This study aims to identify the costs and benefits to EU OEMs of the EU taking the regulatory lead in this international context. The analysis assesses the external competitiveness of the EU automotive industry to 2030 and beyond in the face of shifting market and regulatory drivers in six key competitive markets, comprising the EU, China, India, Japan, South Korea and the US. It covers seven vehicle segments comprising passenger cars (M1 category split into entry-level, mid-range and luxury segments), light commercial vehicles (N1 category) and L-category vehicles (split into light two-wheelers, two-wheeled motorcycles and light/heavy quadricycles). The study entailed the development of a modelling approach to understand the impacts of regulation in the EU and elsewhere on the automotive industry and the wider economy. This involved both a micro-economic and macro-economic modelling step. The micro-economic model was designed to parametrise the link between changes in regulatory trends and changes in vehicle costs, profit margins and material composition. To this end, the model draws on a variety of input data and background information from over 260 sources that provide an overview of the differing levels of future regulatory standards on environmental, air pollutant and safety aspects which are expected to vary through time. Representative vehicle types were defined to represent each of the vehicle segments considered for this study, and their production cost breakdowns and material composition were estimated in the baseline. This allowed us to evaluate differences in the production cost and material breakdown between the markets of interest to the study and how these are likely to change in the future as regulation changes in each market. The results from the micro-economic model were fed into the GINFORS-E macro-economic model, which is an economy-energy-environment model with global coverage that analyses and forecasts structural changes to the automotive industry from a top-down perspective, evaluating impacts on the economy, industry, global trade flows and other socio-economic dimensions. The study assesses the impacts of the changes in regulation expected in the baseline but also models alternative scenarios representing the implementation of more ambitious regulation in the EU, at different stages, and with varying levels of ambition, as the EU increases its regulatory ambition to match or exceed the global leading regulatory standards. A scenario was also developed to understand the impacts for EU OEMs of a unilateral strengthening of regulations occurring in one of the EU's main export markets, China. It models the situation in which manufacturers from countries which match the regulatory ambition in China (including the EU in the higher-ambition EU regulatory scenarios) are able to adapt quicker to the regulatory shock, as they have already invested heavily in (for example) zero-emissions vehicle technologies. They would thus be well-placed to grow their market share and increase their revenues and profits significantly at the expense of other non-compliant foreign OEMs. An additional sensitivity analysis is also carried out to understand the repercussions of the EU's regulatory lead on the internal market. The implication here is that foreign manufacturers from countries where the regulatory level is not as tight as in the EU would not be able to comply with the stricter regulatory level and would thus have limited access to the internal market, thereby allowing EU OEMs to grow their presence in their home market. The analysis reveals important findings on the opportunities and costs that the automotive industry will likely face in the context of rapid technological changes and an uncertain global regulatory environment. Based on these findings and associated conclusions, recommendations are proposed on how the EC can support the automotive industry in the EU in this period of change, focusing on M1/N1-category vehicles, L-category vehicles and the automotive supply chain.
