2024-10-04 12:45:34
France’s Stellantis, Germany’s Volkswagen Group, BMW and Mercedes, a 15-brand giant that includes Citroen, Peugeot, Jeep, Fiat and Peugeot, have all issued profit warnings in recent weeks.
Weaker demand for their cars in China, whose economy is slowing, and growing competition from cheaper Chinese electric vehicles are among the major hurdles for European automakers, which employ 2.4 million people.
In a divided vote, EU states on Friday gave the final green light to hefty additional tariffs on electric vehicles made in China.
The goal is to protect Europe’s auto industry, but opponents, including the German government and the country’s major automakers, fear the move could backfire.
Serious danger
The European auto industry is in “grave danger,” Luc Chatel, president of the French auto industry trade group PFA, told the French Senate on Wednesday.
New car registrations rose 1.4% to 7.2 million units in the first eight months of the year, maintaining low volume since the Covid pandemic erupted in 2020.
High prices at dealerships and a stagnant economy have discouraged consumers from buying new cars, analysts say.
“The performance of the automotive sector in the coming weeks and months will be held back by deteriorating fundamentals through 2025,” UBS analysts said in a note.
Announcement
Sales of electric vehicles have stalled as the industry faces the EU’s 2035 deadline to phase out new sales of petrol cars.
Electric vehicles accounted for 12.6% of car sales in Europe in the first eight months of the year, down from 13.9% in the same period in 2023.
Concerned 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 closures
In a sign of the European industry’s difficulties, Volkswagen announced last month it may close factories in Germany for the first in its history, grappling with high costs, Chinese competition and weak demand for electric vehicles.
The German government held crisis talks last month with senior figures from the country’s beleaguered auto industry.
But Germany opposes EU tariffs against China, fearing that retaliatory measures could hurt automakers operating in the world’s second-largest economy.
Ten countries, including France, voted on Friday to impose tariffs of up to 35.3% on top of existing tariffs of 10%.
Announcement
Germany was among five who voted against while 12 abstained, paving the way for the European Commission to impose the tariffs.
German Finance Minister Christian Lindner warned the commission against starting a “trade war” as he called for a negotiated solution, while VW and BMW made similar calls.
Sales struggles
Chinese competition isn’t the only problem for some companies.
“After two years of double-digit margins, European automakers are now seeing that when it rains, it pours,” said Kevin Thozet, portfolio manager at asset manager Carmignac.
After reporting a string of record quarterly profits, Stellantis on Monday cut its operating profit margin forecast from “double-digit” expectations to somewhere between 5.5% and 7%.
Stellantis has struggled in North America, its cash cow in the past, as U.S. dealers have difficulty unloading their inventory of expensive cars.
The company has been offering promotional offers in recent months, limiting its profit margin.
Announcement
The weaker performance affected suppliers such as airbag maker Autoliv and parts maker Forvia, which also lowered their earnings outlook.
“We had bad news. We don’t see how the market can recover by the end of the year,” said Patrick Koller, chief executive of Forvia.
“We thought combustion engines would offset the decline in electric motorization, but that hasn’t happened,” he said.
Positive forecast for 2025
Although auto groups are posting healthy margins on fossil fuel cars, they still face sizable investments to develop electric vehicles, which aren’t selling fast enough.
Several companies have reduced their electrification goals in favor of hybrid cars, whose sales have increased.
Despite industry setbacks, battery-electric cars will reach a market share in Europe of between 20 and 24 percent next year, according to Transport & Environment, a European clean transportation advocacy group.
The increase will be partly due to the arrival of seven more affordable electric models on the market this year and in 2025, the group said.
“2025 will be a big year for Europeans in the electric car market,” said Lucien Mathieu, director of cars at T&E.
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