Chinese cars are taking over the market, and Volkswagen is laying off thousands of workers: What's in store for Europe?

The European automotive industry, long symbolised by quality, innovation and economic strength, is undergoing a profound transformation. German automakers such as Volkswagen have announced plans to lay off tens of thousands of workers, while brands like Mercedes-Benz, BMW and Porsche report declining sales in China. Meanwhile, Chinese carmakers are rapidly capturing global markets with aggressive strategies and technological advancements. This shift has sparked concern among industry experts, including Armin Hodžić of the Automobile Industry Group of Bosnia and Herzegovina. He notes that this is not merely a crisis, but rather a large-scale transition driven by digitalisation, automation, robotics and artificial intelligence. These technologies have become essential across nearly all sectors, not just the automotive industry. Hodžić explains that Chinese manufacturers have significantly improved their product quality, vehicle safety and standard equipment levels over the past decade. Today, even basic models from Chinese automakers come equipped with almost all the features required by average drivers, and sometimes even more demanding ones. In contrast, European manufacturers have historically charged extra for many of these features, making them optional rather than standard. He attributes this change to several factors, including rising costs of labor and energy in Europe, as well as slower development cycles for new vehicle models. European automakers typically introduced new generations of cars every four to six years, whereas today’s market and consumer expectations evolve much faster. Younger buyers, particularly members of Generation Z, expect vehicles to keep pace with technological trends just as they do with other products they consume. For younger consumers, the car has become primarily a means of transportation, rather than a brand loyalty symbol. This shift in buyer behavior has further weakened the traditional dominance of European brands in certain regions, especially in emerging markets where affordability and functionality take precedence over heritage. The rise of Chinese automakers is not accidental. According to Hodžić, the success has been decades in the making. Chinese companies have been preparing for this moment since the 1960s, investing heavily in domestic markets and building robust manufacturing capabilities. The country's vast population and reliance on its own workforce provide a key advantage, allowing it to scale production efficiently and cost-effectively. In comparison, Europe faces challenges related to demographic changes and a shrinking labor force. Many European automakers have struggled to adapt quickly enough to evolving consumer demands and competitive pressures. As a result, the continent has increasingly relied on imports, with the EU importing more Chinese vehicles than ever before, while exporting fewer European cars to China. One of the most critical developments in this transformation is the electrification of transport. While Europe was among the first to aggressively pursue electric vehicle (EV) technology, it has lost some of its early lead. Chinese automakers have caught up and surpassed European counterparts in EV production and innovation. New supply chains for electric vehicles are being established globally, presenting both opportunities and challenges for businesses in countries like Bosnia and Herzegovina. Hodžić sees potential for local industries to benefit from these changes, provided they invest in new technologies and modernise production methods. However, he warns that the current situation represents a fundamental realignment of power in the global automotive sector, one that will likely continue to reshape markets and business strategies for years to come.