Europe’s automotive market outlook for 2026 remains weak
How will 2026 unfold for the automotive industry? For Europe, the United States and China, the outlook points to a historically stagnant phase. This is the assessment in S&P Global Ratings’ Industry Credit Outlook 2026: Autos.
Overall, 2026 is expected to be a complex year of adjustment for the global automotive industry, marked by structural deceleration, subdued demand, compressed margins and a transition towards electric vehicles that is proving less linear than previously forecast.
Europe: flat demand and competitiveness under pressure in 2026
In Europe, the automotive sector continues to show signs of weakness. Despite improvements in some macroeconomic indicators, such as real wage growth in certain EU countries, car demand did not experience a significant rebound in 2025, and prospects for 2026 remain subdued.
According to S&P Global, the European automotive market is underperforming compared with the US and Chinese markets and is unlikely to reverse course in the short term. Expected sales growth in 2026 is projected at between 0% and 2% annually, a level considered insufficient to fully support production capacity, industrial investment and technological conversion.
The main issue remains affordability. High average vehicle prices, still elevated interest rates and persistent economic uncertainty continue to weigh on purchasing decisions. In this environment, pricing leverage becomes less effective, and manufacturers struggle to pass on higher costs linked to tariffs, supply chain restructuring and investments in the energy transition.
Chinese manufacturers expand in the European automotive market
One of the most critical elements for the European automotive market is the growing penetration of Chinese manufacturers. In 2025, Chinese brands held around 7% of the European market, a share expected to reach double digits by 2026-2028.
In the short term, this expansion will be driven mainly by imports, while local production will advance more gradually. Some investments are already underway, such as BYD’s new plant in Hungary and a second facility planned in Türkiye. However, according to S&P, higher value-added activities, including research and development and advanced manufacturing, will largely remain concentrated in China.
For the European industry, this translates into increasing pressure on prices and margins in a market already weakened by demand constraints, and into intensifying competition that may prove difficult to sustain without a substantial revision of industrial strategies.
De-risking and Europe’s dependence on China
The report highlights that Europe is engaged in a process of reducing its dependence on China for critical materials and strategic components. However, this “de-risking” strategy entails significant costs, including duplication of production capacity, loss of economies of scale and rising unit costs.
S&P Global points to the risk of misalignment between regulatory objectives and industrial feasibility, with potential tensions along European supply chains and a direct impact on the competitiveness of manufacturers and suppliers.
Electric transition under EU targets in 2026
The European Union has eased its approach to the 2035 phase-out target, granting greater flexibility to carmakers without formally banning the sale of internal combustion engine vehicles from that year. However, the 2030 interim targets remain broadly unchanged, requiring a 55% reduction in average fleet CO₂ emissions.
This means that, in the short term, European manufacturers are still required to increase the share of electrified vehicles in their sales mix. Estimates indicate that in 2026 the penetration of BEVs, PHEVs and EREVs in Europe will range between 25% and 30%, a meaningful level but still distant from long-term targets.