Automotive Industry facing challenging climate focuses on EVs and Autonomous Driving

The automotive industry currently finds itself in a challenging climate. The import tariffs imposed by US President Donald Trump are making exports to the USA more expensive, while many car manufacturers are also finding it increasingly difficult to compete against growing local competition in the key sales market of China. Despite some difficulties, the trend towards electric vehicles (EVs) continues, and some car manufacturers are also increasingly focussing making autonomous driving a mainstream feature.

The difficult market conditions have already made themselves felt in the earnings reports of leading groups in Q1. Volkswagen holding company Porsche SE posted a loss for the group of EUR 1.08bn for its core shareholdings. The core brand Volkswagen’s earnings before interest and taxes fell by 85 per cent to EUR 112m. Provisions due to stricter CO2 targets in Europe and write-downs on export vehicles to the USA cost Volkswagen almost its entire profit at the start of the year. However, sales increased by 10.2 per cent to EUR 21.2bn due to rising demand for the ID.4 and ID.7 electric cars and several combustion engine models.

French car manufacturer Stellantis suffered a significant drop in sales in Q1. In the three months of the year, the number of vehicles delivered fell by 9 per cent to 1.2 million compared to the same period last year. The second most important market, North America, fared particularly badly with a 20-per-cent drop in sales. Japanese car manufacturers are also suffering from the difficult environment. Toyota is expecting nearly one-fifth less profit for its financial year ending March 2026. The industry leader cited the stronger yen, higher material prices and the impact of US tariffs as reasons for the expected decline in profits.

Data as of June 26 2025

Japan’s Car Industry Hit Hard by US Tariffs

The heavily export-dependent Japanese automotive industry is suffering particularly badly from the US tariffs. US President Donald Trump has imposed a 25-per-cent surcharge on imported cars and car parts and recently announced potential further tariff increases. There is some relief for car parts for manufacturers who finalise their vehicles in the USA. They can have part of the customs duties refunded.

Japanese car exports to the USA plunged in May due to the import tariffs imposed by Trump. The value of cars and car parts delivered to the USA was 24.7 per cent lower year-over-year, according to Japan’s Ministry of Finance. However, the volume of exports fell by only 3.4 per cent, explained Taro Saito, chief economist at the NLI Research Institute. Some manufacturers are likely to have cut prices in order not to scare off their buyers in the USA despite the US tariffs. Meanwhile, Toyota is trying to negotiate down the US tariffs. In return, the company agrees to sell the models of its US competitors via its sales network in Japan.

Other companies are focussing on investments in the US. Volkswagen is negotiating with the US Department of Commerce to settle the tariff dispute, offering further investments in the USA in return. “I was in Washington myself and we have been in regular contact ever since,” Group CEO Oliver Blume told the German newspaper “Süddeutsche Zeitung”.

China Increases its EV Sales, BYD Widens Lead to Tesla

China has recently been able to further expand its leading position in the field of electric vehicles, both in terms of production and utilisation. Internal combustion vehicles are rapidly losing ground on China’s roads, with more than 50 per cent of new cars sold in China expected to be EVs for the first time this year, according to the Chinese Automotive Industry Association. The rise of e-mobility in the country is politically desired and state-subsidised. Electricity is also “very cheap” in China, while oil is more expensive, according to expert Cui Dongshu from the Auto Industry Association. Beijing has been subsidising the purchase of electric cars for over a decade.

This is also reflected in the success of Chinese EV manufacturers. China’s industry leader BYD has been in a neck-and-neck race with electric car manufacturer Tesla for some time now, with its global sales recently ahead of its US arch-rival. BYD is also outselling Tesla in Europe, while the US manufacturer is falling further behind. According to data from Jato Dynamics, the Chinese brand, which has only been active in Europe for a few years, registered 7,231 new cars in April, while Tesla registered 7,165. Billionaire Elon Musk’s US company is suffering from an outdated and small model range that has only just been revamped. In addition, Tesla is suffering from an image problem in Europe due to Musk’s political activities and position. Last year, BYD replaced its German competitor Volkswagen as the leading car manufacturer in China, the world’s largest car market.

The Chinese manufacturer of electric vehicles, BYD, is currently ahead of its rival Tesla in terms of global sales. (c) unsplash

The booming demand for electric cars goes hand in hand with an increasing demand for batteries, resulting in a correspondingly big success of the Chinese battery cell manufacturer CATL’s recent IPO. The company received a total of USD 4.6bn in fresh capital, making it the largest IPO of the year so far.

European Manufacturers Focussing on Autonomous Driving

Car manufacturers are also putting an emphasis on self-driving cars, as Europe in particular needs to catch up in that regard. In China and parts of the USA, self-driving minibuses and taxis have long been a familiar sight on the roads. But while pilot projects have been started in Europe, they are not yet as widespread. According to plans by leading industry representatives, this is to change soon.

In June, Volkswagen presented the series model of its self-driving electric van ID Buzz, due to enter regular operations in 2026, initially in Hamburg and Los Angeles, and later in other cities too. A letter of intent to this effect has already been signed with Berlin’s public transport operator (BVG). “Autonomous driving is a leap into the absolute future,” said Christian Senger, member of the Board of Directors of Volkswagen Commercial Vehicles and responsible for autonomous mobility, at the premiere.

Volkswagen’s self-driving ID Buzz is planned to start in Hamburg and Los Angeles in 2026. (c) scoolz-pixx / Action Press / picturedesk.com

Other companies are currently forging alliances in the field of autonomous driving, partially in order to be able to compete with US tech companies such as Alphabet in this area. At the 29th International Automotive Electronics Congress, 11 companies signed a declaration of intent to jointly develop and utilise open software for future generations of vehicles. The signatories include car manufacturers such as BMW and Porsche as well as leading suppliers such as Bosch, Continental and ZF Friedrichshafen. Meanwhile, Japan’s industry giant Toyota has held out the prospect of a co-operation with Alphabet. Toyota and Alphabet subsidiary Waymo has announced a potential collaboration in the development of autonomous driving technology. The companies want to combine their respective strengths to develop a platform for self-driving cars.

 

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