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Written by Nick Carey
LONDON (Reuters) – European carmakers and already-stressed suppliers are lowering the cost of electric models as they look to compete with leaner Chinese rivals who are launching cheaper vehicles in their home turf. They are competing for cuts and facing a tough year.
Many small and medium-sized businesses have been hit hard by supply chain issues during the pandemic, and a big question is how much European automakers can squeeze out of suppliers who have already started laying off workers.
The differences between traditional European automakers and EV-focused Chinese manufacturers will become clear at the Geneva auto show, which opens this week after a four-year hiatus due to the pandemic.
France’s Renault and China’s SAIC Motor and BYD are the only major companies holding media events, two of many of the country’s automakers turning to Europe.
Renault will launch the electric car “R5,” and SAIC Motor’s MG brand will announce the “M3” hybrid. Meanwhile, BYD’s Seal sedan is a finalist for Car of the Year. If it wins, it will become the first Chinese model to receive the prestigious award.
“They’re really chalk and cheese,” Nick Parker, partner and managing director at consulting firm AlixPartners, said of traditional European automakers and their Chinese rivals.
Unlike European automakers that rely on external suppliers with separate supply chains for fossil fuels and electricity, Chinese rivals are highly vertically integrated, producing almost everything in-house and keeping costs down. .
It will help them dominate their European rivals. In the UK, BYD’s electric Dolphin hatchback starts at £25,490 ($32,300), about 27% cheaper than Volkswagen’s equivalent ID.3 model. Tesla works the same way.
AlixPartners’ Parker said there are limits to what European automakers can squeeze out of external suppliers, so going after these rivals could put future profit margins “under great challenge”. said to mean.
This challenge is made even more difficult as the transition to EVs has been slower than expected, leaving traditional automakers stuck with dual supply chains. Data this week showed that 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 toned down expectations for EV demand and said it would update its traditional lineup over the next 10 years.
Carlos Tavares, CEO of Stellantis, went further, saying that 85% of an EV’s cost is related to purchased materials, so suppliers need to shoulder a fair share of the cost savings. Told.
“I communicate that reality to my partners: If you don’t do your job, you’re excluding yourself,” he said.
Prices for nickel and aluminum also rose this week after Western countries expanded their list of sanctions against Russia, highlighting lingering risks to raw material prices, although neither metal was mentioned.
Staff reduction
Many traditional suppliers are already feeling the pressure to cut costs, with Favia, Continental and Bosch all recently announcing or warning of job cuts, with further job cuts expected.
During the recent semiconductor shortage, automakers focused on producing higher-margin models to maintain profits, which meant lower revenues and lower profits for suppliers.
Industry experts now say large, well-capitalized suppliers can adapt to the new reality, but many smaller suppliers are on the brink, like Germany’s Allgaier, which filed for bankruptcy in July. I’m warning you that there is.
This means European automakers will have to strike a delicate balance between cutting costs to fend off Chinese rivals and avoiding making too many demands on suppliers. Philip Nossard, director of insights at dealer services firm Cox Automotive, said automakers may even need to step in to bail out distressed suppliers.
“The risk is that if[European automakers]try to corner these suppliers too much, they will either force them into administration or force them to look for other markets,” he said. Stated.
($1 = 0.7878 pounds)
(Reporting by Nick Carey; Editing by Kirsten Donovan)
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