How the European Auto Market Turned Upside Down

After decades of relatively stable business in Europe, legacy automakers –  Stellantis, Volkswagen, Renault, BMW and Mercedes-Benz – are watching their profitability and workforces come under significant pressure from an influx of Chinese automakers appealing to European customers with lower prices and high value.

European automakers are reducing capacity to cope with falling business while improving competitiveness and efficiency. It is not easy. European governments have long worked with their automakers to optimize employment. Tariffs are in place to buy the automakers time to better compete against Chinese EVs, but Chinese automakers seem poised to buy some of the excess manufacturing capacity of western companies.

At the end of 2020, Stellantis, for example, had a 23.6% market share, while it’s 17.4% at the end of 2024. That is a precipitous drop in a short period of time. At the end of 2020, Renault Group held a 7.7% market share in Europe, while market share today is up to 10%, and operating margin is healthy, making the French automaker the exception to the trend so far, At the end of 2020, the Volkswagen brand maintained its position as Europe's largest car brand with a 9.2% market share, with a share of 11.4% by the end of this year. Like Renault, that growth of share comes from maintaining sales volume at the expense of profits.

At the end of 2020, Volkswagen AG reported a profit before tax of €11.7 billion, with a net profit of €8.8 billion, or a 4.8% profit margin. Volkswagen expects a profit margin of around 5.6% in 2024, down from the previously announced 6.5%-7%.

The broad picture moving forward for European automakers is cloudy. In the January to October period in 2019, the European companies sold 2,911,780 new vehicles, while they sold just 1,506,185 for the same period in 2024 – a drop of almost 50%.

Of course, there are a multitude of reasons behind this slump: the cost-of-living crisis that has hit consumers in most nations around the globe through inflation sparked by Russia’s invasion of Ukraine, and other geopolitical issues; and higher energy costs facing European manufacturers, especially the German powerhouses that had become dependent on cheap Russian gas.

Then there is the China problem. In 2024, Chinese automakers have significantly increased their presence in Europe, particularly in the electric-vehicle segment. Chinese brands have expanded their share of the European automotive market from a mere 0.1% in 2019 to approximately 3% in 2024. In June 2024, Chinese manufacturers captured a record 11% of the European EV market, registering over 23,000 battery-electric vehicles across the region. Chinese brands are projected to reach a 20% share by 2027. Those are sales coming out of the hides of established western companies.

European carmakers are feeling the Chinese pinch from both sides. German automakers have a particular issue with their dependency on the Chinese market for about a third of their global sales. That was seen as an asset five years ago before China's homegrown BEV makers had managed to get up to speed with their products.

Now they have, and China’s automakers are able to wage a vicious price war that has squeezed the German automakers out of the market, unable to match the pricing of Chinese rivals.

Just two of the dozens of Chinese automakers, BYD and Xpeng, make money while all the others continue to receive huge state support to be kept in business.

How can legacy western manufacturers compete in this landscape? Well, the European Union levies tariffs against unfairly subsidized Chinese imports into its markets, albeit at much lower levels of those imposed by the U.S. and Canada. Former Stellantis CEO Carlos Tavares, for one, has warned the industry not to get comfortable with the EU tariffs as a long-term price support. Stellantis has a strategic venture with Chinese automaker Leapmotor.

In the U.K., Stellantis’s Fiat brand has been surpassed by Chinese newcomers BYD and Omoda with new offerings at super-competitive prices. This explains the group’s 51%-49% lead joint venture to market Leapmotor vehicles through its extensive European network, buying it time to restructure its own processes to cut production costs.

The BYD Seagull costs about $12,000

However, other automakers see the need to face up to the Chinese threat to their European sales potential with BMW’s CEO, Oliver Zipse, continuing to call for the EU not to ban internal-combustion-engine technology by the 2035 deadline. He wants carbon-neutral fuels, including synthetic and hydrogen fuels, to be allowed for use in new ICE vehicles after this date. That could be where legacy automakers would find it easier to compete with cheaper vehicles benefiting from higher production margins.

Also, Renault’s boss, Luca de Meo, tells WardsAuto the European auto industry must work together with regulators to devise an industrial strategy to meet a problem that the EU’s tariffs cannot fix. He says: “The real question for me is whether we are able to reorganize ourselves, potentially differently, from the Chinese because we live in a different capitalistic system to be able to long-term compete with them in, say, five or 10 years. That is the real question, not the tariffs.”

What can European automakers do in the next five years to minimize loss of share in the European market? They are re-emphasizing more affordable EV models, significantly investing in local battery production, streamlining their supply chains, aggressively promoting their EVs and potentially collaborating with other European manufacturers to achieve economies of scale, while also advocating for continued tariffs, continued charging infrastructure development and tax incentives for EV purchases.

But even with tariffs, it remains to be seen if European automakers even have a chance to come close to Chinese prices.

The average hourly wage for auto workers in Germany was around €33 in 2023. Meanwhile, a Chinese auto worker’s average wage is around $1,139 per month, according to SalaryExpert, with variations depending on location, experience and company. Even moving production to Eastern European countries doesn’t narrow the wage gap by much.

Besides Chinese automakers, European companies also have to battle one another on pricing and design, as well as other rivals such as surging Hyundai Group, including Kia Motors, and a more competitive Honda and Nissan, which are exploring combining under a new holding company starting in 2026.

Difficult choices on plant closures, job cuts and wage cuts, the likes of which have not been a part of the European auto landscape since the end of World War II, are all being discussed and debated within the European companies. Only one thing is certain for the next few years: Keeping up with the Chinese won’t get any easier.