European New Car Sales Strong, But China Reaping The Benefits

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European sales of sedans and SUVs were surprisingly strong in the first half of 2026. So why have major automakers been slashing profit forecasts and the likes of Volkswagen warning of plant closures?

Any increase in sales is likely being snatched up by the incoming wave of Chinese competition, which despite big tariffs on electric vehicles, is using its 30% cost advantage and superior software skills to win over Europeans. Chinese autos now account for almost 10% of the European market. Global consultancy AlixPartners expects this to rise to 16% by 2030.

The sales environment is likely to get worse in the second half as momentum slows, putting even more pressure on the locals. BMW, Mercedes and Volkswagen have issued profit warnings in 2026. Stellantis and Renault have cut vehicle output in Europe.

GlobalData said in a report for the first half of 2026, auto sales rose nearly 6.0% to 6.4 million compared with the same period of 2025, but the rate of growth will run out of steam in the second half to show a 1% increase to 11.9 million for the year. In its 5-month report, GlobalData declined to forecast the outcome for 2026, but in the previous month it had predicted a 1% fall.

Geopolitical headwinds

BYD Dolphin Surf electric vehicle in Paris. Photographer: Cyril Marcilhacy/Bloomberg

In the first half, sales defied a weak macroeconomic backdrop and geopolitical headwinds caused by the Middle East conflict.

“Sales have been driven by accelerating battery electric vehicle demand, rather than a broad consumer recovery, as manufacturers continue to discount BEVs to stay compliant with emission targets and to fend off growing competition from Chinese brands,” GlobalData said in a report.

The European Union insists on steep annual increases in electric vehicle market share. This has forced local manufacturers to deliberately raise prices of highly profitable combustion vehicles to make them less attractive, while cutting prices of often loss-making EVs to match EU quotas.

GlobalData said its forecast for 2026 reflected positive news from the Middle East conflict and a rapid easing in energy prices, but soon afterwards the ceasefire ended.

“However, we remain cautious, noting that broader macro risks and the potential for renewed geopolitical volatility still pose latent threats to this recovery trajectory,” the report said.

Revised down

FitchRatings said in a recent report it had revised down its European sales forecast for 2026 to a 1% decline after an earlier forecast of 1% growth. This reflected the fear prolonged Middle East tensions would weaken consumer sentiment and purchasing power.

Investment bank UBS said in the second quarter demand remained strong in the top-5 markets of Germany, France, Britain, Spain and Italy.

“EV sales remained strong thanks to a combination of elevated fuel prices due to the Middle East crisis, tax and cash incentives, and the U.K.’s ZEV mandate,” UBS said in a report.

“We expect the trend to continue,” UBS said.

“Chinese (manufacturers) have continued to outperform the market and reached 11% market share for the second month in a row. SAIC, BYD, and Chery had about 3% market share each, while (Stellantis affiliate) Leapmotor accounts for about 1% market share. European (manufacturers) lost about three percentage points in Q2 year on year, leaving another 2 percentage points of loss to others, mostly Japanese. Tesla, on the other hand, managed to regain 1 percentage point of market share,” UBS said.

German sentiment volatile

According to Germany’s Ifo Institute in its report for June, sentiment in the German auto industry is volatile.

“Companies assess their current business situation as considerably worse than in the previous month. At the same time, they are significantly less pessimistic about coming months. The zigzag course we saw in sentiment in the automotive industry during 2025 has so far continued this year,” Ifo analyst Anita Wölfl said.

“Business in Germany and other European countries is providing support for the industry. Electromobility continues to be a growth driver in Germany,” Wölfl said.

Germany, Europe’s biggest market, has reintroduced EV purchase subsidies, offering grants between €1,500 ($1,700) and €6,000 ($6,900). The scheme is retroactive for new vehicle registrations starting January 1, 2026.

“From January through May 2026, just under 284,000 new EVs were registered in Germany. That’s 40% more than in the same period last year, bringing the average share of EVs to just under 24%. From January through May 2025, the figure stood at 17%,” Wölf said.

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