EU Banks Defy Headwinds In The Auto Sector

European automotive original equipment manufacturers (OEMs) and suppliers are facing weak car demand in key markets, intense competition from Chinese manufacturers, insufficient cost competitiveness, and a difficult transition to electric vehicles. What's more, the risk of potential U.S. tariffs on light vehicle imports under the new U.S. administration and stricter CO2 emission regulations for passenger cars and vans in the EU from 2025 will continue to pose challenges to the European automotive sector. We consider that EU banks' potential losses from their exposures to the auto production sector will be manageable. As of December 2023, the sector accounted for €57 billion of the 20 largest EU banks' gross exposure and 1.2% of their total loans to non-financial corporations (NFC)--and about

...- European carmakers face weak demand, stiff competition from Chinese manufacturers, and pressure on profitability from the transition to electric vehicles (EVs), challenging their business models. - Several large EU banks--including Commerzbank, CaixaBank, Erste Group Bank, and UniCredit--have notable corporate exposures to the European automotive sector and its suppliers. That said, we expect banks' earnings will comfortably absorb potential additional credit losses from this sector. - Potential spillovers from a further deterioration in the car sector pose a downside risk to the asset quality of banks in Germany, Sweden, and Central and Eastern Europe (CEE), where the car industry contributes significantly to GDP and employment. European automotive original equipment manufacturers (OEMs) and suppliers are facing weak car demand in key markets, intense competition from Chinese manufacturers, insufficient cost competitiveness, and a difficult transition to electric vehicles. What's more,...

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