On March 26-27, 2025, the most important domestic OEMs, buyers and suppliers will meet in Győr – a strong professional program, standing reception, factory visits, networking and accommodation!
The car industry is in trouble
The automotive industry has faced serious challenges in recent years, but in addition to unforeseen events like the Covid crisis, perhaps the biggest challenge and the result of the problems of European manufacturers is the electric transition. This does not mean that electrification is bad or not a necessary process, but it is a generational transformation that consumes very significant resources on the part of manufacturers. The situation is further complicated by the fact that the demand for electric cars has slowed down, contrary to plans, and due to the change in the market environment, manufacturers are forced to scale back their electric car ambitions and allocate more resources to the development of internal combustion engine cars. Volvo, for example, dropped its plan to produce only all-electric cars from 2030, but several other manufacturers have scaled back plans to sell EVs.
Despite this, the regulatory side is aggressively pushing electrification. The most talked about example of this is the EU goal of banning the sale of new cars with internal combustion engines by 2035, the legitimacy of which was questioned by several manufacturers this year. However, the road leading there is not entirely smooth, as fleet-level CO2 emission rules are being tightened in several circles, failure to comply with which imposes serious financial burdens on manufacturers. As the UBS analysis found, in many cases it is still more profitable for manufacturers to sell electric cars with lower returns than to pay penalties. On the other hand, if we look at this from the point of view of the manufacturer and its profitability, there are two bad options to choose from.
If we look at the sales data for this year so far, we see roughly the same number of car sales in the EU as last year. Although both numbers far exceed the 2022 levels, they are still roughly 2 million short of the pre-pandemic 2019 figures.
In the current context, however, the dynamics of the electric car market are more exciting than the entire market, since in theory this segment should be one of the drive chains that provides the engine for market growth. This has also been true in recent years, as the EV market has grown significantly, above the market average: between 2022 and 2023, for example, BEV sales in the EU increased by 37 percent.
In comparison, in the first 10 months of this year, nearly 5 percent fewer electric cars with batteries were sold than in the same period last year.
Or maybe not a slowdown, but a decline is visible this year.
In Europe, the restrained interest of buyers is partly the withdrawal of government subsidies can be admitted, which means that many people do not feel that the market incentives are sufficient to buy an electric vehicle, which, in addition to the known problems (infrastructure, charging, residual value), is still more expensive than internal combustion engine cars.
TOP10 stories
As every year, the editorial staff of Portfolio compiled the most decisive events and news of the year. This article is also one of 10.
Two examples of how much subsidies matter for e-cars: Germany ended subsidies in December 2023, and the market then fell 26.6 percent year-over-year in the first 10 months of the year. Hungary launched a company EV purchase subsidy in February this year, and the market grew by 47.9 percent in the first 10 months of the year.
In other words, in the current life stage of the EV market, it is still very important what subsidies are available.
Meanwhile, in China, the largest market, every second car is electric (BEV or PHEV), but European manufacturers have an even harder time there than in their home market. Volkswagen, for example, has lost its market-leading position in China, where local manufacturers are able to develop new models in as little as a year and a half. However, it can also be said in general that global manufacturers – including European ones – they are losing market in China to local manufacturers.
Chinese competition
However, the electric transition also has winners. Chinese manufacturers and the Chinese state recognized the importance of electrification early on and trained national champions such as BYD.
With competitive, aggressive pricing and the ability to quickly innovate, they are gaining an ever-increasing market share, now not only in the domestic market, but also in the European market.
Typically, these manufacturers are strong in the mass segment, but they also began to open up to the premium category, thus posing an even greater threat to European manufacturers. The EU is trying to control the local expansion of Chinese manufacturers from the regulatory side, since imposed punitive duties on European imports of Chinese-made electric cars, citing the fact that their prices were kept artificially low with the help of large amounts of government subsidies.
The case is not closed yet, the parties are still discussing the possibility of waiving the duties with a minimum pricing mechanism. In any case, the punitive tariffs were enough to make Chinese manufacturers uncertain and freeze their European expansion plans until the position of the regulatory side is clarified.
