China produces over 40 percent of the world’s cars, while Europe’s share has fallen to 18 percent. Switzerland’s suppliers are exposed to the German car sector, which is localising production and supplier networks in China. Europe and Switzerland should link EV support to local value creation and learn fast without closing markets.
Global restructuring driven by Chinese industrial policy
If you walk through Zurich, Berlin, or Amsterdam, you will not see many electric vehicles (EVs), let alone ones from China. Consequently, it is easy to miss the scale of a global shift: China is leading the EV race. Industrial policy, long dismissed as inefficient, has evolved into a weapon of dominance (an observation, not an endorsement). Open economies are learning how costly openness can be. In 2000, Europe made more than a third of the world’s cars, while China produced barely any. By 2024, China’s share had surged past 40 percent. Europe’s had fallen to half its former level.
However, China’s rise was not the result of market forces. When it became clear that China could not rival Europe in combustion engines, Beijing leaped straight into electric mobility. Since 2009, it has poured around 230 billion dollars into the sector through subsidies tied to local production. Chinese firms across the car industry benefited. Battery producers are one example. Only those approved by the industry ministry qualified for the incentives, giving them space to expand without foreign competition. Batteries account for roughly 30 to 50 percent of an EV’s total value and are primarily composed of lithium and cobalt. By 2024, China refined over half of the global supply of these materials and manufactured approximately 85 percent of all battery cells.
The global car market is not a zero-sum game. New producers from different countries are challenging the established brands. Japan and South Korea rose in the 1970s and 1980s by initially protecting their industries but later complying with international trade rules. Europe adapted to stay competitive. Yet China plays by its own rules. Open economies still struggle with the question: how to respond without closing themselves off?
Europe’s maladaptive and fragmented response.
At the end of 2024, the European Commission imposed tariffs on Chinese EVs, supported by only a narrow majority of member states. The idea was that the import taxes should balance out the subsidies received by each company. However, the German car sector led the opposition. Why would Europe’s largest manufacturer defend subsidised rivals? They do so because China leads in EV technology and produces cars at a lower cost within its own supply chain. A Chinese-built electric car costs roughly a third less to make than a European one. German firms want access to that ecosystem.
Although car executives claim to produce in China for China, in reality they build there for the global market, with the United States being the only exception. By 2020, German automotive manufacturers and suppliers held about 30 billion dollars in foreign direct investment (FDI) in China.
A year later, the results are underwhelming. The EU-tariffs cut imports only marginally, while dividing the bloc. The episode exposed Europe’s deeper flaw: its responses are legalistic and slow in a world that moves by decree.
The stakes are high. The car industry accounts for 7 percent of EU GDP and employs over 34,000 people in Switzerland. Over 600 Swiss firms supply tools and materials to European manufacturers.
Switzerland’s exposure through German dependency
Switzerland should not remain on the sidelines. Its supplier industry is closely linked to the decisions of the German car sector. About three quarters of Swiss automotive firms export to Germany, whereas a quarter of Swiss automotive firms rely on Germany for more than half of their revenue. Audi, BMW, and Mercedes-Benz are their main customers. If German production moves towards Chinese hubs, many Swiss suppliers risk losing their foothold.
The EU and Switzerland should jointly study China’s strategy without copying its protectionism. They need to link EV subsidies and R&D expenditures to local production and define clear local content rules for cars sold in their markets. Reverse joint ventures could help them to learn from Chinese EV makers such as BYD. Moreover, Swiss public procurement must adapt to new realities and might even discriminate by producers. Switzerland should actively support this effort, rather than relying on it.
Now is the time for Swiss firms to diversify their client base and strengthen their research partnerships. Perhaps then, when you walk through Zurich, Berlin, or Amsterdam, the streets will tell a different story. They will show the results of a Europe that learned to compete again, with Swiss suppliers integrated into a stronger, cleaner, and more self-sufficient automotive industry.
