Concerns are rising among Western automakers about an inundation of low-cost Chinese electric cars flooding the European market. In response, Renault, the French carmaker, declared its intention to reduce production costs for electric models by a substantial 40%.
The Chief Financial Officer, Thierry Pieton, emphasized that the most effective approach to combatting price competition would be for Renault to streamline its development and manufacturing expenses.
While the targeted reduction is expected to take effect from 2027 onwards, Chief Executive Luca de Meo assured stakeholders that the company would witness a significant decline in production costs starting from the latter half of this year, all thanks to a decrease in raw material expenses.
De Meo acknowledged, “It’s evident that we’re engaged in fierce competition, and time is of the essence, but that’s simply the nature of our industry.”
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For car manufacturers globally, providing affordable electric vehicles (EVs) has become a top priority as the demand for greener transportation continues to rise. However, the transition to electric mobility has been hindered by the high costs associated with batteries.
Chinese manufacturers, including BYD and SAIC, have capitalized on this shift by investing heavily in electric mobility, taking advantage of lower labor costs and local battery suppliers, enabling them to gain a significant head start over their competitors.
Consultancy firm Inovev predicted that Chinese carmakers would hold a 9% share of Europe’s EV market by 2022, nearly doubling their previous year’s market share. This trend shows no signs of slowing down.
Renault, along with other EV manufacturers, also faces mounting pressure from its American rival, Tesla.
The company has repeatedly lowered its prices this year, which, although boosting sales, has impacted Tesla’s profit margins. For example, Tesla slashed the price of its Model Y long-range version by 25% to $50,490.
This price competition has had noticeable consequences. According to researchers at Jato Dynamics, both Tesla and SAIC’s MG have emerged as the biggest winners in terms of market share in Europe during the first half of this year.
Carlos Tavares, CEO of Stellantis, which owns Peugeot and Fiat, issued a stark warning, describing the competition with Chinese manufacturers as “extremely brutal.”
He lamented the 25% cost advantage that Chinese manufacturers enjoyed and referred to their aggressive push into the market as an “invasion.”
Tavares stressed the need for Western carmakers to adopt similar strategies, including sourcing components from countries with lower costs and forming partnerships with battery suppliers that offer the best combination of energy, cost, and weight.
“We must develop a sourcing proposal that allows us to sell models like the Citroën C3 at 25,000 euros or less, while still maintaining profitability,” Tavares emphasized.
Additionally, Western automakers are keen to regain market share in China, the world’s largest automotive market, where they have lost ground to local manufacturers.
Mercedes-Benz, for instance, stated that it would adhere to its strategy and not engage in a price war to gain market share in China.
Regarding Volkswagen’s plan to build new models with Chinese partners and potentially co-create local platforms, Mercedes CEO Ola Kaellenius clarified that the luxury carmaker was collaborating with Chinese partners to customize its technological offerings to cater to local preferences.
“We won’t relinquish the responsibility of creating the future of Mercedes to another OEM (manufacturer) – that task remains with us,” Kaellenius affirmed.