MNI INTERVIEW: Battle Lost For EU Car Industry - Confindustria

It is too late for the European car industry to compete with China, as differences in scale, pricing and technology make it impossible to close the gap, the head of research at Italian business lobby Confindustria told MNI, adding that higher energy costs mean that Europe’s chemicals sector also faces a mortal threat without swift action.

Italy’s car imports from China remain low in absolute terms but have increased by 300% over the past three years, placing the Asian country as the eighth-largest source of foreign vehicles — a ranking that could rise to first or second place within the next five years, Confindustria’s Alessandro Fontana said in an interview.

“We have lost the game as Europe against China and it will only get worse,” Fontana said. "Right now only Volkswagen has closed two sites but sooner or later the rest will have to make closures too." (See MNI INTERVIEW: German Car Makers Have 5 Yrs To Change-Suedekum)

“The important thing is that this isn’t allowed to go beyond the automotive sector,” he said, pointing to questions over the future of other key sectors due to factors not directly related to China, in particular the chemical industry, which is in a critical state due to the surge in energy costs since Russia invaded Ukraine.

Without radical action, Europe’s chemical sector is set to suffer a similar extinction event to that now likely awaiting the car industry, he said, echoing a recent warning by leading manufacturer Ineos which said that energy costs, carbon taxes and weak trade defence are driving production away from the continent.

“The chemical sector has the advantage that unlike cars it can re-orientate to new products and do something new. So I don’t consider it completely lost, but at the moment it faces great challenges and it is impossible to see a way out. Both for Italy and Europe,” he said. (See MNI INTERVIEW: German Chemicals Weigh Fiscal Boost Vs Energy)

While Chinese competition is hitting European car manufacturers hard, other industries are not so affected by exports from China, whose goods have become even more competitive as the country’s soft dollar peg has dragged the yuan lower against the euro. 

“It is not an easy read because if you look at Chinese imports in detail it has mainly grown via pharma and cars. Taking these out its almost the same,” Fontana said, adding that growth in pharmaceuticals is directly linked to the rise in Italian pharma exports to the United States and the need for active ingredients in higher value-added products.

INVESTMENT SHIFT

One of the few areas in which Italy is performing well is corporate investment, with the country outpacing the already high European average thanks to a structural shift in firms’ behaviour, according to Fontana.

The EU’s NGEU post-Covid investment funds, together with other government programmes, have contributed significantly to investment growth, though the trend towards greater investment has now been visible over the past six years and reflects a broader change in Italian firms’ mentality, Fontana noted.

“Nowadays they do it almost as an organic thing. Firms have also changed their financing sources,” he said, recalling that investment fell sharply between 2011 and 2015 as a result of Europe’s sovereign debt crisis, when borrowing costs rose substantially.

It is still too early to determine whether the increase in investment is linked the adoption of AI in manufacturing, but data suggest it is concentrated in machinery and non-residential construction, Fontana pointed out.

In contrast, Italy is struggling more than the European average to strengthen domestic demand and is also feeling the impact of weaker exports.

GROWTH OUTLOOK

Italian GDP growth is likely to fall in the 0.6–0.8% range in 2026, broadly in line with government projections, Fontana said, noting that in an “unlikely” optimistic scenario it could reach 1% but that this would be difficult to achieve given global uncertainty and trade tensions.

“We thought that over the course of the year families would have recovered a bit of confidence and the propensity to save would have decreased, and therefore we would have increased the share of consumption,” he said abou the 2026 outlook, adding that recent developments in U.S. trade policy and geopolitics are likely to keep precautionary savings elevated.