AutoMobility Insights - March 2025 edition

Another month full of news on disruption in the ecosystem. The publication of first results (Mercedes, Stellantis...) shows the pressure across geographies, with margins still decreasing. The trends suggest that at least for some OEMs, things may yet become worse before improving… The EU Commission seems to yield to industry demands, somehow relaxing CO2 constraints in the short-term, against an increase in the mid-term, which really is a double-edged sword. Some players benefit from the current pressure, such as FINN subscription player negotiating large deals on BEVs, in a move that should make OEMs jealous. And more discounted vehicles could supply the scale that our Qorus-CVA Mobility Community shows is critical for affordable mobility and maturing mobility behavior in the markets. Overall, exciting news on Ecosystem change and how to cope with it! 

The EU Commission wants to take pressure off climate targets for 2025. In a so-called “Quick-Fix” Solution, the EU Commission announced that CO2 targets of the years 2025, 2026 and 2027 would be measured within one compensation period, meaning that yearly targets do not need to be reached any more individually but as an average across years. The administration further announced that the "sales stop" of ICE Vehicles in 2035 would be reviewed more quickly than planned. Brussels declares that this solution “means more leeway for the industry, and more clarity – without changing the targets” and hence not penalize players who have done their homework. The announced changes will be part of a larger agenda,which also includes a "Social Leasing Program" funded from the climate social fund, subsidies and fixed quotas for batteries produced in the EU as well as an industry alliance to develop autonomous driving. Stocks of OEMs reacted with significant increases on March 3rd, as penalties for 2025 could be significantly less than the EUR 16bn estimated for the industry.

CVA perspective:

Relaxing Fleet Emission Regulation will be welcomed by most traditional OEMs, which are currently under enormous topline stress (stagnating volumes, decreasing prices, margins) and high costs / investments to confront the challenges of electromobility and softwarization. However, the comisssion made very clear that the intention is not to weaken emission targets, but to give OEMs the required financial leeway to even stronger invest into the transition instead of taking away capital with short-term penalties. 

OEMs need to strategically plan ahead: Lowering EV ambitions in 2025, will mean overcompensating in 2026 & 2027. A large part of the question that OEMs face now is when they want to take the “hit” and how to not make things worse, by all OEMs destroying the market in 2027 - in a joint attempt to catch up on missing BEV volumes. The new regulation however does create real benefits for OEMs, with the introduction pipeline of various small BEVs in the coming years, reaching and overcompensating the CO2 targets in 2026 and 2027 will be easier than in 2025. The biggest benefactor of this may well be VW Group where most small BEVs (ID.2; Epiq, Raval) come too late to impact 2025 emissions. 
Assuming that the proposed changes will get approval, it is our conviction that the pressure on BEV prices and residual values will largely remain. OEMs should maintain full transformation speed and even accelerate with the "saved penalties" where possible. At the same time the new regulation can create some leeway to take edges off the most radical pricing measures.

Mercedes & Stellantis face significant financial challenges: Recent reports for the fiscal year 2024 show the declining profitability especially in the last two quarters. While Mercedes was able to stabilize its EBIT margin in Q4/24 at around 8% (4%p below FY2023), Stellantis even reported a negative EBIT of -4.7% which is almost 17% below 2023 FY levels. The trend of negative margin evolution can be see with all traditional OEMs and is a result of two main factors. Low demand especially for BEV vehicles is causing significant underutilization of factories and with it further rising unit costs. Reducing prices and increasing discounts further push down profitability levels. 

CVA perspective:

While most traditional OEMs can still act out of a position of financial strength and finance the transition to BEV and Softwarized Vehicles out of free cashflows, the example of Stellantis shows that this ability can very quickly run out. The decline in margins has fundamental issues and is not only due to fleet emission regulation from the EU which has tightened only in 2025. While the EU is now trying to take away the pending danger of massive short-term CO2 penalties, the efficiency requirements for OEMs in Production, Sales and the entire Downstream will not change. With increasing competition, cost competitiveness and ideally cost leadership will be essential for future success.  

Hyundai Motor Deutschland and car subscription platform FINN have just signed a framework agreement for 5,000 vehicles in 2025. Of these, 2/3 will be electrified, and nearly half will be BEVs. Finn allows booking models via subscription, with home delivery, for durations ranging from 6 to 24 months. Offers are “all-in”, except fuel / charging. Finn’s ambition is to grow its fleet from 25,000 vehicles to 40,000 vehicles in 2025, despite a likely shrinking market. The share of EVs is to grow from currently 35% to 80%. Due to a EUR 1bn ABS program signed with leading banks such as Citi and Jefferies, Finn will be able to drive European expansion, and also to secure more aggressive prices from OEMs (potentially bypassing Captives). Finn targets profitability from Q1/2025. Finn has learned from past losses of EUR 60m on EV Residual Values, and now places that risk with OEMs, Captives and Dealers, using a Used Car platform.

CVA perspective:

After a lot of hype, subscription models have been all but declared dead. During COVID and its aftermaths, vehicles were scarce, drying out all high-discount channels such as rental cars and new car subscription. OEMs and Dealers made much more money by selling to retail customers. After the deaths of players such as Cluno and Vivelacar, FINN managed to pull through and can now benefit from OEMs’ push on BEVs, leading to deep discounts. While this is good news for FINN, it should really be the OEMs’ role to operate subscriptions, to manage the customer and the asset in order to turn the discount-cost into a discount-investment. And extend subscription to used cars, the only way to make them affordable w/o discounts. OEMs will need to reinforce their leasing / subscription / rental capabilities (Multicycle!) to include more of the vehicle and customer live time value in the commercialization of "metal". 

February's Webinar treated again the topic of ownership to usership. With our speakers from Ayvens, Lab Box / D'Ieteren and Next Gear Ventures, we explored why the trend towards usership has maybe slowed in recent times vs. more bullish initial projections. Different challenges were mentioned in terms of customer acceptance (cultural differences), pricing / P&L logic when not at-scale, innovation challenge in incumbents vs. high capital needs for start-ups. 
 
However, all speakers were aligned that usership still is the dominant trend in the market that will continue to grow in the coming years. There are already pockets of clear success, such as the mature Netherlands market that can provide future direction. There is also a question of who is best placed to facilitate usership, especially as we have seen several pure-play start-ups struggle in recent years, and many traditional players have a lot of competing priorities with EV and SDV. The consensus was that players who already have clear asset-management knowledge are the best bets - especially rental companies who already have daily operations and utilization risk management. 

Next event:

For our next event, we are taking a look at a transverse operational topic: Harnessing AI and digital innovation to drive the future of automotive industry. Whilst digital efficiency has and is still being worked on, there is certainly more to be collectively unlocked on costs, customer journeys and value creation. We look forward to seeing you on April 1st at 10am CET!