When we studied globalisation and strategy during Module 3 last year in the Oxford Executive Diploma in Strategy and Innovation programme, it was incredibly insightful to explore opportunities in the EV markets and global expansion strategies with our cohorts and professors. This experience has been extremely helpful in deepening my understanding, and it remains highly relevant in 2025.
The transition from internal combustion engines (ICE) to electric vehicles (EVs) signifies a profound transformation in the automotive industry, emphasising software integration, battery technology, and digital ecosystems over traditional mechanical engineering. China has adeptly capitalised on this shift, while legacy automakers like Volkswagen face significant challenges in adapting to the new landscape.
Unlike ICE vehicles, which rely on complex mechanical components, EVs are placed around software and batteries. Software manages energy efficiency, autonomous driving features, and vehicle connectivity, while battery technology determines an EV's range, performance, and cost. Legacy automakers, with their deep-rooted expertise in mechanical engineering, now find themselves competing with tech-driven companies such as Tesla and Chinese manufacturers like BYD, NIO, and XPeng, all of which excel in rapid software development and battery production.
Recognising the strategic opportunity presented by the EV revolution, China invested heavily in building a domestic battery supply chain, leading to the emergence of global giants like CATL and BYD. This investment has positioned China as a leading supplier of critical EV components to both domestic and international markets. The Chinese government has also played a pivotal role by providing substantial subsidies and implementing suggesting policies to promote EV adoption and innovation. Companies such as NIO and XPeng have benefited significantly from this support, enabling them to advance technologically and expand their market presence.
China’s dominance in the EV sector serves as a strong example of the importance of aligning innovation with regulatory and market strategies
In contrast, European automakers have been slower to adapt. Volkswagen, for instance, has encountered significant setbacks in its EV transition. Its software subsidiary, Cariad, has faced delays and challenges in developing a unified software platform, leading to postponed EV launches, including the next-generation SSP (Scalable Systems Platform) architecture, now expected in 2029. These delays show the difficulties legacy automakers face in building software expertise from scratch.
The European Union's aggressive push for sustainability, while commendable, has added pressure on legacy automakers. Strict regulations and deadlines for phasing out combustion engines aim to drive decarbonization but leave little room for these companies to recalibrate. Automakers argue that the transition timeline is too tight, making it challenging to develop the necessary software and battery capabilities. Meanwhile, Chinese EV manufacturers are entering the European market with competitive pricing and advanced technology, emphasizing the risk of relying solely on regulations to maintain a competitive edge, a strategy that can only be temporary.
To address these challenges, European automakers must prioritize innovation over protectionist policies. The transformation of the automotive industry demands a novel approach that combines traditional manufacturing expertise with the agility and technological prowess of software and battery specialists. Strategic partnerships are essential to bridge this gap. For example, Volkswagen's collaboration with Northvolt aimed to secure battery innovation through a joint venture in 2019 to build a lithium-ion battery factory in Salzgitter, Germany. However, Northvolt has since faced significant financial and operational challenges, culminating in a Chapter 11 bankruptcy filing in 2024, citing debts of $5.8 billion.
Volkswagen has also partnered with Microsoft to develop the 'Volkswagen Automotive Cloud,' aiming to integrate digital services and mobility offerings across its fleet. Similarly, Toyota's work with NVIDIA on artificial intelligence for autonomous driving indicates the importance of leveraging external expertise.
China’s dominance in the EV sector serves as a strong example of the importance of aligning innovation with regulatory and market strategies. Chinese automakers have not only advanced technologically but have also benefited from a supportive ecosystem that includes government policies, robust supply chains, and strategic alliances. In contrast, European automakers have often struggled to integrate these elements seamlessly, hindering their ability to compete effectively.
The shift to EVs represents a complete overhaul of the automotive value chain. Legacy automakers face the collapse of traditional ecosystems built around internal combustion technology. Suppliers specializing in ICE components must adapt or risk obsolescence. This restructuring demands not only technological upgrades but also a cultural transformation within companies to embrace new ways of thinking.
Volkswagen's struggles exemplify the challenges of adapting to this new reality. The company's delays in software development and reliance on outdated supply chains have exposed vulnerabilities that Chinese automakers have been quick to exploit. The postponement of key models, such as Audi's Q6 e-tron and Porsche's first electric SUV, due to Cariad's software delays, reveal these issues. While Europe’s regulatory measures can temporarily shield its automakers, without significant innovation, these protections will eventually crumble in the face of global competition.
The lesson for Europe is clear: regulations are a stopgap, not a solution. To thrive in the EV era, European automakers must focus on fostering innovation at a pace that matches or exceeds their competitors. This requires not only investment in technology but also a mindset shift toward collaboration and agility. By doing so, Europe can reclaim its position as a leader in the automotive industry, not through protectionism, but by driving the next wave of innovation. As the EV revolution accelerates, those who fail to adapt will be left behind, serving as a cautionary tale for industries facing disruption worldwide.
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