The era of European cars that once dominated the global market is fading. Sluggish sales in China, which once served as a springboard for high growth, are worsening results. European automobile corporations have recently turned their eyes to the defense industry market or are considering contract manufacturing of Chinese electric vehicles, finding themselves pushed to seek ways to survive.
According to the auto industry on the 19th, Germany's Volkswagen Group posted first-quarter sales of 75.7 billion euros (about 131.225 trillion won) and operating profit of 2.5 billion euros (4.33 trillion won) this year. Those figures were down 2.5% and 13.8%, respectively, from a year earlier. Net profit fell 28.4% to 1.56 billion euros (2.7 trillion won). Volkswagen said higher U.S. tariff rates and intensifying competition in China hurt its results.
Mercedes-Benz's first-quarter sales and operating profit also came to 31.6 billion euros (54.77 trillion won) and 1.9 billion euros (3.29 trillion won), down 4.9% and 17%, respectively, from the same period last year.
BMW's first-quarter sales were 31.007 billion euros (53.71 trillion won), down 8.1% year over year. Operating profit fell 36.2% to 2.348 billion euros (4.067 trillion won). In its report on results, BMW said, "Sluggish sales in the Chinese market and rising U.S. tariff expense contributed to the weak performance," adding, "It was difficult to make up for the reduced sales and profit despite efforts such as cost cuts."
Combined sales in China by Germany's three carmakers—Mercedes-Benz, BMW and Volkswagen (including Audi)—have been steadily declining. The three companies sold a combined 935,400 vehicles in the first quarter this year, down 15.1% from a year earlier. The combined sales in the first quarter of 2024 and last year were 1,195,400 and 1,101,300 vehicles.
They are also losing ground in the United States, the world's largest auto market. The three German brands sold 323,300 vehicles in the U.S. in the first quarter this year, down 9.3% from a year earlier. Analysts say they are being shunned by consumers, lagging behind Korean players such as Hyundai Motor and Kia and Japanese brands including Toyota.
With years of weakness in their core business of selling finished cars, European automakers are scrambling to find ways to recover results through revenue diversification and restructuring.
On the 30th of last month, Volkswagen said it would cut its annual global production capacity to 9 million units (maximum output 12 million) and carry out intensive restructuring. Volkswagen CEO Oliver Blume also said, "We will check whether there is an opportunity to produce Chinese cars in Europe."
Volkswagen is collaborating in China with SAIC Motor. Blume's latest remark is seen as signaling a review of contract manufacturing for SAIC in Europe.
Stellantis and Nissan have also discussed with Chinese companies such as Geely Automobile Holdings and Chery Automobile Co. how to use their own plants in Europe.
According to the Financial Times (FT), Volkswagen is also reviewing a plan to produce parts for Rafael's Iron Dome, an Israeli defense company, at its Osnabrück plant. Volkswagen plans to gradually suspend operations at the plant, which has been struggling, by next year and appears to be seeking new uses.
France's Renault Group is also stepping into the defense field to help recover its deteriorated results. Renault Group's operating profit last year was 3.6 billion euros (6.23 trillion won), down 14.2% from a year earlier. After consultations with the Ministry of National Defense, the company said in January that it "decided to produce up to 600 drones a month."
Stellantis, which owns multiple European brands including Fiat, Maserati, Peugeot and Citroën, has added diesel trims to mainstay models such as the Peugeot 308 and has been producing them since last year. Stellantis declared it would "go all-in on electric vehicles" in 2021 and said it would invest a total of 30 trillion won, but after posting a net loss of 22.3 billion euros (about 38 trillion won) last year, it returned to internal combustion engines.
An auto industry official said, "Amid the rapid rise of Korean and Chinese cars, European automakers are gradually declining while struggling with electric-vehicle technology development." The official added, "European companies will continue to consider revenue diversification, but because weapons production offers limited and small revenue, it is likely to remain a temporary stopgap."