Slovakia’s Auto Empire Is Facing Its Biggest Test Yet

One of Europe’s automotive manufacturing powerhouses, Slovakia, has been hit hard by tariffs and increased competition, which are threatening its role in the global auto market. Since the creation of the Bratislava Automobile Works (BAZ) in the 1970s, Slovakia has gradually developed its reputation as a major automotive manufacturer. It now produces the highest number of cars per capita each year, with an annual output of over one million vehicles.

Slovakia became known as “Europe’s Detroit,” attracting automakers such as Volkswagen, Stellantis, Kia, and Jaguar Land Rover. Its automotive industry contributes around 11 percent of the country’s GDP, as well as half of its industrial output. It also accounts for roughly 10 percent of national employment.

In recent years, it has broken into the electric vehicle (EV) manufacturing market, with plans from Sweden’s Volvo Cars to establish an EV facility in the central European country in 2026. This will be Slovakia’s fifth production plant. China’s Gotion High Tech and Slovakian partner InoBat also plan to launch an EV battery plant in Slovakia, which could attract more EV makers to the market.

However, growing challenges in recent years now threaten Slovakia’s reputation as Europe’s automaking powerhouse. These include the introduction of U.S. tariffs under President Donald Trump and increased competition from China’s growing vehicle manufacturing sector. In addition, rising national taxes and a geopolitical shift away from the EU have hindered the country’s automotive sector.

At present, Slovakia’s exports to the United States account for around 4 percent of the country’s total exports, with vehicles contributing around 80 percent of that export volume. This has made Slovakia highly reliant on U.S. trade and means it has been hit hard by the introduction of high tariffs on foreign goods.

The EU succeeded in establishing a framework trade deal with the U.S. in July, which reduced the tariffs on most EU products from the anticipated 30 percent to a lower 15 percent rate, and decreased tariffs on the bloc’s auto sector from 27.5 percent. Zuzana Pelakova, from the Slovakia-based thinktank Globsec, said, “In the current situation, the U.S.-EU trade alliance has stabilised, and tariffs have been lowered to 15 percent, which is certainly better than the initial proposal but is still challenging.”

However, when new 15 percent tariffs are viewed alongside the broader set of challenges faced by Slovakia’s automaking industry, it becomes clear just how hard the sector will have to fight to maintain its position as a global leader. Increased domestic levies, following the introduction of a transaction tax under Prime Minister Robert Fico’s government, aimed at curbing the budget deficit and funding social programmes, are undermining profits in the country’s automotive sector.

Fico has come under fire from the EU for his longstanding relationship with Russia’s President Putin in the wake of the Russian invasion of Ukraine and ongoing war. In a July statement, Fico said, “I refuse the politics of the ‘iron fence’ that exists between the EU and the Russian Federation, and I would like to offer a hand of cooperation over this fence… When it comes to energy, I openly say that I view any plans of the European Commission to stop any import of gas, oil or nuclear fuel from Russia as insanity.”

The Slovakian government’s stance on Russia has led several European countries to view Slovakia as a less reliable partner, one that is unwilling to support the sanctions on Russian energy that are meant to put pressure on Moscow to end its conflict with Ukraine.

As around 90 percent of Slovakia’s foreign direct investment comes from EU countries, rising geopolitical tensions could threaten its economic stability. A survey from earlier in the year showed that among foreign chambers of commerce, 36 percent of European companies with assets in Slovakia did not plan to invest in the country again. This is reflected in Volkswagen’s decision to launch operations in Portugal instead of Slovakia for its new electric ID.1 model, while Stellantis NV opted to establish an EV facility in Spain.

Despite the challenges, many believe that Slovakia’s longstanding automaking industry will weather the storm, as it has done in the past. However, the country’s auto association, ZAPSR, believes that to make headway, the industry must engage with the government to improve policy and economic support for the sector.

“To maintain the transformation of production to electromobility, it is necessary that the state creates framework conditions for investors, with clear and stable foreign policy orientation, keeping in mind that in the last 15 years, 93 per cent of investment arrived from the EU countries, UK and USA,” ZAPSR said in a statement earlier this year. Meanwhile, ZAPSR’s president, Alexander Matusek, stressed, “These concerns about Slovakia’s place in the world are relevant. Besides the economic factors, investors also look at what the state does – we shouldn’t underestimate this.”

By Felicity Bradstock for Oilprice.com

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