European Automakers’ 2026 Profits Stagnant Despite Growing Sales
Intensifying competition and ongoing restructuring mean European automakers’ profitability and cash generation will remain subdued in 2026, despite increasing sales, Fitch Ratings says.
Ratings analysts expect European passenger vehicle sales to rise in 2026 from an estimated 13 million units in 2025, supported by the launch of new mass-market models and continued regulatory incentives for electric vehicles (EVs).
However, the sales mix is likely to shift towards lower-margin segments, according to Fitch with ratings analysts expecting operational profitability to improve by only about 50bp despite higher unit volumes, as protectionist measures and intensified competition will persist into 1H26.
Fitch said the European sales mix is also likely to tilt further towards mass-market and EV models, which remain margin dilutive. As in 2025 – but to a lesser extent – footprint and workforce optimisation is likely to lead to restructuring charges, weighing on profitability.
However, ratings analysts still expect cash generation to remain positive for most issuers – excluding niche small manufacturers and suppliers – supporting broadly intact liquidity and leverage profiles.
Consequently, Fitch anticipates ratings in the sector to remain mostly unchanged following the substantial negative rating actions in 2025.
EV adoption in Europe remains far from what is required to comply with updated CO2-emission standards following the recently unveiled plan to drop the effective ban on sales of new combustion-engine cars from 2035 (still subject to approval by EU governments and the European Parliament).
Countries such as Germany and the UK have reintroduced subsidies and France is extending its EV-purchase scheme for vehicles with a higher share of Europe-made components.
Europe’s production capacity and model line-up are sufficient to meet rising EV interest, and policy changes could help local automakers fend off competition from Chinese peers.
European automakers, as net importers – including rare-earth elements and chips-, remain directly exposed to US-EU-China trade tensions and vulnerable to protectionist shifts as negotiations evolve.
Recent events such as US curbs on advanced semiconductor exports to China and China’s restrictions on rare‑earth magnets have heightened the risk of chip shortages, prompting warnings of production stoppages and potential furloughs.
“We expect tensions to re‑emerge in 2026 even though near‑term disputes have eased, posing short‑term risks to global automotive supply‑chain resilience, pressuring working capital, and weighing on production volumes, as reflected in a ‘deteriorating’ sector outlook,” Fitch said.
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