Europe carmakers face margin pressure as EV shift accelerates

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Carmakers face EV margin pressure

Highlights

Volkswagen reports a 29 percent year-on-year jump in electric vehicle sales in Europe, with EVs now comprising 40 percent of its order book.
Volkswagen posts a third-quarter operating loss of 5.9 billion euros as Germany’s three largest carmakers forecast sharply lower profits for 2026 due to EV margin pressure.
Germany and France agree on a policy potentially allowing limited petrol car sales beyond 2035, risking conflict with EU climate goals as EV volumes rise.

EV demand rises as model competition intensifies

As reported by Financial Times, European manufacturers are seeing stronger electric vehicle demand as they respond to cheaper and more technologically advanced competition from Chinese groups such as BYD, Chery and Geely.

Volkswagen says its electric car sales in Europe jump 29 per cent year on year, supported by German purchase subsidies and higher fuel costs linked to the war in Iran. EVs now account for about 40 per cent of the company’s order book, showing how quickly customer demand is shifting.

The rebound marks a sharp contrast with last year, when carmakers including Honda, Porsche and Stellantis scaled back electric ambitions and absorbed large writedowns. Displays at the Paris Motor Show this month also suggest European brands are bringing more attractive and affordable EVs to market to defend share against Chinese rivals.

Volkswagen chief financial officer Arno Antlitz says the company starts the year concerned that its battery electric vehicle share is too low, but is now grappling with the risk of selling too many EVs before production costs fall sufficiently.

Profit outlook weakens despite stronger sales

For western carmakers, the central problem is that electric vehicles still earn less than combustion engine models because battery costs remain high. That leaves rising EV volumes helping compliance and market positioning, but not necessarily improving the bottom line.

Germany’s three biggest carmakers, including Mercedes-Benz and BMW, are forecasting much smaller profits for 2026 after a series of profit warnings. Volkswagen also reports a third-quarter operating loss of 5.9 billion euros, while weakness in China, especially a collapse in combustion-engine model sales, continues to weigh on earnings.

The pressure on profitability is also shaping policy debates. Germany and France recently reach a deal on European car policy that would allow limited petrol vehicle sales beyond 2035 if the proposal gains broader support across the bloc.

Climate groups warn that such a change would undermine Europe’s green targets and threaten investment in critical infrastructure just as EV sales begin to gain traction. For Volkswagen, the remaining question is how much of today’s demand will prove durable if fuel prices fall, even as the company targets cost and margin parity between EVs and petrol cars by 2030.

In our earlier article on BYD’s expansion in Southeast Asia, we covered how BYD Malaysia moved ahead with local CKD assembly by appointing Inokom Corporation as its assembly partner in Kulim, Kedah. We noted that the company shifted away from its initial plan to build a plant in Tanjung Malim after export-related requirements, while positioning the partnership as a step that could strengthen Malaysia’s automotive ecosystem even as model and timeline details remained undisclosed.

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