'The Party Is Over' As European Carmakers Face Tariffs And A Price War In China

Whisper it quietly, but beneath the buzz of shiny new car models and bright lights at Europe's largest car show, the industry sector is worried that their party is over.

Prices and profits in key market China are in decline, demand is tepid in Europe and US tariffs have created an uncertain outlook, putting the focus on cost-cutting as the global market is reshaped.

“The party we have been celebrating in the automotive industry for decades is over in its current form,” said Oliver Blume, CEO of both Volkswagen, Europe's biggest carmaker, and its luxury division Porsche AG.“Now it is about reorientation.”

The sector faces a reckoning, sharpened by pressure to shift towards EVs with tough 2035 targets in Europe that many feel they cannot meet, even as Chinese EV rivals steal a march on local brands with lower-cost models.

That's put Volkswagen, Mercedes-Benz, BMW, Porsche and Renault on the defensive. At the IAA Mobility car show in Munich, they rolled out models from affordable entry-level EVs to luxury SUVs.

By 2032, European automakers plan to launch an unprecedented 350 new electric vehicles, according to McKinsey, ahead of a looming ban on combustion engine autos in the EU from 2035, something Germany's carmakers oppose.

“The coming years will definitely be years of truth,” said Patrick Schaufuss, partner at McKinsey, adding that Europe's carmakers needed faster, simplified product development to keep up with nimble Chinese rivals.

'Brutal price war'

Porsche, which saw auto sales in China drop by 27.9 per cent in the first half, is adjusting its local dealership network, with CEO Blume being sceptical about future prospects, effectively ditching a 20 per cent long-term margin target for now.

“The (Chinese) luxury market does not exist anymore,” Blume, head of both VW and its Porsche brand, told Reuters, adding the Volkswagen group was banking on substantial investments in the United States, ideally flanked by incentives.

BMW is pinning hopes on its new iX3 model to return to growth in China, said sales chief Jochen Goller. Goller said BMW was monitoring the“brutal price war” in China as it gauged pricing for the new model, to be launched in summer 2026.

Mercedes-Benz, which is launching around 40 new models by 2027 and counts on its all-electric GLC to recoup market share in China, is also slashing billions of euros in costs, and CEO Ola Kaellenius said fierce competition in China would continue.

Renault, which exited the Chinese market about five years ago, will introduce more affordable batteries for EVs and speed up development times for all models, elements that have been at the core of Chinese automakers' expansion efforts.“Our Chinese competitors are the best in class, we have used them as a benchmark,” CEO Francois Provost said.

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