Bullish forecasts from major car firms lifted hopes for the sector, as the likes of Toyota and parts maker Faurecia set out new goals for 2011 based on strong growth.
The industry has been dogged by concerns about slower demand growth in Asian markets and a bumpy recovery in western markets but a raft of positive statements on Tuesday nodded to still-strong emerging markets and good sales in the U.S.
The STOXX Europe 600 Automobiles & Parts was up 2.4 percent at 1205 GMT, led by French car parts maker Valeo, up 6.9 percent, BMW, up 3.9 percent and PSA Peugeot Citroen, up 3.7 percent. Faurecia shares were up 8.4 percent.
The world's No.1 automaker Toyota raised its full-year outlook beyond market forecasts on stronger sales projections and cost cuts. It said profitability was helped by better than expected sales in Asia, Japan and Russia. France's Faurecia also posted strong growth in Asia and North and South American sales and said it would focus on expanding in those markets, sending its shares to a three-year high.
It said January was its best on record due to "significant double-digit growth in all regions".
"We are getting an increasing flow of good numbers from automakers. After Audi and Mercedes in China, we've also just seen some solid figures from BMW. This is lifting the whole sector," said a Frankfurt-based trader.
Another trader added: "The market is gaining confidence about the growth in China and premium markets sales in general."
BMW said group unit sales rose 28 percent in January to 105,177 vehicles and added it expected strong growth to help it reach its 2011 target of selling more than 1.5 million units.
France's Renault is due to report final full-year results on Thursday, a day after its partner, Japan's No.2 Nissan Motor Co, is expected on Wednesday to report a drop in third-quarter profits due to the stronger yen and falling demand in Japan.
Renault released preliminary 2010 results last week, earlier than planned, leaving the way clear for attention to focus on the strategic plan it will unveil on Thursday.
PSA Peugeot Citroen reports on Wednesday and tyre maker Michelin on Friday.