Investing.com -- The European auto industry is navigating a "perfect storm" of challenges, like slowing battery electric vehicle (BEV) adoption, competitive pressures from Chinese automakers, and excess EV capacity, Bernstein analysts said in a note.
Volkswagen (ETR: VOWG_p )'s struggle to adapt to the shift towards electrification echoes past crises of existential challenge from Japanese carmakers, but this time, the threat comes from Tesla (NASDAQ: TSLA ) and agile Chinese rivals.
“What is different this time around is the technology shift to electrification and here most legacy auto companies have been caught on the back foot by the volatility of demand,” analyst wrote.
With BEV demand heavily reliant on state subsidies, sales in Europe have weakened as early adopters taper off, leaving corporate fleets to fill the gap.
Yet on the supply side, emissions regulations will force automaker to sell increasing numbers of EVs, particularly as the allowances for plug in hybrid’s are tightened. Unless the regulations are eased, this may force the OEMs to sell unpopular EVs into a market at fire sale prices, further increasing losses.
The industry faces a three-way tradeoff, in which, if regulations are not pushed back or in case significant subsidies re-introduced, the OEMs will be forced to accept significant losses on cut-price EVs to attract otherwise reluctant buyers, or alternatively pay fines.
While BMW (ETR: BMWG ) expects to avoid paying fines in 2025, Mercedes could be paying low triple digit millions of euros in fines given its reliance on hybrid’s today, while Volkswagen are expected to pay €1-2bn in fines. Stellantis (NYSE: STLA ) and Renault (EPA: RENA ) remain in uncertain territory.
Bernstein revised its 2030 EV penetration forecast for Europe to 51%, from 67% earlier this year, reflecting subdued demand and shifting market dynamics.
Automakers with greater flexibility, like BMW and Renault, are better positioned to weather the challenges, the analysts said. Meanwhile, Volkswagen, Porsche, and Mercedes face mounting pressure to demonstrate meaningful progress in their BEV strategies.