Bank of America (BofA) has released its latest outlook on the European automotive sector, highlighting a modest increase in light vehicle production (LVP) but warning of growing risks related to trade tariffs. While the sector is showing some resilience in 2025, challenges remain as automakers navigate economic headwinds and potential regulatory hurdles.
Slight Boost in Light Vehicle Production (LVP)
According to BofA’s latest projections, European light vehicle production is expected to see a slight boost in 2025, driven by a gradual recovery in supply chains and improved consumer sentiment. Automakers have benefited from better semiconductor availability, allowing them to increase manufacturing output after years of disruptions. Additionally, pent-up demand from prior shortages is supporting production levels, though growth remains moderate rather than explosive.
Despite this improvement, rising costs and tighter lending conditions are weighing on new car sales. Inflationary pressures and higher interest rates have made vehicle financing more expensive, limiting the scale of the recovery. European consumers remain cautious about big-ticket purchases, and affordability concerns continue to challenge the auto industry.
Tariff Uncertainty Casts a Shadow
While the production outlook shows signs of stability, the looming threat of new tariffs is a major concern for European automakers. Trade tensions between Europe, the U.S., and China have intensified, with potential new tariffs on Chinese electric vehicles (EVs) and retaliatory measures from Beijing causing uncertainty in the market.
The European Union is currently reviewing its tariff policies on imported EVs from China, aiming to protect domestic automakers from aggressive price competition. However, any escalation in trade barriers could disrupt supply chains and increase costs for European manufacturers that rely on Chinese components. If tariffs are imposed, European automakers may struggle with higher input costs, while retaliatory tariffs from China could reduce export demand.
Additionally, the U.S. has hinted at potential tariffs on European auto exports, adding another layer of uncertainty for manufacturers that rely on transatlantic trade. If implemented, these tariffs could significantly impact German automakers such as Volkswagen, BMW, and Mercedes-Benz, all of which have substantial U.S. sales exposure.
Final Thoughts
While the European auto sector is seeing a slight lift in production, the uncertainty surrounding tariffs remains a major risk factor. Automakers must navigate these challenges carefully, balancing production growth with potential trade disruptions. Investors and industry stakeholders will be closely watching how regulatory decisions unfold in the coming months.
