The automotive sector in Spain: the challenge of remaining competitive in the new global ecosystem

Spain’s automotive sector not only plays a fundamental role in the productive fabric of our country, but it is also one of the strongest in the world. In 2023, Spain manufactured over 2.45 million vehicles and was the second largest producer in Europe, surpassed only by Germany. Moreover, it is the leading European producer of commercial vehicles, the second largest producer of passenger cars and the fourth in terms of components.

Spain is the eighth largest producer of vehicles in the world, with a share of 2.6% of the global market. This figure represents a slight fall (of 0.3 pps) compared to the pre-pandemic period (average for 2014-2019), but it contrasts with the sharper declines (of around 1 pp) recorded by other major producers such as Germany and the United States. In fact, among the world’s leading producers, only Mexico, India and, above all, China have increased their market share. As for the automotive sector’s direct contribution to the economy’s GVA,¹² Spain, at 1.1%, lies below the EU average (1.7%) and well below Germany (4.1%), although it is one of the few countries where the automotive industry’s share has not decreased compared to 2014-2019.

Within Spain’s manufacturing industry, the automotive sector¹³ is the third biggest, behind the food products sector and the manufacture of metallic products. It contributes 8.6% of the total GVA and 6.9% of manufacturing employment¹⁴ (8.9% and 8.0%, respectively, in the period 2014-2019). 

Activity in the automotive sector generates an increase in demand in other sectors. According to an analysis of the input-output tables, the sector’s knock-on (economic multiplier) effect is significant: for each euro generated directly by the automotive sector, an additional 0.8 euros, approximately, is generated in the economy as a whole. Among the intermediate consumption components that are in the highest demand in the sector, we find metal products (12.8% of the total), wholesale and retail trade (7.5% and 5.0%, respectively), rubber and plastics (5.1%) and metallurgy (4.0%). Thus, taking into account both the direct and the indirect effect, the GVA of the automotive sector represents 1.9% of the Spanish economy’s total GVA.

The automotive sector is one of the biggest investors in R&D&I in the economy, which places its production plants among the most efficient and highly automated in Europe: they have 1,199 industrial robots per 10,000 employees, a figure only slightly lower than that of Germany (1,213).¹⁵ It is the third largest sector in terms of expenditure on innovative activities, accounting for 9.3% of the total expenditure, behind only information and communications activities (telecommunications, programming, consulting and other IT activities) and professional, scientific and technical activities (R&D and other services).¹⁶ The innovation intensity (innovation expenditure over turnover) of the vehicle manufacturing sector stands at 2.5%, well above the figures for the economy or industry as a whole (0.9% and 1.0%, respectively). All this makes the sector one of the most productive in Europe: each worker produces an average of 15.5 vehicles a year, three times the EU average.¹⁷ Within the Spanish economy, the sector is also one of the most productive: real productivity per hour worked is 19.5% higher than that of the economy as a whole.¹⁸

Spain’s automotive sector is highly export-oriented: in 2024 (data for the trailing 12 months to August), 89.4% of the vehicles manufactured in Spain were destined for the foreign market. Moreover, this percentage has increased in recent years (+8 pps compared to the average for 2014-2019). In value terms, the sector’s exports (CNAE group 29) amounted to 62.2 billion euros on an annualised basis up to July, representing 16.3% of all exports of goods and 4.0% of GDP. Around two thirds of the sector’s exports go to our EU partners, particularly France and Germany.

Consequently, only one in five vehicles sold in Spain (specifically, 21.7% in 2023) is manufactured domestically; the rest are imported, mainly from other EU countries. In addition, in recent years there has been an increase in the arrival of vehicles through Spain as a gateway to other European markets, which would be reflected in both the import and the export data. In any case, the sector’s balance of trade shows a high surplus, amounting to almost 11.3 billion euros in the trailing 12 months to July, or 0.7% of GDP. 

