The small, former communist Central European country is the global leader in cars produced per capita, churning out Volkswagens, Peugeots, Kias, or Land Rovers — and soon Volvos. Autos account for more than 41% of Slovakia’s exports, indirectly employing more than 250,000. But this thriving Slovak car industry now faces a potential tsunami. The European Union is banning gas car engines from 2035. Chinese electric car exports to the EU are surging. Both the US and China are pouring subsidies into their auto industries, the $430 billion Inflation Reduction Act, and an estimated $57 billion worth of subsidies between 2016 and 2022 to Chinese electric vehicle companies.
These developments threaten the entire European automobile industry. Small Slovakia is particularly vulnerable. Its economy is not diversified and relies on auto exports. Since decisions on production are made by mother companies in Germany, South Korea, or elsewhere, Slovakia suffers from being a strategic decision-taker rather than a decision-maker.
But Slovak governments can and should act. Neighboring Hungary is attempting to become a magnet for Chinese auto investments. That’s a perilous choice. Any attempt to substitute Chinese money for German, South Korean, or Indian investment carries substantial security and trade risks.
Slovaks should remember how China blackmailed Lithuania with trade restrictions back in 2021, in reaction to the opening of a Taiwanese representative office in Vilnius. Beijing has restricted exports to Europe of some critical materials, such as gallium or germanium.
The EU could decide at any moment to target Chinese car imports. The European Commission is investigating Chinese electric vehicle subsidies for potentially distorting the EU’s single market. Tariff hikes on Chinese cars could follow. China might then retaliate — after the EU opened its probe of Chinese electric vehicles, Beijing responded with an anti-dumping investigation into imported European brandy.
Instead of continuing — or even deepening — dependency on China, Slovakia should increase its competitiveness and resilience, addressing a glaring shortage of qualified labor. Our recent report “Repurposing Slovakia’s Automobile Industry for a New Era” includes proposals to overhaul the country’s education system and to increase cooperation between public and private research to speed automotive innovation. At present, the main burden of preparing the future workforce lies with the private sector; car manufacturers run their own academies.
Targeted migration also needs to be encouraged. The number of visas granted to foreign-qualified workers should be increased.
High energy costs must be brought under control. Slovakia can no longer rely on cheap Russian gas or oil. Instead, it should invest in nuclear and renewables, improving access for wind and solar power to connect to the grid.
Slovakia suffers from the third-highest trade exposure to China in the EU measured in exports as a percentage of GDP, according to the European Commission’s recent European Economic Forecast. Battery cells supplied from Asia, predominantly from China, represent a particular threat. China’s Gotion recently invested in Slovak battery start-up InoBat. Such Chinese investments need to be scrutinized.
But Slovakia also must make sure that the EU policy remains realistic. Right now, the bloc’s 2035 ban on new vehicles with internal combustion engines would open the road to Chinese electric vehicles dominating the European market. Perhaps the timeline should be lengthened.
Modern cars are also software platforms that enable large data collection, raising security concerns. China banned overseas transfers in 2021 of data collected by Tesla and other foreign automakers. Slovakia and the rest of Europe need to build on Europe’s own data regulations to control or, if needed, restrict data collection.
How Slovakia’s crucial car industry meets multiple challenges does much to determine the country’s future economic success or failure — indeed the entire EU’s success or failure.
Viliam Ostatník is a Senior Analyst at the Adapt Institute in Bratislava.
Bandwidth is CEPA’s online journal dedicated to advancing transatlantic cooperation on tech policy. All opinions expressed on Bandwidth are those of the author alone and may not represent those of the institutions they represent or the Center for European Policy Analysis. CEPA maintains a strict intellectual independence policy across all its projects and publications.
2025 CEPA Forum Tech & Security Conference
Explore the latest from the conference.
