In a new series, APG experts share their perspectives on current developments in the sectors they specialize in. Topics include big tech, financials, and healthcare. In this first edition, Olivier van Hirtum (Head of Developed Market Equities Fundamental) and Kjell Geilen (Senior Portfolio Manager Credits) take a closer look at the growing impact of sustainability on the automotive sector and how it is becoming fundamentally ingrained in its core.
Published on:
2 July 2025
In brief
• The global automotive industry is currently facing three existential trends: electrification, the rise of computing power and AI, and the emergence of China.
• Import tariffs are severely impacting profitability, also in Europe, where the transition to electrification is already putting pressure on margins.
• It is likely that two or three Chinese brands will achieve global success, leading to declining sales for other automakers—especially in Europe and Asia.
The automotive industry is currently undergoing three existential shifts, Van Hirtum explains. “The first is electrification—a difficult and slow process. It takes decades to move from virtually 0% electric vehicles around the year 2000 to potentially 100% by 2040. We’re right in the middle of that transition.”
Geilen adds: “Initially, EV adoption was expected to follow a linear path, but in reality, it’s more of an S-curve. Growth was initially rapid, driven by subsidies and early adopters, but later began to slow. However, we expect it to pick up again, driven by rapid advancements in charging speed, range, and cost. Every few months, a new milestone is announced. For example, CATL, the world’s largest battery manufacturer, recently unveiled a battery that can add 500 kilometers of range with just a five-minute charge.”
“The sector’s transformation offers opportunities for APG to specifically invest in electrification projects through an increase in the issuance of green bonds in the sector,” Geilen continues. “Initially, these were mainly issued by automakers to finance their transition to EV production and EVs it leases to customers—especially brands that were rapidly expanding the number of EVs, like Volkswagen and Volvo. Now, suppliers are also entering the green bond market. One example is Valeo, a global supplier of electric powertrains—the systems that power EVs—that is now replacing its conventional powertrain products. As with all green investments however, we look beyond the label into the framework and use of proceeds.”
Self-driving cars
The second major trend is the rise of computing power and artificial intelligence, which is enabling the development of self-driving cars. Van Hirtum: “This is also a long-term process with major societal implications. The goal of autonomous vehicles is to improve road safety, but they also impact employment—particularly for taxi and truck drivers. At APG, we’ve been working on this topic for years, but awareness among the broader public is still growing. In the U.S., there are already about ten cities where you can order a self-driving taxi via your phone. China is also moving quickly in this space. Europe, however, still seems to be wearing blinders. By 2040, you likely won’t be able to get a human-driven taxi here anymore—it simply won’t be cost-competitive with self-driving taxis. This will become a global phenomenon, and China is leading the way in development, even though labor costs there are still relatively low.”
Meanwhile, humanoid robots are being tested in factories. “That technology is still in its infancy, but given the pace of AI development, it’s not hard to imagine where we’ll be in ten years. For example, a factory in China recently began producing smartphones without any human involvement in the production process.”
That’s why APG, on behalf of its pension fund clients, advocated for a “just transition” years ago—urging car manufacturers to invest in employee resilience. “Although the auto industry doesn’t play a dominant role in the stock market, it has enormous societal value as a key driver of employment and economic activity,” Van Hirtum notes. “In Germany alone, about a million people work in the automotive sector and its supply chain. Across Europe, that number is close to six million.”
China’s rise as an EV producer
The third trend is the rapid rise of China as an EV producer. Van Hirtum: “When it came to combustion engines, Chinese car brands lagged behind their American and European counterparts, who had a century-long head start. But the introduction of EVs has leveled the playing field. The Chinese have made smart, massive investments in their domestic battery industry and have now surpassed European automakers in terms of technology. I would even argue that Chinese manufacturers are building better electric cars than the premium German brands. Western automakers will have to work hard to avoid being pushed out of the market. It seems that policymakers are only now starting to realize this. The European Commission only recently introduced import tariffs on Chinese cars to protect the European auto industry. If the market is left open, Western brands will lose out to Chinese competitors.”
Still, European automakers—especially the German Original Equipment Manufacturers (OEMs) like Volkswagen, BMW and Mercedes—are trying to maintain their relevant presence in China, Geilen notes. “They’re producing models locally for the Chinese market and for export to Europe. There are definitely opportunities there, but also significant risks, including export restrictions and limitations on data transfers. Given China controls nearly the entire battery value chain, it will be difficult for Europe to catch up—especially in mining and refining the metals used in EVs. This is particularly challenging due to the region’s limited appetite for building polluting mines and refineries. Europe’s best chance to stay in the game is to adapt battery chemistry and use materials that are more readily available locally, like salt. But that’s a significant challenge—especially since Europe lacks a major battery producer capable of investing in the necessary research and development.”
Import tariffs
In addition to these three existential trends, import tariffs are also a key concern. “Every car you see on the road is made from materials and components sourced globally,” Van Hirtum explains. “This is a truly global industry. European automakers have always aligned their production capacity with regional sales. If they sell 30% of their cars in the U.S., they’ll produce about 30% there. But that doesn’t mean every individual car stays within its region. For example, BMW builds all its large SUVs in the U.S. and its sedans in Europe. But they also sell SUVs in Europe and sedans in the U.S. That means they have to pay import tariffs, even though they’re acting responsibly in terms of employment. And since automakers already operate on thin margins, those tariffs are devastating for profitability.”
The surge in EV sales has been largely driven by government incentives, including direct subsidies and lower road taxes, Van Hirtum continues. “But those subsidies and other incentives are being scaled back. In some cases, consumers are effectively being penalized for driving electric cars, even though they help reduce emissions. That creates a perverse incentive where it becomes cheaper to drive a polluting vehicle than a clean one. I don’t think that’s the kind of outcome we want as a society, and it’s something we need to monitor closely.”
The future of the auto sector
So what does the future hold for the auto industry? Van Hirtum: “I think one clear conclusion is that, due to the global rise of Chinese automakers, Europe now has excess production capacity. That capacity needs to be reduced. Add to that the continued automation of production, and some countries are now exploring whether certain car factories could be repurposed to produce defense equipment. That’s interesting not only from a geopolitical perspective but also in terms of employment.”
Geilen believes that in about ten years, two or three major Chinese players will have a relevant position in the global automotive market. “Last year BYD built 4.3 million vehicles, up from less than 0.5 million in 2020. In just a few years, they’ve overtaken established global players such as Honda and Nissan. Given their strong domestic production chains and rising market share in the world’s largest car market, it’s likely that one or two more Chinese brands will achieve global success. That will lead to declining sales for other automakers—especially in Europe and Asia—where some brands may collapse or be absorbed by others.” There’s never a dull moment in the automotive industry, Van Hirtum and Geilen agree.