European Auto Finance Insights – April

The T word has dominated discussions in automotive manufacturing and finance boardrooms over the last month, ever since President Donald Trump announced a 25% tariff on all vehicles imported to the United States.

This means that an imported car with a value of US$40,000 would face an additional US$10,000 tax. The question is which link of the supply chain will have to bear the extra cost – manufacturer, dealer or end consumer?

The US is the largest export market for European-made vehicles. Last year 750,000 EU-made vehicles crossed the Atlantic, the majority from Germany (463,000) and Sweden (83,000), with the EU total boosted by a further 192,000 UK-manufactured vehicles. In return, 170,000 US-made vehicles sailed to Europe.

Disrupting trade on this scale has the potential to shake the foundations of the entire automotive industry. If imports to the US dry up, will OEMs close factories or ‘dump’ their excess production in Europe, with knock-on consequences for residual values? And how will the 145% tariffs on imports from China to the US change the export strategy of Chinese OEMs to Europe.

Chinese manufacturers are already gaining traction in Europe with their competitively engineered and priced vehicles. In February, Chinese brands outperformed Tesla in Europe, led by Volvo, Polestar and BYD. Last year BYD increased its global sales volumes to 4.3 million vehicles, up 41% on 2023, making it the world’s fourth-largest automotive brand. Overseas markets accounted for 29% of BYD’s sales revenues, with the manufacturer capturing a growing share of the electric and hybrid car markets.

The European Automobile Manufacturers’ Association (ACEA) warns that without better coordinated and expanded incentive schemes, Europe risks falling short of its climate goals and will lose the industrial race with China, where OEMs benefit from the country’s unified and centrally directed approach to EV adoption.

The EU has tried to address the supply side of the automotive industry with its Action Plan, and has proposed new legislation that would give car manufacturers more flexibility in meeting their 2025 CO₂ emissions reduction targets, in a move designed to support the auto industry through its green transition while maintaining Europe’s climate commitments.

But there are no consistent or coordinated policies for the demand side of the sector. These are vital to support EV sales – when Germany removed its EV purchase incentives, sales fell by 30%.

An ACEA survey has found 30 different incentive schemes across the EU, with eight countries offering no purchase incentives for cars, and more than one-third of Member States offering no incentives for trucks and buses.

These are difficult times for the automotive industry, which was already facing multiple challenges before the tariff trade war. In its annual results, Volkswagen Group Mobility referenced macroeconomic headwinds, such as exchange rate impacts, higher risk costs, and the normalisation of used car prices, as it posted a 7.7% decline in its annual operating results for 2024, despite a 3.5% increase in the number of contracts to 26.7 million. Interestingly, the company announced an 11% rise in used car leasing contracts as it rolled out its Vehicle Lifetime Management model in Germany and France, which aims to unlock value through multiple leasing cycles.

And on the subject of cycles, Arval Germany has added a bike and e-bike leasing service to its product portfolio, via a partnership with Company Bike, as employers look to offer greener mobility solutions to their staff.