OSD/Eroldu: If the Market Shrinks in Europe, There’s a Risk of Overproduction Shifting to the Turkish Market

The problematic period faced by European automotive brands, especially in Germany, poses a risk of impacting the Turkish automotive industry, which carries out a significant portion of its exports to this region. Cengiz Eroldu, Chairman of the Board of the Automotive Manufacturers Association (OSD), which represents the Turkish automotive industry, consisting of 13 members, stated, "The contraction in the German automotive sector is creating profound effects in the global automobile market, which significantly shapes the expectations for 2025. From our perspective, considering that Europe is our most important market, we see the potential market contraction in Europe and the possibility of excess vehicles being shifted to the Turkish market as a serious risk. The contraction in European markets and idle production capacity may negatively impact our production by causing a decline in exports from the Turkish automotive industry. We view the development of policies to strengthen Turkey's dwindling production competitiveness as essential; protecting our existing facilities has become even more vital during this process."

Eroldu emphasized that German manufacturers are struggling to compete with Chinese companies in the electric vehicle market, stating, "Chinese brands are advancing rapidly in the electric vehicle market due to state incentives and low production costs, while German manufacturers have to spend more resources and time to adapt to new technologies. This situation complicates their ability to achieve expected sales performance and affects their competitive advantages in the sector. Rapidly rising Chinese brands in the electric vehicle segment are reducing the market share of European manufacturers, especially German ones."

The global automotive industry has been significantly affected by bankruptcy news and profit warnings from European companies, particularly those based in Germany. These developments, which hold increasing importance for Turkey due to its substantial exports to this region, are also high on the agenda of OSD. Assessing the developments in the sector, Cengiz Eroldu commented, "We can interpret these developments as a result of the need for investment arising from the profound transformation in the global automotive sector, macroeconomic developments, and the increasingly tough global trade landscape. The European market, which is lagging behind expectations due to inflation, the increased competitive power of China in both its domestic and export markets, the lower-than-expected demand for electric vehicles (EVs) in Europe, the need for high technology investment, and lower EV margins, are all putting pressure on European manufacturers."

Eroldu reiterated the challenges faced by German manufacturers, highlighting the need for policies to strengthen competition. He stated, "With Europe being our most important export market, we view the potential market contraction in Europe as a serious risk, which could lead to excess vehicles being redirected to the Turkish market. This situation could negatively influence our exports and production within the Turkish automotive industry. To mitigate the effects of these fluctuations in export markets, we need to increase the market share of domestic vehicles in our local market. We consider it essential to develop policies to enhance Turkey's diminishing production competitiveness; preserving our existing facilities has become critical in this process."

Cengiz Eroldu indicated that Chinese manufacturers are rapidly growing in the electric vehicle market due to state incentives, low-cost production advantages, and robust charging infrastructure, stating, "These brands have begun to challenge the traditional superiority of German manufacturers. As noted by ACEA, the European Union's strict emissions targets, the inadequacy of electric vehicle infrastructure, and issues accessing green energy resources complicate the adaptation of Europe-based manufacturers to the electric vehicle market. Despite significant budgets allocated by German manufacturers for investment in electric vehicles, they face high costs, battery supply issues, and infrastructure deficiencies during this transition. While it is not certain that companies failing to fully adapt will be doomed to closure, their risks of falling behind in competition and losing market share are notably high. Companies that cannot swiftly transition to electric vehicles, battery technologies, and sustainable production processes will have to contend with cost increases stemming from stringent emissions regulations in the European market while competing against more agile rivals in the rapidly evolving electric vehicle market. This situation applies not only to European companies but also to all manufacturers exporting to Europe. Achieving success during this process is not limited to producing electric or alternative fuel vehicles; it also requires innovative technology development, efficient production, and offering products that meet consumer expectations. Thus, the future success of automotive companies will depend on their capacities for complete adaptation to electric vehicles, their abilities to rapidly adjust to new technologies, and their capabilities to establish a sustainable competitive advantage through strategic investments."

Eroldu emphasized the importance of measures taken in the short term to protect domestic production and achieve balance in foreign trade. He noted that countries, including the U.S., EU, and Turkey, have implemented certain measures against China recently, indicating that the additional taxes imposed by the EU on Chinese automotive companies will affect competition in the European automotive market, thereby impacting both producers and consumers. Eroldu stated that these taxes aim to level the playing field against the low-cost production advantages provided by state support for Chinese manufacturers. He expressed, "It will take more time and data to fully assess the impact of these new taxes. However, forecasts indicate that they may reduce the price advantage of Chinese manufacturers, leading to a decline in their sales and an increase in the prices of Chinese-made electric vehicles in the European market. These tax regulations have also caused tension in trade relations between China and the EU. Following this decision, the Chinese government has lodged a complaint with the World Trade Organization (WTO), indicating it may take retaliatory measures. The onset of trade disputes between the two parties could have long-term effects on trade balances. Similarly, in our country, an additional tax has been implemented on Chinese-made vehicles, aiming to positively impact the disrupted trade balance in the automotive sector. We view the measures implemented as critically important in the short term to protect our industry. However, the long-term effects of these measures will likely be more significant, accelerating the decisions of Chinese manufacturers to establish production within the EU and our country."