You can feel the pressure
The manufacturers themselves admitted that this year did not go as planned. In the second half of the year, European car manufacturers started cutting back their annual forecasts one after the other, citing reasons such as intense Chinese competition, slowing European demand and the region’s difficult transition to electric cars. Almost without exception, China was included in the corporate warnings. It is the world’s largest car market, which accounts for roughly 30-45 percent of the pre-tax profit of German manufacturers based on UBS estimates. However, the weakening of the Chinese economy – mainly due to the crisis in the real estate sector – also affects demand in the automotive industry, and although the Chinese leadership has taken many stimulus measures to boost the economy, the possible start of consumption is far from certain to pull foreign manufacturers out of the pickle. In the local market, they are in tough competition with domestic manufacturers, who often try to increase their market share with more technologically advanced models, or at least better priced models.
Several manufacturers spoke about the challenges at the Paris Motor Show held in October. The head of Renault spoke about the fact that the stricter EU CO2 emission reduction requirements starting in January could negatively affect next year’s numbers, and called for a review of the 2025 targets. The now-resigned leader of Stellantis, Carlos Tavares, warned of accelerating factory closures due to EU punitive tariffs. BMW chief Oliver Zipse has criticized a 2035 ban on sales of internal combustion engine cars, saying the target is no longer realistic and will shrink the industry. Meanwhile, BYD’s executive vice president spoke about how higher tariffs will raise prices and scare away buyers.
The deterioration of the situation of the European car industry spurred the manufacturing companies to take drastic measures.
Many automotive companies – including manufacturers and suppliers – have announced serious cost-cutting measures, including layoffs and factory closures. The list includes companies such as Bosch, Michelin, or Stellantis – the most significant was the announcement by Volkswagen, as the company announced that can close a factory in Germany for the first time in its history, and later it turned out that it was not one, but three factories.
Finally, Volkswagen management and the unions were able to agree last Friday that there would be no immediate factory closings and layoffs, but VW was given the option to cut 35,000 jobs by 2030.
Falling exchange rates
The challenges of the automotive industry were also reflected in stock prices this year: the automotive sub-index of the European STOXX 600 stock index fell to a two-year low, falling by more than 13 percent this year. All this in addition to the fact that Ferrari, which escaped the automotive crisis cheaply and rallied around 26 percent this year, is the largest component in the index with a weight of 25 percent (the second largest is Mercedes-Benz, with a weight of 15.2 percent). This is worth looking at in the context of the fact that the stock markets are having a particularly good year this year, the indices have reached record highs in Europe and the United States, producing a 10-30 percent increase.
Prospects
It is perhaps not an exaggeration to say that European car manufacturers are in a deep hole. The big question is whether this is the bottom of the pit or not. The findings in the article are not retrospective, but refer to ongoing processes without exception.
- Electrification is unstoppable, the EU has started in this direction, and the relaxation of regulatory objectives can only bring uncertainty for manufacturers, even though predictability is one of the most important things in such a transition.
- Battery and automotive industry players are confident that the EV market downturn is only temporary and that it can return to growth over time. However, until the market reaches the inflection point, more serious state or even EU-level subsidies will be needed.
- China’s structural market loss is not a well-done story either, but it is likely that it will continue to put pressure on manufacturers’ business in the coming years.
- Chinese manufacturers are coming, BYD will be producing in Hungary next year, so you don’t have to worry about customs. In addition, the customs dispute has not completely run its course, as mentioned above, a minimum pricing mechanism could be the new compromise. It cannot be ruled out that an agreement will not be reached and that China will introduce retaliatory measures on European car exports.
- We will probably hear more about layoffs.
All in all, the existential crisis of the European automotive industry is still not over, and it is expected that it will continue to provide plenty of topics in the coming period.
Cover image source: Matthias Bein/picture alliance via Getty Images
This article does not constitute investment advice or investment recommendation. Detailed legal information
Source: www.portfolio.hu
