BMW CEO Urges Cancellation of Fossil Fuel Ban Amid Falling Sales in China

Post by: Omar Nasser

Photo : Reuters

BMW and Mercedes reported declines in their third-quarter sales on Thursday, reflecting sluggish demand and intense competition in the Chinese market, which is the world’s largest automotive market. BMW's sales fell by 13 percent during the July-September period, while Mercedes experienced a smaller decline of 3 percent. 

The German automotive industry is grappling with numerous challenges, including soaring production costs, the ongoing transition to electric vehicles (EVs), and diminishing demand due to stiff competition from local manufacturers in China. These challenges have prompted significant cost-cutting measures, including potential plant closures, as highlighted by Volkswagen, Europe’s largest automaker.

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The declining demand in China is primarily attributed to a weakening economy. Foreign manufacturers, including BMW and Mercedes, face growing competition from domestic brands that offer more affordable models, particularly in the EV sector. Mercedes also pointed out a subdued global market for battery electric vehicles (BEVs), reporting a significant 31 percent drop in BEV sales. In contrast, BMW managed a 10 percent increase in its BEV sales during the same quarter.

The European Union has recently imposed substantial tariffs on Chinese-made EVs, arguing that they benefit from unfair state subsidies. However, China has denied these claims and has threatened to retaliate. German automakers, who derive approximately a third of their profits from the Chinese market, have expressed concerns over the tariffs and called for further discussions to address these issues.

Consumer reluctance in Europe to purchase more expensive EVs also plays a role in the struggling market, partly due to the inconsistent charging infrastructure across the continent. Following the release of the sales data, shares of both BMW and Mercedes remained flat. Earlier this month, the companies had already cut their annual forecasts, citing the sluggishness of the Chinese market and additional complications arising from issues with a braking system supplied by Continental.

Year-to-date, BMW shares have fallen by 23 percent, while Mercedes shares are down by 9 percent. In contrast, the pan-European automotive index has experienced a decline of 13 percent.

At the Paris Motor Show, BMW CEO Oliver Zipse urged the European Union to reconsider its 2035 ban on new fossil fuel-emitting cars, arguing that it is essential for reducing reliance on China’s battery supply chain and leveraging Europe’s technological strengths. Zipse expressed that the current sentiment in Europe is leaning towards pessimism and emphasized the need for a new regulatory framework to enhance competitiveness in the auto industry.

He proposed that a modification of the EU's 100 percent BEV target for 2035 could benefit European original equipment manufacturers (OEMs) by lessening their dependence on Chinese battery supplies. Zipse advocated for a technology-agnostic approach within the policy framework, which could include the development of alternative fuels such as e-fuels, biofuels, and hydrogen fuel cell vehicles.

In March 2023, EU countries approved a significant law mandating that all new cars achieve zero CO2 emissions by 2035, effectively banning the sale of diesel and petrol vehicles. The law also requires a 55 percent reduction in CO2 emissions by 2030 compared to 2021 levels. 

However, automakers like BMW, Volkswagen, and Renault have urged for the relaxation or postponement of these CO2 targets due to concerns about facing hefty fines from lower-than-expected EV sales. Despite this, Germany has resisted calls for an early review of these targets, emphasizing the need for industry clarity and the urgency of addressing climate change.

As the automotive industry navigates these turbulent waters, the focus on adapting to consumer demands, competition, and regulatory changes will be crucial for the future success of European automakers.

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