Audi, BMW, Tesla and volume brands may face a market that could shrink a further 3.5% in Q4, despite mounting discounts, amid increased risk of overcapacity and plant closings, according to a new automotive sector report from Bloomberg Intelligence (BI).

Markdowns climbed in Q3 but weren’t enough to prevent sales falling by 17% in August and 5% in September. Boosting discounts may help stop the rot, though not without pressuring H2 margin, adds BI.

Michael Dean, Senior Industry Analyst – Autos at Bloomberg Intelligence, commented: “Average discounts in Europe have continued their upward trend as automakers face slowing demand amid economic uncertainty, pressuring H2 margins.

“Based on the five largest countries, September registrations declined by 5%. We expect a drop of at least 3.5% in Q4, absent even higher discounts, given volume remains 15% below its 2019 peak, raising the risk of overcapacity and plant closings. That’s prompted a spate of profit warnings on the back of already weak H1 earnings, which showed the first signs of negative pricing this decade.

“Coupled with a reduction in high-margin exports to China and one-time effects, that’s forced every European automaker except Ferrari and Renault to lower 2024 volume and margin guidance. Discounts have risen for all premium brands since June, bar Mercedes.”

According to the new report from BI, automakers’ average-fleet CO2 emissions will also be subject to tougher Worldwide Harmonised Light Vehicle Test Procedure (WLTP) rules and EU regulations from 2025, replacing New European Driving Cycle (NEDC) rules – for which they’re compliant at 95 grams per kilometre. Based on analysis from JATO, BI, Volkswagen and Ford are most at risk and need to lower their 2025 emissions by about 16% and 15%. That task has been rendered harder by BEV demand stalling, it adds.

Failure to comply will trigger a €95 fine for every vehicle registered in the EU, multiplied annually by each CO2 g/km above the target.

Michael Dean added: “Europe’s transition toward BEVs is reversing as high prices, a lack of public chargers, declining subsidies (included in our overall discount calculation) and corporate-tax incentives deter customers, with JATO data showing demand was down 6% in the year to August. Tesla’s price cuts have translated into lower average BEV prices industrywide over the past 12 months, reducing residual values and profitability. Yet the BEV premium vs. ICE vehicles remains high at about 38% in 2024. That contrasts with China, where intense competition means BEVs are often cheaper than their ICE equivalents, suggesting it’s survival of the fittest for pure-play brands.

“European automakers need high BEV prices to compensate for elevated battery costs and limited volume until next-generation scalable platforms become available in 2026-27.”