After suffering the ravages of the pandemic in 2020-2021, with the consequent shutdown of activity, the automotive sector has shown a remarkable capacity for revival in recent years, even in a context fraught with difficulties. Indeed, these difficulties limited (i) the productive capacity of our factories, due to the supply problems of some components and the uncertainty arising from the wars in Ukraine and the Middle East, and (ii) the capacity for demand of potential buyers, given the price and interest rate increases. As a result, the return to the pre-pandemic normal remains incomplete. 

Firstly, after reaching a low point in 2021, when just over 2 million vehicles were manufactured (the lowest figure since 2012), production in the sector resumed its upward path and recorded growth rates of 5.8% and 10.4% in 2022 and 2023, respectively. However, between January and August this year, weighed down mainly by the weakness of European markets, it recorded a decline of 1.5% year-on-year, ending up at around 2.43 million vehicles (in annualised terms). Consequently, production remains far short of pre-pandemic levels, specifically 11.8% below the 2014-2019 average. By segment, the decrease in manufacturing in the first eight months of the year was concentrated in commercial and industrial vehicles, which represented 19% of the total and fell by 12.9% year-on-year, offsetting the slight increase in passenger car production (1.6%). 

Given that most production is exported, it is not surprising that vehicle exports have followed a similar pattern. After growing by a significant 13.9% in 2023, between January and August this year this growth was truncated and exports registered a 2.2% year-on-year setback, affected by the stagnation of the market in Spain’s main destination countries¹⁹ (vehicle registrations fell by 0.3% in France and by 0.5% in Germany in this period). Of the slightly more than 1.42 million vehicles exported up until August, the majority (1.14 million) were passenger cars, which recorded sales growth of 1.8%. This contrasts with the sharp decline suffered by exports of commercial and industrial vehicles (–16.0%).

The Industrial Production Index (IPI), which measures the evolution of value added in the various branches of industry, paints a somewhat better picture of activity in the sector. This is thanks to a combination of several related factors: (i) an improvement in the quality of the vehicles manufactured, which strengthens brand reputation and customer satisfaction, helping to boost demand and, in turn, increase supply; (ii) an improvement in production efficiency (focusing on energy efficiency, safety and digitalisation), with the consequent boost to productivity, and (iii) a gradual recovery of business margins following the pandemic (through process optimisation, the reduction of commodity costs and the recovery of demand), which is enabling companies to undertake costly investments in innovation and technology. In short, the IPI of vehicle manufacturing recorded two consecutive years of strong growth in 2022 and 2023 (10.8% and 7.5%, respectively), but this pattern was truncated in 2024 (it fell 2.7% year-on-year to August), so it remains 3.5% below where it stood in 2014-2019. In the case of the sector’s turnover, which is measured in monetary terms (and, therefore, is affected by the significant rise in prices in recent years), the trend is much better than that mentioned for the IPI. Specifically, strong growth was recorded in 2023 (12.5%), with slightly more moderate growth in January-July this year (8.3% year-on-year), exceeding the pre-pandemic levels by as much as 22%. 

On the demand side, domestic sales (registrations) began to recover in 2023, one year behind production, and they have not yet returned to the levels of 2014-2019. By segment, passenger car sales have been particularly weak and remain 13.9% below the 2014-2019 average in annualised terms up to September. In contrast, in the case of loading vehicles the gap is much narrower (–3.1%). 

As can be seen in the charts on the following page, the trend in the production and sales of Spain’s automotive sector is similar to that of Germany, our main European competitor, but it contrasts clearly with the much more positive tone shown by other major players on the international scene, such as India and China. This confirms that we are witnessing a shift in the dominance of the global automotive industry away from the traditional leaders of recent decades (the US, euro area and Japan) and in favour of emerging economies, such as the aforementioned China and India, which have become major powers, but also Brazil and Mexico. 

