European automakers stuck in an impasse

LeMonde

6 days ago

The automotive industry has always been cyclical. Boom periods have routinely been followed by spectacular drops in sales and profits, which are driven by economic conditions or phases when car models are renewed. The turmoil the sector is experiencing today, however, has little in common with its past upheavals. The current crisis is a structural one, and it is uncertain how French brands will manage to pull themselves out of this rut. While, up until recently, Renault and Stellantis (Peugeot, Citroën, Fiat, Chrysler, Opel, etc.) boasted about their profitability, which was unprecedented for the industry, both manufacturers posted heavy half-year losses of several billion euros in the first quarter.
The setbacks have since mounted. Dealerships have their inventories pile up, and these cars must be cleared out at steep discounts, which undermines profits. Renault also faces the depreciation of its stake in the Japanese company Nissan, which is also going through a difficult period. The European car industry is also paying the price for not having prepared for the transition to electric vehicles and for the rapid rise of its Chinese competitors. This painful shift had been further exacerbated by the tariffs imposed by Donald Trump.
With the specter of decline looming, car manufacturers have desperately scrambled to contain the crisis, which threatens millions of jobs. According to them, the main culprit was the European Union's decision to ban the sale of combustion-engine cars from 2035. This measure has been criticized as a purely political choice, disconnected from the market's realities, and the 2035 deadline has been targeted by intense lobbying efforts aimed at pushing it back. Automakers have already succeeded in postponing penalties for exceeding CO 2 emissions limits, as they were initially scheduled for 2025 before being pushed back to 2027. Everyone has understood that this is just a step, as the real goal is to challenge the entire regulatory timetable.
Bargaining for a reprieve, and thereby focusing on the short term, has proven to be a strategic misstep. European carmakers had 15 years to prepare for the transition. That is the time it took for China's automotive industry to become the undisputed world leader in electric vehicles and achieve a decisive technological lead over Western companies. Those Western companies instead chose to keep one foot in the old world by continuing to sell large SUVs, which generate higher profit margins but are now too expensive for most consumers. The Chinese strategy was to go for mass production with affordable models, allowing them to achieve unbeatable production costs and a highly effective pace of innovation.
European car manufacturers now argue that the European market is not meeting expectations. Yet, in about 10 countries where a favorable ecosystem has been created for electric vehicles, with tailored tax policies, available infrastructure and affordable charging costs, the percentage of electric vehicles in total sales is ahead of schedule. Rather than making the transition out to be a scapegoat for the sector's problems, car manufacturers should redirect their lobbying efforts to demanding public policies to support the transition.
Pushing back regulatory deadlines would only widen the lag behind their Chinese competitors, who will not stop innovating simply because Europeans have decided to extend the life of outdated combustion technology at any cost. This backward-looking perspective only worsens the impasse in which the sector now finds itself.