“Our business model has changed.” That’s what Oliver Blume, the chief executive of the Volkswagen Group, Europe’s largest automotive giant, said at a recent press conference in Madrid to present the new Cupra Raval. He was referring to the deeply challenging moment the industry as a whole is going through, one in which the center of innovation and production has shifted from Europe to China.
“In the past, we developed in Germany, in Europe, and from there we sold our products around the world with a good quality standard. Today that’s no longer possible due to regulations, how customer expectations have changed, and competition,” the executive said. He argued that Volkswagen now works in the opposite direction: it brings to Europe the processes it learns in China, where it has partnerships with local companies such as SAIC Motor (owner of MG) and Xpeng.
The German executive’s remarks capture well what was a disastrous 2025 for the European automotive sector: losses or steep drops in profits dominated the financial results of the main car manufacturers, with the exception of BMW, which managed to stay in line with the previous year. To the reasons Blume spelled out, one must add last year’s most destabilizing factor: the erratic tariff policy of U.S. President Donald Trump, whose extra duties on car and component exports hit German plants particularly hard. Spain, although the second‑largest vehicle producer in Europe, does not export a single car to the United States, though it does ship parts.
However, the shockwave from Trump’s tariff policies and his policies favoring combustion‑engine vehicles in the United States also hit the balance sheets of America’s own carmakers. In fact, the withdrawal of electric‑vehicle incentives in the U.S. market pushed companies such as Ford, General Motors, and Stellantis (the latter a European‑U.S. consortium whose brands include Fiat, Peugeot, Citroën, Chrysler, and RAM) to make a strategic shift aimed at extending the life of their combustion models. That shift cost Ford and Stellantis losses of $8.2 billion and $26.3 billion, respectively. General Motors, a company heavily focused on the U.S. market, did manage to stay profitable, but its earnings plunged 55% to around $2.5 billion, although its outlook for this year is more optimistic, according to its annual results presentation.
Beyond Trump, U.S. manufacturers — along with European groups such as Mercedes‑Benz and Porsche — have cited a more fundamental reason for revising their electrification plans: electric‑vehicle sales are growing, but not as fast as the industry once expected.
“There is a mismatch between an industry moving rapidly toward electrification and a market that is not growing at the same speed, in a context of rising international competition and geopolitical uncertainty,” explains Donia Razazi, industry expert in Spain at the consultancy Ayming. “Moreover, although Europe has a solid industrial base, it still shows a high external dependence on key elements of electrification, such as batteries or certain technologies, which is a weakness in the current environment.”
The fall of Tesla
As for Tesla, the pioneer of electric mobility owned by Elon Musk, the outlook is cautious after a year in which its profits fell by 46%. Tesla has also been hit by Trump’s policies, despite Musk’s role in bringing him to the White House and later joining his administration as head of the Department of Government Efficiency (DOGE). But the company’s biggest challenge today is Chinese competition. China’s leading manufacturer, BYD, which produces only plug‑in vehicles (that is, fully electric or plug‑in hybrids), has already overtaken Tesla as the world’s leading electric‑vehicle maker thanks to its expansion into markets such as Europe, where it is growing at breakneck speed.
For example, Tesla saw its sales in Europe fall by 26.9% in 2025, to nearly 239,000 units, while overall electric vehicle sales in the European market grew by 29.7%, according to data from the European Automobile Manufacturers’ Association (ACEA). BYD has captured that market share, with a 268% increase (more than 187,000 registrations). And the losses for Musk continue: in the first two months of this year, BYD has delivered 36,000 vehicles, while Tesla has recorded just 26,000.
However, BYD’s success comes with a caveat: the price war it has helped fuel — both in China and abroad — has taken a toll, with profits falling 19% in 2025. That is not the case for other Chinese brands such as Chery, whose profits rose 34.6% last year; SAIC, which saw earnings soar 506% after a disastrous 2024; and Geely, which has remained stable.
José Ignacio López, professor of business organization at CEU San Pablo University, notes that competition from China “is not cyclical but structural,” because “Chinese manufacturers arrive with cost advantages, battery integration, and the ability to compete on price in segments where European consumers are under significant pressure.”
European carmakers want to copy the Chinese
Among Europe’s automotive groups, Renault posted the biggest losses (setting Stellantis aside), around €10.93 billion ($12.89 billion), although its situation is due to a specific event. The company chose to sacrifice its 2025 results through an accounting change designed to ensure that its exposure to Nissan — of which it is the largest shareholder — would not weigh on its books in the coming years. The move reflects the fact that the Japanese manufacturer is undergoing a deep restructuring of its business, which cost it around €5 billion ($5.9 billion) in losses in 2025. That figure combines the first three quarters of its latest fiscal year, which closed in March 2026, and the final quarter of the previous fiscal year, covering January to March 2025. In Japan, the fiscal year runs from April to March.
Looking to the short and medium term, Renault is focused on cost control and on emulating Chinese automakers, as became clear during the presentation of its new strategic plan through 2030. Like Volkswagen, Renault is fixated on matching China’s speed — a drive that enabled it to develop the new Twingo in just two years, a record for the French company.
In Germany, meanwhile, Volkswagen and Mercedes‑Benz saw their profits fall by 37.8% and 49%, respectively. These two automotive giants have felt the impact of tariffs and of competition from China. On the latter point, both companies are calling for Europe’s industry to be protected — but without resorting to the kind of protectionism practiced in other parts of the world.
“[Chinese brands] are like a football team that has trained day and night, ready to play in the European leagues,” said Ola Källenius, Mercedes‑Benz CEO and president of the European Automobile Manufacturers Association (ACEA), in an interview with this newspaper in February. “Of course, a level playing field matters, and the issue of state subsidies needs to be examined, but I don’t think we can exclude a country. The main debate should be how to improve our own competitiveness, not how to reduce it through regulation.”
One of ACEA’s goals is to secure further concessions on emissions regulation, after winning victories last year, such as the scrapping of the 2035 ban on selling combustion‑engine cars and ensuring that rules on corporate average fuel economy (CAFE) emissions would not result in fines for the sector until at least 2028. These regulations, companies argue, undermine their competitiveness relative to China.
“In 2026, there will be somewhat more regulatory flexibility and probably a bit more strategic realism, but Chinese competition, U.S. trade pressure, and the difficulty of transforming the European production mix will continue to be significant factors,” says López. “My impression is that the sector is not facing a collapse, but rather a profound restructuring, in which groups with scale, technology, industrial flexibility, and diversification capacity will be best positioned to survive. The major challenge is not just selling cars, but closing the competitiveness gap and preventing the transition from leading to European deindustrialization.”
Another aspect that is causing significant concern in the sector is the drop in sales in Europe, with a loss of 2.5 million registrations last year compared to before the pandemic. Of the major markets, Spain is recovering the fastest, with 1.15 million deliveries projected for 2025, compared to the pre-COVID range of 1.2 to 1.3 million. This recovery, paradoxically, is being driven by Chinese manufacturers, although Spain still lags far behind the European average in electric vehicle sales.
Sign up for our weekly newsletter to get more English-language news coverage from EL PAÍS USA Edition