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Investing.com -- The European automotive sector is facing a mixed outlook as it heads into 2025, with a slight improvement in light vehicle production (LVP) projections but major uncertainty surrounding trade tariffs.
According to analysts at BofA Securities, the latest industry forecast reflects a modest 0.5% increase in global LVP estimates, with Europe seeing only a marginal gain amid broader global adjustments.
However, geopolitical and economic factors, particularly potential trade restrictions from the United States, remain a looming threat to the sector.
Industry data indicates that global LVP reached about 89.5 million units in 2024, with expectations for a flat performance in 2025.
While the overall outlook has been lifted slightly by strong performance in China and South America, Europe’s production forecasts have remained largely unchanged.
A key driver of this stagnation is the region’s negative geo-mix, with an estimated -1.5 percentage point impact in 2025, as Chinese and South American manufacturers continue to gain market share at the expense of European automakers.
The rise of Chinese automaker BYD (SZ:002594) is a notable development shaping the competitive landscape. The company is expected to account for about half of the global LVP increase in 2025, with an estimated 70-basis-point market share gain.
This expansion comes at the expense of legacy automakers, including Nissan (OTC:NSANY), which is undergoing restructuring, particularly in the North American market.
While some European brands, such as Volkswagen (ETR:VOWG_p) and Peugeot (OTC:PUGOY), are seeing slight production increases, the broader regional picture remains challenging.
Beyond production forecasts, the primary concern for European automakers revolves around potential U.S. tariffs on imported vehicles.
The Biden administration has signaled a more protectionist stance, and any new tariffs on cars imported from the EU could disrupt supply chains and erode profit margins.
Although negotiations are ongoing, BofA analysts note that the possibility of additional trade barriers is already weighing on sentiment in the sector.
Despite these challenges, inventory levels provide a cushion for manufacturers, particularly in North America. Recent forecasts suggest a small de-stocking trend in 2025, but inventory remains well-positioned relative to historical levels.
This could help mitigate some of the risks posed by weaker demand or sudden policy shifts. However, with European LVP still under pressure from shifting global dynamics, the sector remains vulnerable to external shocks.
As the year progresses, automakers and investors alike will be closely monitoring trade developments and consumer demand trends.
While the industry is set to experience modest growth, the uncertainty surrounding tariffs and competitive pressures from Chinese manufacturers continues to cloud the European automotive sector’s longer-term trajectory.