After a strong rebound in 2022 (+11%), global sales of new vehicles slowed down substantially in 2024 (+3%), driven by underperformance in Japan (-7%) and mild growth in the US (+2%) and Europe (+1%). However, strong momentum in China (+7%) but also in some emerging regions, notably Eastern Europe and Latin America, mitigated downward effects on global sales. This illustrates the heterogeneous picture across the globe as the industry copes with multiple challenge amid a changing trade, technology and legal framework.
The introduction of a new 25% US tariff on cars and 50% on steel imports, coupled with the ongoing threat of reciprocal tariffs of at least 10% for each US trade partner, is reshuffling cards across the industry, raising inflationary risks on costs for manufacturers assembling vehicles and suppliers producing parts outside the US. These tariffs should affect the whole industry as the US is the second-largest market behind China but by far the most internationalized. The temporality of tariffs will be key in the direction of sales but also industrial investments in the near and medium future. A strong and lasting hike of tariffs in the US could inevitably force manufacturers and suppliers to explore relocation and higher pricing strategies to mitigate a rise in costs and a deterioration of margins. In the absence of a clearer view on the global picture and potential changes in the trade environment, corporates might be inclined to pursue a wait-and-see approach and accept to absorb temporary higher costs.
At the retail level, the 90-days reprieve on reciprocal tariffs offered some relief to the sector in the first half of 2025 as tariff-driven purchases boosted sales. However, sales of new vehicles in the US and other developed countries could start flattening or even contracting as a tighter trade environment might hammer demand. With snowball effects, the second-hand market could also witness an inflationary environment on the back of strong demand from households looking for cheaper alternatives and a stronger representation of EV vehicles.
In Europe, beyond the tariff turbulence, the automative industry also has to manage additional challenges, including the tightening of carbon regulations, which is forcing carmakers to speed up the pace of electrification ahead of the ban on internal combustion engines in 2035, and also soft domestic demand due to a lagged recovery in the region, lower incentives and weaker fiscal stimulus to support new energy vehicle purchases and rising competition from Chinese brands. In the meantime, the rigid regulatory framework in the region (on carbon emittance, data collection and sourcing origins) that aim at promoting customer and environment protection is another hurdle to overcome for both automakers and suppliers. The strong deterioration of profitability among European carmakers and suppliers (margin around 5% or below) is a warning signal that a broad and deep overhaul of industrial and operating practices is likely necessary to adapt to the changing paradigm of customer usage, regulatory framework and market environment.
In China, local brands have recently taken the upper hand on foreign players, notably German and Japanese rivals, that previously dominated sales in 2010-2020s. As the number of brands has skyrocketed over the past decade, leading to tough competition and a downward price spiral in the domestic market, Chinese manufacturers have recently targeted Europe to sell their surplus stuck and improve margins. Though gradual, the penetration of Chinese brands in Europe is expected to continue to increase and could approach 10% by the next three years in the absence of any major trade restrictions. The monopolistic position of China in the rare earth/magnets processing supply chain is a prominent risk for the whole industry, whose downside effects might be more damaging than the chip shortage episode in 2022 as large-scale production disruption could spark significant losses for the whole industry.
The emergence of new competitors from the IT and software industry is another trend to monitor as new vehicles are more and more connected and software-driven. Rising demand for autonomous features should support newcomers since they have the capability to provide advanced technology and more cash in hand to invest and absorb any shocks in a weak macroeconomic environment, compared to established players.
2025 looks to be a painful transition period to manage for the automotive industry as global rules (trade, regulation, fiscal, technology drivers, international competition) are changing and companies needs to adapt despite lower leverage amid a profitability squeeze, limited cash reserves and oversized output capacities.
