Automotive News Europe — 2026-01-24
Automotive Industry
Europe’s automotive industry faces a pivotal 2026. Dealers are squeezed by rising costs and weak demand, manufacturers are dealing with overcapacity and Chinese competition, suppliers are bracing for another crisis year and software-defined vehicles are moving from vision to market reality.
Throughout 2025, these challenges deepened as economic uncertainty collided with structural transformation, leaving few stakeholders unaffected.
In 2026, European automakers face intensifying capacity utilization struggles, particularly at high-wage European plants. Suppliers remain caught between shrinking revenues and mounting electrification investment demands while supply chain pressures persist.
The industry’s software transformation extends into another critical phase as the first software-defined vehicles transition from prototypes to production reality.
Here is where each sector stands as 2026 unfolds — and what developments to monitor in the months ahead.
Retail: Pressure mounts as agency model retreat continues
The return to traditional sales from agency direct-sales sales will continue to reshape dealer economics throughout 2026, returning familiar cost pressures that automakers briefly absorbed. Over the past year, most automakers turned away from direct sales in which dealers merely broker vehicles on behalf of OEMs — leaving Mercedes, Smart and BMW’s Mini as the main exceptions still pursuing the approach. The operational challenges proved too difficult for automakers to sustain.
The shift transfers significant costs back to retail networks. Personnel and real estate expenses, which rose sharply throughout 2024-2025, now remain permanently with dealers rather than OEMs. Automakers facing production pressures continue pushing vehicles onto dealers’ forecourts, leading to mounting costs for stock financing and demonstrator vehicle inventory.
Meanwhile, consumer hesitancy persists. Many buyers are choosing cheaper models or used vehicles rather than new purchases, extending the demand softness dealers faced throughout 2025.
Production: Overcapacity challenges deepen
European automakers will continue to face overcapacity. Weak domestic demand combined with surging Chinese imports is extending the plant utilization pressures that intensified throughout 2025. Sites such as Zuffenhausen (Porsche) and Wolfsburg (VW) are experiencing shift reductions that persist into the new year.
The industry continues monitoring China’s export strategy with mounting concern. Chinese automakers grappling with massive domestic overcapacity increasingly view Europe as a release valve despite existing tariff barriers.
In 2026, Chinese plug-in hybrids are flowing into European markets at accelerating rates, as they remain exempt from the punitive duties applied by the European Union to battery-electric vehicle imports.
European automakers are responding with divergent strategies. Volkswagen continues pursuing radical capacity reduction through its cost-cutting program that includes 35,000 job losses in Germany. The group remains 500,000 vehicle sales short of annual targets — equivalent to two full plants’ output — making further restructuring likely as the year progresses.
Stellantis, by contrast, has a mixed approach of production stoppages and deepened Chinese partnerships. Production halts at six European plants extended up to 15 days in recent months. Meanwhile, the group is leveraging Chinese partner Leapmotor more intensively for low-cost model production.
Supply chains: Geopolitical pressures persist
Automotive supply chains enter 2026 carrying forward many of the pressures that characterized 2025. Logistics providers continue grappling with geopolitical tensions, erratic tariff policies and technological disruption combination that shows no signs of easing as the new year begins.
The legacy chip shortage remains unresolved. While high-end processors are becoming more readily available, simple 90-nanometer chips that are essential for window regulators, braking systems and other basic functions continue in short supply. The Nexperia supply disruption from autumn 2025 highlighted the industry’s dependence on a small number of chip manufacturers, with effects extending into 2026.
Experts forecast significant production losses, with projections of up to 20 percent global output impact persisting through 2026 as chip constraints extend.
Raw material supply remains vulnerable to geopolitical shifts. China continues holding powerful levers through export restrictions on gallium and rare earths, which directly affect magnets for electric motors and influence global production volumes and prices.
