In the face of China, Central Europe’s auto sector tries to catch up

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An ominous feeling grips the auto industry in Central Europe as it comes to terms with the transition to electric vehicle (EV) manufacturing and faces a showdown with technologically advanced and competitive Chinese EVs. .

The stakes are no more. Failure to adapt to new trends could threaten not only the region’s prosperity but also its democracy and social cohesion.

The former communist bloc’s car manufacturing capabilities have resulted from a favorable combination of its indigenous engineering know-how and the region’s gradual integration with Western European markets, widely regarded as the German-Central European industrial cluster. It is something that

Take Slovakia for example. Currently, the country is the world leader in per capita car production and boasts four of its major original equipment manufacturers (OEMs), including Volkswagen AG, KIA, Stellantis, Jaguar Land Rover, and Vol. will also participate.

According to the country’s Automobile Industry Association, car manufacturing accounts for 46.5% of the industry’s total sales and 41.4% of exports.

The OEM directly employs more than 170,000 people, and including a dense network of approximately 400 local suppliers, that number reaches 255,000.

Moreover, car manufacturing has enabled the region to close the prosperity gap with its western neighbors, with the European Commission reporting that since the mid-90s, GDP per capita adjusted for purchasing power criteria has diversified. I am making an estimate.

Now, the region is undergoing another deep economic transformation as the quest for vehicle electrification intensifies, the EU gets serious about boosting domestic production, and Chinese EV brands take over Europe’s growing sales share. I’m narrowing my eyes at the possibilities.

Transitioning to electrification is never fun

OEMs based in Central Europe have paved the way for EVs to varying degrees. Volkswagen and Jaguar Land Rover plan to add electric versions of their flagship models, including the Porsche Cayenne and Defender, respectively, in the coming years.

New entrant Volvo plans to expand production of new EVs near Košice, Slovakia in 2026, while Stellantis plans to increase production by about 400,000 units a year, half of which will be EVs. .

Subcontractors are also pivoting to new electric drivetrain components in a geoeconomic environment marked by armed conflict, rising interest rates, and volatile energy prices, increasing demand for R&D capabilities and capital investment. I feel pressure to do so.

However, according to a recent survey-based study conducted by the International Center for Private Enterprise and the Adapt Institute, only a few well-known companies such as Matador, Continental, and Schaeffler can meet such demands. It may be just a handful of companies.

Moreover, some Central European countries are resting on their laurels when it comes to securing the strategic battery investments needed to support this change.

Slovakia recently welcomed its first overseas battery investment from China’s Goshon High-Tech, but neighboring Poland has already surpassed the United States in lithium-ion battery production capacity and is now second in the world after China.

Meanwhile, Hungary has attracted huge investments from China, amounting to around 10 billion euros ($10.9 billion) last year alone, from CATL, Eve Energy, Huayou Cobalt, BYD and Ningbo Zhenyu Technology.

Is the talent pool shrinking?

At the same time, Central European countries’ approaches to China appear contradictory as they prepare their supply chains for the next automotive era. Budapest and now Bratislava seem to be open to Chinese investment, while Prague and Warsaw are broadly open to investment from other countries.

As Brussels investigates possible illegal subsidies for Chinese-made EVs and investment sources become increasingly important, a strong Chinese presence could further increase central European countries’ interdependence with China. There is a possibility that it will become stronger.

Research shows that governments tend to underestimate the true economic impact of final demand on China, as indirect links through supply chains are often ignored.

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But there’s another pitfall. For their strategies to be successful, OEMs, subcontractors, and investors are relying on the skills of the next generation of workers to power the transition.

In places like Slovakia, a population of 5.5 million people sees declining educational outcomes, struggles with unfavorable demographic trends and immigration policies that are divorced from real economic needs, and diverts the best talent from Brno to Prague. The talent pool is becoming increasingly shallow as we are losing to other nearby and remote locations. .

Neighboring countries are also grappling with similar demographic trends, with Hungary, for example, recently introducing separate classes of permits for skilled workers and guest workers from third countries, effective January 1. The new immigration bill was moved forward at a rapid pace.

In the face of these hardships, OEM companies operating in Slovakia have filled the gap through specialized vocational training schools.

According to CIPE research, Volkswagen’s Dual Academy, for example, incorporates automotive informatics, connectivity and cybersecurity content into a modular and easily updateable engineering and electrical technology curriculum.

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We need more vocational schools

However, scaling up such programs has proven difficult in the face of government apathy. Parents also tend to hold back when it comes to technical education and encourage their children to pursue regular gymnasiums instead.

The good news is that the 2022 PISA results, which Slovakia’s Education Minister Tomáš Drucker labeled “tragic”, appear to have renewed the country’s efforts to reform the curriculum, which have repeatedly failed in the past. I’m saying that.

But until the reforms take hold, the country’s best bet may be to open up the country to skilled labor from abroad while increasing the number of vocational schools that focus on practical skills.

Soša Musicalova is a political economist specializing in Central and Eastern Europe, a consultant at the Center for International Private Enterprise (CIPE) and a policy leadership fellow at the Institute of European Universities.

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