 "A general view of visitors looking at models from BYD, a Chinese automobile manufacturer, during an event a day ahead of the official opening of the 2023 Munich Auto Show IAA Mobility, in Munich, Germany, 4 September, 2023. File Image/Reuters")
Of the six major European car makersc most have seen their stock prices plummet in 2023.
Only Renault’s stock has kept its head above the water, with a modest 3 per cent gain in the share price year-to-date, according to Euronews.
The combined market valuation of Europe’s six largest car makers stands at approximately €260 billion. Here’s a quick illustration of how bad that is: Tesla’s market worth is more than double that figure.
The plunge in the share prices of these car companies points towards a slump in investor confidence in their ability to turn a big profit.
Here are three reasons behind that:
Slump in the Chinese market: China is a key market for the European automotive industry. However, passenger vehicle sales in Chitoughna have fallen for five straight months from April through August, according to Reuters.
The reason Chinese individuals are not buying cars has to do with consumer sentiment in that country. Despite government stimulus, the buying power of consumers remains on the down-low. Those who still are opting to buy cars are increasingly veering towards new energy vehicles, primarily electric vehicles. (We’ll get to why that is bad in a bit.)
Sales down in Europe: The broader European car market is being weighed down by multiple factors. The political uncertainties due to elections and the chaos following those (think France) have affected consumers’ decision to hold back on expending the cash at their disposal.
Rising inflation and higher interest rates, both closely linked to the consequences of the Russia-Ukraine war, are also affecting consumer spending.
Tough competition and costly EVs: To make matters worse, the backbone of the European car market, the German automotive industry, have been hit hard by external competition. This problem is especially pronounced when it comes to EVs.
Although EVs offer lower running costs, the initial purchase price of these vehicles is still about 20 per cent higher than their internal combustion engine counterparts. This is the case in key markets like France and Germany despite government subsidies.
Impact Shorts
More ShortsAs such, the automakers are at a disadvantage to build economies of scale and sell their EV units (which are money-guzzlers in the development phase).