As the EU seeks to put the brakes on competition from Chinese electric cars, European carmakers are stuck in second gear.
German Volkswagen Group, BMW, Mercedes and Stellantis, a 15-brand behemoth that includes Jeep, Fiat and Peugeot, have all issued profit warnings in recent weeks.
Weak demand for their cars in China, whose economy is slowing, and growing competition from cheaper Chinese electric vehicles elsewhere are among the main strains on European carmakers, which employ 2.4 million people.
In a split vote, EU states gave the final go-ahead on Friday to steep additional tariffs on electric vehicles made in China.
The aim is to protect Europe’s car industry, but opponents including the German government and the country’s top carmakers fear the move could backfire.
“Serious danger”
EU states green light additional tariffs on electric vehicles from China
The European car industry is in “serious danger”, Luc Chatel, president of French automotive trade group PFA, told the Senate on Wednesday.
New car registrations rose just 1.4% to 7.2 million units in the first eight months of the year, keeping volume low since the outbreak of the Covid pandemic in 2020.
High dealership prices and a sluggish economy have discouraged consumers from buying new cars, analysts say.
“The auto sector’s performance in the coming weeks and months will be constrained by deteriorating fundamentals in 2025,” UBS analysts said in a note.
More worryingly, sales of electric vehicles have stalled as the industry faces a 2035 EU deadline to phase out new sales of petrol cars.
Electric cars accounted for 12.6% of car sales in Europe in the first eight months of the year, up from 13.9% in the same period in 2023.
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Worried about tougher emissions targets coming into force next year, the European Automobile Manufacturers Association (ACEA) urged the EU last month to provide “urgent relief measures”.
VW shock
In a stark sign of the European industry’s struggles, Volkswagen said last month it could close factories in Germany for the first time in its history as it struggles with high costs, Chinese competition and weak demand for electric vehicles.
The German government held crisis talks with senior executives from the country’s beleaguered car industry last month.
But Germany opposes EU tariffs against China, fearing retaliation could hurt carmakers operating in the world’s second-largest economy.
Ten countries, including France, voted on Friday to impose tariffs of up to 35.3 percent on top of the existing 10 percent.
Germany was among five to vote against, while 12 abstained, clearing the way for the European Commission to impose the tariffs.
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German Finance Minister Christian Lindner warned the Commission not to spark a “trade war” as he called for a negotiated solution, while VW and BMW made similar calls.
Sales matches
Chinese competition is not the only problem for some companies.
“After two years of double-digit margins, European carmakers are now seeing that when it rains, it rains cats and dogs,” said Kevin Thozet, portfolio manager at asset manager Carmignac.
After posting a string of record quarterly earnings, Stellantis cut its operating margin forecast on Monday from “double digit” expectations to somewhere between 5.5% and 7%.
Stellantis has struggled in North America, its cash cow in the past, as US dealerships struggle to unload their inventory of expensive cars.
The company has offered promotional offers in recent months, squeezing the profit margin.
Weaker performance has weighed on suppliers such as airbag maker Autoliv and parts maker Forvia, which have also cut their earnings outlook.
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“We’ve had bad news. We don’t see, until the end of this year, how the market could recover,” said Forvia chief executive Patrick Kohler.
“We thought that internal combustion engines would make up for the decline in electrification, but that hasn’t happened,” he said.
Is the “wonderful year” coming?
While car groups are making healthy profit margins on fossil fuel cars, they still face significant investment in developing electric vehicles, which are not selling fast enough.
Several companies have lowered their electrification targets in favor of hybrid cars, sales of which have increased.
Despite the industry’s setbacks, battery electric cars are set to reach a market share in Europe of 20 to 24 percent next year, according to Transport & Environment, a European clean transport advocacy group.
The increase will be partly due to the arrival of seven more affordable electric models that will hit the market this year and in 2025, the group said.
“2025 will be a great year for Europeans to buy an electric car,” said T&E’s automotive director Lucien Mathieu.
Source: AFP