Growth in European car sales is gradually slowing, increasing pressure on profits and forcing manufacturers to look at their bloated overcapacity in light of plant closures.

And as if that wasn’t enough to worry about when executives return from vacation, the outlook for 2025 looks even worse as EU rules on carbon emissions require further tightening. More barely profitable electric cars will have to be sold than the public actually wants to buy. This in turn will lead to lower sales of highly profitable combustion engine vehicles that the public actually wants.

According to HSBC Global Research, this will put Volkswagen and Renault at risk, but BMW and Volvo shareholders can rest assured.

Last year, sales in Western Europe rose 13.9 percent to 11.56 million, allowing sedan and SUV makers to raise prices and boost profits. Those mild conditions have gradually faded this year, and things are set to get worse.

GlobalData has consistently lowered its revenue forecast for Western Europe. Three months ago, the company was predicting growth of just under 5 percent. The latest forecast says there will be little increase – a barely measurable 0.2 percent – as the total stands at 11.58 million.

Western Europe includes the five largest markets: Germany, France, Great Britain, Italy and Spain.

“There are a combination of headwinds to market activity that are unlikely to ease significantly in the near term. Interest rates remain high, even though initial steps to ease monetary policy have now been taken,” said a report by GlobalData.

“Vehicle prices are still high – although the supply bottlenecks that have led to a sharp rise in vehicle prices in recent years have eased – and show no signs of a major downward correction in the near future. Meanwhile, the EV market is also losing momentum. We now forecast that the full-year result will only just exceed that of 2023,” it said.

BMI, a Fitch Solutions company, expects sales across the European market to slow to 4.6% growth to 19.3 million in 2024. Sales rose 19.2% in 2023 as supply chain disruptions normalized and automakers caught up.

Investment bank UBS said these deteriorating conditions would squeeze manufacturers’ operating profit margins for the remainder of 2024.

Looking ahead to 2025, HSBC Global Research estimates that potential penalties for manufacturers that seriously breach EU emissions targets could total €5 billion. However, Renault has also expected penalties twice as high.

“Volvo and BMW are better positioned, while Volkswagen and Renault have a big gap to fill,” the report says.

The latecomers hope that new models could close the gap.

“VW and Renault will see a flood of new electric car launches starting in the second half of 2024, which should help, but the gap on targets will lead to greater scrutiny and importance of the success of these models. Mercedes and Stellantis are relatively better positioned but are not out of the woods yet, especially if demand for electric cars continues to disappoint,” the report said.

As part of its long-term cost-cutting plan, VW has drastically reduced its workforce and closed plants.

The German forecasting institute Ifo expects the German automobile industry to drift into gloomy territory.

“A significant improvement is unlikely in the coming months,” said Ifo analyst Anita Woelfl.

“Capacity utilization has fallen to 77.7 percent, nine percentage points below the long-term average. 43.1 percent of companies are reporting order deficits, compared to 29.2 percent in April. No positive impulses are expected from abroad either. Export expectations fell to minus 16.8 points, more than 13 points below the previous month,” said Woelfl.

“The automotive industry is sliding further and further into crisis,” said Woelfl.