Western automakers aim to reduce electric vehicle costs in order to counter the growing presence of Chinese manufacturers.

Western automakers aim to reduce electric vehicle costs in order to counter the growing presence of Chinese manufacturers.

Renault Electric Cars

The Invasion of Cheap Chinese Electric Cars in Europe: Western Automakers’ Response

Western automakers are growing increasingly concerned about the “invasion” of affordable Chinese electric cars in the European market. This has prompted France’s Renault to announce its plans to reduce production costs for its electric models by a significant 40%. According to Renault’s Finance Chief, Thierry Pieton, the most effective way to combat price competition is to cut their own development and manufacturing expenses.

While the targeted 40% reduction is set for 2027 onwards, there is good news on the horizon. Renault’s CEO, Luca de Meo, mentioned that the company expects to start experiencing significantly lower production costs as early as the second half of this year, thanks to a decrease in raw material costs. De Meo, acknowledging the fierce competition in the industry, stated, “It’s clear we are in competition and that time is of the essence, but that’s the business we are in.”

Delivering affordable electric vehicles (EVs) has become a top priority for car manufacturers worldwide as the shift towards cleaner driving gains momentum. However, high prices have been a major impediment, primarily due to the cost of batteries. Chinese manufacturers, such as BYD and SAIC, have capitalized on this shift by investing heavily and using lower labor costs, along with local battery suppliers, to gain a significant advantage over their rivals.

Forecasts by consultancy Inovev indicate that in 2022, Chinese carmakers held a 9% share of Europe’s EV market, nearly double the previous year’s figure. Furthermore, this market share is expected to continue growing rapidly. Alongside Chinese manufacturers, Western EV makers also face mounting pressure from U.S. rival Tesla. Tesla’s repeated price cuts this year, including a 25% reduction in the price of its long-range version of the Model Y to $50,490, have impacted the market. Research firm Jato Dynamics reports that Tesla and SAIC’s MG were the biggest market share gainers in Europe during the first half of this year.

Carlos Tavares, the CEO of Stellantis, which includes brands such as Peugeot and Fiat, recently warned that the competition with Chinese manufacturers in the EV sector would be “extremely brutal.” He emphasized the cost competitiveness of Chinese automakers, estimated to be 25% lower than Western counterparts, and urged Western carmakers to fight back. Additionally, Tavares highlighted the importance of using cost-effective sourcing and forming partnerships with battery suppliers that offer the best combination of energy, cost, and weight. For Western car manufacturers to remain profitable and cater to the middle class, they need to find ways to sell their vehicles, such as the Citroën C3, at prices below 25,000 euros.

It’s not just Europe where Western automakers are facing challenges. They are also striving to regain lost ground in China, the largest car market globally, where they have been overshadowed by local manufacturers. Mercedes-Benz, for instance, announced that it will adhere to its strategy and avoid engaging in a price war to “buy” market share in China. In response to Volkswagen’s move to build new models with Chinese partners and potentially develop local platforms, Mercedes CEO Ola Kaellenius stressed that they are working with partners in China to adapt their technological offering to suit local preferences. He added, “We are not handing the task of creating the Mercedes of the future to another OEM – that task stays with us.”

In this rapidly evolving landscape, Western automakers are up against Chinese competitors who have gained substantial ground in the affordable EV market. To stay competitive, Western companies must work on reducing costs, sourcing strategically, and continuing to innovate. With the increasing demand for affordable electric vehicles and the intensified competition, the battle for dominance in the EV market is set to become even more thrilling and challenging in the coming years.

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