European Automakers Strain Under Sluggish EV Demand

Europe’s automotive sector is facing significant challenges due to declining demand for electric vehicles (EVs) and increasing competition from Chinese automakers. Companies such as Volkswagen, Renault, Stellantis, and BMW are grappling with underutilized factories and lagging sales of new EV models, raising concerns about potential plant closures.

German Economy Minister Robert Habeck recently held a virtual summit with representatives from the country’s auto industry to address these concerns. Habeck emphasized the need for "clear, reliable signals for the market" instead of temporary or reactive measures.

“What we do not need are short circuits and flashes in the pan,” said Robert Habeck, Minister of Economy, Germany.

According to Bloomberg Intelligence, one in three European car factories operated by major automakers like Volkswagen, BMW, Mercedes-Benz, Stellantis, and Renault is underutilized. Many plants are running below capacity, with some producing less than half of their potential output. Volkswagen’s Dresden plant, where electric models are built, is among those facing potential closures.

The situation is particularly dire at Stellantis’ Mirafiori factory in Italy, which produces the Fiat 500e. Production there dropped by over 60% in the first half of 2024, forcing the company to halt operations for a month. Renault’s Douai plant in northern France and Audi’s Belgium plant, which manufactures the luxury Q8 e-tron, are also struggling with weak sales.

Chinese automakers such as Geely, Chery, Great Wall Motor, and BYD are aggressively entering the European market to avoid European Union tariffs on vehicles made in China.

"We are clearly seeing that the global trend towards more electric mobility is leading to more competition," said Carsten Brzeski, Chief Economist, ING. 

"You cannot say that anyone has slept through the market trend," added Hans-Werner Sinn, Former President, Ifo Institute, citing the situation as a result of Europe’s rapid policy shifts toward EV production, like the EU's Green Deal and the impending 2035 ban on combustion engines. These policies, Sinn argues, have "radically upset market conditions" and put traditional automakers at a disadvantage.

Germany’s abrupt abolition of EV subsidies at the end of 2023 has further exacerbated the situation. “What about the combustion engine? Is it staying or not? When is the phaseout happening? Will it be extended or not?” Brzeski asked.

In response to the industry’s growing difficulties, Habeck suggested the possibility of further government support. During a recent visit to a Volkswagen plant in northern Germany, he acknowledged that while automakers must take responsibility for their situation, the government has a role in offering assistance.