The EU automotive sector is expected to recover only gradually in the coming years, with output forecast to decline 4.3% in 2025, followed by modest growth of 0.9% in 2026 and 1.7% in 2027, Kallanish notes an outlook by the European Steel Association Eurofer.

The sector has faced significant challenges in recent years. Output declined sharply by 9.7% in 2024, reflecting weak global demand and rising uncertainty across the sector.

However, the industry gas showed tentative signs of stabilisation in the third quarter of 2025, when output increased 1% year-on-year, marking the first rise after five consecutive quarterly declines.

EU passenger car demand also showed only limited improvement in 2025, with new registrations rising 1.8% y-o-y, although volumes remain well below pre-pandemic levels.

Demand has continued to be weighed down by supply chain disruptions causing order delays, war-related disruptions, weak consumer confidence, limited growth in disposable incomes and broader economic uncertainty.

The sector’s outlook also remains constrained by structural challenges. Uncertainty surrounding the transition to electric vehicles, including regulatory developments and limitations in charging infrastructure, continues to weigh on investment and production decisions.

At the same time, rising global trade tensions could further pressure the industry. Recently announced US tariffs on EU car exports may dampen demand from a key market, while increasing competition from Chinese electric vehicle exports is expected to intensify pressure on European manufacturers.