor that requires no rare-earth metals, utilizing electromagnetism as an alternative of everlasting magnets.

New strains of electrical automobiles may kick-start sluggish purchases throughout markets. BMW and Mercedes acquired constructive critiques for brand spanking new electrical SUV fashions. Volkswagen guarantees to lastly carry its multi-brand scale to bear with the discharge 4 new fashions of small, city electrical automobiles within the 25,000-euro vary in 2026.

The sturdiness of Chinese opponents stays an open query, in the meantime. Chinese overinvestment has notoriously led to previous bubbles. Beijing is already attempting to self-discipline overheated competitors amongst automobile producers, which it fears may result in extra hurt than good.

Still, Europe should develop extra future applied sciences if it should efficiently cut back dependencies, stated Herrmann, and is “pretty optimistic” Europe’s auto business “will not go down.”

“It has to go through a fundamental crisis, but at the end of the day I hope it will come out stronger,” he stated.

Edited by: Uwe Hessler

Editor’s Note: This piece was up to date on October 23, 2025, to mirror the developments at Volkswagen.