European Car Sales Growth Set To Accelerate As China Threat Looms

The MG Cyberster electric vehicle is being displayed at the IAA Mobility 2023 exhibition in Munich, Germany. The exhibition runs from September 5 to September 10. (The photograph taken by Leonhard Simon/Getty Images captures the moment.)

The European car industry is not out of the woods yet, despite the old saying that warns not to get too excited before things have actually happened. Just because the Chinese auto industry hasn't taken over and closed down the European car manufacturers, doesn't mean it won't happen in the future.

Actually, at first glance, it appears that the European industry is doing well as forecasts for sales growth are increasing. However, maintaining this positive outlook can be challenging due to the negativity caused by reports that the unstoppable Chinese are approaching, and we are facing a bleak future.

The IAA Mobility car exposition in Munich that took place last week had plenty of news concerning the upcoming entry of China's BYD into the market. While it's true that the brands Geely, Great Wall Motors, and state-owned SAIC may eventually become a significant danger, that's still a ways off in the distance.

At the same time, LMC Automotive has revised their previous projection for sales growth of sedans and SUVs in Western Europe in 2023. They now anticipate a growth rate of 10.7% and a total sales figure of 11.23 million, which is higher than their previous estimate of 9.4%. However, these numbers appear less impressive when compared to the sales figures of 2019, which were at 14.3 million before the Covid pandemic hit. Despite this, the revised projection indicates that there may be space for everyone, including China's more affordable and efficient cars, when the market returns to normalcy.

LMC declared in a statement that although countries are encountering steep interest rates and sluggish economic growth, the macroeconomic situation is still difficult. In spite of this, growth is still LMC's key belief, taking into account the backlogs and the fact that 2022 is starting on a low base.

Europe's largest economy, Germany, is on the verge of experiencing a recession but it is anticipated that it won't be a prolonged one. The International Monetary Fund (IMF) has recently changed its previous forecast for Germany's actual Gross Domestic Product (GDP) in 2023. It has been revised from a forecast of minus 0.1% to minus 0.3%.

According to S&P Global Mobility, Germany is predicted to experience a small increase in sales of sedans and SUVs in the year 2023, with an estimated figure of 2.8 million. This represents a slight rise from the previous year's sales, which stood at 2.7 million.

During the first six months of 2023, European automobile manufacturers experienced significant financial gains. However, Germany's Berenberg Bank warns that these positive results may dwindle in the second half of the year due to decreased supply chain risks and uncertainties around affordability and demand. Chinese imports could potentially make an appearance, but Berenberg Bank predicts that the impact on profits will be minimal.

According to a report from Berenberg Bank, prices that are typically seen when selling something are currently reaching their highest point. This, along with various warning signs of demand and affordability, such as restocking items, experiencing competition from Tesla, an increase in Chinese imports coming into Europe, markets with reduced credit for customers making purchases, and costs that continue to rise, is putting pressure on the sustainability of profit margins in this industry.

Despite the significant increase in profitability, Berenberg Bank predicts that manufacturers' earnings in 2024 and 2025 will only slightly drop by an average of 5%.

The BMW Neue Klasse electric concept has been showcased at IAA MOBILITY 2023. A photograph of the vehicle was taken by Ren Pengfei and is available through the Getty Images platform.

The financial results for the first half of the year indicated that Renault and Stellantis, both mass market players, performed admirably. Volkswagen, on the other hand, had a difficult time, particularly with its electric vehicle offerings, which is a cause for concern.

Auto Forecast Solutions has a modest degree of positivity regarding the sales of the European Union, and anticipates a slight increase in Germany's pace in the year 2024.

According to the monthly report by Auto Forecast Solutions, sales of sedans and SUVs are anticipated to increase by 14.1% in the EU, indicating that the region is gradually recovering from the crash that took place in 2020. Although it's an essential milestone to reach 10 million sales, the market still has yet to attain the 13 million achieved in 2019. As per the report, Germany is anticipated to hit the 3 million mark this year; however, it's more likely to exceed that limit in the subsequent year.

The European Union is made up of twenty-seven countries. Including the five largest markets of Germany, France, the UK, Italy, and Spain, Western Europe is a part of it.

UBS, an investment bank, has been cautioning against the risk of European car manufacturers abandoning their disciplined approach and reverting to their previously unsuccessful strategy of prioritizing sales over profits. With production on the rise and supply chain obstructions dwindling, pricing discipline is diminishing.

According to a report from UBS, the industry is not exhibiting much self-control when it comes to decreasing production in order to maintain high pricing influence. This behavior will most likely lead to a negative pattern in pricing and product composition, leading to increased manufacturer profits, but a drop in margins.

According to UBS, all manufacturers should prepare for lower profits in the upcoming months due to excessive supply in the market. The company suggests that luxury brands will fare better compared to the premium and mass market manufacturers as they face higher competition and lower prices.

The Renault Megane E-Tech, pictured in a photo by Sven Hoppe from the picture alliance, is a great car with plenty of exciting features. The E-Tech model is known for its exceptional performance and efficiency, making it a popular choice among many car enthusiasts. With its sleek design and modern technology, the Megane E-Tech is definitely a must-have for anyone who prioritizes style and functionality.

European carmakers are anxiously waiting for the first signs of how much of a threat China's electric car industry poses. While some may take comfort in the idea that SAIC's initial success is due to the MG name, it could be challenging to sell pricey electric vehicles with names like Xpeng, Zeekr, BYD, Aiways, Nio, Ora, and Maxus - even if they are significantly cheaper than European brands. EU tariffs could potentially help, but it's also possible for European manufacturers to step up their game and compete on factors such as price, quality, and battery technology.