Carmakers warn of challenging year amid waning demand for electric cars

Carmakers have said that waning demand for electric cars and rising costs are impacting profits.

Carmakers across Europe and Asia have warned that 2024 will be a challenging year as costs continue to rise and the demand for electric cars slows — impacting profits.

Luxury car manufacturer Mercedes-Benz Group has now said it will continue to sell combustion-engine cars for longer than expected amid disappointing electric car sales. The German company previously said it would stop selling combustion vehicles by 2030.

Mercedes chief executive officer Ola Källenius told shareholders the maker of the S-Class sedan will continue to make combustion-engine and hybrid vehicles “well into the 2030s” if demand is there.

Japanese car giant Toyota, which sees operating income slumping by a fifth this fiscal year, is relying on hybrids to counter lower output while BMW, even as it’s doing better on electric cars, flagged problems including higher manufacturing expenses.

Persistent inflation muted economic growth in much of Europe and a protracted recovery in China — where excessive EV discounting is hurting manufacturers — are adding to the industry’s headaches.

Toyota Chief Financial Officer Yoichi Miyazaki said the price war in China is “getting tougher everyday” which he said the company will “continue enduring for several years until we have more battery electric cars to offer”.

Mercedes in April reported an earnings drop on model changeovers and soft EV demand, with Volkswagen and Stellantis, which owns Peugeot and Citroën, also flagging slow starts to the year.

To be sure, most major auto-industry companies confirmed their full-year guidance, with German parts maker Continental saying it expects earnings to improve in the second half due to price increases and cost cutting.

BMW’s electric car jumped 28% after the German brand introduced a range of battery-powered models that look very similar to its comparable gasoline models.

Subsidies

But many other carmakers are feeling the pain of the electric car slowdown after governments ended lucrative subsidies for the technology, making the already expensive cars even less attractive.

Larger vehicles with combustion engines still command the biggest profits, with Ferrari and Porsche among those boasting the highest returns.

All this comes as EU Commission president Ursula von der Leyen has said that Europe needs to prevent China from flooding the bloc's market massively subsidised electric cars adding that the European car making industry needs to be protected.

Ms von der Leyen said “fair competition is good” but “we don't like it when China floods our market with massively subsidised electric cars. We have to tackle this, we have to protect our industry”.

The EU is currently conducting an anti-subsidy investigation into Chinese electric vehicles to determine whether to impose punitive tariffs on them.

The investigation, officially launched in October, can last up to 13 months. The Commission can impose provisional anti-subsidy duties nine months after the start of the probe.

However, BMW’s chief executive Oliver Zipse warned against imposing EU import duties on electric vehicles from Chinese automakers, saying it could upend the bloc's Green Deal industrial plan and harm German automakers which import cars made in China.

"You could very quickly shoot yourself in the foot," he said.

Reporting by Bloomberg and Reuters