Six for Six: Europe's Key 6 Legacy Automakers Face a 6-Month Reckoning

The automotive industry is hurtling toward a future defined not by horsepower or leather interiors but by software and technology ecosystems. This seismic shift is dismantling old hierarchies, placing Mercedes, Audi, BMW, and Porsche (MABP), the long-standing titans of European luxury, into an existential crisis. For decades, MABP thrived on engineering prowess, delivering performance, prestige, and luxury. But in this brave new world of Software-Defined Vehicles (SDVs), where cars are judged by their intelligence and user experience (UX), their dominance is being eroded. Across Europe, factory closures and redundancies have begun to highlight the very real cost of this disruption, as these brands confront the monumental challenge of adapting to the new rules of the automotive market.

The launch of Tesla’s Model S shattered the mould for luxury cars, redefining the concept of premium with stunning performance, cutting-edge features, and over-the-air updates (OTA) that improve the vehicle over time. Chinese brands like BYD, NIO, and XPeng have taken this formula further, offering affordable vehicles with luxury features and exceptional software. What was once the exclusive domain of European automakers is now the minimum expectation in the EV era. For MABP, this presents a fundamental challenge. Competing on luxury alone is no longer enough, and the battle has shifted to software and user experience. The very DNA that built their success (precision engineering and heritage) is now becoming a liability in a world where agility and software innovation are paramount. These legacy automakers risk being outclassed, outpriced, and outpaced.

The transition to SDVs represents the most significant transformation in the industry’s history. Cars are no longer static products but dynamic platforms where features can be upgraded remotely, performance enhanced with software, and new revenue streams unlocked through subscriptions and post-sale features. Tesla pioneered this model, while Chinese automakers have perfected it, delivering vehicles with advanced driver-assistance systems, seamless infotainment experiences, and predictive maintenance features. For MABP, steeped in hardware-defined processes, this is uncharted territory. While they have the resources, their structural inertia and engineering-first mindset leave them ill-prepared for the demands of SDVs.

Across Europe, the cost of inaction is becoming increasingly visible. Volkswagen, for example, has announced potential closures at its Emden plant in Germany, where production of its ID models has failed to meet targets due to sluggish EV sales. Mercedes-Benz is restructuring its Sindelfingen and Rastatt plants, cutting jobs as it reallocates resources toward software and battery technology. BMW has signalled plans to scale back investment in its ICE models, resulting in potential job losses at its Regensburg facility. These closures and layoffs underscore the urgency for European automakers to pivot decisively. Delays in adopting EVs and SDVs will only deepen the financial and reputational crises facing these companies.

Tesla and Chinese automakers have capitalized on their software-first approach, bypassing the structural and cultural limitations that plague legacy brands. With lower production costs, Chinese automakers can undercut European prices while maintaining profitability, even after accounting for tariffs. Tesla continues to lead the industry with its OTA updates and intuitive UX, while Chinese automakers are rapidly catching up with AI-driven ecosystems and innovative partnerships. Agile and unencumbered by unionized labour agreements or legacy production models, these disruptors are pulling ahead while MABP struggles to keep pace. Lowering prices risks diluting their brands and undermining financial sustainability, while staying in the traditional luxury lane risks consigning them to irrelevance as even affordable EVs begin to feel premium.

Not all of Europe’s automakers are paralyzed. Stellantis, for example, has demonstrated how agility and decisive action can create opportunities even in this volatile landscape. Its joint venture with CATL, one of the world’s largest battery producers, secures access to cost-effective, high-performance batteries, enabling Stellantis to scale EV production at competitive prices. Additionally, Stellantis has made significant investments in software-defined platforms, such as STLA Brain, a centralized SDV architecture, and STLA SmartCockpit, an advanced infotainment system developed in partnership with Foxconn. While Stellantis is still playing catch-up to Tesla and Chinese automakers, its moves reflect a willingness to embrace the future with urgency, aided by its position as a less entrenched player compared to MABP. Stellantis and Renault are better positioned to move upmarket, while MABP faces the far harder challenge of moving down.

