'Anything but autos': Can defense save Europe's ailing car industry?

The European car industry is in a structural crisis. Slowing demand for electric vehicles, lost market share to Chinese competitors and higher borrowing costs have created the perfect storm for the sector over the past five years, as sales volumes continue to slump well below pre-pandemic levels. Europe's automakers have a long history of producing defense equipment and weapons when called upon during wartime. Some firms now think returning to these roots could offer a lifeline. Analysts at Citi have dubbed this shift the "anything but autos" trade. On Monday, Renault announced it was developing a ground-based drone for military and civilian use. This followed its announcement of a partnership with defense group Turgis Gaillard in January to produce aerial drones in France. Meanwhile, German automaker Volkswagen is reportedly in talks with Israeli defense firm Rafael to produce parts for missile defense systems. The pair are in discussions to convert VW's factory in Osnabrück, Germany, into facilities for making components for the Israeli Iron Dome missile-defense system produced by Rafael, the FT reported on March 24. European autos are struggling to compete directly with Chinese rivals, such as BYD. While new-car sales dropped in the EU through January, BYD stunned the market by reporting a 175% year-on-year increase in deliveries to 13,982 units, according to ACEA data. The industry's decline is felt in carmakers' share prices, too. The Stoxx 600 Automobiles index has fallen 30% over the past five years as of April 2, while VW has tanked over 60% since then. Stellantis, which owns brands including Fiat and Peugeot, has shed 58% over the same period.