Like the proverbial Swan, looking serenely in control but working hard below the waterline to escape possible predators, the European auto industry gives off healthy vibes.
Sales are humming along nicely, at a solid but unspectacular rate likely to reach an increase of 7% in 2024, according to Auto Forecast Solutions. EV Volumes, now owned by J.D. Power, expects a more modest 3.1% increase in Europe’s car and light van sales to 15.2 million, but points out this is far short of the 18 million achieved in pre-Covid 2019. First quarter profits are expected to be impressive. Electric vehicle sales have been strong, but here’s the first hint of trouble. The great electric revolution which has stormed the popularity charts so far in the ‘20s has suddenly stalled.
This is ominous. The big manufacturers, led by Volkswagen, have poured massive amounts of capital into the EV project and desperately require returns soon on that investment. The EV market in Europe has been propelled by European Union regulations which insist on yearly lower carbon dioxide emissions targets until only new EVs are allowed by 2035. In 2025 the CO2 rules tighten sharply. Penalties for failing to meet these targets are harsh.
The trouble is Europe’s industry can’t produce EVs cheaply enough to encourage demand. But the Chinese can and are gearing up to threaten the weakest incumbents.
Stellantis CEO Carlos Tavares has described this as a “Darwinian” survival of the fittest from what he calls the third wave of Asian automakers.
“First came the Japanese, which rose to prominence in the ’70s, then the Koreans in the ’90s. Now, a “Chinese offensive” is taking shape,” Tavares has said.
Within a decade, Tavares foresees consolidation down to five or so global giants, naturally including Stellantis.
Meanwhile panic is in the air, as Renault, now looking dangerously small and threatened, surrounded by the multi-brands of Volkswagen and Stellantis, has called for a new European “Marshall Plan”. This ostensibly seeks to use EU funds to ward off Chinese competition in the entry-level small car market. No doubt Renault will use these funds, if approved, to seek refuge, while it negotiates with VW on the possibility of an affordable small car project.
Investment bank UBS said to achieve the 100% new ICE ban, automakers will require financial assistance from the EU, or the ban needs to be lifted.
Berenberg Bank of Germany said the European auto industry will post limited sales increases in 2024 but will avoid what it calls a hard landing in a year of transition. The slowdown in EV sales though is worrying and prices are under pressure.
“Competitive pressure on EV pricing and technology is fierce and is now expanding beyond Tesla and growing Chinese imports,” the bank said in a report.
“Growth momentum in EVs is fading in the U.S. and Europe. A lack of “affordable” options is also holding back volumes. This should gradually improve with a number of options priced below €25,000 ($27,100) set to gradually hit the market this year and next,” Berenberg Bank said.
The idea that €25,000 EVs are “affordable” is a notion accepted by the European industry which needs to change. If the EV revolution is to succeed, a mass market must be created quickly. That, industry experts say, means much cheaper prices of close to €10,000 ($10,850). The problem for Europe is that it doesn’t yet have the ability to make these vehicles, but China does with the likes of BYD Seagull and Wuling Bingo. Another underlying problem for Europe is the possibility the EU may impose tariffs. An EU decision is expected in a couple of months.
According to Berenberg Bank, two trends are the consequence of the slowdown in EV sales –
· Hybridization seems increasingly compelling in the near term, especially in the premium segment, where BMW may have an advantage thanks to its multi-energy platforms.
· The race for “affordability” in the mass-market segment is rekindling the debate about platform sharing and partnerships with smaller makers like Renault benefitting most.
A few months ago, BMW was being criticized for a lack of ambition because it tried to combine its EV and ICE production. As EV growth stalls, it’s now seen as a shrewd move.
HSBC Global Research said the slowing in EV sales growth may well lead to the EU diluting its plan to ban the sale of new ICE cars by 2035 when it reviews the regulations in 2026.
In a report based on its Future Transport Week conference, HSBC Research said longer-term private car ownership may face competition from what it called “micro-mobility”, such as e-bikes and e-scooters. One thing less for manufacturers to worry about is autonomous driving. Manufacturers have been spending much capital trying to develop this technology, not least because they worry a rival might suddenly blind-side with a technical breakthrough.
“The timeline for autonomous driving appears to have shifted further out with costs and technology being the key issues. Level 2/2+ autonomous features will likely capture the majority of the market by 2030. L4 for robo-taxis will probably require a geo-fenced environment although full self-driving (Level 5) for full self-driving has a more uncertain future,” HSBC Research said.
The EU decision on possible action to curb Chinese imports if they were backed by over-generous state subsidies is expected in November, but an interim judgement is likely in July.
