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Key takeaways

  • European car brands are facing declining profits and weak demand, forcing them to prioritize cost savings.
  • The transition to electric vehicles is a challenge for European car manufacturers as they strive to meet the 2035 deadline for phasing out combustion engines.
  • Competition from Chinese electric vehicle manufacturers, who offer competitively priced models, is increasing the pressure on European giants such as Volkswagen, Mercedes-Benz, and BMW.

European car brands are facing major challenges, leading to a sense of unease and a need for adaptation. Falling profits and prices in China, a crucial market, combined with weak demand in Europe and uncertainty due to U.S. import tariffs, have forced car manufacturers to prioritize cost savings.

This development is further complicated by the necessity of transitioning to electric vehicles (EVs). The 2035 target for phasing out combustion engines in Europe is a formidable obstacle for many carmakers aiming to meet this deadline. Meanwhile, Chinese EV manufacturers are gaining ground with their competitively priced models.

European giants on the defensive

European giants such as Volkswagen, Mercedes-Benz, BMW, Porsche, and Renault are on the defensive. They are unveiling a wide range of EVs, from budget options to luxury SUVs, in an attempt to regain market share. McKinsey predicts an unprecedented wave of 350 new electric vehicles from European carmakers by 2032.

Fierce competition from China

However, competition from agile Chinese rivals is intense. As Patrick Schaufuss, partner at McKinsey, notes, “the coming years will certainly be years of truth” for European car manufacturers. They must streamline their product development processes to keep pace with their nimble Chinese counterparts.

Porsche is an example of the difficulties European brands are facing in China. Confronted with a 27.9 percent drop in sales in the first half of the year, the company is restructuring its dealer network and revising its long-term profit margin target of 20 percent. CEO Oliver Blume acknowledges that the landscape of the Chinese luxury market has changed, stating that it “no longer exists.”

Navigating intense price competition

BMW, which is counting on its new iX3 model to drive growth in China, is closely monitoring the intense price competition in the market as it determines the pricing strategy for the car’s launch in the summer of 2026. Mercedes-Benz, which will launch around 40 new models between now and 2027 and is relying on its fully electric GLC to regain market share, is also implementing significant cost savings. CEO Ola Källenius expects competition in China to remain fierce.

Renault, which withdrew from the Chinese market about five years ago, is pursuing a new strategy focused on more affordable EV batteries and accelerated development times for all models. These approaches have played a major role in the success of Chinese car manufacturers. “Our Chinese competitors are the best in their class,” admits Renault CEO François Provost. (fc)

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