Regulatory and market challenges
Automakers are also grappling with stricter environmental regulations.

The European Union’s new target for average CO2 emissions—set at 93.6 grams per kilometre by 2025—represents a 15% reduction from 2021 levels.

Exceeding these limits could result in hefty fines, compounding the financial strain on manufacturers already contending with economic and market challenges.

The European Automobile Manufacturers’ Association (ACEA), which includes brands like BMW, Renault and Volvo, has called for more lenient compliance measures. However, environmental advocates argue against relaxing these targets.

Julia Poliscanova, Senior Director for vehicles and e-mobility at Transport & Environment, stresses the importance of these regulations.

She explains: “The vehicle CO2 target is critical in making them more competitive and transition quicker. Even if it is to the detriment of higher profit margins in the short term, it pushes automakers to create viable products in the future.”

Julia Poliscanova, senior director for vehicles and e-mobility supply chains at Transport and Environment
Financial performance among Europe’s leading automakers has been mixed. Volkswagen, Mercedes, BMW, Stellantis and Renault all faced challenges in 2024.

Milan-listed Stellantis saw the sharpest decline, down 37% year-to-date, while Renault bucked the trend, posting a 19% gain due to its limited exposure to the US and Chinese markets.

• To adapt to these pressures, automakers are implementing strategies to remain competitive:
• Smart manufacturing: Investing in smart factory technologies to boost efficiency and cut costs.
• Sustainability initiatives: Reducing vehicle weight and improving energy efficiency to meet emissions targets.
• New business models: To attract younger consumers explore mobility services, vehicle subscriptions and digital offerings.
• Diversified powertrains: Offering a mix of ICE, hybrid and EV models to meet varied consumer demands.
• Supply chain resilience: Strengthening local production capabilities to mitigate geopolitical risks and disruptions.

Navigating the path ahead
Looking forward, the automotive industry faces a cautious 2025. While global vehicle volumes are expected to recover gradually, uncertainties such as potential new tariffs and political developments could further disrupt the market.

Horst Schneider, Head of European automotive research at Bank of America, notes the importance of making EVs more accessible to consumers: “What people need is cheaper EVs.

Horst Schneider, head of European automotive research at Bank of America
“They get launched in 2025, so some carmakers say there is no need to cut the targets. But it might still be necessary to give them more time because acceptance on the consumer side is just not yet there.”

To thrive in this uncertain environment, manufacturers must remain adaptable and innovative. Building resilient supply chains, addressing consumer concerns, and aligning with environmental goals will be key to navigating the challenges ahead.

As the industry undergoes a transformation towards sustainability and technological advancement, it faces a crucial turning point. Those capable of adapting to this evolving landscape will be better positioned to succeed in a competitive and rapidly changing market.