Europe's automakers reaped record profits in 2022

Europe’s biggest automakers posted record profits in 2022 despite largely flat sales and supply chain and logistics problems. 

Net profits rose 22 percent to a record total of 67.8 billion euros ($73.6 billion) at the six largest Europe-based automakers: BMW Group, Mercedes-Benz, Renault Group, Stellantis, Volkswagen Group and Volvo Car (see table, below), plus the largest luxury automaker, Ferrari.

Most of those profits came from the four largest groups. BMW had the largest net profit, at 18.6 billion euros, followed by Stellantis (16.8 billion euros), VW (15.8 billion euros) and Mercedes (14.8 billion euros).

BMW’s results are not entirely comparable with those of other automakers. Last year it started to consolidate the results of its BMW Brilliance Chinese joint venture after raising its stake to 75 percent from 50 percent. BMW said its 49 percent jump in profits in 2022 came mainly from this consolidation.

Volvo Car, which is controlled by China’s Zhejiang Geely Holding, had a net profit of 17 billion Swedish krona (1.6 billion euros); Ferrari posted a 939 million euro profit, while Renault had a 700 million euro net loss after writing down its stake in its Russia subsidiary, AvtoVAZ, following Russia’s invasion of Ukraine.

Jaguar Land Rover, owned by India’s Tata Group, was not included in the 2022 tally, as its fiscal year ends on March 31. Figures from recently listed Porsche are included in the Volkswagen Group results.

The record profits of European automakers came even as their global sales fell by 2 percent to 22 million units. Volvo sales fell 12 percent, the biggest drop, while sales increased only at Mercedes and Ferrari.

Overall revenues increased by 15 percent to 834 billion euros, with all automakers’ revenues increasing by at least 11 percent, with the exception of Renault, whose revenues were flat (+0.4 percent) due to the deconsolidation of its Russian operations.

The revenue growth was largely due to an increase in selling prices and a mix that favored higher margin models because of the continuing semiconductor shortage.

Automakers funneled the available chips toward building higher-margin models. 

In turn, this helped operating profits grow even more than revenue, up by 21 percent to a total of 86.2 billion euros. The average margin on revenue increased to 10.3 percent from 9.8 percent in 2021.

Dave Powels, vice president finance at VW’s Spanish brands Seat and Cupra, said this month that although the brand’s sales fell by 4 percent, revenue per vehicle rose by 18 percent.

Powels said the brands’ high performance was due to an "increase in the proportion of [higher margin] Cupra brand units sold, an aggressive revenue management strategy, overhead cost reductions and efficiency improvements.”

The good times are likely to continue through the first half of 2023, despite worries about Europe’s economy and inflation, experts say. Sales in Europe rose by 12 percent in February, the seventh consecutive monthly increase, trade group ACEA said. 

According to a recent report by Evercore ISI, Europe "avoided the worst-case scenario in energy and can finally begin to capitalize on pent-up consumer demand from more than three years of below replacement-level sales,” referring to a fall in demand during the coronavirus pandemic. 

Europe has "the potential for a 5 percent increase in registrations this year, with a possible even higher increase in production (plus 5 to 7 percent)” as automakers gradually replenish stocks, Evercore said. 

A recovery in Europe, alongside forecast growth of 6 to 8 percent in North America should help drive global production 4 to 5 percent higher this year, despite China remaining flat at best, the report said.

Profitability this year will depend, among other things, on whether a slowdown in demand in Europe puts downward pressure on pricing.

Automakers continue to work through a backlog of orders that piled up due to the chip shortage that started toward the end of 2020. The analyst company Bernstein wrote in a March report that "EU delivery times continues to float above the eight-month range.” 

"Demand has weakened since mid-2022, but not as much as expected,” Bernstein said. "This secures volumes and margins for EU carmakers in the first half of 2023.”