Volkswagen's Crisis Is The Reflection Of Europe's Automotive Struggles

Europe’s biggest automaker, Volkswagen VWAGY is considering plant closures for the first time in its 87-year-old history. But Volkswagen is merely a reflection of a struggling European auto industry that is currently challenged on many fronts, with its struggles being both the global competition and its declining appeal. 

Europe’s automotive industry is struggling with many issues simultaneously. 

According to Bloomberg Intelligence, one in three European factories of carmaking behemoths, namely Volkswagen, Bayerische Motoren Werke Aktiengesellschaft BMWYY, Mercedes-Benz Group AG MBGAFMBGYY, Stellantis N.V. STLA and Renault RNLSY is underutilized. Meanwhile, Chinese automakers such as BYD BYDDY are off to conquer Europe. To avoid tarrifs on China-made EVs, they are planning to make their own factories on the European continent. 

Volkswagen is only one of the first victims.

Volkswagen Group CEO Oliver Blume openly spoke of the serious situation that Europe’s automotive industry is facing with Germany in particular falling from grace as a competitive manufacturing location. Volkswagen has also fallen from grace in China, its single biggest market. During the first half of 2024, Volkswagen’s deliveries in China dropped 7% YoY with group operating profit tumbling 11.4% to $11.2 billion. Volkswagen is losing out to local brands in China like BYD and those brands are now going for its home market.  

Stellantis has also been hit by slowing demand in Europe.

In Italy, Stellantis is hitting the brakes. In response to the sales crisis, Stellantis halted production of its electric Fiat 500e for a month at its Mirafiori facility that is located near Turin. Stellantis also revealed that the site will be undergoing a significant transformation that will involve an investment worth €100 million. Stellantis is expected to start making a hybrid version of the Fiat 500 sometimes next year. 

In addition to its European struggles, Stellantis is also facing a shrinking share in North America. During the first half of 2024, net revenues dropped 14% YoY while net profit took a 48% YoY plunge.

With Chinese EV makers navigating new roads, determined to conquer the world, simple cost-cutting measures won’t do. 

European automakers are having a hard time keeping up with Chinese EV makers. The increased tariffs that the EU imposed on Chinese EV makers led to significant backlash and concerns that this will make it more difficult for the EU to achieve its net-zero goals as Chinese EVs are more popular with consumers, both due to their more favorable pricing and greater features. Moreover, tarrifs are seen as a minor speed bump for an EV powerhouse like BYD. Regardless of their legacy, European automakers who fail to adapt quickly enough will be left on the sidelines as Chinese EV makers like BYD threaten to leave them in the dust.

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