International auto festivals were meant to be a thing of the past and the biennial Paris Car Show gave Europe’s automakers the chance for some hype and bluster. But after the show, reality will set in and it’s hard to find any positives.
The European sedan and SUV market is fading fast and looks like ending in negative territory. The Chinese assault looks like being blunted by European Union tariffs, but the threat to sales is still huge.
Multiple profit warnings from the big players signaled to investors that all these negatives have bottom-line consequences. Electric vehicle sales are stuttering.
If that wasn’t enough to shake up investors, the IMF said Europe’s auto economy was under threat from China.
The next stage of the EU’s drive to outlaw the internal combustion engine with CO2 limits kicks in next year, and the industry is increasing its opposition. BMW CEO Oliver Zipse said at the show the EU must cancel its plan to ban the sale of new ICE vehicles by 2035 otherwise there will be a “massive shrinking” of the industry.
Analysts see little chance the EU will relent.
“Most (manufacturers) will keep arguing for delays for leniency in CO2 rules and penalties, which in our view will fall on deaf ears until there is evidence of (manufacturers) and consumers failing to deliver on lower CO2,” said investment researcher Jefferies in a report.
The Chinese market, a huge generator of profits for many years for BMW, Mercedes, VW and its Audi and Porsche subsidiaries, is also turning its back on German ICE cars. The U.S. presidential election is generating some ominous sounding tariff threats from former and perhaps the next president Donald Trump.
Stars of the Paris show included Renault’s new 4 and 5 electric vehicles and compatriot Citroen with the C5 Aircross. Citroen is a Stellantis subsidiary. Ford unveiled its new Capri electric SUV. Chinese leader BYD launched the Sealion 7, said to be a competitor for the Tesla Model Y.`
Sales in Western Europe have been sagging all year after initial modest gains were expected and GlobalData now expects them to end 2024 down 0.8% at 11.47 million. A weak German market has set the tone as consumer confidence struggled.
As the show started in October, multi-brand giant Stellantis had joined Aston Martin and Volkswagen with profit warnings. They followed Mercedes and BMW warnings the previous month.
“The Western European market is now flat in comparison with last year. The big picture within the industry remains the same. Strong vehicle pricing, high interest rates, and a lack of incentives, continue to restrict sales. Some improvement is expected moving into 2025 as monetary policy easing supports broad economic expansion,” GlobalData said in its monthly report.
The Western European economy is suffering from increased prices for raw materials and energy while the stuttering performance is squeezing consumer incomes.
Western Europe includes all the big markets of Germany, the largest, France, Britain, Spain and Italy.
The German IFO Institute suggests the auto industry decline there may have halted, but there are no firm signs of a recovery yet.
The IFO Institute’s Business Climate Index for the auto industry rose by 1.3 points in September.
“However, at minus 23.0 points, the indicator remains at a very low level in a long-term comparison. The car industry was thus able to halt the nosedive of the previous month. But it would be too soon to give the all-clear,” said Institute analyst Anita Woelfl.
In September new car sales in Europe fell 4.2% to 1.12 million, according to the European Automobile Manufacturers Association, known by its French acronym ACEA. Stellantis headlined with a 27.1% drop in sales in the EU to 121,000.
Electric vehicle market share in the month rose to 17.3% from 14.8% in the same month last year, as sales rose 9.8% to 140,000, But in the year-to-date sales were 5.8% lower than the same period in 2023 with market share falling to 13.1% from 14%, according to ACEA.
Felipe Munoz, global analyst at JATO Dynamics thought the EV sales trend was positive.
“It’s hard to say for certain whether EVs will continue along this positive trajectory, but the monthly increase in registrations is welcome news – especially considering that consumers still have reservations about the adoption of electric cars,” Munoz said.
Investment bank UBS is not convinced the EU will relax its CO2 targets, which would trigger significant headwinds for some manufacturers. UBS said VW is most at risk among European manufacturers, followed by Renault, then Mercedes.
“We note that there is stronger momentum from the industry, but regulators have not picked it up yet. Theoretically, the EU could still delay the targets as late as the end of next year. Nonetheless, for (manufacturers) to plan and actually benefit, it would make more sense for the EU or member states to start the process in the next couple of months before year-end, in our view,” UBS said in a report.
Renault CEO Luca de Meo has warned that Europe’s carmakers could be fined up to €15 billion ($16.2 billion) if they fail to meet stricter EU carbon emissions targets next year.
Meanwhile, the International Monetary Fund warned that the global transition to EVs will shake up the industry.
“The rising adoption of electric vehicles represents a fundamental transformation of the global automotive industry. It will have far-reaching consequences,” the IMF said, noting the industry stands out for having high wages, strong profits, large export markets and uses a high degree of technology.
“The acceleration toward EVs would remake that landscape, particularly if China maintains its current edge in production and exports against U.S. and European rivals. Under realistic EV market penetration scenarios, Europe’s GDP would be reduced by about 0.3% in the medium term,” the IMF said.
