European Automakers Worry About China's Electric Vehicle Dominance at Munich Auto Show

05 Sep, 2023

European Automakers Worry About China's Electric Vehicle Dominance at Munich Auto Show

European automakers are grappling with a formidable challenge as they strive to produce more affordable electric vehicles (EVs) and narrow the gap with China in the development of cost-effective and consumer-friendly EV models, industry executives have revealed at the IAA mobility show in Munich.

Luca de Meo, CEO of Renault (RENA.PA), emphasized the necessity of closing the cost disparity with Chinese rivals who embarked on the EV journey a generation earlier. He explained that as manufacturing costs decrease, EV prices will also become more competitive. Renault's upcoming R5 EV, scheduled for release next year, aims to be 25% to 30% cheaper than their electric Scenic and Megane models.

Chinese EV manufacturers such as BYD (002594. SZ), Nio (9866. HK), and Xpeng (9868. HK) are aggressively targeting the European EV market, which witnessed a remarkable 55% surge in sales, totaling approximately 820,000 vehicles in the first seven months of 2023, constituting around 13% of total car sales in the region. Xpeng plans to further expand into additional European markets in 2024, while Zhejiang Leapmotor Technology (9863. HK) recently announced plans to introduce five models for overseas markets, including Europe, over the next two years.

According to auto consultancy Inovev, Chinese brands accounted for 8% of new EV sales in Europe this year, up from 6% last year and 4% in 2021. Notably, at this year's Munich event, about 41% of exhibitors have their headquarters in Asia, with a notable increase in the presence of Chinese companies, including BYD, Xpeng, and battery manufacturer CATL (300750. SZ).

The influx of Chinese EV manufacturers into Europe has raised concerns about their potential dominance in EV sales. Hildegard Mueller, President of the German Association of the Automotive Industry (VDA), expressed worries about Germany's diminishing competitiveness, underscoring the urgency of greater investments in electrification to cope with the intense international competition spotlighted at the Munich car show.

Comparatively, the average EV cost in China during the first half of 2022 was less than 32,000 euros ($35,000), while in Europe, it hovered around 56,000 euros, as per researchers at Jato Dynamics. BMW CEO Oliver Zipse commented on the prospect of China's expansion into Europe, stating that the basic car market segment may either vanish or no longer be the domain of European manufacturers.

Mercedes-Benz (MBGn.DE) and BMW (BMWG.DE) are both introducing models like the CLA compact class and Neue Klasse, targeting increased range and efficiency while halving production costs. Volkswagen (VOWG_p.DE) CEO Oliver Blume highlighted the company's ambition to reduce battery cell costs by 50% through its collaborations in China.

Xpeng President Brian Gu acknowledged the current lead of European carmakers in the EV sector, attributing it to their significant commitments, partnerships, and substantial investments in technology. He stressed the determination of major carmakers to regain prominence in this vital transition.

Auto industry analyst Ferdinand Dudenhoeffer acknowledged China's prowess in battery production, constituting a significant portion of an EV's cost, and noted that Chinese battery manufacturers establishing operations in Germany were contributing to the reduction of EV costs. He urged German policymakers to avoid counterproductive decoupling strategies that might deter these investments.