The electric car enters the price battle

The good hand, in the global automobile poker game, has undoubtedly passed to the Chinese side

The electric car enters the price battle

The good hand, in the global automobile poker game, has undoubtedly passed to the Chinese side. While they represent almost half of the exhibitors at the IAA in Munich, the new dragons of mobility can show their trump card, that which results from inexpensive labor and which allows for cost prices tight.

Not very original but effective, especially when the system has already established itself previously in such technological sectors as household appliances, telephony, IT for example. If aeronautics is not yet ready, the automobile is ready to fall like a ripe fruit... if buyers are not careful. And they will undoubtedly be so in the face of the waltz of labels which forces Tesla itself, alone in the world for ten years, to compress its prices like never before.

The American has understood that the competition is finally rearing its ugly head and he hastened to Munich to bring a new version of the Model 3 of which the old ones still on the fleet are heavily discounted. Since January 1, prices have plummeted by 10,000 euros, provoking the discontent of those who bought before, at full price. We will therefore have to defend ourselves by being better technologically and always competitive since the market will be teeming with proposals from new players. In this arena where anything goes, the “made in Europe” and affordable electric car has a big challenge to meet if it is not to sink.

If European automobiles still manage to escape cheap Chinese competition, this should not last: a host of brands are preparing their models for the Old Continent, as illustrated by China's strong presence at the Motor Show of Munich (IAA), which takes place this week. These new arrivals combine technological advances – thanks to China’s investments in electricity over the past dozen years – and low labor costs.

European governments are urging the continent's manufacturers to make electric mobility accessible with a view to banning new thermal or hybrid vehicles in 2035, which they themselves have decided. This is called sawing off the branch you are sitting on.

It is “essential” that many citizens “can afford to acquire a new electric car”, and not just a second-hand one, criticized German Chancellor Olaf Scholz at the inauguration of the IAA on Tuesday. A wishful thinking which reflects a political and strategic blindness leading historic manufacturers to get by with this issue

In China, list prices for electric cars are “up to 60% lower than prices in Germany,” notes automotive industry expert Ferdinand Dudenhöffer. But it is not the price of a car exported and delivered to Europe that alone is worth comparing. The general director of French Stellantis, Carlos Tavares, spoke at the end of July of an “invasion” of manufacturers who have “a cost advantage of 25%” closer to reality. On the other hand, their networks remain to be deployed, which Tesla has done without until now, but by exposing itself to cars that are difficult to repair.

The best-selling Chinese brand on the Old Continent, MG offers prices around 30,000 euros excluding environmental bonuses, depending on entry-level models. Founded in Great Britain in 1924 but relaunched after its bankruptcy in 2005 by Chinese automobile giant SAIC, MG “benefits from its notoriety as an old Western brand as well as the competitiveness of the Chinese market,” underlines Felipe Munoz, of JATO Dynamics.

In the first half of this year, Chinese brands captured 8% of the Western European electric market, while their shares were almost zero in 2019, according to calculations by analyst Matthias Schmidt.

China's leading electric car maker, BYD, is expected to start flooding the European market from the second half of 2023, according to Schmidt. Its Atto 3 model has already topped electric car sales in July in Sweden, where more than a quarter of registrations are electric.

On the other hand, European manufacturers are doing everything to reduce their production costs and offer cheaper models. Even Mercedes, which specializes in luxury sedans, promised a model on Sunday to make electric "accessible", Ola Kallenius said, without details. In March, the German brand VW presented the future ID.2 at less than 25,000 euros, expected in 2025. A price level that "we desperately need", observed Tuesday Chancellor Olaf Scholz during his visit to the Volkswagen stand .

Stellantis is focusing mainly on the electric Citroën C3, which will be unveiled in mid-October, and Renault will launch the R5 city car, promised below 30,000 euros. The group's Opel brand also plans to offer a model "around 25,000 euros" shortly after 2025, according to its boss Florian Huettl.

“The more electric models we have, the more we will benefit from economies of scale,” Volkswagen boss Oliver Blume explained in Munich, banking on increased volumes to reduce prices.

In France, the government has promised a rental offer for electric cars “at affordable prices”, with President Emmanuel Macron having mentioned the sum of 100 euros per month for this leasing, subject to resource conditions.

France is also considering making subsidies for electric cars (currently 5,000 euros for cars costing less than 47,000 euros) conditional on an “environmental score” likely to limit Chinese imports. Except perhaps for the least advantaged households who benefit from a bonus of 7,000 euros, it is reasonable to wonder whether the bonus fueled by taxes still makes sense. The price reductions agreed by manufacturers since January 1, with Tesla in the lead, are dizzying and raise questions about the relevance of maintaining the bonus.

In Germany, country of Volkswagen, BMW and Mercedes, purchase bonuses are not considered a sustainable solution. To push manufacturers to market more electric vehicles at affordable prices, the government reduced the ecological bonus this year and plans to gradually eliminate it by 2025.

A situation that could weigh on the comfortable margins generated by European groups by taking advantage of inflation to drive up prices.