Jaguar’s move to reposition itself as an all-EV "super" luxury brand with limited production volumes is bold; and it may just work. If it successfully aligns itself closer to Rolls-Royce and Bentley in perception, while offering modern EV appeal, it could carve out a niche. Jaguar seems to be playing its own fiddle; we wish them luck.

For Volkswagen, the challenges are even greater. The company’s middle-market position leaves it vulnerable to being squeezed from both ends, as affordable brands like BYD undercut it on price while premium brands like Tesla and NIO dominate in technology and UX. Despite its massive scale, Volkswagen has struggled to deliver EVs profitably, and its early ventures into SDVs have been plagued by failures, particularly within its Cariad software division. Further complicating matters, Volkswagen is still grappling with the long shadow of Dieselgate, which drained billions in resources, eroded consumer trust, and exposed cultural issues within the organization. The fallout has left Volkswagen slow to innovate and burdened by financial and reputational strain at a time when speed and adaptability are critical.

Across the entire European auto industry, the next six months represent a moment of truth. MABP, Stellantis, Renault, and Volkswagen must all rapidly embrace the electric and software-defined era. This means mastering software development to deliver OTA updates and superior UX, solving cost challenges by securing affordable battery supplies and redefining their brands to compete in a market where the lines between premium, affordable, and innovative are increasingly blurred. Subscriptions and data-driven services offer potential lifelines, but only if automakers can execute a cultural shift toward monetizing these features effectively.

In the meantime, their fortunes shall continue to shrink rapidly over the next 6 months, if delays persist!

The desire for fossil fuel-burning vehicles, with their peculiar engine noises once celebrated as symbols of power and performance, has become a shrinking niche in the rapidly evolving automotive market. For decades, the roar of a V8 or the growl of a turbocharged inline-six was synonymous with driving pleasure, prestige, and even status. However, as electrification gains momentum and public sentiment shifts toward sustainability, this once-dominant appeal is increasingly confined to a dwindling group of enthusiasts.

The shrinking market for internal combustion engine (ICE) vehicles is being driven by multiple factors. Electrification has changed the perception of performance, with EVs now delivering instant torque, seamless acceleration, and quiet refinement that ICE vehicles cannot match. Additionally, legislative pressures to reduce emissions, bans on ICE sales in key markets, and advancements in battery technology have accelerated the decline of fossil fuel-powered cars. The industry is witnessing a cultural shift where the silence of electric motors is seen as a futuristic feature rather than a drawback, and the loud rumble of an ICE is now often viewed as a relic of an outdated era.

This niche market for ICE vehicles will likely continue to exist, catering to a small subset of purists and collectors who value the nostalgia and mechanical complexity of combustion engines. However, as demand diminishes, the cost of producing ICE vehicles will inevitably rise. Manufacturers will struggle to achieve economies of scale, and the high costs of compliance with tightening emissions regulations will further inflate prices. What was once mainstream will become an exclusive, expensive indulgence for the few who can afford it.

The trajectory of ICE vehicles mirrors the fate of other legacy technologies that were eventually outpaced by superior innovations. Just as film cameras gave way to digital photography and steam locomotives were replaced by diesel and electric trains, ICE vehicles are being displaced by a cleaner, more efficient alternative. Their appeal, rooted in nostalgia and sensory experience, is destined to shrink as the automotive landscape transforms into one defined by quiet, intelligent, and sustainable mobility solutions.

For the shrinking few who will continue to seek fossil fuel-powered cars, the experience may become even more curated, with manufacturers offering highly specialized, bespoke models at premium prices. But for the vast majority, the future is electric; and the sound of progress is increasingly silent.

The stakes are monumental. Tesla and Chinese automakers are rapidly consolidating their dominance in the mid-luxury and mass-market segments, leaving European brands struggling to find relevance. Even ultra-luxury brands like Rolls-Royce and Bentley are embracing electrification, further squeezing MABP. Factory closures and layoffs are the first signs of the upheaval to come, and if Europe’s automakers fail to adapt, the toll will extend far beyond their workforces. This is not just a test of innovation; it is a battle for survival. The next six months will determine whether Europe’s auto giants remain icons of the industry or relics of a bygone era. If they cannot rise to the challenge, their future may resemble Nokia’s after the iPhone revolution: outdated, irrelevant, and forever playing catch-up.