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Several challenges, such as changing emissions laws, as well as cost pressures could continue to erode car manufacturers’ profit margins this year, according to the Society of Motor Manufacturers and Traders.
ADVERTISEMENTThe European car industry could be poised for a challenging year, despite a surge in electric vehicle (EV) sales expected this year. Car companies are also likely to launch a number of new models in 2025, according to the motor industry itself.
Heavy discounting and mounting regulatory costs are still expected to pose a risk to profits and, while, EV discounts in 2024 helped speed up sales and move consumers away from traditional petrol and diesel cars, the change has already cost car manufacturers several billions of pounds in the UK.
Mike Hawes, chief executive of the Society of Motor Manufacturers and Traders (SMMT), said as reported by Financial Times: “The amount of money available to stimulate demand is going to be under severe pressure when manufacturers have very finite resources.”
The European EV sector last year struggled due to governments pulling back on subsidies. In 2024, Western European EV sales dropped to 1.9 million, accounting for about 16.6% of the market, according to Schmidt Automotive Research, which expects EV sales to hit 2.7 million, or 22.2% of the market this year.
However, the EU has a target of EV sales accounting for 80% of total car sales by 2030, which may be challenging to meet, given the current trajectory. The EU is also aiming for EV sales to make up 100% of all new car sales by 2035.
Other regulatory changes include the EU imposing a target of 93.6 grams of carbon dioxide per kilometre for new passenger cars by this year. This will be a decline of 15% from 2021 emission levels.
By 2030, the target is expected to be raised to no more than 49.5 grams of carbon dioxide per new passenger car. Car manufacturers are likely to face large fines if they do not meet the required standards.
Increased tariffs and cost pressures likely to hit car companies
The EU has imposed higher tariffs on Chinese EV imports, amid rising concerns of the state heavily subsidising manufacturers. This has led to mounting concerns of China retaliating against several German car manufacturers such as BMW, Mercedes-Benz and Audi with its own tariffs.
As China is a key market for these companies, any potential tariffs could have far-reaching consequences. At the moment, the companies enjoy a range of benefits from the Chinese government, such as cheaper land and tax breaks for their operations.
Ongoing higher inflation interest rates have also meant that car companies are experiencing weaker profit margins, with fewer funds available for research and development, especially when it comes to electrification. As a result, several manufacturers may not be able to offer the wide variety of models and features that Chinese rivals have been offering for years now, potentially impacting sales.
Major car companies such as Stellantis and Volkswagen have also been facing ongoing issues such as strikes and potential layoffs, which may continue this year as well.
