“We expect the European car industry to sputter on in 2025-26, given that it faces substantial structural challenges. This is especially true for German carmakers. Among these challenges are the need to reduce production costs, as Chinese manufacturers benefit from lower labour costs, economies of scale and government subsidies; having to partly shift away from the expensive premium segment and toward offering more affordable EV models; having to catch up with regard to software and connectivity; and dealing with the global dominance of Chinese battery producers. Furthermore, the global shift towards the adoption of EVs is likely to put under pressure auto suppliers in Germany and in CEE, where automakers have specialised in producing internal combustion engines (ICEs). We note that EV motors only require about 20 parts, compared to the more than 2,000 parts that make up ICEs. Finally, higher US tariffs, especially on autos, given President-elect Trump’s focus on German cars, will probably dampen the positive impact coming from lower inflation rates and additional rate cuts by central banks.”
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Morten W. Langer
