Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
That European carmakers were going to struggle with the transition to electric vehicles was a given. New, native EV entrants such as Tesla and BYD were always likely to make inroads, leading to share losses for traditional incumbents. The bad news is that a delayed transition is not proving any easier to navigate.
That was the message emerging from the industry this week. Take Volvo Cars’ decision to water down its 2030 target to go full plug-in electric. This highlights how expectations on the speed of EV take-off have changed. More expensive cars, plus a dearth of charging infrastructure have conspired to slow global growth rates. In Europe, where subsidies have been cut, sales have actually gone into reverse in the past few months.
But this delay offers no respite for traditional automakers. Their plight is epitomised by Volkswagen, which is considering shutting factories in Germany for the first time in its 87-year history. This comes after the announcement of the potential closure of a Belgian plant over the summer.
The group’s problem is that people are not just eschewing EVs in favour of traditional cars. They are buying fewer cars overall. Indeed, European unit sales (including the UK and EFTA countries) were 12.8mn in 2023 — far below the pre-Covid peak of 15.8mn in 2019 — and growth in the first seven months of 2024 was an anaemic 3.9 per cent, according to Bernstein. How much of the lost volume is cyclical and how much is structural is anyone’s guess. (VW itself is not optimistic.) But at this rate, it will not be regained any time soon.
Ordinarily, carmakers in a slump would rush to launch new, cheaper cars — even at lower margins — to entice consumers and keep factories ticking over. But the uncertain trajectory towards electrification makes it hard to invest in new internal combustion models.
Cheap European EVs, meanwhile, remain a far-off dream. This limbo affects consumers, too, who may be putting off buying a new car until the fog clears. That helps explain Volkswagen’s decision to focus on cutting costs and capacity instead. Already, Harald Hendrikse at Citigroup forecasts, the group will miss its margin target for the year.
It is hard to see how European carmakers can thrive while the market is in a muddle. And when EVs do finally resume their growth path — as seems inevitable — they will have to grapple with margin dilutive sales and fierce competition. The sector’s path looks anything but smooth.
camilla.palladino@ft.com
Read the full article here
