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European automakers and their suppliers are bracing for tough times ahead as they work hard to reduce the cost of electric vehicles (EVs) to compete with cheaper Chinese competitors entering their market. .
Immediate concerns revolve around whether European automakers will be able to further tighten the belts of already strained suppliers, as many small and medium-sized enterprises reel from supply chain disruptions and job cuts caused by the pandemic. ing.
The divide between traditional European automakers and Chinese automakers focused on electric vehicles will become clear at this week’s Geneva auto show, which returns after a four-year hiatus due to the pandemic. .
At the forefront of media events are Chinese automakers with an eye on the European market, including France’s Renault and China’s SAIC and BYD.
Renault plans to debut its electric car, the R5, and SAIC Motor’s MG brand will unveil the M3 hybrid. Meanwhile, BYD’s Seal sedan is in the running for the prestigious Car of the Year award, which could mark an important milestone for the Chinese automaker.
“They’re really like chalk and cheese,” said Nick Parker, partner and managing director at consulting firm AlixPartners, sharply contrasting European legacy automakers with Chinese automakers. .
Unlike their European counterparts, Chinese automakers are highly vertically integrated, producing almost everything in-house to keep costs down and offer competitive prices.
This advantage allows it to significantly undermine its European rivals. In the UK, for example, BYD’s Dolphin electric hatchback costs £25,490 ($32,300), about 27% cheaper than Volkswagen’s ID.3 model. Tesla works similarly.
But the pursuit of these rivals poses a major challenge to European automakers’ profit margins. AlixPartners’ Parker pointed out that there’s only so much you can squeeze out of external suppliers.
This challenge is exacerbated by the slower-than-expected transition to electric vehicles, leaving traditional automakers struggling with dual supply chains. According to recent data, EU fully electric vehicle sales in January fell by 42.3% compared to December.
Renault and Stellantis this month highlighted efforts to reduce the cost of EVs, while Mercedes announced plans to adjust its EV demand forecasts and update its traditional lineup for the next decade.
Stellantis CEO Carlos Tavares stressed that 85% of an EV’s cost is related to purchased materials and urged suppliers to share the cost-cutting burden.
Rising prices for nickel and aluminum amid expanded sanctions against Russia highlight lingering risks to raw material prices, but there was no specific mention of these metals.
The strain of cost-cutting measures is already evident among traditional suppliers, with Phovia, Continental and Bosch announcing or warning of job cuts.
Large, well-capitalized suppliers are able to adapt, but smaller suppliers like Germany’s Allgaier are in crisis, at risk of going into administration or finding alternative markets.
To survive the situation, European automakers will have to strike a delicate balance between cost-cutting measures and supplier support, with bailouts potentially looming as a last resort.
Immediate concerns revolve around whether European automakers will be able to further tighten the belts of already strained suppliers, as many small and medium-sized enterprises reel from supply chain disruptions and job cuts caused by the pandemic. ing.
The divide between traditional European automakers and Chinese automakers focused on electric vehicles will become clear at this week’s Geneva auto show, which returns after a four-year hiatus due to the pandemic. .
At the forefront of media events are Chinese automakers with an eye on the European market, including France’s Renault and China’s SAIC and BYD.
Renault plans to debut its electric car, the R5, and SAIC Motor’s MG brand will unveil the M3 hybrid. Meanwhile, BYD’s Seal sedan is in the running for the prestigious Car of the Year award, which could mark an important milestone for the Chinese automaker.
“They’re really like chalk and cheese,” said Nick Parker, partner and managing director at consulting firm AlixPartners, sharply contrasting European legacy automakers with Chinese automakers. .
Unlike their European counterparts, Chinese automakers are highly vertically integrated, producing almost everything in-house to keep costs down and offer competitive prices.
Expanding
But the pursuit of these rivals poses a major challenge to European automakers’ profit margins. AlixPartners’ Parker pointed out that there’s only so much you can squeeze out of external suppliers.
This challenge is exacerbated by the slower-than-expected transition to electric vehicles, leaving traditional automakers struggling with dual supply chains. According to recent data, EU fully electric vehicle sales in January fell by 42.3% compared to December.
Renault and Stellantis this month highlighted efforts to reduce the cost of EVs, while Mercedes announced plans to adjust its EV demand forecasts and update its traditional lineup for the next decade.
Stellantis CEO Carlos Tavares stressed that 85% of an EV’s cost is related to purchased materials and urged suppliers to share the cost-cutting burden.
Rising prices for nickel and aluminum amid expanded sanctions against Russia highlight lingering risks to raw material prices, but there was no specific mention of these metals.
The strain of cost-cutting measures is already evident among traditional suppliers, with Phovia, Continental and Bosch announcing or warning of job cuts.
Large, well-capitalized suppliers are able to adapt, but smaller suppliers like Germany’s Allgaier are in crisis, at risk of going into administration or finding alternative markets.
To survive the situation, European automakers will have to strike a delicate balance between cost-cutting measures and supplier support, with bailouts potentially looming as a last resort.
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