BMW, Mercedes-Benz, and Volkswagen, symbols of Europe's auto industry, are becoming new short-selling targets for global hedge funds. Analysts say European automakers, which once led the global car market by reaping huge profits in China, now face doubts about their long-term competitiveness as they are pushed back by Chinese electric-vehicle makers.
According to the Financial Times (FT) in the U.K., hedge funds have increased short positions this year on long-dated bonds and perpetuals issued by BMW, Mercedes-Benz, Volkswagen, and Stellantis. In particular, bonds from Stellantis and Volkswagen rank among the most shorted corporate bonds in Europe. As of the end of May, a 2035-maturity bond issued by Stellantis was recorded as the most heavily shorted bond among European investment-grade corporate bonds.
A similar trend is appearing in the stock market. The short interest in Stellantis shares jumped to 5.8% recently from around 1% at the end of last year. Hedge funds are expanding bearish bets across the auto sector, and in the process, tens of billions of euros in market capitalization have evaporated from European auto corporations.
Industry observers say investors have begun to see the crisis around Europe's auto industry not as a simple downturn but as a structural shift. Adrien Bragey, an analyst at auto research firm AlphaValue, told the FT, "China is no longer a profit source for European car companies but a competitor," adding, "Investors question whether the auto industry can regain profitability at past levels."
In fact, Chinese automakers are rapidly expanding their influence in the European market. According to the European Automobile Manufacturers' Association (ACEA), the market share of Chinese automakers in the European Union (EU) came to 8.5% between January and April this year. That is a sharp rise from 6% in the same period last year.
In particular, BYD and Geely Automobile Holdings, China's largest electric-vehicle makers, are targeting European consumers with affordable EVs and hybrids. The strength of Chinese companies is not limited to price competitiveness. Investors say China has begun to overtake Europe in future capabilities such as battery technology, in-vehicle software, and production efficiency.
Bragey said, "While a European car company launches one new model, a Chinese rival may roll out two vehicles equipped with the latest batteries and software."
Chinese companies are also ramping up local investment in Europe. BYD recently announced it will invest about 2 billion euros by the end of 2027 to build an ultrafast charging infrastructure across Europe. The strategy goes beyond selling EVs to directly building the charging ecosystem.
By contrast, European automakers are struggling. Massive expense poured into the EV transition, a slowdown in sales in China, weak demand in Europe, and U.S. tariff policy have combined to erode profitability.
As a sense of crisis grows, Stellantis, Volkswagen, and Renault recently called on the EU to introduce a "Made in EU" policy. The aim is to protect the regional auto industry by granting benefits to companies that maintain production in Europe.
Even so, the market remains cool, and investors' views are shifting, the FT said. Some European automakers are responding by expanding technology cooperation with Chinese corporations or handing over production lines. The European auto industry, which once grew through the Chinese market, now finds itself having to worry about the pursuit of Chinese companies. In the past, there was an expectation that a cyclical recovery alone would lift European automakers' earnings, but now concerns are rising that Chinese companies' technology and market dominance could be a long-term threat.