The Most Profitable OEMs Are From Asia

The automotive industry is in crisis. However, an analysis shows that problems are mainly concentrated in Germany and the US. Things are going much better in Asia.

German car manufacturers are falling further and further behind their Asian competitors. This is shown by an analysis conducted by the auditing and consulting firm EY, which evaluated the figures of the world's 20 leading manufacturers. While German companies lost revenue and profits in the first quarter of this year, their new competitors from China in particular were able to make significant gains.

The combined revenue of the three German carmakers fell by 2.3 %. Only VW managed to achieve a slight increase, while BMW and Mercedes slipped significantly. Profits slumped at all three companies, falling by around a third overall. The picture was similar for US manufacturers, which lost 2.9 % in revenue and almost a third in profits.

Things went much better in Asia, especially in China. Manufacturers from the People's Republic increased their revenue by almost 15 % and their profits by as much as 66 %. BYD and Volvo's parent company Geely led the way with strong growth. Manufacturers from Japan and South Korea also performed better than their European and American counterparts. In the end, five of the six most profitable carmakers in the world came from Asia. Only BMW managed to make it into third place with a return on sales of 9.3 %.

Automotive Industry in Crisis

According to EY market observer Constantin Gall, there is no sign of a turnaround. On the contrary, the crisis is likely to worsen over the course of the year. "The automotive industry is currently fighting on many fronts, and for some established manufacturers, their entire business model is at stake", said the EY expert. "If profits continue to erode, some manufacturers will face an existential threat, because the competitive pressure in the automotive industry is brutal at the moment."

Established carmakers – especially German ones – are currently struggling with a variety of problems: the weak economy is dampening demand, high costs and the slow ramp-up of e-mobility are weighing on earnings. "Added to this is the collapse of the Chinese market, where domestic players are increasingly displacing the previous Western market leaders", Gall explained.

US Tariffs are a Burden

The new 25 % tariffs imposed by US President Donald Trump on car imports since April are exacerbating the situation. "In the worst case, the threatened high tariffs will result in billions in losses not only for European manufacturers, but also for US manufacturers", Gall fears. This will drive returns down further. "The gap between them and Chinese manufacturers, who are not represented in the US, will continue to widen."

Several manufacturers and suppliers have already announced cost-cutting programs involving job cuts in recent months. Volkswagen alone plans to cut every fourth job in Germany in its core brand by 2030. But cost-cutting alone is not enough, says Gall. "Western car companies need to completely reinvent themselves". This includes consistent digitalization, faster vehicle development, and quicker decision-making.

China as a Role Model?

Manufacturers could learn from their new challengers from the Far East. "The success of Chinese suppliers in particular has shown that it's not just about investing a lot of money", says Gall. "Speed, flexibility, and a clearer focus for all investments are at least as important."

At least VW can chalk up a respectable success in the first quarter. According to the EY analysis, the Wolfsburg-based company was just ahead of Toyota in terms of revenue. In terms of sales and operating profit, however, the Japanese were clearly ahead. VW last sold more cars than Toyota in 2019, but then had to relinquish its position as the world's largest carmaker to the Japanese.

This is a partly automated translation of this German article by dpa.