Auto industry margins, business models and strategies face challenge in Europe

The European automotive industry is on a knife edge, vulnerable to geopolitical tensions in the Middle East, competition from China, and tariffs on exports to the United States.

Trade disputes, powertrain transition, intensifying competition and mounting regulation are combining to test margins, business models and long-term strategy across both OEMs and auto finance providers, according to a major new Finance Connect report.

Many of its conclusions were echoed in the European Automobile Manufacturers’ Association’s (ACEA) latest ‘Economic and Market Report’. It found that EU car production remained relatively flat in 2025, with exports down 6.2%. EU exports to China plummeted by 43%, whereas Chinese imports into Europe exceeded 1 million units for the first time. EU exports to the United States also suffered, down by 21.4%, due to the impact of tariffs.

EU-based manufacturers now account for just 14.6% of global car production, compared to Asia’s 62.1% share. Rising Asian imports do, however, present opportunities for lenders, with CA Auto Bank strengthening its strategic partnership with Chinese OEM Geely Auto by extending their collaboration into the Benelux region. CA Auto Bank will be the exclusive financial partner for Geely’s launch in Belgium, Luxembourg, and the Netherlands.

The EU’s 2035 phase out of vehicles with internal combustion engines (90% of new car sales will have to be zero emission) is a source of anxiety for OEMs and lenders carrying residual value risk on battery-powered vehicles. The Forsa Institute’s annual survey, commissioned by TARGOBANK, reported that 74% of motorists in Germany oppose a full ban on combustion engine cars, although the price of EVs is more important than their range when choosing a new vehicle.

Several battery electric vehicles do now have a cheaper total cost of ownership than petrol or diesel models across a growing number of EU markets, according to the new 2026 Car Cost Index from international leasing giant Ayvens. Western and Northern Europe lead Southern Europe in delivering a cheaper TCO, and in one example the battery-electric BMW i4 is now cheaper to run than the petrol-powered BMW 3 Series in 20 out of the 30 countries analysed.

Corporate fleets are driving this decarbonisation progress, showing significantly greater appetite for electric vehicles than private motorists. The Arval Mobility Observatory Barometer found that battery electric vehicles accounted for 28.3% of new corporate passenger car registrations across Europe’s eight largest markets in the final quarter of 2025, compared with just 19.4% among private buyers. Tax incentives for company car drivers allied to corporate sustainability commitments are spearheading the transition.

The Barometer also found that 22% of fleets across Europe forecast growth this year, compared to 5% expecting contraction.

Across the entire EU new car market, registrations declined by 1.2% in the first two months of 2026, according to ACEA, although battery electric models increased their share to 18.8% of sales. Hybrid electric vehicles had the largest market share, at 38.7%, followed by petrol at 22.5%, and plug-in hybrids at 9.8%.

The strong performance of hybrids and plug-in hybrids alongside rising BEV adoption indicates that a technology-diverse approach remains central to Europe’s transition towards lower-emission mobility.