Predicting the Emergence of the EV Industry: A Product Space Analysis Across Regions and Firms

TL;DR

This paper analyzes how regional industrial capabilities and diversification influence the emergence of electric vehicle industries, highlighting the importance of shared manufacturing capabilities and product space proximity for strategic development.

Contribution

It develops a comprehensive product space framework to predict EV industry emergence across regions and industries, emphasizing the role of cross-industry diversification and closeness centrality.

Findings

EU expected to gain significant EV-related strengths in vehicles and aluminium

Countries like South Korea, China, US, Canada have high EV diversification potential

EU may face competitive pressure due to regional capability shifts

Abstract

The automotive industry is undergoing transformation, driven by the electrification of powertrains, the rise of software-defined vehicles, and the adoption of circular economy concepts. These trends blur the boundaries between the automotive sector and other industries. Unlike internal combustion engine (ICE) production, where mechanical capabilities dominated, competitiveness in electric vehicle (EV) production increasingly depends on expertise in electronics, batteries, and software. This study investigates whether and how firms' ability to leverage cross-industry diversification contributes to competitive advantage. We develop a country-level product space covering all industries and an industry-specific product space covering over 900 automotive components. This allows us to identify clusters of parts that are exported together, revealing shared manufacturing capabilities. Closeness centrality in the country-level product space, rather than simple proximity, is a strong predictor of where new comparative advantages are likely to emerge. We examine this relationship across industrial sectors to establish patterns of path dependency, diversification and capability formation, and then focus on the EV transition. New strengths in vehicles and aluminium products in the EU are expected to generate 5 and 4.6 times more EV-specific strengths, respectively, than other EV-relevant sectors over the next decade, compared to only 1.6 and 4.5 new strengths in already diversified China. Countries such as South Korea, China, the US and Canada show strong potential for diversification into EV-related products, while established producers in the EU are likely to come under pressure. These findings suggest that the success of the automotive transformation depends on regions' ability to mobilize existing industrial capabilities, particularly in sectors such as machinery and electronic equipment.