After overcoming the pandemic, the recovery of production and sales in the automotive sector has filtered through to employment, although the pre-pandemic levels have not yet been recovered. After growing by 1.1% in 2023 and by another 1.1% year-on-year between January and September this year, the number of registered workers affiliated with Social Security (on average over the last 12 months) is 2.2% below the records for the period 2014-2019.²⁰

Looking ahead to 2025, the outlook for the automotive sector is positive in a context in which the Spanish economy will remain buoyant, albeit with slightly slower growth than this year. We expect GDP to grow by 2.3%, compared to the 2.8% estimated for 2024, supported by the boost from domestic demand. This demand will materialise both in the form of household consumption (thanks to the steady recovery in purchasing power and a solid financial position) and through investment (enhanced by more favourable financing conditions and greater deployment of NGEU funds). All this, together with the need to renew the ageing vehicle fleet (the average age was 14.2 years in 2023, one of the highest in Europe, with an average of 12.3 years),²¹ will continue to drive the demand for vehicles.

However, there are certain factors that continue to shape the future of the automotive industry. For several years now, the sector has been facing major changes worldwide, mainly derived from new priorities such as climate sustainability and connectivity/digitalisation.²² In order to remain competitive in an increasingly global market, companies are forced to adapt and innovation has become the differentiating factor. In this context, the European NGEU funds, which are largely allocated precisely to projects related to the green transition and digitalisation, are mobilising a huge amount of resources through the Recovery, Transformation and Resilience Plan (RTRP), and they are a key tool for galvanising the sector’s transformation.

EU climate policies have set ambitious targets for road transport and vehicle production, but the adaptation is slow. As the recently published Draghi report points out,²³ the automotive supply chain in the EU suffers from significant competitive gaps vis-à-vis its major competitors, in terms of both cost and technology.²⁴ On the one hand, China is progressing much faster and enjoys (i) lower costs, mainly derived from comprehensive control of the supply chain (especially battery manufacturing), government support policies in the various stages of production and the early development of electric vehicles in the country (the government has considered it a strategic priority since the early 2000s),²⁶ and (ii) a technological advantage, thanks to technical knowledge and economies of scale. In the case of the US, the country has opted for large stimulus measures (such as the Inflation Reduction Act) and the introduction of trade barriers. Overall, the increased regulation and lack of incentives are hampering the competitiveness of the sector in Europe vis-à-vis the US and China: according to the Draghi report, if it is unable to quickly adapt to the new environment, the European automotive sector could be displaced and lose more than 10% of its production in the next five years. 

In the case of Spain, we are a long way behind in terms of electric vehicle penetration and charging infrastructure (see the following charts). On the supply side, although the production of electrified vehicles (pure electric and plug-in hybrids) has grown significantly in recent years, doubling between 2020 and 2023, it has suffered a sharp slowdown in 2024. Specifically, production fell 25.1% year-on-year between January and August, with a total of 139,445 units. This figure represents 8.8% of total production, compared to 11.4% in 2023. On the demand side, registrations of electric vehicles fell between January and September by 1.4% year-on-year to stand at 9.7% of the total, compared to 11.1% in 2023.²⁶ In terms of the vehicle fleet, in 2023 there were 367,144 electrified vehicles, which represents an increase of 50.5% over the previous year, although they still represent just 1.1% of all cars on the road.

As regards charging infrastructure, at the end of Q2 2024 Spain had around 35,700 publicly accessible charging points, which is 6,400 more than at the end of 2023, but well short of the targets (63,500 by the end of 2024 and 300,000 by 2030); this puts the ratio of charging points per 1,000 people of driving age at 1.1, one of the lowest in Europe.²⁷ Moreover, only 29% of this infrastructure offers charging speeds exceeding 22 kW, when the objective was to reach 51% this year:²⁸ this is essential in order for
(i) electric vehicles to become all-purpose vehicles, including for long-distance journeys, rather than exclusively as a second vehicle for use in urban areas, and (ii) progress to be made in the electrification of heavy goods and passenger transport, where vehicles require higher charging speeds (starting from 150 kW).

Improvements in the public charging infrastructure would improve market perception, as caution still prevails among potential buyers, particularly due to range anxiety.²⁹ The Spanish Association of Car and Lorry Manufacturers (ANFAC), for its part, has stressed the importance of expanding the programme of incentives for efficient and sustainable mobility (the MOVES programme, the third edition of which is due to end on 31 December), as well as improving its effectiveness through direct support measures (payment at the time of purchase, rather than through subsidies which entail a delay for the customer)³⁰ and an appropriate taxation scheme. 

