The Slowdown of the Automotive Industry and the Promising Fields Japanese Companies Should Expand Next

Introduction

When discussing the European market, the first issue that draws attention is the state of the automotive industry.

For Japanese companies, Europe has long been an important market for automobiles and automotive components. In recent years, however, questions such as “Is the European automotive industry really in trouble?”, “Has EV growth stalled?”, and “Where should Japanese companies look for their next opportunities in Europe?” have become more pressing than ever.

The most reasonable conclusion is that while the European automotive market is not collapsing, it has clearly lost strong momentum in terms of volume growth and is now in the middle of a structural transition.

At the same time, new industrial fields are emerging in Europe under policy support, and there are promising sectors beyond automotive where Japanese companies can compete effectively.

This article first reviews the current state of the European automotive industry, and then highlights four areas in which Japanese companies should focus their efforts going forward:

Semiconductors
FA and robotics
Industrial decarbonization
Pharmaceuticals and medical devices

It also introduces specific Japanese companies that deserve close attention in each field.

1. Is the European Automotive Industry Really in Trouble?

Neither production nor sales are recovering sharply

According to ACEA data, passenger car production in the EU fell to 11.5 million units in 2024. In addition, total passenger car production across Europe in the first half of 2025 was down 2.6% year on year, meaning that Europe lagged behind even as global production continued to grow.

On the sales side as well, EU new car registrations increased only slightly, reaching about 10.6 million units in 2024, up 0.8% year on year, and up 1.8% in 2025. ACEA also notes that the market remains well below pre-pandemic levels.

In other words, Europe is not “collapsing after a major decline,” but it has also not entered a clear growth phase.

It is not only EVs that are weak

In the EU in 2024, new registrations of BEVs (battery electric vehicles) fell 5.9% year on year, with market share remaining at just 13.6%. PHEVs also declined.

This led to a widespread view that “EVs have stalled in Europe,” but that is only half the story.

In reality, by 2025, BEV share had recovered to 17.4%. Meanwhile, hybrid vehicles became the largest segment in the EU market at 34.5%. By contrast, the combined share of gasoline and diesel vehicles declined significantly.

What is happening in Europe, therefore, is not simply that “EVs are weak,” but rather that:

Internal combustion engine vehicles are shrinking structurally
Hybrids are currently growing faster as the first replacement path
BEVs hit a plateau in 2024 but recovered in 2025

In short, the European market can best be described as:

“A low-growth market in which the powertrain mix is being rapidly reshaped.”

2. Why Is the European Automotive Industry Struggling to Grow?

EV demand proved too dependent on subsidies

Germany symbolized the EV slowdown in 2024. According to the EEA, BEV registrations in Germany dropped 27% year on year in 2024, mainly because purchase incentives were discontinued.

This shows that EV demand in Europe is still not fully self-sustaining and remains heavily influenced by policy support.

Europe is not a single EV market

The European EV market is far from uniform. In Nordic countries and parts of Western Europe, electrified vehicles already account for more than half of new car sales. In parts of Central, Eastern, and Southern Europe, however, EV penetration remains much lower.

This is due to factors such as:

Differences in income levels
Gaps in charging infrastructure
Differences in national subsidy systems

So while Europe appears to be a single market, in reality it is divided into:

advanced markets in Northern and Western Europe

and

lagging markets in Central, Eastern, and Southern Europe.

On the production side, high costs and rising competition are serious burdens

ACEA cites the following as major reasons behind weak automotive production in Europe:

Tightening CO2 regulations
High energy costs
Tariffs
Intensifying competition from Chinese manufacturers

Global passenger car production rose 3.5% in the first half of 2025, while Europe fell 2.6%. China, by contrast, grew 12.3% over the same period, significantly outperforming Europe in both cost and speed.

European manufacturers are therefore being squeezed by both weak domestic demand and stronger external competition.

European industry as a whole is weak

As of March 2026, Reuters reported that eurozone industrial production remained below 2021 levels. The reasons included:

High energy prices
Competition from China
U.S. tariffs
Low productivity
Weak global demand for European cars

This means the slowdown in automotive is not just an isolated industry issue. It needs to be understood in the broader context of declining industrial competitiveness in Europe overall.

3. When Will the European Automotive Market Recover?

This question must be approached carefully.

New car registrations returned to positive growth in 2025, but the increase was modest, and by January 2026 the market had already slipped back into year-on-year decline.

Realistically, this suggests that:

even if 2026 brings gradual improvement, a return to the high levels seen before 2019 is unlikely in the short term.

For the time being, the European automotive market should be seen not as:

“a high-growth market,”

but rather as:

“a market in which the composition of demand is changing.”

