Beyond Tariffs: Navigating Europe’s Auto Sector Risks in 2025

The European automotive industry, a cornerstone of the continent’s economy, faces a complex web of challenges far beyond the immediate threat of U.S. tariffs. Société Générale’s recent analysis reveals that structural pressures—from weak demand to the costly transition to electric vehicles (EVs)—are the true catalysts for sector-wide risks. While geopolitical tensions and regulatory shifts loom, the report underscores that Europe’s auto market must confront deeper operational and financial vulnerabilities to avoid a prolonged downturn.

The Hidden Drivers of Risk

Société Générale identifies four critical factors undermining the sector:

1. Demand Slump and Competitive Pressure:
   European OEMs are grappling with stagnant car sales, exacerbated by rising competition from Chinese automakers, whose aggressive pricing and advanced EV offerings are eroding market share. Meanwhile, supply chain disruptions and high production costs continue to strain profitability.

2. EV Transition Costs:
   The shift to EVs demands massive R&D investments, retooling factories, and scaling battery production—a burden disproportionately felt by suppliers.

   

3. Regulatory Headwinds:
   The EU’s stringent 2025 CO2 emission targets for passenger cars and vans are accelerating the EV transition but creating short-term financial strain.

4. Geopolitical Uncertainty:
   While U.S. tariffs on light vehicle imports remain a risk, they are framed as a secondary concern compared to broader macroeconomic and structural challenges.

Bank Exposure and Mitigation Strategies

The auto sector represents €57 billion of the top 20 EU banks’ loans, rising to €89 billion when including rubber products. Société Générale, along with BNP Paribas and Banco Santander, holds significant exposure through its leasing division (Ayvens), which accounts for 1.2% of its total corporate loans.

Banks are proactively managing risks through:
- Stress Testing: Calibrating capital reserves against potential losses from falling used-car values and reduced leasing origination volumes.
- Diversification: Focusing on sustainable mobility financing, such as EV loans and subscriptions.

However, smaller banks with auto exposures exceeding 3% of loans, like Commerzbank and UniCredit, face heightened vulnerability.

The Auto Finance Market’s Dual Dynamics

The European automotive finance sector grew to €31.14 billion in 2025, driven by EV adoption, digital lending platforms, and leasing demand.

Société Générale leverages its mobility division to dominate this space, competing with Volkswagen Financial Services and Mitsubishi UFJ Lease. Yet, risks persist:
- Economic Downturns: Rising interest rates and consumer caution could slow loan origination.
- Regulatory Scrutiny: GDPR compliance and data security remain critical for banks relying on fintech partnerships.

Regional Economic Dependencies

Countries like Germany, Slovakia, and the Czech Republic—where auto manufacturing contributes 2%–6% to GDP and 2%–5% of employment—are most exposed to sector shocks. A collapse in auto production could trigger broader economic contractions, disproportionately affecting banking sectors in these regions.

Société Générale’s Resilience Playbook

The bank’s focus on sustainable finance aligns with both regulatory mandates and investor demand for ESG-compliant assets. Its Ayvens division, a leader in EV leasing, positions it to capitalize on the sector’s long-term transition. Additionally:
- Diversified Exposure: 24% of its revenue comes from retail banking, reducing overreliance on corporate lending.
- Strong Capital Buffers: S&P forecasts auto-related credit costs for EU banks to remain manageable at 1%–3% of pre-provision income in 2025.

Conclusion: A Sector in Flux, but Not Yet in Crisis

While Europe’s auto sector faces formidable challenges, Société Générale’s strategic focus on EV financing, risk mitigation, and geographic diversification positions it to navigate these headwinds. The sector’s credit risks, though present, are tempered by robust capital reserves and a growing EV market. However, suppliers and heavily auto-dependent economies remain vulnerable. Investors should prioritize banks with diversified exposures and sustainable finance capabilities, as the road to recovery hinges on balancing innovation with financial prudence.

With EV adoption rates surging and regulatory tailwinds favoring green mobility, the sector’s future lies not in tariffs or temporary setbacks—but in its ability to adapt to the new rules of the road.