BERLIN—Global automakers are reeling from the combined effects of years of heavy investment to develop electric cars that have met lacklustre demand in many countries, and growing geopolitical uncertainty as US President Donald Trump levies tariffs on friend and foe alike.
Profits across the world’s 14 largest automakers dropped nearly 21% last year, according to a study published this month by the Center of Automotive Management, as European automakers face weak demand and rising competition from China, setting the stage for a major shakeout.
“There will be a Darwinian process of selection over the next few years in which some companies will exit the market or lose their independence,” said Stefan Bratzel, director of the Center of Automotive Management in Bergisch Gladbach, Germany.
The consolidation process, Bratzel added, would hit both newcomers in electric vehicles (EV) and established automakers.
The challenges faced by some of the biggest and most iconic automakers, including Volkswagen (VW), Ford, Stellantis, Nissan, BMW, Mercedes and newcomer Tesla, are a combination of forces beyond management’s control — and homegrown missteps.
Tesla shares are down more than 40% this year, as consumers, especially in Europe, have vented their anger at Chief Executive Elon Musk’s political activities by all but boycotting the US electric vehicle maker. Many Tesla owners have slapped stickers on the bumpers of their cars that read, “I bought my car before Elon went crazy.” Musk, an ardent Trump convert, is currently leading the US president’s newly created Department of Government Efficiency (DOGE).
Politics alone doesn’t explain Tesla’s woes. While Germany’s premium brands BMW and Mercedes, and China’s soaring EV maker BYD, have been churning out new electric models every year, Tesla has barely refreshed its existing lineup. Analysts say Tesla models look old compared to the growing ranks of its competitors.
Dan Ives, a tech analyst with Wedbush securities firm, has been urging Musk to turn his focus back to the car company and “contain the brand damage crisis at Tesla.” He lauded Musk for holding an all-hands meeting with the company’s staff last week, during which he appealed to workers to keep holding their stock, promising a revival of Tesla’s fortunes with the planned release of self-driving taxis.
Volkswagen, Europe’s biggest carmaker by sales, has been profiting from Tesla’s woes, as data shows disgruntled Tesla customers in Europe are turning to VW’s growing lineup of EVs. But VW, whose brands include Audi, Porsche, Bentley and Lamborghini, has been in turmoil as spiralling manufacturing costs in Germany make it harder to remain competitive. In December, VW said it would slash 35,000 jobs, mainly through attrition. In the first half of March, Audi said it would cut 7,500 jobs in Germany in addition to the nearly 10,000 jobs it has shed since 2019.
Porsche, which VW listed on the stock market in 2022, once aspired to be the next high-flying Ferrari, but is instead facing sharply declining profits and weak sales of its electric models. The company said in March it would cut 3,900 jobs.
In February, Porsche issued a profit warning, blaming its earnings weakness on the high costs of investing in batteries for electric vehicles, troubles getting enough parts, and higher costs for stepping up customisation offerings in order to maintain its exclusive brand image.
EU automakers won a key concession from Brussels this month when the European Commission agreed to give automakers more time to meet CO2 emissions targets. That effectively allows them to slow down the rollout of new electric vehicles and increase production and sales of conventional gas-powered models that were, until now, slated to be phased out in the coming years.
That does little to help Volkswagen, BMW and Mercedes meet new challenges posed by Trump’s announcement Wednesday that the US plans to impose 25% tariffs on auto imports. That would impact exports worth €38.5 billion last year, according to the European Automobile Manufacturers’ Association, Europe’s powerful auto lobby.
While most German automakers — the most exposed to the US of the European car brands — have said little about the impact Trump’s tariffs could have on their bottom line, BMW recently said it expected a 10% tariff on exports to the US to cost the company about €1billion in profits this year.
Philippe Houchois, an auto analyst at Jeffries, said in a recent note to clients that BMW’s acknowledgement of its vulnerability to US tariffs confirmed a negative impact on German automakers that was material, but also manageable.
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Nevertheless, uncertainty about the US is likely to remain a key concern for German automakers now that Trump has announced levies far above 10%.
And while EU automakers are fighting Trump’s trade wars, they are also battling on a second front with China. Domestic manufacturers there have been stealing market share from foreign brands while also stepping up exports to Europe, adding to pressure on European manufacturers.
Chinese brands are still a relatively small part of Europe’s car market, but those such as BYD and Geely are not only exporting electric cars to Europe. They are also stepping up sales of conventional gas-powered cars, Matthias Schmidt, an automotive analyst, wrote in a recent report. Schmidt’s report showed a sharp increase last year in all types of Chinese cars that were not fully electric.
Overall, Chinese brands accounted for a record 3.9% of Western European new car sales in the fourth quarter of last year, compared to 13.1% for Japanese brands and 7.9% for Korean brands, he said.
Chinese manufacturers are targeting European markets that either have greater price flexibility, such as Italy and Spain, or the UK, which has not followed the EU on imposing tariffs on Chinese imports. Around 60% of all Chinese new car sales in Western Europe were in those three markets.
Despite the slowdown in demand for electric vehicles, automakers will have to continue to pony up big investments in new technology, including electric drivetrains, in the coming years as technology remains the key competitive factor in the industry.
Investors urging Musk to get back in the driver’s seat at Tesla are still fairly bullish on the company, as Musk continues to push his vision for armies of self-driving robo-taxis roaming the streets of the world’s biggest cities.
If realised, such a business model would pose a big challenge to automakers who stick to a more traditional retail business model based on selling cars to individual consumers.
To stem the high costs of investment in new technologies, automakers are going to have to collaborate more, or even merge, and that could sharply change the industry in the coming years.
“It is important to keep an eye out for strategic alliances, as quite a few companies will no longer be able to cope with the high levels of investment required for technological change relating to electromobility, software-defined vehicles and automated driving on their own,” said Bratzel.
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