How a shift to new models and weak demand is hitting Europe's carmakers

Volkswagen, Mercedes-Benz and Stellantis all posted lower sales and first-quarter revenue on Tuesday as they geared up to launch new models and faced weaker consumer demand for new cars as interest rates remain high.

The news hit the carmakers' stocks. In early trading Mercedes shares were down 3.6%, Stellantis nearly 1.5% and Volkswagen 2.1%.

Mercedes was the worst performer on Europe's blue-chip eurozone STOXX50E index. VW and Stellantis were third and fourth biggest fallers.

Weakness in car sales affected mass-market and top-end models, with the carmakers trying to hold prices steady and promising improvements as the year goes on and new models hit the market.

“We have seen a market weakness in the first quarter,” Mercedes-Benz CFO Harald Wilhelm told analysts. “Our top end vehicle products could not completely escape from that market weakness.”

Wilhelm added the premium German carmaker remained “vigilant about the global macroeconomic and geopolitical outlook”.

Mercedes said it would defend high pricing levels for its luxury cars as model changeovers and supply chain bottlenecks hurt its results.

The German luxury carmaker reported a 30% drop in first-quarter earnings, while Volkswagen posted a 20% decline in operating profit and Stellantis said its revenue fell 12% in the quarter.

Despite a drop in sales for the carmakers and lower profit at Volkswagen and Mercedes — Stellantis only reported revenue figures — all three stuck to profit or sales targets for 2024 as their new models hit the market.

Europe's legacy carmakers face challenges at home and abroad. The German carmakers, in particular Volkswagen, face rising competition in China from local carmakers.

They are also spending vast sums on new, less-profitable electric vehicles to compete with Tesla and fend off competition from Chinese carmakers bringing lower-cost electric models to Europe.

After years of tight car supply caused by pandemic-related supply chain problems, they are now chasing consumers struggling with higher costs and interest rates.

Volkswagen faced a “very competitive environment” during the first quarter, CFO Arno Antlitz told analysts.

Speaking to reporters, Stellantis CFO Natalie Knight said the carmaker's shipments and revenue were affected by the transition to the group's new product portfolio and the company was reducing inventories “to reinforce our strong relative pricing” before product launches this year in key regions.

Jefferies analysts said in a client note Stellantis' below-consensus revenue largely reflected its performance in Europe, where sales volumes and prices were worse than expected. Net pricing was “more resilient” in other regions, they added.

Volkswagen said orders picked up towards the end of the first quarter, which should lift its second-quarter results. Europe's largest carmaker plans 30 new models this year, which should boost sales throughout the rest of the year.