For decades, Europe’s automotive sector was built on strong export markets, with Russia, China, and the US playing an outsized role in driving sales volumes and profitability. While domestic demand remains important to European OEMs, external markets have provided both scale and stability – until now.
In 2025, that model is showing clear signs of failure. For the first time in modern automotive history, the major non-EU markets of China, Russia, and the US have seen massive declines in accessibility and profitability at the same time. As a result, European automakers have lost a critical buffer, and with domestic demand also stagnating, the region is facing a structural slowdown in new car sales.
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A three-market collapse
Russia, once a key destination for European brands, has been entirely shut off since the 2022 invasion of Ukraine. Western OEMs withdrew in full, and Chinese manufacturers rapidly filled the gap. The market is now politically and commercially inaccessible to European players, and while there are talks of potential re-entry, the barriers for doing so remain high.
In addition, China, long the largest international growth engine for European automakers, has become increasingly difficult to navigate. Slowing consumer demand and the rise of domestic Chinese brands, particularly in the Electric Vehicle (EV) segment, have hurt the profits of European OEMs. Legacy brands are facing margin erosion and declining market shares, with those such as Volkswagen, Mercedes-Benz, and BMW suffering heavy losses in 2024.
Meanwhile, the US has turned increasingly protectionist. The Trump administration’s 25% tariffs on imports of foreign-made cars represents another huge blow for the already struggling European OEMs. According to the European Automobile Manufacturers Association (ACEA), European manufacturers export up to 60% of the vehicles they make in the US. Additionally, the US is the most important export market for Germany’s auto industry. In March, BMW warned that the growing trade conflicts could cost the company $1 billion this year, while Porsche and Mercedes-Benz are facing a potential $3.7 billion blow from new US tariffs on imported cars.
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By GlobalDataIndividually, any one of these markets becoming less viable would have triggered concern, but the concurrent deterioration of all three has created a structural rupture, one that has left the European market more exposed than in recent memory.
Domestic demand fails to offset external losses
With exports weakened, Europe itself has become the primary battleground for volume. However, domestic demand is not rising fast enough to support the industry. Sales have dropped in the first three months of 2025, with major markets such as Germany, Italy, and France all recording negative growth. The recovery seen in 2023 has stalled and the region is now experiencing a downturn.
Economic conditions are a major factor behind the decline. Eurozone GDP remains sluggish, and high inflation persists, leaving the European Central Bank (ECB) facing increasing uncertainty regarding its monetary policy and decision to cut interest rates. Affordability has become a central barrier, and even with the introduction of more hybrid and electric options, price sensitivity remains high, with consumers holding off on making purchases. For OEMs and dealers, this means that additional pressure from lost exports is landing on a customer base that for now appears hesitant to buy.
Compounding the challenge is the rapid advance of Chinese automakers in the European market, particularly in the EV segment. Brands such as BYD and MG are steadily increasing their market shares across several European countries, offering competitively priced EVs with strong specifications. This is intensifying competition and placing downward pressure on pricing, especially for legacy European OEMs struggling to produce EVs at scale. For domestic manufacturers, this means not only dealing with slowing demand but also losing share within the demand that remains.
Eastern Europe offers some resilience but limited scale
In contrast to Western Europe’s stagnation, Central and Eastern Europe offer a limited but notable source of resilience. Countries such as Poland, Hungary, and Romania are experiencing modest growth in both vehicle demand and local production capacity.
The region benefits from lower labor costs, rising middle-class consumption, and supportive government policies. Several OEMs have increased investment in Eastern European facilities to reduce production costs and improve proximity to key markets. These countries are becoming increasingly important manufacturing hubs and, to a lesser extent, as developing consumer markets. While Central and Eastern Europe cannot compensate for the scale of lost sales in China or the US, they provide OEMs with cost-efficient production bases and incremental sales growth.
Recovery is possible, but sales will remain fragile
The European automotive market in 2025 is not in freefall but is clearly stagnating. Russia, China, and the US have simultaneously lost their ability to support EU sales volumes. With domestic demand weakening under the weight of economic headwinds and the structural transition to electrification, the industry is entering a period of subdued growth and increasing regional fragmentation. Moderate recovery is expected beyond 2025, as GlobalData forecasts Western European LV sales to grow by approximately 2.2% annually in 2026 and 3.0% in 2027, provided that economic conditions stabilize, and affordability improves. Until that recovery materializes, sales will remain fragile and uneven, increasingly reliant on small gains in developing markets in Central and Eastern Europe. Without structural improvements in consumer confidence and pricing, Europe’s LV market will continue to operate below its full potential, caught between global dislocation and an incomplete domestic rebound.
Julian Ponirakis, Analyst, GlobalData
This article was first published on GlobalData’s dedicated research platform, the Automotive Intelligence Center.