4. How Should Japan’s Automotive Industry Find Its Way Forward?

What matters most for Japanese companies is:

not misreading the situation as “EVs have failed in Europe.”

2024 was indeed a plateau year for EVs, but the segment recovered in 2025. EU regulations have not changed, and the European Commission itself describes the automotive sector as being at a critical point marked by rapid technological change and intensifying competition.

That makes the strategy required of Japanese automakers quite clear.

Earn with hybrids while building stronger BEV competitiveness

In the short term, Japanese companies should leverage their strength in hybrids, which have become the largest segment in Europe, to secure profits and sales volume.

At the same time, in the medium term they must strengthen competitiveness in areas such as:

Small, affordable BEVs
In-vehicle software
Batteries
Power electronics

In addition, Europe should not be treated as one uniform market. It needs to be divided into:

BEV-leading markets in Northern and Western Europe
Price-sensitive markets in Central, Eastern, and Southern Europe

Japanese companies have long been strong at offering products tailored to diverse market needs, and that flexibility can become a major advantage in Europe.

5. The Four Fields Japan Should Target Next in Europe Beyond Automotive

As the automotive market enters a low-growth phase, Japanese companies also need to move beyond an overreliance on automotive.

Given Europe’s policy priorities and industrial restructuring, the following four fields are especially promising:

Semiconductors
FA and robotics
Industrial decarbonization
Pharmaceuticals and medical devices

Below, we look at key Japanese companies to watch in each field.

6. Semiconductors: Japanese Companies Supporting Europe’s Ability to Manufacture

Tokyo Electron (TEL)

Tokyo Electron is one of the most important Japanese companies in Europe’s semiconductor sector.

Its European subsidiary, Tokyo Electron Europe, was established in 1994 and provides manufacturing equipment and technical services to the European semiconductor and electronics industries.

Europe is currently trying to expand semiconductor production capacity under the EU Chips Act, and front-end semiconductor manufacturing equipment is essential to that effort. TEL supplies key equipment such as etching and deposition systems, giving it a strategically important role in the expansion of semiconductor manufacturing in Europe.

Investment in semiconductors in Europe is not only a business opportunity for chipmakers themselves, but also a major opportunity for equipment manufacturers, and TEL is one of the central players in that space.

Renesas Electronics

Renesas is strengthening its presence in Europe not simply as a sales company, but as a company with design, technical, and development capabilities in the region.

By acquiring European companies such as Dialog Semiconductor and Altium, Renesas has incorporated European design and software assets, reinforcing its competitiveness in automotive and industrial semiconductor applications.

With strengths in automotive MCUs and analog and power semiconductors, Renesas fits well with Europe’s automotive and industrial machinery sectors and is likely to remain an important bridge between

Europe’s design capabilities and Japan’s semiconductor technologies.

ROHM

ROHM is rapidly increasing its presence in Europe, particularly in power semiconductors and especially SiC (silicon carbide).

In 2024, it announced joint development of next-generation power modules with French automotive supplier Valeo, thereby embedding itself more deeply into Europe’s automotive supply chain. It has also actively promoted power semiconductor solutions for e-mobility and industrial applications at events such as PCIM Europe.

As Europe continues to expand EVs, renewable energy, and industrial electrification, SiC semiconductors are becoming indispensable technology, and ROHM is one of the key players in this space.

SCREEN

SCREEN is particularly strong in semiconductor manufacturing equipment, especially cleaning and process systems.

It continues to exhibit at events such as SEMICON Europa and has built strong ties with the local semiconductor manufacturing community.

In recent years, SCREEN has also entered hydrogen-related areas through PEM water electrolysis materials, making it notable across both semiconductors and clean tech.

Because Europe’s semiconductor strategy centers on expanding manufacturing capacity,

more capital investment means greater business opportunities for equipment makers,

and SCREEN therefore has substantial room for growth.

7. FA and Robotics: Japanese Companies Positioned to Benefit from Europe’s Labor Shortages

FANUC

FANUC has a strong presence in Europe as a leader in factory automation.

The company provides integrated solutions combining robots, CNC systems, control technologies, and AI, and continues to showcase these technologies at Europe’s largest trade fairs such as automatica and EMO.

What is especially important is that FANUC is not just a machinery manufacturer. It also provides an ecosystem that includes education, training, and workforce development.

In Europe, the shortage of skilled workers has become severe, and whether qualified people are available to implement automation is often a major bottleneck in capital investment decisions.

In this respect, FANUC has a business model that is exceptionally well suited to Europe.

Yaskawa

Yaskawa is a company that can propose not just standalone robots, but integrated solutions covering motion, inverters, servos, and robotics.

