BYD’s Lineup
From the accessible to the luxe
Last week’s Paris Motor Show highlighted the 2 major challenges facing Europe’s automakers: their cars are too expensive; and they have been dragging their feet on the move to Electric Vehicles (EVs).
As a result, Chinese automakers are now starting to enter Europe in volume with attractively priced cars (see BYD’s line-up). As Bloomberg reports:
“Chinese rivals led by BYD Co. are gaining market share in the region with cheaper models.”
EUROPE’S AUTOMAKERS ARE ALREADY LOSING OUT IN CHINA
China Exposure is No Longer a Positive
Profits From China Fall Off a Cliff – Uncertainty Over Future Revenue Streams
One key issue for European automakers is that they are losing major market share and profit in China:
- VW used to generate 1/3rd of its pre-tax profit from China joint ventures and exports from Germany. But Bloomberg NEV expects this to fall to just 10% this year, as the chart shows
- Porsche is also under pressure. It used to sell 94k cars in China, but sales are forecast to fall to just 60k this year as the company has not (yet?) felt forced to cut prices to regain market share
CHINA’S ARRIVAL IN EUROPE WILL ADD TO CURRENT OVER-CAPACITY
Overcapacity Risk in Europe
Europe has lost 2.2m sales since 2019. VW is the market leader, and has lost 600k sales. Overall, 1/3 of Europe’s major factories are currently running at <50% of capacity, as the chart shows.
Clearly this is unsustainable. And China’s arrival will add extra pressure on the weaker players.
EUROPE’S TRANSITION TO EVs HAS NOW BECOME INEVITABLE
EU automakers have timed their affordable EVs to match regulatory cycles
10 years ago, Europe reached a clear decision-point on the outlook for EVs. Dieselgate was about to happen – and since then, diesel’s share of the European market has fallen from 52% to 13%.
This left diesel-based companies with a major issue. They had planned to meet 2000’s EU CO2 emission limits with diesel cars. But now, that option was unavailable:
- This meant they would be liable for €bns of fines for failing to meet the limits
- It therefore made sense for them to spend that money on developing EV sales instead
As the chart shows, this strategy worked and EV sales took off. And in 2025, the limits will be further reduced:
- These were set at 95g CO2/km from 2020
- Next year, the limit falls to 93.6g CO2/km – and then to 49.5g CO2/km from 2030
“Automakers could incur as much as €15 billion in fines if they can’t meet the European Union’s ambitious climate goals following a slowdown in electric-vehicle sales.”
The challenge for automakers is clear. They have to go back to making cars that sell at an affordable €25k price point. If they can’t make EVs for this price, they will face major penalties.
NOT EVERYONE WILL SURVIVE THE TRANSITION
European automakers may need to rethink their pricing
There are 2 key issues for European automakers and their supply chains as they head into 2025:
- The EV market is clearly taking off and it requires new skills – software is essentially replacing precision engineering
- Pricing has to reflect the end of the Middle Market and adjust to a price point around €25k
Both are proving very difficult areas. Software is a major issue as VW’s continued problems with its Cariad software unit confirm. But pricing is also out of line:
- Fiat is currently charging 63% more for the Fiat 500e versus the gasoline version. VW is charging 54% more for the ID4
- Yet as the Bloomberg slide shows, the additional battery cost is just €2800 for Fiat, and €6200 for VW.
The new CO2 limits, combined with more affordable EVs, will likely turbocharge sales in Europe next year. But it will also threaten the viability of those laggards who have failed to adjust to the pace of change.
2025 is therefore likely to be a make-or-break year for many European automakers. Chinese automakers can already export profitably into Europe, despite the new tariffs.
And they will soon be opening European plants to avoid the tariffs altogether, as the New York Times reports. BYD is opening in Hungary, Chery in Spain, and Stellantis is partnering with Leapmotor to build Chinese products in low-cost Stellantis sites.