Electric vehicle sales are booming in Europe. Profits are not.
European carmakers are struggling to make money on electric cars even as demand climbs, squeezed by cheaper Chinese competitors and costly government mandates.
How fast are EV sales growing?
Global sales of electric vehicles rose 20% in 2025 to more than 20 million, according to the International Energy Agency. Sales in Europe jumped 30%.
China dominates the market. More than 13 million of last year’s EVs were sold there, and Chinese companies built more than half of all EVs sold worldwide.
Why are European carmakers losing money?
Heavy investment has not paid off. Volkswagen, Europe’s largest automaker, saw its operating profit margin fall to 1.8% in 2025 from 5.6% a year earlier and announced plans to cut 50,000 jobs, about 15% of its workforce.
Stellantis, Europe’s No. 2 automaker, took charges of 22.2 billion euros, or $24.9 billion, in the second half of 2025 as part of what it called an EV reset. Its chief executive said the charges reflected overestimating how quickly drivers would make the switch.
Many European carmakers poured money into EV plants after the European Union in 2023 moved to effectively ban sales of new gas cars starting in 2035. Volkswagen alone committed $193 billion to electrify its lineup. The EU has since softened the target to a 90% cut in tailpipe emissions.
A research fellow at a think tank that favors free markets argued that automakers paid more attention to regulators than to customers and pointed to Europe’s high energy prices, which raise manufacturing costs. Supporters of the rules say they are needed to cut emissions and push the industry toward the technology of the future.
How is China undercutting European carmakers?
Chinese brands went from almost nothing to about 20% of battery electric sales in the European Union by May 2026, according to an auto industry analyst. BYD passed Tesla in 2025 as the world’s biggest EV seller.
BYD’s Dolphin Surf sells for about $25,800 in Europe, below several comparable models from European carmakers, though some budget European models cost less.
China’s car exports rose 53% in the first half of 2026, according to Chinese government data. An equity analyst estimated China now ships more than 1 million vehicles abroad each month. European Union tariffs on Chinese cars have not stopped the surge.
A report by the Rhodium Group credits China’s edge to tight control of supply chains, a huge home market, state support and favorable financing rather than higher efficiency, an advantage European carmakers would struggle to match without similar supply chains. China also processes most of the world’s battery materials.
What does this mean for American automakers?
U.S. companies pulled back sooner. General Motors announced a $6 billion charge in January, shortly after Ford reported a $19.5 billion hit, as both scaled back EV plans. Tesla, long profitable on EVs, reported a 57% drop in operating income in July.
U.S. EV sales fell 45% in the fourth quarter of 2025 after the federal $7,500 tax credit ended, and the administration has rolled back fuel economy and emissions rules. U.S. EV sales totaled about 1.5 million in 2025.
Chinese brands are also gaining ground near the United States, producing 85% of EVs sold in Brazil in 2025 and expanding in Mexico and Canada.
Can European carmakers compete?
Analysts say flexibility is key. Hybrids are gaining popularity, and Japanese automakers such as Toyota and Honda have leaned on them instead of fully electric models.
An auto industry analyst said Europe’s experience shows the value of offering a mix of gas, hybrid and electric vehicles. For European carmakers, adapting to what buyers want may matter as much as meeting the next regulatory deadline.
