Replacing China-linked supply chains would cost the euro area an estimated $9.1 trillion in investment by 2050 — and Europe's automakers must keep paying for Asian inputs the entire time they build the alternatives. That is the dual financial burden now testing the EU's push for automotive supply-chain self-sufficiency, according to a series of industry-backed analyses released over the past week.

The sharpest numbers come from batteries. A study commissioned by the European Automobile Manufacturers' Association (ACEA) from market research firm Mobility Global, released September 22, projects supply shortfalls under all three demand scenarios examined — even if European battery cell production climbs to 306 GWh by 2032. If the EU's draft Industrial Accelerator Act (IAA) takes effect in 2028 as proposed, shortages of European-made batteries could prevent roughly 3 million vehicles from qualifying for public support. Cathode and anode material shortages could persist until 2038–2040, even under the low-demand scenario.

The policy clock and the industrial clock are running out of sync. After imposing definitive countervailing duties on Chinese electric vehicles in October 2024, the European Commission unveiled the draft IAA in March to force regional production by attaching European-content requirements to public procurement and subsidies. Automakers must now account not only for where vehicles are assembled but for the origin of batteries and major components. If the rules tighten before European supply capacity catches up, manufacturers inside the bloc could find themselves excluded from the very support schemes designed to help them.

Refining and processing: the chokepoints

A second study, commissioned by ACEA from EY in Germany and the Czech Republic and released September 29, pinpoints where the vulnerability sits. Analyzing 10 critical materials and components by production stage, the report identified refining and processing as the most vulnerable stages for six of them. China dominates rare-earth refining, permanent-magnet production, and gallium and germanium processing. Even when European manufacturers secure raw materials, they must route them through specific hubs — mostly in China — to obtain automotive-grade inputs, exposing them to export controls and production disruptions at those sites.

Switching is slow by design, not just by cost. Integrating new processing facilities into operational supply chains requires specialist expertise, skilled workers, permits, technical validation and automotive quality certification — procedures that take years. When an existing supplier fails, automakers cannot re-source quickly.

Demand pressure compounds the problem. EV production and expanding digital vehicle functions require large volumes of semiconductors and power electronics, putting automakers in direct competition with the AI, data-center, defense and clean-energy industries for the same inputs. The automotive sector accounts for just 17% of semiconductor end demand and 3% of gallium demand — purchasing leverage too thin to secure priority allocations when supplies tighten. Advances in autonomous driving will only deepen that reliance on semiconductors, sensors, gallium and germanium.

The rare-earth dress rehearsal

The cost of escalation has already been demonstrated. In June last year, the European Association of Automotive Suppliers (CLEPA) reported that China's rare-earth and magnet export controls had halted multiple production lines and factories in Europe. Of the hundreds of export license applications submitted since April, only about a quarter had been approved, with inconsistent review procedures across regions adding to delays. Because the affected components go into both combustion-engine vehicles and EVs, the disruptions threatened losses across every vehicle category. CLEPA called at the time for dialogue between EU and Chinese authorities to ensure transparent and predictable export licensing.

Member states are already split on what counts as "European." Germany proposed on September 24 that products from trading partners offering reciprocal market access should also qualify — broadening eligibility to free-trade-agreement countries, customs-union members and signatories of the WTO's Government Procurement Agreement. The Financial Times reported that Japan, the United Kingdom, Canada and Türkiye could be included.

Who pays

Public money has started flowing. In December, the European Commission's "Battery Booster" strategy allocated roughly $2.04 billion to the region's battery production base, with about $1.70 billion earmarked for interest-free loans to European cell manufacturers. But companies must still repay principal and reach commercial profitability; slow ramp-ups mean delayed investment recovery and pressure for either more state support or higher prices.

Price pass-through looks limited. The European Central Bank found in an Economic Bulletin that falling Chinese import prices helped lower goods inflation in the euro area. In March, Chinese import prices fell 3.3% year on year, and China's share of extra-euro-area imports rose from 14% to 17% since 2024. The International Energy Agency identifies upfront purchase prices as a major obstacle to EV adoption in Europe — leaving automakers little room to load transition costs onto consumers.

EY-Parthenon, in a July analysis, estimated that if companies bear restructuring costs themselves, capital expenditure in automotive, machinery and electronics could rise to as much as twice current levels. Until alternative capacity runs reliably, Europe will keep paying for Asian materials, components and finished vehicles while simultaneously funding the supply chains meant to replace them — with the pace of localization, by ACEA's own data, trailing the policy timetable by as much as a decade.