504 billion in net profits in just seven years, from 2017 to 2023, against 7,248 billion in sales, 342 billion in investments, and 426 billion in research spending: the main reasons for the crisis in the European automotive sector are all encapsulated in these numbers when compared with those from China.
These are the key results of an analysis conducted exclusively for Thewashingnews.com by economist and researcher Roberto Romano, an analyst of European industrial sectors.
In Europe, profits increased from 66 billion euros in 2017 to 109 billion in 2023 (current values), representing a 65% rise and a 7% share of revenue, the highest level among all production areas.
The trend of earnings
All the considered regions show the same trend in profit growth, although the share of revenue varies significantly:
- China moved from 3 billion euros in 2017 to 7 billion in 2023, with a growth of 125% but a sales ratio of 2.39%;
- Japan increased from 39 billion in 2017 to 51 billion euros in 2023, a growth of 31% and a share of 6.23%;
- the rest of the world went from 5 billion in 2017 to 11 billion in 2023, which is a growth of 111% and a weight of 4.18% on sales;
- the USA went from 11 billion euros in 2017 to 43 billion in 2023, representing a growth of 298% with a revenue share of 5.73%.
If the size of profit reflects how much the involved companies have chosen to reward shareholders, the variables that can explain some underlying dynamics of the sector’s evolution are particularly interesting. In particular, the trend over time of research and development (R&D) spending reflects the technological effort of automotive companies.
Investments and R&D, the Chinese boom
Between 2017 and 2023, Europe increased R&D spending by 44%, Japan reduced it by 5%, the Rest of the World increased it by 4%, and the US increased it by 54%. China, however, made an exceptional effort: R&D spending grew by 1000%. It is due to this technological effort that China plays an important role in the automotive sector, especially looking ahead.
Investment trends follow a similar pattern, but even more pronounced. Europe increased investments by 16% between 2017 and 2023, while Japan saw a decrease of 6%; the Rest of the World decreased investments by 19%, and the US increased theirs by 19%. China’s choices contrast sharply, as it has increased its investments by 650%.
The combination of China’s investments and R&D, despite not being the main economic player in the sector, positions this industrial reality among the world’s top in terms of competitiveness and future projection. Moreover, this combination allows for addressing environmental and electrification challenges with innovative tools.
The production structure
If we look at the production structure, that is to say production and sales, an even harsher picture emerges. Between 2019 and 2020, global production contracted, only to slowly recover in the following years. It was only in the first quarter of 2024 that production reached the same levels as in 2019, but with a completely new economic geography.
Automobile production has only grown in the Asia-Oceania region, while it has decreased in the sector’s traditional areas: Europe and America. Europe is experiencing an excess production capacity relative to registrations amounting to almost 500,000 automobiles in the first quarter of 2024, while China maintains a balanced situation in its domestic automobile market: it is growing over time, but supply and demand are substantially aligned.
Registrations of electric cars have rapidly increased since 2019. Worldwide, there are nearly 15 million electric cars in 2023, but they are not distributed evenly across the globe: 8 million are in China; 3 million are in Europe; 300,000 are in the USA; and 125,000 are in Italy.
Beyond the economic and social dimensions of the regions considered, electric motoring has become strategic in countries with high potential demand.
Although the automotive sector is, by definition, ‘mature,’ the electric component of automotive demand is the only one emerging as innovative with high growth prospects.
Where did the profits go?
But where has this enormous amount of European profits gone? At the forefront among continental manufacturers is the Volkswagen Group, which has distributed €118.333 billion over the same time frame of the analysis (2017-2023): one third to Porsche (50% controlled by the Piech family, which thus received about €18 billion), 25% to institutional investors (from BlackRock to Vanguard), amounting to about €30 billion, €11 billion to Qatar Investment (which holds 10% of the group), and €13 billion to the state of Lower Saxony, which historically holds an 11% stake.
In the case of BMW Group, over 50% of the company is owned by the Quandt brothers (Stefan Quandt and Susanne Klatten, who directly or indirectly control 27% and 21.09% respectively, along with Aqton Se, a holding created by Stefan Quandt himself, which holds 8.72% of the group). Of the €51 billion distributed between 2017 and 2023, over half, about €25 billion, has thus gone to the Quandt brothers, followed at a distance by BlackRock (averaging 3.5% of BMW Group) with €1.7 billion, Vanguard, and other institutional investors.
The Quandt family has always been at the center of controversy because the patriarch, Harald Quandt, was heavily involved in the economic apparatus supporting the Nazi regime.
The Stellantis case
Stellantis ranks third in the list of the most profitable companies. During the period from 2017 to 2023, the company (also considering the merged companies, PSA and FCA) recorded €35 billion in profits. Since its foundation in 2021, Stellantis has distributed approximately €23 billion to shareholders, including over €17 billion in dividends (including Faurecia shares) and share buybacks amounting to €5.5 billion. Exor, the company’s largest shareholder with 14.9%, received a substantial payout of nearly €3 billion over four years, not counting the benefits from the buybacks conducted and announced by Stellantis.
The group formed by the merger has one of the lowest ratios of sales to research and development spending.
In 2022, for example, Stellantis’s R&D investments amounted to €5.2 billion against revenues of €179.6 billion, resulting in a ratio of 2.9%, significantly lower than General Motors at 6.3%, Mercedes at 5.7%, Volkswagen at 5.1%, and Renault at 4.6%.
At the bottom among the major European manufacturers is Renault, which recorded profits of €3.113 billion during the analyzed period, primarily due to heavy losses recorded in 2020 (-€8 billion in the year of Covid).
