As it moves towards electrification, the European automotive industry is at a crucial juncture.
The volatile market is being created by the increasing competition from Chinese manufacturers. Stricter carbon regulations and a subdued interest in electric vehicles (EVs).
CNBC reported that industry analysts believe the challenges from 2024 will continue into 2025 with little respite to automakers.
The EV Transition faces bottlenecks
Europe’s automakers have found it more difficult than expected to make the switch to EVs.
Despite the fact that many governments want to accelerate adoption, there are still bottlenecks in the industry.
There are few affordable EVs available, and infrastructure for charging has not been implemented as quickly as promised.
The sharp rise in interest rates over the last year has also had a negative impact on consumer demand.
Julia Poliscanova is the senior director of vehicles and emobility supply chains for Transport & Environment. She said that automakers were partly responsible for their current situation.
Poliscanova, speaking to CNBC, said that the European car makers are “behind on electrification and their products are not as good as China’s formidable competition”. She also stressed that the sales of cars in Europe are still below the pre-pandemic level.
Automakers face another challenge with the new emissions regulations
The European Union’s stricter cap on average emissions of new vehicles is a critical issue for automakers.
In 2025, this cap will be reduced to 93.6 grams per kilometer. This is a 15% drop from 2021.
Automakers are already struggling with the disruption of supply chains and a softening in demand.
The European Automobile Manufacturers’ Association, which represents players such as BMW, Volkswagen and Renault, urged regulators on Wednesday to reduce compliance costs, while still maintaining the broader goals for green mobility.
The ACEA cited sluggish EVs sales and a deteriorating economy as reasons for its flexibility.
However, critics argue that any relaxation in regulations would harm Europe’s long-term competiveness.
Poliscanova said that “delaying the targets” is not an option. It will only delay an inevitable transition for automakers.
Poliscanova called calls for a looser regulatory regime “really frustrating,” and argued that stricter targets were essential to driving innovation and competitiveness.
Horst Schneider, a Bank of America executive, offered a more pragmatist view. He suggested that some flexibility may be needed to help automakers bridge EV costs with consumer acceptance.
Schneider stated that mass-market automakers still need time to adjust. “The price gap between EVs versus internal combustion vehicles remains too large,” he said.
Chinese competition is a growing concern
Chinese automakers have become a dominant force on the EV market by leveraging their expertise with affordable production and efficient supply chain.
European automakers have, on the other hand, been slower in scaling up their EV offerings.
The disparity in the market dynamics is becoming more evident.
Chinese brands are capturing a significant share of the European market by offering high quality EVs for lower prices, forcing traditional European brands to compete.
Poliscanova said, “The gap between the two is obvious.”
The European automakers have a long way to go in electrification. Their delay makes it difficult for them to compete with China’s advanced offerings.
Market performance: auto stocks struggle
Stock market performance reflects the financial challenges that European automakers face.
The shares of the “big five”, namely Volkswagen, BMW Mercedes-Benz Stellantis and Renault, have experienced significant drops in 2024. Stellantis has suffered the most drastic drop, at 37%, year-to-date.
Volkswagen, BMW and Renault have all suffered double-digit losses.
The French automaker’s shares are up 19% on hopes that the limited exposure it has to the US and Chinese market might shield it from the global downturn.
Analysts at Deutsche Bank are cautious about the future of the industry despite Renault’s relative successes.
In a research report published on Dec 9, analysts at Deutsche Bank stated that “Automotive stocks have been struggling globally.”
We believe that the industry will likely face another year of instability and headwinds in all regions. We anticipate more noise about potential policy implications in America, further restructuring announcements across Europe, a muted demand outside of China, and a softening in pricing,” they said.
Analysts say that cheaper EVs are key to Europe’s EV switchover.
The affordability of EVs has emerged as the central challenge in Europe’s transition to EVs.
Several automakers introduced low-cost EVs at the Paris Motor Show last October. However, it is not expected that these vehicles will reach the market before 2025.
Analysts say that closing the gap in price between electric vehicles and internal combustion engines will be crucial to boosting consumer demand.
Schneider said that cheaper EVs are needed, but they’re still being developed.
Cheaper EVs can help automakers to reclaim market shares from Chinese competitors, and accelerate the shift to green mobility.
This will require significant investments in battery technology and production efficiency.
The challenges that will persist in 2025
The European automotive industry faces a challenging economic environment.
In 2025, we can expect to see higher interest rates, a muted demand from outside China, and continued pricing pressures.
Rico Luman is ING’s senior sector economist in transport and logistics. He said that profitability will remain a concern, as automakers focus on less profitable EV models.
Luman, a CNBC analyst, said that “they tend to focus more on hybrids due to their profitability. But if they’re forced to switch to EVs fully, it could affect their financials.”
The post European automakers’ struggles likely continue in 2025: analysts forecast may change as new developments unfold
This site is for entertainment only. Click here to read more
