A range of European auto giants are reporting their latest financial results this week, including France’s Renault (RNO.PA), Peugeot maker PSA Group (UG.PA) and Mercedes-Benz manufacturer Daimler (DAI.DE).
Car companies operating in Europe have run into new challenges in recent months that threaten to hurt their profitability.
Here’s what you need to know as the new reports come out:
China is crucial
Chinese demand for vehicles has dropped sharply in recent months, with analysts blaming the US-China trade war and tighter restrictions on Chinese consumer loans.
The slowdown became especially clear last week when French tyre company Michelin (ML.PA) blamed slowing Chinese car demand for its lowered sales outlook.
Mercedes-Benz maker Daimler sells more cars in China than anywhere else in the world and experienced explosive growth in the country last year. But the company issued another profit warning on Friday – its second this year – as it forecast operating profit would fall by over 10% in 2018. China will be a key area to watch as the company reports its third-quarter results on Thursday.
New strict emissions testing standards in Europe have posed a major challenge to automakers that sell in the region.
This summer, Volkswagen Group’s (VOW3.DE) CEO Herbert Diess called the new testing system a “titanic task” and “the biggest [sales] volume and earnings risk” for his business.
The testing program – called the Worldwide Harmonised Light Vehicle Test Procedure (or WLTP for short) – measures fuel consumption and emissions in independent labs that simulate real-world driving situations.
Bottlenecks in the testing system delayed the necessary certification for a range of car models, which contributed to a 24% drop in new car sales in the European Union last month compared to September 2017.
Renault Group, which also sells Dacia-branded vehicles, saw a 27% drop in September sales in the EU, according to data from the European Automobile Manufacturers Association. However, its overall sales for the year are up about 7%.
Sales of diesel-powered cars have taken a big hit in Europe since Volkswagen was found to have cheated on diesel emissions tests.
Drivers are increasingly moving away from diesel purchases and towards petrol, hybrid and electric-powered cars.
This sudden industry shift has been painful for many large auto companies that have depended upon diesel sales in Europe for years.
In 2017 in western Europe, diesel’s market share fell to 45% of new car sales from 50% in 2016.
The trends of tomorrow
Growing demand for electric cars has pushed automakers around the world to dedicate far more resources and investment into this area. Additionally, firms are racing to bring new connected, self-driving cars into the market.
But the road to selling fully electric, automated cars has not been smooth.
Audi, a Volkswagen company, announced on Sunday that its first electric sport utility vehicle would hit showrooms four weeks later than planned because of a software development issue. Audi’s e-tron midsize SUV is being delayed because the carmaker needs new regulatory clearance for a software that was modified during the development process.
This new Audi vehicle highlights another industry trend: the rise of the SUV.
Consumers in the US have increasingly been ditching small cars in favour of larger models, and the trend has spread to other developed markets in Europe. This has forced car companies to reconsider new development plans and contributed to Volkswagen’s decision to stop production of its VW Beetle.
With files from Reuters