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Carmakers flag difficult year on costs, muted EV demand

Car manufacturers from Europe and Asia are bracing for a tough year ahead, grappling with increased costs and a sluggish demand for electric vehicles (EVs) that is putting pressure on their profits.

Mercedes-Benz Group AG revealed on Wednesday its intention to prolong the sale of traditional combustion-engine cars due to disappointing EV sales. Similarly, Toyota Motor Corp. anticipates a significant drop in operating income this fiscal year and is leaning on hybrid vehicles to offset reduced output. BMW AG, while making strides in EV production, highlighted challenges such as elevated manufacturing expenses.

Factors such as persistent inflation, sluggish economic growth in Europe, and a slow recovery in China, exacerbated by intense EV discounting, are exacerbating the industry's woes.

According to Toyota's Chief Financial Officer Yoichi Miyazaki, the pricing competition in China is intensifying, posing challenges that may persist for years until more battery EV options become available.

Although some companies like Continental AG foresee improvements in earnings in the latter half of the year due to price hikes and cost reductions, many are feeling the pinch from the EV slowdown. The discontinuation of government subsidies has made EVs even less appealing to consumers, compounded by inadequate charging infrastructure.

Despite these challenges, the commitment to EVs remains steadfast among manufacturers. Toyota reaffirmed its long-term commitment to EVs and announced plans to invest an additional ¥500 billion ($3.2 billion) in decarbonization and software development. Ferrari is set to launch a new factory in Italy for hybrid and electric vehicles next month, while BMW and Mercedes are gearing up to introduce a new wave of EVs by the mid-2020s.

While the transition to EVs may have hit a speed bump, carmakers are not reversing course. The allure of larger vehicles with traditional combustion engines, particularly in lucrative markets like China, remains strong for luxury car manufacturers, offering a buffer amid the EV challenges.



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