The industry is responding with continued localization efforts — moving away from global just-in-time models toward local buffer inventories. This shift, which accelerated throughout 2025, will continue in 2026 as automakers build regional supply resilience, though at the cost of operational efficiency.
China speed: Europe’s OEMs accelerate development shift
“China speed” is gaining prominence as an automotive industry benchmark throughout 2026. Western automakers are seeking to match the impressive pace and efficiency with which Chinese automakers implement innovations and development projects.
Chinese automakers maintain their competitive advantage through short development cycles enabling rapid model updates. Legacy manufacturers typically require around four years to complete what Chinese companies achieve in 18 months. This speed differential keeps Chinese models consistently more current than European competitors.
European automakers are responding by accelerating their shift of development work to China. Renault leveraged Chinese engineering and suppliers to develop the new Twingo battery-electric minicar within two years at a price of less than €20,000.
While joint ventures were once established primarily to enable local production, a new cooperation model is evolving. Entire development and software teams based in China such as those at Renault’s tech center in Shanghai are teaching European manufacturers how to accelerate their processes.
Simultaneously, German and other European automakers are pursuing internal acceleration. Reviewing structures, organizations, workflows and reporting lines has become ongoing work rather than one-time projects. By year-end 2026, manufacturers aim to operate with leaner, more efficient organizations than they entered the year with.
Suppliers: Crisis conditions extend into another year
Automotive suppliers are entering another challenging year as conditions from 2025 persist into 2026 — with many indicators suggesting intensifying rather than easing pressure. Suppliers are caught in a dilemma: they need capital to invest in electrification and digitalization while revenues continue shrinking due to product portfolio mismatches, general market restraint and Chinese component competition.
According to McKinsey surveys, seven out of ten suppliers expect profit margins below five percent throughout 2026 — a threshold widely regarded as the minimum required to fund necessary investment. This profit pressure, which characterized 2025, is extending into the new year with few signs of relief.
The year 2025 saw widespread job cuts and insolvencies, and experts anticipate these trends continuing through 2026. While the top 25 suppliers managed slight margin increases in 2025 according to consultancy Berylls, the industry expects rising bankruptcy counts among Tier-3 and Tier-4 suppliers as capital constraints intensify.
Deloitte describes the situation as precarious and, in some cases, existentially threatening. Falkensteg reported 41 insolvencies among German suppliers with revenues of at least €10 million by end-September 2025. This trajectory deters investors and banks, further compounding the capital access challenges suppliers face.
SDVs: Transition from prototypes to production
Software-defined vehicles are transitioning from theoretical concept to road reality. While recent years were dominated by visions, architecture approaches and software roadmaps, the first SDV models are now reaching production and entering customer hands — marking a significant evolution in industry development.
The focus is shifting from prototypes to real products with continuous software development and practical user experiences. The industry is moving from lighthouse projects into a proof-of-value phase where execution matters more than vision.
The key question is evolving. Rather than “Can SDVs be built?” the industry now tracks “Can they be produced reliably at scale, operated safely, and made commercially successful?” This shift brings new challenges into focus: managing massive software complexity and integration issues, ensuring cybersecurity and compliance, and transforming entire development and organizational structures at OEMs.
Automakers are building in-house software expertise while partnering with technology companies — a process that accelerated through 2025 and will continue into 2026. Simultaneously, they are facing stress tests in the form of increased testing and validation requirements, debugging challenges, and the operational demands of managing SDVs as continuously updatable products rather than fixed hardware releases.
Industry outlook: Tracking developments through 2026
As these sector-specific challenges continue evolving throughout 2026, multiple indicators will show how the automotive industry adapts to converging pressures. Dealer financial health metrics, European plant utilization rates, supplier insolvency counts and software-defined vehicle production ramps each provide windows into how companies are navigating ongoing transformation.
The pressures facing manufacturers, dealers, suppliers and technology teams show little sign of abating in the near term. How each sector responds to these challenges will determine which players strengthen their positions and which face additional restructuring as the year unfolds.