The era of European cars that once dominated the global market is fading. Sluggish sales in China, which once served as a springboard for strong growth, are persisting and worsening results. European automobile corporations have recently turned their eyes to the defense industry market or are considering contract manufacturing of Chinese electric vehicles, as they are pushed into a situation where they must seek ways to survive.
According to the auto industry on the 19th, Germany's Volkswagen Group posted first-quarter revenue of €75.7 billion (about 131.225 trillion won) and operating profit of €2.5 billion (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 (2.7 trillion won). Volkswagen said higher U.S. tariff and intensifying competition in China hurt its results.
Mercedes-Benz's first-quarter revenue and operating profit also came to €31.6 billion (54.77 trillion won) and €1.9 billion (3.29 trillion won), down 4.9% and 17%, respectively, from the same period last year.
BMW's first-quarter revenue was €31.007 billion (53.71 trillion won), down 8.1% from a year earlier. Operating profit fell 36.2% to €2.348 billion (4.067 trillion won). In a report on its results, BMW said, "Weak sales in the Chinese market and rising U.S. tariff expense contributed to the poor performance," adding, "It was difficult to make up for the decreased revenue and profit through efforts such as cost cuts."
Combined sales in the Chinese market for Germany's three major automakers—Mercedes-Benz, BMW, and Volkswagen (including Audi)—have been steadily declining. The three sold a combined 935,400 vehicles in the first quarter this year, down 15.1% from a year earlier. The combined sales for 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. They appear to be shunned by consumers as they lose out to Korean makers such as Hyundai Motor and Kia and to 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 global annual production capacity to 9 million vehicles (maximum output 12 million) and implement deep restructuring. Oliver Blume, Volkswagen's chief executive officer (CEO), also said, "We will see whether there is an opportunity to build Chinese cars in Europe."
Volkswagen is collaborating in China with SAIC Motor. Blume's remark is seen as signaling a review of contract manufacturing for SAIC in Europe.
Stellantis and Nissan have also discussed using their plants in Europe with Chinese companies such as Geely Automobile Holdings and Chery Automobile Co.
According to the Financial Times (FT), Volkswagen is also considering producing parts for Iron Dome from Israeli defense company Rafael at its Osnabrück plant. Volkswagen plans to gradually suspend operations at this struggling plant by next year and appears to be seeking new uses.
France's Renault Group is also stepping into defense to help recover deteriorated results. The group's operating profit last year was €3.6 billion (6.23 trillion won), down 14.2% from a year earlier. After consultations with the Ministry of National Defense of France, 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 key models such as the Peugeot 308 and has been building 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 (about 38 trillion won) last year, it reverted to internal combustion engines.
An industry official said, "Amid the rapid rise of Korean and Chinese cars, European automakers are gradually declining as they struggle with electric-vehicle technology development." The person added, "European companies will keep looking for ways to diversify revenue, but because weapons manufacturing has limited and small revenue potential, it is likely to remain a temporary stopgap."