Battered European Auto Investors Can Expect More Stable 2026

Battered European Auto Investors Can Expect More Stable 2026.

“We expect tensions to re-emerge ieven though near-term disputes have eased, posing short-term risks to global supply-chain resilience, pressuring working capital and weighing on production volumes,

European auto investors suffered in 2025 as profits plummeted, pressured by weak markets, tariff turmoil, and electric vehicle mandates, but at least 2026 looks likely not to be any worse.

The Brussels auto show showed some strong traditional competitors for 2026, but also showcased the emerging threat from China.  

“It is hard to imagine how 2026 could bring more external shocks and share price divergence than 2025, but with no visible end to industry disruption, we are also prepared for surprises, impairments and strategic shifts,” investment researcher Jefferies said in a report.

But there is light at the end of the tunnel.

“Unusually so, Europe may offer the most attractive growth prospects (compared with the U.S. and China) from a low base and continued EV transition,” Jefferies said.

 Last year, sales of sedans and SUVs in Western Europe rose 2% to 11.8 million, according to GlobalData, which expects only modest growth again in 2026 because of persistent, sluggish economic conditions. GlobalData said the numbers look less impressive when you remember that pre-Covid, sales were about 4 million higher.

That signifies much unused capacity. Factory shutdowns and temporary closures were most notable by multi-brand Stellantis  and Volkswagen in 2025, which together account for about 45% of overall market sales. Western Europe includes all the major markets of Germany, France, Britain, Italy and Spain.

 EVs captured 19% of the market, about the same as 2024, but not enough to meet the European Union effective mandate of about 25%. 

Profitability will remain subdued in 2026
Fitch Ratings said intensifying competition and restructuring mean European automakers’ profitability will remain subdued in 2026, despite increasing sales, which will be boosted by new mass-market models and continued incentives for EVs. Sales mix is likely to shift to lower-margin segments, according to Fitch Ratings in a report.  

 The Brussels auto show, which opened Friday, included global debuts for the Kia EV2, a compact electric SUV, which will compete against models like the Renault 4 and Citroen e-C3. Citroen unveiled the ELO concept, a multipurpose EV with sliding doors. Mazda showed a second EV for Europe, the CX-6e. The accelerating threat from China was apparent by nine new BYDs including the Atto2 DM-I compact SUV plug-in hybrid, and models from Chery, Stellantis affiliate Leapmotor, SAIC’s MG and Xpeng. 

Fitch Ratings warned that European automakers, as net importers including rare-earth elements and chips, remain directly exposed to U.S.-EU-China trade tensions  and vulnerable to protectionist shifts.

“Recent events such as U.S. curbs on advanced semiconductor exports to China and China’s restrictions on rare-earth magnets have heightened the risk of chip shortages, prompting warnings of production stoppages and potential furloughs.” 

“We expect tensions to re-emerge in 2026 even though near-term disputes have eased, posing short-term risks to global automotive supply-chain resilience, pressuring working capital and weighing on production volumes,” Fitch Ratings said.

Stellantis, Volkswagen most favored, Renault under pressure
Jefferies said Stellantis and Volkswagen were the most likely companies to improve their operations in 2026, with scope to surprise on strategic decisions.

Jefferies expects Stellantis to start rebuilding its share price and profits, but also to re-establish strategic priorities and reset capital allocation. VW’s progress has been slow but this has become tangible on core margins, fixed costs and CO2 compliance. BMW and Mercedes face a transition year with likely flat profits. Renault is facing profit margin dilution this year as it increases its sales of EVs.

The European Commission last month proposed changes to the CO2 emissions regime which allowed companies some concessions on the way to 2035, cut the 2035 target to 90% from 100%, and will unveil a plan to stimulate European sales of small EVs. These measures will require the approval of the European Parliament. 

Timid EU CO2 concessions 
Jefferies expects European carmakers to take some benefits from this.

“EU concessions on CO2  were timid overall but the emerging focus on local content/preference and on reviving small cars could be meaningful for EU (manufacturers) and suppliers in their drive to compete with but also find ways to cooperate with their Chinese counterparts,” Jefferies said.