European Automakers Will Struggle In 2026 As Car Buyers Win.
European automakers will be increasingly exposed to hostile conditions in 2026 as sales stagnate and China’s threat accelerates, but car buyers will be smiling as prices fall and irresistible deals abound.
In 2026, car buyers can expect some impressive new European hybrids, plug-in hybrids and electric vehicles, appealing to a wide range of incomes. At the affordable end of the market will be the little Renault Twingo EV, with prices starting at €19,490 ($22,950) after tax. VW will launch the ID Polo, its cheapest EV yet, from €25,000 ($29,500). BMW’s first Neue Klasse-based SUV, the iX3, will go on sale in the first quarter from €68,900 ($81,100). Mercedes has struggled to impress with its EVs so far, according to investment researcher Bernstein, and will launch the new GLC in the Spring, priced from €71,281 ($84,000). Bernstein said the electric CLA small car, launched in mid-2025, was well received and it expects the new GLC to be an improvement on the earlier models.
At the high-end of the market, financially troubled Aston Martin will be cranking up sales of its gasoline-powered Valhalla, with its starting price of £850,000 ($1.2 million). Aston Martin shareholders will be hoping option choices might raise even higher. Ferrari has started deliveries of its new base model, the Amalfi, with its starting price of €240,000 ($283,000). The Amalfi replaces the Roma. Ferrari’s first EV, the Elettrica, will go on sales in 2026’s 4th quarter, priced from €520,000 ($610,000).
VW shut an auto-making plant in 2025, for the first time
In 2025, mass carmakers like Volkswagen and multi-brand Stellantis struggled to meet profit forecasts. VW shut a factory in Dresden, the first time in its history it had closed an automaking plant. Stellantis lost money in the first half of 2025. It didn’t close any plants in Europe but announced a series of temporary layoffs and product suspensions.
Between them, VW and Stellantis account for up to 45% of the Western Europe market, which includes the big players like Germany, France, Britain, Italy and Spain.
Sales in 2025 were treading water and not much change is expected in 2026. This doesn’t sound too bad, but before the Covid pandemic struck in 2019, car sales in Western Europe were about 4 million a year higher than currently. According to GlobalData, sales will reach about 11.6 million in 2025, up about 1%, and not much more in 2026.
Europe’s economies will grow, but slowly, in 2026, according to the Organization for Economic Cooperation and Development. The Euro area’s GDP will grow by between 1.2 and 1.3% in 2026.
But the most critical factor for Europe’s carmakers in 2026 will be the strength of the Chinese threat. According to Schmidt Automotive Research Western Europe market share for Chinese EVs will jump to 11.0% in 2025 or 269,450 vehicles, up from 9.6% in 2024, and compared with only 3.8% in 2021. The overall share for Chinese manufacturers including plug-in hybrids and hybrids will jump from 3.4% in 2024 to 6.0% this year or 701,750 vehicles. Overall share will advance to 7.5% in 2026 and reach 9.9% by 2030 or 1,292,000 vehicles.
How successful will the Chinese be?
Nobody seems to know how dangerous the Chinese threat will be. Obviously, increased supply into a stagnant market will put downward pressure on prices and profit margins. But Chinese companies are known to work with much higher gross margins than Europeans. This has helped them to generate profits despite hefty tariffs on EVs.
Currently, the leading Chinese EV players in Western Europe are SAIC’s MG and Chery’s sub-brands Omoda and Jaecoo. The threat from China will soon be concentrated on the hugely ambitious BYD, which is soon to benefit from production from its own plant in Hungary, and later Turkey, and perhaps Spain. Another Chinese giant, Geely, has also signalled big plans. Geely already owns Sweden’s Volvo and Polestar, British sports-car maker Lotus, the London Electric Vehicle Company, maker of London’s electric black cabs. Geely also owns Lynk & Co, half of Smart with Mercedes, and nearly 10% of Mercedes.
VW and Stellantis will be in the front line of Europe’s defence from China. VW has huge exposure in the segments Chinese brands are attacking – compact EVs and mid-range SUVs. Stellantis mass-market brands Peugeot, Citroen, Opel, Vauxhall Fiat is similarly exposed. Renault too. Premium brands like BMW and Mercedes aren’t immune as China is aiming at these segments too.
Investment bank UBS said the global rise of Chinese manufacturers remains the top challenge for European automakers, without adding any details.
2026 outlook deteriorating
Fitch Rating’s global automotive section said the outlook is deteriorating for 2026 because of lack-lustre economics and trade tensions.
“Europe may accelerate electric vehicle adoption through fiscal incentives and regulatory flexibility, with Germany and France expanding support to aid local (manufacturers) against Chinese competitors. Europe’s sales should edge higher, but the mix shifts toward lower margin, mass market models and EVs, restructuring charges and competition will keep profitability subdued,” Fitch Ratings said in its Global Automotive Outlook 2026.
The Ifo institute said sentiment in the German automotive industry has deteriorated, reflecting very high and rising level of economic policy uncertainty in Germany and worldwide.
That won’t have been helped by a Reuters report in late December saying German car experts to the U.S. slumped by almost 14% in the first three quarters of 2025. As European Union rules make it increasingly more difficult to sell high-priced internal combustion engines in Europe, the U.S. market would seem a natural safety valve for Germany’s ICE BMWs, Mercedes, Audis and Porsches. The U.S. tariff for German cars was set at 15% in August, down from President Trump’s initial proposal of 25%, but compared with the previous 2.5%.
It’s an ill wind that blows nobody any good
As European manufacturers come under pressure, so local buyers will benefit, reminding us that it is an ill wind that blows nobody any good. Chinese companies eager to gain market share in a stagnant market will produce downward pressure on prices, breeding generous incentives and happy buyers, excluding of course those working in the industry.
According to the European Automobile Manufacturers Association, the auto industry supports around 13 million jobs directly and indirectly. This accounts for 7% of all EU employment, with 2.4 million directly making vehicles.
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