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European Automakers Grapple with Plummeting Demand

European Automakers Grapple with Plummeting Demand

May 3, 2024

European Automakers Grapple with Plummeting Demand

In a significant downturn for the automotive industry, European car manufacturers are confronting a decline in demand, particularly in China and their domestic markets. Financial reports this week have indicated that companies such as Volkswagen Group, Stellantis, and Mercedes-Benz are experiencing financial pressures that have sent their shares lower, especially leading into Wednesday's session.

The Financial Times disclosed that Volkswagen Group's profits have fallen by a fifth compared to the previous year, now standing at €4.6 billion. This substantial drop is largely a result of declining resale values and supply issues, notably within its Audi brand.

"Audi's supply challenges and the impact on our profitability cannot be overlooked," a VW spokesperson told the Financial Times.

For carmakers like VW, which offer customer financing, diminished resale values of used cars necessitate write-downs on these loans, thus affecting their financials. Stellantis, which oversees brands like Peugeot and Jeep, also experienced a larger-than-expected revenue drop, with figures reaching €41.7bn in the first quarter, as its core European market performance weakened.

Mercedes-Benz reported a nearly 30 percent reduction in earnings before interest and tax, decreasing to €3.9bn. The luxury car manufacturer cited a decrease in both sales volumes and profit margins, with new car sales declining by 8%, led by a slump in Asia.

"We are increasingly...worried about the [Mercedes] Cars operations," a Citi analyst commented this week, expressing concern over the brand's future.

ZeroHedge highlighted that the automotive sector, which had previously benefited from supply chain disruptions, is now facing issues such as plummeting resale values, particularly of electric vehicles (EVs). This is partly due to intense competition from companies like Tesla and various Chinese manufacturers, along with software obsolescence and weaker demand. Rising interest rates have also played a role in deterring consumers from making purchases.

With China being a significant market for Volkswagen and Mercedes-Benz, the softening consumer demand and increasing competition from local brands are major concerns. VW acknowledged a lower-than-expected operating margin as it offered discounts across its models and dealt with internal supply issues affecting engine production for Audi.

Despite these setbacks, VW is continuing its shift towards electric vehicles, planning to launch 30 new models. Stellantis is also bracing for its introduction of new electric cars later in the year, despite a 12 percent year-on-year decline in net revenues for the first quarter, which totaled €41.7bn.

Financial Times Article

ZeroHedge Article


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