The automotive industry is currently encountering severe challenges as the resale values of electric vehicles (EVs) continue to decline, causing considerable distress for major players such as Volkswagen (VW), Mercedes, and Stellantis. These concerns have been reflected in the stock market, with shares in these companies experiencing a recent downturn.
According to a report by the Financial Times, both VW and Mercedes suffered setbacks in the first quarter of this year due to reduced demand in China and domestic markets. VW witnessed a significant decline in profits, down by twenty percent from the previous year, amounting to €4.6 billion. This was mainly attributed to diminishing resale values and supply issues at Audi, a pivotal brand within the VW Group. The impact of diminished resale values is particularly challenging for VW, as the company is heavily involved in customer financing. When used car prices fall below expectations, it compels companies to take write-downs on these loans. Similarly, Stellantis, the parent company of Peugeot and Jeep, reported a larger-than-anticipated drop in revenue, totaling €41.7 billion in the first quarter, primarily due to weaker performance in its core European markets. Mercedes-Benz also reported a nearly thirty percent decrease in earnings before interest and tax, down to €3.9 billion, as both sales volumes and profit margins experienced declines.
The challenges faced by these companies can be attributed to various factors, including weakened demand, software obsolescence, and price competition fueled by Tesla and Chinese manufacturers. Higher interest rates have also deterred consumers from making purchases. VW and Mercedes face heightened exposure to issues in China, their largest market, where consumer demand has softened amid intense competition from local players. This has led to discounts across VW models and internal supply chain issues affecting Audi V6 and V8 engine production, resulting in a lower-than-expected operating margin. However, despite these challenges, VW remains focused on transitioning its portfolio with the launch of 30 new models, predominantly electric vehicles, while Stellantis is preparing to introduce new models, particularly electric cars, later in the year.
It is evident that the auto industry is grappling with the impact of falling demand and diminished resale values of EVs, and as a result, companies are facing significant financial implications. The consequences are being felt not only in Europe but also in other key markets like China. The industry is currently navigating through a period of uncertainty, with companies like VW, Mercedes, and Stellantis working on strategies to mitigate these challenges and adapt to changing market dynamics.