Reducing carbon dioxide emissions in the European Union.
Getty
Auto sales growth in Europe is gradually slowing, squeezing profits and forcing manufacturers to deal with growing excess capacity that they are threatening to close.
If that weren't enough to worry about as executives return from vacation, the outlook for 2025 gets even worse because European Union regulations on carbon dioxide emissions will get tougher, forcing automakers to sell more electric cars, which they barely make any profit on, than the public actually wants to buy, and forcing sales of the higher-margin internal combustion cars that people actually want to buy to fall.
BMW and Volvo shareholders will be relieved, but Volkswagen and Renault will take a hit, according to HSBC Global Research.
Sales in Western Europe surged 13.9 percent to 11.56 million vehicles last year, allowing makers of sedan and SUVs to raise prices and boost profits, but that boom is set to fade and get worse this year.
GlobalData has been relentlessly lowering its sales forecast for Western Europe, predicting growth of just under 5% three months ago, and now sees little growth, just a 0.2% increase, as total sales peak at 11.58 million units.
Western Europe includes the five largest markets: Germany, France, the UK, Italy and Spain.
“Converging headwinds to market activity make any significant easing in the near term unlikely, and interest rates remain elevated despite initial moves already being made to ease monetary policy,” GlobalData said in the report.
“Despite the fading supply constraints that have caused vehicle prices to surge in recent years, vehicle prices remain elevated and show no signs of a significant downward correction in the near term. Meanwhile, the EV market is also losing momentum. We expect full-year performance to be only slightly above 2023,” the company said.
BMI, a unit of Fitch Solutions, expects sales across the European market to slow to 4.6% growth to 19.3 million units in 2024. Sales will rise 19.2% in 2023 as supply chain disruptions normalize and automakers work to clear backlogs.
The worsening situation will put pressure on manufacturers' operating margins for the rest of 2024, investment bank UBS said.
Renault CEO Luca de Meo (left) and Renault Brand CEO Fabrice Cambolive pose with the Renault R5 E-Tech …(+) electric model car (Photo: FABRICE COFFRINI/AFP via Getty Images)
AFP via Getty Images
Looking ahead to 2025, HSBC Global Research says fines for manufacturers that seriously breach EU emissions targets could total €5 billion, but points out that Renault has said its fines could be twice that much.
“Volvo and BMW are in a better position, but Volkswagen and Renault have a big gap to close,” the report said.
Laggards are hoping new models can fill the gap.
“VW and Renault will see a flurry of new EV launches from the second half of 2024, but the gaps between their targets will mean that the success of these models will come with increased scrutiny and importance. Mercedes and Stellantis are relatively well-positioned but are not out of the woods, especially if demand for EVs continues to disappoint,” the report said.
VW is cutting jobs and closing factories as part of a long-term cost-cutting plan.
German forecasting agency IFO Institute sees the German car industry slipping into dark territory.
“We don't expect any significant improvement in the coming months,” said Anita Wohlfle, an analyst at IFO.
“Capacity utilisation fell to 77.7%, nine points below the long-term average. 43.1% of companies reported a shortage of orders, down from 29.2% in April. Positive news from abroad is also not expected: the export outlook fell to minus 16.8 points, more than 13 points down from the previous month,” Wolfl said.
“The auto industry is slipping into further crisis,” Wolff said.