It has a robot factory in Slovenia, establishing local manufacturing capability in Europe. Through efforts such as SRCI compatibility, it is also improving interoperability with PLCs and increasing its fit with European machine builders and system integrators.

Because the European manufacturing industry has a strong machine-builder-centered structure, companies like Yaskawa that can offer

control and robotics technologies designed to be embedded in machines

can demonstrate particular strength.

OMRON

OMRON is one of the few companies in Europe capable of making total FA proposals.

Because it can provide sensors, control systems, motion, vision, safety, and robotics as an integrated package, it can make flexible proposals to mid-sized and smaller manufacturers.

Europe is a market where the layers of niche champions and machine builders are thicker than those of giant OEMs.

OMRON fits this structure very well and is particularly strong in

smaller-scale but high-value automation projects.

8. Industrial Decarbonization: Japanese Companies Aligned with Europe’s Policy Priorities

Mitsubishi Heavy Industries (MHI)

Mitsubishi Heavy Industries is one of the few Japanese companies with concrete achievements in Europe in the field of CCUS (carbon capture, utilization, and storage).

It is moving forward with large-scale CO2 capture projects in Italy and the UK, playing an important role in sectors such as cement and energy where decarbonization cannot be achieved through electrification alone.

Europe’s decarbonization challenge cannot be solved by renewable energy alone.

Reducing CO2 emissions from existing industries is the biggest challenge,

and in that context MHI’s technologies are highly significant.

Daikin

Daikin has become more than just an “air-conditioning manufacturer” in Europe’s decarbonization story.

It has established a heat pump factory in Poland and expanded its R&D base in Belgium, continuing to invest aggressively in the European market.

In Europe, building heating is one of the major sources of CO2 emissions, and heat pumps are at the center of the solution.

By combining

manufacturing + R&D + local partnerships,

Daikin has built a business model that is highly aligned with European policy.

Hitachi Energy

Hitachi Energy is a core player in the power infrastructure needed to support renewable energy expansion and electrification.

HVDC systems and transformers may not attract headlines, but they are essential technologies for integrating more renewables into the grid. Europe urgently needs to rebuild its power networks, and Hitachi Energy has a very important role to play in that process.

Decarbonization is determined not only by generation, but also by transmission, and

this is one of the key fields where Japanese companies have a strong path to success.

9. Pharmaceuticals and Medical Devices: Japanese Companies Growing Amid Supply Chain Restructuring

Takeda

Takeda is one of the few Japanese companies that operates research, manufacturing, and sales in an integrated way across Europe.

It has major manufacturing sites in Austria, serving as a core part of the pharmaceutical supply chain, and is also moving forward with new initiatives such as decarbonizing pharmaceutical plants.

Because Europe is now placing policy emphasis on domestic production of critical medicines,

the value of pharmaceutical companies that can operate fully within Europe is likely to rise even further.

Terumo

Terumo is increasing its presence in Europe not only in medical devices but also in CDMO and contract pharmaceutical manufacturing.

Through moves such as acquiring drug product facilities in Germany, it is strengthening pharmaceutical manufacturing capacity within Europe and adapting to supply chain restructuring.

In healthcare, quality, reliability, and continued investment are absolutely critical, and Terumo meets those requirements.

Olympus

Olympus positions Europe not just as a sales market, but as an integrated hub for development, manufacturing, and repair.

In Portugal, it has established a major repair center, building a system in which the full lifecycle of equipment can be handled within Europe.

After-sales support is a core part of competitiveness in medical devices, and Olympus’s strategy is highly well suited to the European market.

Conclusion

The European automotive industry is indeed no longer in a strong growth phase.

However, its actual condition is not simply that “EVs are weak” or “gasoline cars are weak.” Rather, the market as a whole is in a low-growth transition phase in which the shares of hybrids, BEVs, and internal combustion vehicles are being significantly reshaped.

That is why Japanese companies in automotive need to pursue both:

a short-term strategy of earning through hybrids and a medium-term strategy of strengthening BEV competitiveness.

More importantly still, they need to move beyond relying solely on automotive and align their strengths with Europe’s policy-priority areas such as:

semiconductors, FA and robotics, industrial decarbonization, and pharmaceuticals and medical devices.

Today’s Europe is not a market where only finished-product manufacturers win.

Rather, companies with strengths in equipment, materials, automation, decarbonization, and reliable supply chains are benefiting from favorable tailwinds.

Europe is no longer just a sales market.

It has become

“a market for the reorganization of technology, equipment, materials, and supply chains.”

How Japanese manufacturers position themselves in that restructuring will be one of the biggest competitive questions going forward.

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