EU carmaker turnaround hopes look doomed

Traton SE

15/09/2026 15:43

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
By Aimee Donnellan
DUBLIN, Sept 16 (Reuters Breakingviews) - In theory, a company trading at 4 times forward earnings is a bargain, especially if it produces a product that is essential to the lives of millions. Such a low valuation implies that the business in question could earn its entire market capitalisation in just a few years. 
Yet for European carmakers like Volkswagen VOWG.DE, which carries exactly that multiple, miserable stock-market ratings reflect an equally miserable reality. Just like regional automotive rivals Stellantis STLAM.MI and Renault RENA.PA, the €41 billion German group faces red-hot competition from cheaper and often more high-tech Chinese marques. There are no signs of an imminent policy rescue from Brussels, while M&A and further cost cuts are unlikely to provide much relief either.
The CEOs are doing what they can. Earlier this month, Volkswagen boss Oliver Blume convinced a powerful labour union to vote for a plan that would lead to 100,000 redundancies, shutter plants and slash the number of models the German group makes. But on the day the deal was announced, the carmaker's shares barely budged. Investors appear unconvinced that even radical restructuring can restore the Wolfsburg-based company to its former glory.
It's easy to see why. The industry entered its current China crisis in a weakened state. Pandemic-era factory closures forced many European auto groups to cut production. This period was so challenging that in 2020 France's Renault was forced to seek a €5 billion emergency loan guaranteed by the government.
A few years later, inflation and Russia’s Ukraine invasion added further pain. For carmakers in Germany, which relied heavily on Russian energy, the average cost of manufacturing vehicles increased by €1,000 per unit following the 2022 war, Citi analysts reckon. These extra charges hammered profitability at mass-market players like Volkswagen, Renault and Stellantis. Analysts' forecasts for this year put the trio's operating margins at around 2%-4%, compared with roughly 4%-8% in 2019.
Yet the current, arguably more existential, threat comes from China. Carmakers like BYD 002594.SZ, 1211.HK, MG, owned by SAIC Motor 600104.SS, and Chery Automobile 9973.HK have benefitted from years of Beijing's pro-manufacturing industrial policy, alongside a vast domestic market and world-leading electric battery technology. They initially conquered the Chinese market itself: foreign groups' share of sales fell from 64% in 2020 to 32% this year, according to a May BBC report which cited data from consultancy Automobility. The Europeans now face the same pressure on their home turf, particularly since Chinese carmakers are effectively banned from selling passenger electric vehicles in the U.S.
BYD, in particular, has targeted Britain, Spain, Germany, Ireland and other markets with its relatively cheap, high-quality vehicles. Chinese groups have proved adept at navigating barriers erected by Brussels. They have expanded rapidly with hybrid vehicles, for example, which are not subject to the European Union's additional anti-subsidy duties aimed at full-electric battery rides. European Automobile Manufacturers' Association data shows that Chinese-branded cars sold ​in the EU hit a 9% share in the first half of this year. AlixPartners, a consultancy, expects that vehicles with a Chinese badge will account for 16% of wider European sales in 2030.
Perhaps unsurprisingly, investors are taking a dim view of European carmakers' prospects in light of all these issues. So much so that, in some cases, current valuations appear to assign almost no value to the core businesses of selling vehicles. Take Volkswagen. The group's €41 billion market capitalisation in theory covers a 75% stake in separately listed sports-car group Porsche AG, worth a little over €30 billion, and an 87% holding in Frankfurt-traded truck maker TRATON 8TRA.DE, worth about €16 billion. Together, the paper value of those shares exceeds Volkswagen's entire equity value. That means investors implicitly attribute no value to the rest of the group, which includes the VW and Audi brands, supercar marque Lamborghini, a financial-services arm and many other divisions. 
BMW BMWG.DE tells a similar story. Analysts expect it to hold over €30 billion of net cash this year, but its market worth is only €39 billion. The implication is that the cash will be needed to protect the business in any future crisis, or simply to fund more electric innovation with an uncertain payoff. Either way, investors clearly aren't valuing the core business very much.
Brussels may try to offer some help. In recent weeks, European Commission President Ursula von der Leyen has ratcheted up pressure on Beijing ahead of an October deadline to reach an agreement on dealing with the EU's Chinese trade deficit. One possible instrument is a proposed “Made in Europe” plan, which could encourage local sourcing and production. Yet this could create problems for local groups anyway, since they depend heavily on international supply chains and, in some cases, build certain models abroad. BMW, for example, makes a significant share of its SUVs in the U.S.
More fundamentally, European policymakers cannot simply close the doors on China without risking painful retaliation elsewhere. Introducing legislation that requires carmakers to build vehicles locally could slow Chinese expansion and make manufacturers like BYD less profitable. But Europe would need a united front, which won't be easy. The EU's 2023 investigation into Chinese-made cars exposed deep divisions. Germany even voted against tariffs. Nor can Europe rely on customer loyalty. Many car buyers simply want value for money, not necessarily a European badge.
The carmakers themselves are also limited in their options. M&A might seem like a solution, potentially getting the combined entities closer to Chinese manufacturing scale and efficiency. Stellantis, formed in 2021 through the merger of PSA Group with Fiat Chrysler Automobiles, was created with a similar purpose in mind. Yet its subsequent performance shows that deal savings alone cannot solve the problem of a deteriorating market.
Since the merger's completion, Stellantis has delivered a minus-49% total shareholder return, assuming reinvested dividends. That's worse than all its regional rivals. Meanwhile, many carmakers like Renault and VW are part state-backed, making dealmaking tricky. Others, like BMW, have strong family ownership, while powerful labour unions are another common complicated factor.
Sector bankers generally think that a Renault-Stellantis tie-up would be the most plausible combination of the lot. Even then, a successful deal would require reconciling the interests of the French and Italian governments, the Agnelli and Peugeot families and Japanese carmaker Nissan Motor 7201.T. That's no small task, and Stellantis's recent track record suggests a deal might not even help much.
The upshot is that CEOs' hands are tied. In the absence of beefier legislative protection from Brussels, Chinese competition is likely to intensify for the mass-market players. In other words, rock-bottom valuations aren't a bargain - they're more of a dashboard warning light.
($1 = 0.8666 euros)
Follow Aimee Donnellan on LinkedIn.

(Editing by Liam Proud; Production by Streisand Neto)
((For previous columns by the author, Reuters customers can click on DONNELLAN/Aimee.Donnellan@thomsonreuters.com))