Volkswagen stumbles in China as Germany's auto giants struggle to compete in the EV race

• Germany's automotive manufacture is facing an progressively difficult outlook.
• Volkswagen whitethorn adjacent factories successful Germany for nan first time, and BMW and Mercedes-Benz are struggling.
• Experts told BI that each 3 companies look slumping EV income and sadistic title successful China.

Germany's car giants were erstwhile nan envy of nan world, but now find themselves facing a myriad of threats.

BMW and Mercedes-Benz person issued profit warnings successful caller weeks amid slumping EV income successful Europe and brutal title successful China, while Volkswagen is also facing a reckoning.

On Wednesday VW said nett profit for nan 3 months to September 30 plunged by almost 64% to 1.57 cardinal euros, pinch a 30% diminution to 12.8 cardinal euros for nan first 9 months of nan year.

A 4% emergence successful vehicle income successful North America and 16% maturation successful South America for nan 9 months was offset by a 1% diminution successful occidental Europe and a 12% descent successful China — VW's biggest marketplace extracurricular Europe. It now expects to present astir 9 cardinal vehicles this year, aliases astir 240,000 less than 2023.

Volkswagen is seeking to trim billions successful costs aft issuing 2 profit warnings successful 3 months. On Monday, its apical national charismatic said nan institution was readying mill closures successful Germany for nan first time, on pinch salary cuts and layoffs. The Golf and Polo shaper is 1 of Germany's biggest employers pinch astir 300,000 workers.

VW said successful a connection that the institution was astatine a "decisive constituent successful its firm history," and nan task was to unafraid its semipermanent early together pinch worker representatives. More talks were owed to return spot connected Wednesday.

Arno Antlitz, Volkswagen's CFO, said Wednesday's results reflected a "challenging marketplace environment" and highlighted nan "urgent request for important costs reductions and ratio gains."

Mercedes-Benz is besides pursuing "cost improvements" aft past week's lackluster earnings, while BMW banal has been deed by nan callback of immoderate 1.5 cardinal cars complete a braking issue.

Fight for endurance successful China

All 3 giants look a akin problem: they're nary longer trading capable cars successful China, nan world's largest car marketplace and a one-time rate cattle for European automakers. About 21.7 cardinal caller vehicles were sold successful China past year, per nan China Passenger Car Association figures, compared pinch astir 15.6 cardinal successful nan US and 10.5 cardinal successful Europe.

Like VW, BMW and Mercedes besides reported a descent successful income successful China successful nan 3rd quarter, amid waning request for luxury vehicles and nan increasing power of Chinese EV makers.

Helena Wisbert, professor of automotive economics astatine Ostfalia University successful Germany, told Business Insider: "BMW and Mercedes are trading less cars, because nan caller players successful nan marketplace for EVs person go really competitive, particularly successful China."

Wisbert said that German manufacturers person grounded to expect nan changing behaviour of Chinese consumers and diversify their merchandise lines. She added that Mercedes, BMW, and Volkswagen connection comparatively fewer hybrid and extended-range vehicles — categories that person proven highly celebrated successful China.

European carmakers are nether aggravated unit from Chinese rivals specified arsenic BYD, Nio, and Xiaomi, which connection luxurious EVs vehicles pinch amended software experiences — and each astatine acold little prices.

To make matters worse, immoderate Chinese automakers are now eyeing description successful Europe, moreover pinch the European Union readying tariffs connected BYD and its rivals.

Wisbert said nan marque spot of BMW and Mercedes successful Europe gave them a important advantage complete Chinese interlopers — but added that VW would apt look title from Chinese brands that tin build and waste EVs acold much cheaply. "In nan agelong run, it's a large threat, particularly for Volkswagen."

Slow income successful Europe

At nan aforesaid time, Germany's automakers are besides dealing pinch a slowdown successful EV income successful Europe.

Mercedes said past week that sales of battery-powered cars fell 31% successful nan 3rd 4th compared pinch nan aforesaid play past year, while deliveries of Volkswagen Group EVs successful Europe were down 12% successful Q3.

Demand for electrical vehicles has slowed successful Europe amid a deficiency of affordable options and nan extremity of subsidy schemes successful immoderate countries, including Germany, wherever caller EV deliveries plunged by 69% successful August.

"The European marketplace has grounded to return to wellness arsenic quickly arsenic hoped post-Covid," Matthias Schmidt, an independent car expert based successful Germany, told BI successful an email.

"That is causing an over-capacity and under-utilisation problem starring to nan request for restructuring crossed European operations, alongside caller marketplace entrants specified arsenic Chinese carmakers and Tesla progressively eating up marketplace share."

Wisbert said that contempt Volkswagen and BMW starting to waste battery-electric vehicles much than a decade ago, German companies grounded to make EVs their "focus" and are now losing retired to rivals specified arsenic Tesla and BYD that tin build and waste electrical cars much cheaply.

"They missed nan chance to get nan costs for nan artillery nether control. That's nan problem because their competitors tin waste cars astatine a really debased value level because they person nan artillery costs nether control," Wisbert said.

She warned that attempting to prevention money by scaling backmost EV plans would render German carmakers moreover little competitory successful nan future. Volkswagen and Mercedes person some adjusted their EV strategies and pushed backmost targets successful caller months arsenic income stagnate.

"Right now they're cutting their plans for early finance — and that's not nan champion measurement to enactment competitory successful nan future," said Wisbert.

Investors are besides sounding nan alarm, sending Mercedes-Benz shares down much than 11% this year, pinch BMW sliding 28%.

VW, meanwhile, is down astir a 5th this year, and adjacent to half nan banal value of October 2019. Analysts astatine UBS person a "sell" proposal connected nan stock, and nan imaginable costs and disruption that could beryllium sparked by a "major restructuring."

Mercedes, and BMW did not respond to requests for remark from BI.