Drop in shares for VW, BMW, and other DAX companies:
In a challenging period for the European automotive sector, Renault's shares plummeted by around 7% on Tradegate, following a revised 2025 margin forecast that reflects the financial strain from regulatory and market headwinds. This downturn is part of a broader structural decline in the industry, as European manufacturers grapple with weak electric vehicle (EV) demand, costly emissions regulations, operational delays in electrification, and unfavourable macroeconomic and geopolitical conditions.
The decline in EV demand is partly attributed to strong competition from Chinese brands like BYD, and infrastructure deficits for EV charging in Europe. This challenge affects not only Renault but also industry giants such as Volkswagen and BMW, as they strive to transition effectively to EVs without compromising scale and profitability.
Stringent EU CO2 emissions targets impose significant compliance costs, with Stellantis expected to face fines of over €1.2 billion in 2025. These regulations, coupled with cash flow pressures, force costly adjustments while manufacturers ramp up electrification.
Delays in launching hybrid and electric models, like the postponed Fiat 500 Hybrid, leave factories underutilized. European manufacturers have shifted towards producing higher-margin SUVs and premium vehicles, delaying investments in battery electric vehicles (BEVs). This strategy, often referred to as "value over volume," has limited Europe's EV scale and competitive edge compared to China and the US.
Production volumes remain below pre-COVID levels due to this inertia and insufficient industrial policy support from the EU. Broader market concerns, such as weak outlooks from tech suppliers like ASML, and geopolitical uncertainties further cloud growth prospects for the sector.
Renault's 15.9% drop after revising downward its 2025 margin forecast exemplifies the depth of current sector challenges. However, investors may find some solace in potential catalysts in 2026, such as successful launches of hybrid/EV models, which could reverse the negative momentum.
Meanwhile, the industry faces a critical crossroads in adapting to the rapidly evolving electric vehicle market and regulatory environment to restore growth and competitiveness.
In a recent pre-close call, BMW managed to convince even skeptical analysts of its strategy, leading to changed assessments. The new business figures from BMW are expected to be released on July 31. Despite BMW's recent gain of around 10%, it has experienced profit-taking at the start of this week.
The profit warning from Renault has caused a ripple effect in the sector, with BMW, Mercedes-Benz, and Volkswagen all losing ground following the announcement. Analyst Christoph Laskawi from Deutsche Bank has lowered his earnings estimates for Renault in 2025 and beyond, viewing the profit warning as another blow to sentiment towards the stocks.
Despite the current challenges, it's essential for investors not to be too unsettled by the new shock news about Renault. The company's new margin forecast still looks solid compared to competitors. The sector's long-term prospects rely on its ability to adapt to the changing landscape, and investors who remain patient may be rewarded as the industry navigates these challenging times.
Finance is a significant concern for European automotive businesses as they transition to electric vehicles (EVs), with costs such as stricter EU CO2 emissions targets and compliance fines impacting profitability. Investing in the sector involves taking a long-term perspective, as market challenges like weak EV demand, operational delays in electrification, and geopolitical uncertainties affect companies like Renault, BMW, and Volkswagen.
