The European automobile industry has been hard hit over the last year by a range of factors from the COVID-19 pandemic, with further clouds from Brexit, to increased global trade tensions. But for automotive industry companies in emerging markets—including the Western Balkans, Ukraine, Maghreb countries, Egypt, and Turkey—the situation also offers opportunities for growth.
Traditionally, carmakers based in Western Europe have dominated the European market, with major players including Germany’s BMW, United States’ Ford, and Japan’s Nissan producing in the U.K. Suppliers in emerging economies generally produce lower value added vehicle equipment and parts for original equipment manufacturers, and have often struggled to move up towards higher value-added products. They now have more opportunities to do so and grab more market share or vehicle content, but they will need higher-skilled workforces, knowhow, nimble strategies, and financial and technical support to succeed.
COVID-19 has affected auto markets around the world, with light vehicle sales for Europe down 20.8 percent to around 16.2 million units in 2020 from 2019. According to LMC Automotive, global forecasting and market intelligence service provider of automotive sales, markets are expected to rebound partially in 2021 as countries roll out vaccines and economies reopen. Analysts predict European sales will rebound by more than 13 percent from 2020 and return to pre-2019 levels in 2023 or 2024. New car sales may also get a boost because of people’s desires to maintain an individual mode of transport in the wake of COVID-19, and the potential for new government stimulus packages aimed at boosting economies and auto industries.
Among other things, a trend towards regionalization of value chains and changing consumption patterns pushing for increased local or regional content offer new opportunities for car and original equipment manufacturers in these emerging markets. While high costs may prevent developed countries from reshoring production lines, these developments could benefit manufacturers in emerging markets of the European periphery, which offers both proximity and lower costs compared to Western European counterparts. But producers will need flexibility, technical skills, and lean manufacturing processes to compete. Focusing on niche production and hyper-segmentation can help them to do so.
Another factor contributing to the shifting automotive landscape is the continuous increase of electrical content in vehicles, including hybrid and pure electric vehicles. Integrating electrification into their product lines will not only help parts manufacturers in emerging markets to remain competitive and move up the value chain, but also generate more growth opportunities as demand increases for sustainable vehicles. Design and manufacture of such products requires engineers skilled in areas less conventional than mechanical engineering, and companies must be willing to pay wages competitive with those of Western Europe if they want to attract and retain the relevant talents.

The shifting automotive landscape and the regionalization of value chains present an opportunity for the Western Balkans, with some countries in the region having already attracted foreign direct investment in the sector. Examples are Serbia and North Macedonia, where major foreign companies—Bosch, ZF, Minth Automotive Europe, Johnson Control, Johnson Matthey, have made substantial investments in the automobile components sector. The proximity of these countries to EU markets and industrial manufacturing skills and capacities give them a competitive advantage compared to other regions. The governments of the Western Balkan countries are also positioning their strategies to the shifting landscape of increased electrification of vehicles.
As an example, the Government of Serbia is developing a national strategy for development of an electric vehicle industry, and the EU’s new European Green Deal will mobilize €1 trillion of investments for sustainable development of this industry. EU member states also will provide up to €2.9 billion in funding in the coming years for the development of the lithium battery value chain. The public funding is expected to unlock an additional €9 billion in private investments. Production of batteries is increasingly located close to areas of expected demand growth and EU markets are expected to be the largest users of lithium batteries in the coming decade. Serbia has a unique position to explore the monetization of its lithium reserves, and to develop its downstream industries towards the production of components for batteries and other electric components.
In order to support development of local supply chains and their integration into shifting global value chains, IFC has developed a Western Balkans Manufacturing Value Chains project. It is expected to increase the connectedness of local firms to off-takers/foreign direct investments in the Western Balkans and the Eurozone through a match-making digital platform, which should lead to a better connection of firms and potential buyers. At some point, as local manufacturing capabilities strengthen, the goal is to extend the digital platform beyond just this region. The key here is also to ensure access to finance for small and medium sized enterprises in this sector, to provide the means for the growth that will boost local supply chains and build capabilities and opportunities for auto manufacturing in the region’s emerging markets.
Authors: Emmanuel Pouliquen, Principal Industry Specialist, Transport Equipment, Machinery and Light Industrials, and Magdalena Soljakova, Senior Country Officer for the International Finance Corporation (IFC). IFC, a member of the World Bank Group, is the largest global development institution focused exclusively on the private sector. www.ifc.org