Europe’s Sales Forecast Is Steady But Prepare For Turmoil

Europe’s Sales Forecast Is Steady But Prepare For Turmoil.

“The next automotive battle in Europe may not be Chinese versus Europeans. It may be Chinese versus Chinese.

The cold logic of sales forecasts suggests the European auto market can look forward to a strong and steady future. But under the surface chaos looms.

What appears to be a steady, prosperous industry is in fact in the midst of existential turmoil. According to French automotive consultancy Inovev, sales of sedans and SUVs in Europe will remain roughly the same in 2035 as in 2026 – 16.7 million versus 16.9 million.

Inovev forecasts that Chinese manufacturers will more than double market share in Europe from 7% in 2025 to 15% in 2035. This is  conservative compared with a recent forecast from AlixPartners which expects 16% by 2030. Investment researcher Bernstein expects 18.7% by 2035, and investment banker UBS 20% by 2030.

Inovev expects by 2035, 1.6 million Chinese sedans and SUVs will be manufactured in Europe, not including Geely’s Volvo.

But the Chinese are here, armed with electric vehicles way ahead of European rivals in terms of technology and costs. Leading German players like Volkswagen, Mercedes and BMW   are slashing profit forecasts. Once mighty VW is now losing money, closing factories and firing workers. Multi-brand Stellantis  may have to close or sell iconic names like Maserati, Alfa Romeo, Lancia, Opel/Vauxhall and wannabe premium contender DS. VW may have to consider the future of its SEAT mass-market subsidiary after changing its name to Cupra.

Why force EVs on Europe when China has a huge advantage?
One mystifying and debilitating factor in Europe’s chronic weakness is European Union action to gradually force an electric vehicle monopoly  on new car sales between 2021 and 2035, since diluted slightly. This action was taken in the full knowledge that the Chinese were way ahead in the market for EVs, and the only outcome would be to cripple its own industry and force scores of thousands of high-paid workers on to the dole.

There is one mitigating factor, which might not solve Europe’s problem, but might at least add an element of “schadenfreude”, the German word for enjoying other people’s suffering.

The Chinese onslaught in Europe is more than just an industry building up its competitiveness and flexing its muscles in overseas markets. It’s a life-and-death struggle because the intensely competitive home market has cut profit margins to the bone, or eliminated them altogether. Sales in Europe, at least currently, allow huge margins of up to 30%, despite EU tariffs of more than 40% in some cases and curbs on future PHEV sales . But easy money won’t last long because as many as 50 different Chinese brands, according to Inovev – of  mainly EVs and plug-in hybrids – are now on sales across Europe.  

There are well known and established manufacturers like BYD  and its Denza subsidiary, Chery  with Omoda, Jaecoo and Lepas brands, and SAIC’s MG. Stellantis affiliate Leapmotor, Geely with its Lynk & co and Volvo, and lesser names like Great Wall Motor, Aito, Changan, GAC, Li Auto, and Maxus, all plan to maker big money in Europe. Not many of them will succeed

China versus Europeans becomes China versus China
Zoran Matovic, Managing Director of Auto Business & Enterprise in Serbia, told Forbes last month the rapidly increasing number pf unknown Chinese brands will be fighting amongst themselves to succeed in Europe.

“The next automotive battle in Europe may not be Chinese versus Europeans. It may be Chinese versus Chinese. Dozens of Chinese brands are looking at Europe. But they are not only competing for customers, they are competing for the same strong dealers, prime showrooms, experienced staff, the same fleet customers and the same investment capital,” Matovic said.

Matovic said established European brands will not disappear, but not all will survive in their current form. Premium manufacturers with strong brand equity, loyal customers and pricing power are better positioned, while mainstream brands operating on thin margins will face significantly greater pressure.

Professor Ferdinand Dudenhöffer, director of Germany’s Center for Automotive Research, said he expects many European manufacturers will survive these new conditions, but the pressure will be on suppliers.

European manufacturers will hang on, but suppliers…
“I suspect that many of our existing automakers will manage to secure a future in this new landscape, much like what happened during the “Japanese revolution” in the automotive industry. I see a much greater challenge for suppliers, however. Take Bosch, for example – once the world’s largest supplier. With the battery sector lost and the “intelligence” of the vehicle shifting elsewhere, the outlook is grim,” Dudenhöffer said in an email exchange. 

Frank Schwope, automotive consultant and lecturer at FHM Berlin, said the Chinese incursion in Europe is similar to the Japanese one in the 1970s and the Koreans in the 1990s, with a couple of big differentiators.

(FHM Berlin, Fachhochschule des Mittelstands, is a private, state-recognized university of applied sciences in Germany).

“The difference, however, is that this time we see two disruptions: 1, electric mobility in the present, and 2, autonomous driving in the 2030s. Chinese manufacturers have a better grasp of both technologies than many others. Furthermore, the impact of Chinese manufacturers is enormous; by September, they already held a market share of more than 15% in Europe,” Schwope said in an email.

“Nevertheless, not all Chinese groups will survive. However, 5–10 Chinese are likely to remain. Among the brands under threat, (Stellantis’s) Opel, Lancia and DS, and VW’s SEAT are particularly at risk. However, it is an easy and cost-effective way to keep brands afloat through ‘badge engineering’,” Schwope said.

EU action might prompt China reaction
Will the EU take measures to protect its manufacturers?

“EU measures are highly likely, although there is always the concern that China might take countermeasures,” he added.

German manufacturers are particularly wary of retaliation because of their traditional huge money-making history in China, which is now under threat.

The Center for Automotive Research’s Dudenhöffer said Chinese production in Europe will be more significant than the arrival of the Japanese 50 years, or the Koreans 30 years ago as European manufacturers agree alliances with the Chinese. 

“Crucially, the car of tomorrow will incorporate a large share of Chinese technology—from autonomous driving and Level 4 (L4) capabilities to “smart cockpit” systems. Therefore, we need a strategy. I believe cooperation is a suitable approach here; the partnerships we’re seeing—such as Stellantis with Leapmotor or VW with XPeng—will likely be adopted by many other automakers. And then there is digitalization. Nvidia will face competition: Huawei, CATL, Gotion, Horizon Robotics, Baidu—a vast number of Chinese tech giants will shape the car of tomorrow,” Dudenhöffer said.