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European automakers face radically changing sector

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Volkswagen, Porsche, Mercedes launch revamps to compete

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Fate of Chinese market, the world's biggest, uncertain

By Christoph Steitz and Rachel More

MUNICH, Sept 9 (Reuters) - Whisper it quietly, but

beneath the buzz of shiny new car models and bright lights at

Europe's largest car show, the industry sector is worried that

their party is over.

Prices and profits in key market China are in decline,

demand is tepid in Europe and U.S. tariffs have created an

uncertain outlook, putting the focus on cost-cutting as the

global market is reshaped.

"The party we have been celebrating in the automotive

industry for decades is over in its current form," said Oliver

Blume, CEO of both Volkswagen, Europe's biggest carmaker, and

its luxury division Porsche AG.

"Now it is about reorientation."

The sector faces a reckoning, sharpened by pressure to shift

towards EVs with tough 2035 targets in Europe that many feel

they cannot meet, even as Chinese EV rivals steal a march on

local brands with lower-cost models.

That's put Volkswagen, Mercedes-Benz,

BMW, Porsche and Renault on the

defensive. At the IAA Mobility car show in Munich, they rolled

out models from affordable entry-level EVs to luxury SUVs.

By 2032, European automakers plan to launch an unprecedented

350 new electric vehicles, according to McKinsey, ahead of a

looming ban on combustion engine autos in the EU from 2035,

something Germany's carmakers oppose.

"The coming years will definitely be years of truth," said

Patrick Schaufuss, partner at McKinsey, adding that Europe's

carmakers needed faster, simplified product development to keep

up with nimble Chinese rivals.

'BRUTAL PRICE WAR'

Porsche, which saw auto sales in China drop by 27.9% in the

first half, is adjusting its local dealership network, with CEO

Blume being sceptical about future prospects, effectively

ditching a 20% long-term margin target for now.

"The (Chinese) luxury market does not exist anymore," Blume,

head of both VW and its Porsche brand, told Reuters, adding the

Volkswagen group was banking on substantial investments in the

United States, ideally flanked by incentives.

BMW is pinning hopes on its new iX3 model to return to

growth in China, said sales chief Jochen Goller.

Goller said BMW was monitoring the "brutal price war" in

China as it gauged pricing for the new model, to be launched in

summer 2026.

Mercedes-Benz, which is launching around 40 new models by

2027 and counts on its all-electric GLC to recoup market share

in China, is also slashing billions of euros in costs, and CEO

Ola Kaellenius said fierce competition in China would continue.

Renault, which exited the Chinese market about

five years ago, will introduce more affordable batteries for EVs

and speed up development times for all models, elements that

have been at the core of Chinese automakers' expansion efforts.

"Our Chinese competitors are the best in class, we have used

them as a benchmark," CEO Francois Provost said.