Europe’s car market is facing unexpected challenges as electric vehicle (EV) sales have slowed down, leading to a resurgence in demand for internal combustion engine (ICE) vehicles. Despite efforts by the European Union and British governments to ban new ICE power by 2035, car buyers are not following the script. Plug-in hybrids are gaining popularity as EV sales growth stalls, causing manufacturers like Ford to reconsider their strategies. The recent U.S. government decision to impose a 100% tariff on Chinese EVs further complicates the situation, potentially impacting European markets.
Leading manufacturers, such as BMW, are calling for changes in the 2035 ban on new ICE vehicles and are urging the EU to incentivize reductions in CO2 emissions through taxes. The German auto industry, which has profitable businesses in China, is concerned about the impact of potential tariffs on their operations. Ford’s decision to extend the lifespan of ICE vehicles is causing concern among investors, as European manufacturers have not invested in the next generation of ICE models due to the phase-out.
Investment banks like UBS and Morgan Stanley are monitoring the situation closely, noting the high exposure of the EU auto sector to key trade debates, such as increasing tariffs on Chinese EVs. Speculation suggests that tariffs could potentially increase to between 25-30% from the current 10%, potentially prompting a response from China and jeopardizing Europe’s EV targets. Although some manufacturers, like Renault and Stellantis, are less at risk due to a lack of exposure to China, others, like Porsche, could face challenges due to their high Chinese revenue exposure.
Despite the uncertainties in the market, GlobalData remains relatively calm about Europe’s prospects for 2024. While the forecast has been slightly trimmed due to disappointing results in recent months, the firm believes that easing supply issues and assumed vehicle price reductions could support the market. Additionally, the beginning of monetary loosening and easing inflation pressures could further bolster the market. However, geopolitical risks still pose a threat to the forecast, highlighting the ongoing uncertainty in the European car market.
Overall, Europe’s car market is facing unexpected challenges as EV sales stall and demand for ICE vehicles increases. Manufacturers must navigate changing regulations, potential tariffs, and geopolitical risks to stay competitive in the market. While some are calling for changes to the 2035 ban on new ICE vehicles, others are adjusting their strategies to adapt to the evolving landscape. With uncertainty looming, it remains to be seen how the European car market will continue to evolve in the coming years.