The electrification of the automotive sector represents a radical change in technology, production processes and the skills required of the workforce. New business opportunities and new participants are emerging, carrying out tasks related to design, engineering or R&D – knowledge-intensive activities and with a high degree of technological innovation – and supplying the market with batteries, semiconductors or software. Electrification is reconfiguring the sector’s value chain, shifting the focus away from hardware and more standardised activities, such as vehicle assembly, towards software and all things digital: since 2015, the software content per vehicle has tripled and by 2030 it could account for up to 50% of a car’s value.³¹

The value chain of batteries is highly dependent on raw materials and components from other regions, particularly China, which supplies over 70% of the world’s lithium-ion battery cells. This increases the sector’s vulnerability to potential shocks or bottlenecks that could lead to a situation like the one experienced in 2020-2021, with the microchip and semiconductor crisis. Therefore, it is of vital importance for the sector to safeguard crucial supplies, increasing the safety stock and implementing dual supply strategies, as well as improving the circularity of supply chains: vertical integration of battery production could considerably reduce the cost gap between European manufacturers and their Chinese competitors, but this will require the construction of a large number of gigafactories and semiconductor manufacturing plants.³² This will result in a higher proportion of local GVA in critical electric vehicle components, generating high-quality jobs and economic growth.

What role will Spain play in the new value chain? Our country must nurture a competitive environment that guarantees the presence of all the links in the value chain of the electrified and connected vehicle,³³ positioning itself especially in the most critical and value-added phases. These include lithium extraction and refining, the manufacture of lithium-ion cells/batteries, the extraction of materials for semiconductors and the manufacture of microchips, electric motors and electronic components. To do this, we must establish gigafactories, promote the production of electronic components and prioritise technology and knowledge, digitalisation in the production chain and the establishment of technological development centres.

With these objectives on the table, in recent years there have been movements in the sector, with the support of aid linked to the Strategic Project for Economic Recovery and Transformation (PERTE project) related to the development of the Electric and Connected Vehicle (ECV), the aim of which is to «integrate Spanish companies into the major value chains of the automotive and mobility industry, positioning Spain in Europe and the world as a key hub for the focal points of the sector’s transformation». In the first tender process under the PERTE project, 793 million euros were awarded to projects such as gigafactories, while in the second tender process, which is about to be completed, 609 million euros have been awarded to various projects related to the manufacture of a new generation of electric vehicles in our country. In addition to this amount, a further 40 million euros were approved in September. Currently, the tender process for phase three of the ECV PERTE project is underway, with a budget of 200 million euros to be allocated, and the government plans to launch a fourth process before the end of 2024, with a budget of 1.25 billion euros.

On the other hand, the trade war that the EU and China are waging, with tariffs being imposed on Chinese electric vehicles,³⁴ contrasts with the plans of some countries (Spain included) to attract Chinese companies that are seeking to produce in Europe. Doing so would bring these firms the benefits terms of circumventing tariffs, as well as operating close to the end markets, taking advantage of the specific advantages of the location and improving the brand image among local consumers.

In short, the automotive sector in Spain faces challenges of a global nature, including the transition towards sustainable mobility and the electrification and digitalisation of its vehicles. To address these challenges, it has advanced technological capabilities, a highly skilled workforce and a strong supplier network. Innovation plays a crucial role, driven by investment in R&D and collaboration with technology hubs. With regard to EU policies, the Draghi report underscores the urgent need for reforms and new strategies in order to revitalise the automotive sector in Europe and maintain its leadership position amid the transition to electric and digital mobility. Among other measures, the report proposes:
(i) implementing measures to reduce production costs and encourage local production of critical raw materials, (ii) developing a coordinated industrial strategy at the European level that includes the standardisation of regulations and support for innovative projects, (iii) accelerating the adoption of electric vehicles through tax incentives and subsidies, as well as improving the charging infrastructure, (iv) investing in digital and software technologies, as they are expected to represent a significant portion of the value of cars in the future, and (v) boosting joint financing at the European level, using common debt instruments to finance investment projects that boost the EU’s competitiveness and security.