Europeans Manufacturers Need Small Electric Cars Despite Profit Problem.
“Get ready for the $3,000 to $5,000 EV?”
European manufacturers are in danger of conceding the mass market for electric cars to China as they relentlessly try and reinvent the traditional car while ignoring likely big changes in mobility habits.
As European carmakers spend billions motoring down a blind alley making hugely expensive and very impressive but limited-ability electric cars, Chinese or China-based companies are poised to hit the mass market with small, cheap, unpretentious battery-powered utility vehicles which can provide for maybe 90% of a car-buyer’s needs.
If you want to spent getting on for $100,000 you can buy a sedan or SUV that almost matches internal combustion engine (ICE) vehicles for high-speed cruising. But the majority of available electric cars – between €20,000 to €50,000 ($24,000 to $60,000) are really just over-priced, high-class city cars which can’t handle the fast lane. Carmakers are staying away from anything cheaper because profits are hard to find. But if they don’t match the offerings from China, they may undermine the long-term future of the European industry.
Despite many hopeful claims that soon batteries will be much cheaper and more powerful, with charging ubiquitous and fast, it doesn’t look as though an all-round electric vehicle is possible any time soon at a price that Europeans on average earnings can afford. Vehicles that can cruise legally all day at 80 mph (130 km/h) across Europe like a modern diesel requires much more powerful batteries which are effectively ruled out by cost, not to mention the fact that the carbon dioxide penalty will probably defeat the attempt to curb the CO2 greenhouse gas.
Small will be beautiful
And new forms of mobility and public taste are likely to be mean cars will be much more specialized, smaller and a lot cheaper. According to investment bank Morgan Stanley, despite the impressive-in-terms-of-engineering vehicles from Tesla, BMW, Audi and Mercedes we have yet to see how electric cars will look after a revolution in high volume manufacturing revolutionizes the market.
“Get ready for the $3,000 to $5,000 EV?”, Morgan Stanley said in a recent report.
Prices aren’t that low yet, but new entrants are getting closer. Cars like the K-ZE, made by Renault with Dongfeng Motor Group in China is already going on sale badged as the Dacia Spring. Dacia is Renault’s budget brand, and prices start (with the emphasis on start) at close to €10,000 ($12,000). A European version of China’s successful Hongguang MINI EV, the FreZe Nikrob, is about to go on sale here. A lone European, in the form of the little Citroen Ami, has been testing the water, but it is currently underpowered and lacking in range. With a few tweaks it could be a contender.
Professor Stefan Bratzel of Germany’s Center of Automotive Management (CAM) warns Europeans need to broaden their appeal despite the miniscule profit margins.
“I don’t really see a good competitor from German manufacturers. They are more or less focussed on the mid-segment but not on the low-cost segment. It could be this segment is being left to the Chinese manufacturers and I’m not sure that’s a good idea,” Bratzel said.
“The question is will Chinese vehicles have high enough quality and safety. How will they perform in crash tests,” Bratzel said.
Last month the importer of the FreZe range of electric cars said its vehicles had passed European safety tests. It remains to be seen if overall build quality is up to scratch.
Bratzel said despite European reluctance to provide vehicles in this lowest segment because of the difficulty of making profits, it will become important, particularly as many European cities will make it difficult for regular sized cars and SUVs to enter cities at all. And there was a long-term threat to European companies.
“This could be a predatory plan, to get into markets others are reluctant to go into, then gradually move upmarket and destabilize the incumbents. That’s what Hyundai (and is sister company Kia of Korea) did 20 years ago,” Bratzel said.
LMC Automotive analyst Al Bedwell points out that the entry level segment in Europe has been on the slide – from nearly 1-/2 million sales a year in 2010, to just over 1 million in 2019 and gradually sliding to about half that by 2029, when the vast majority will be battery electric.
Big carmakers like VW have said it will be impossible for them to sell profitably small ICE vehicles because of EU CO2 rules which kicked in last year and get tougher in 2025 then again in 2030. ICE powered Ups and Polos will disappear by 2030, according to VW. Little gasoline powered Peugeot 108s and Citroen C1 will go too.
Bedwell said profit margins might not be as thin as expected if battery prices come down.
“However there must be a risk that China low cost BEVs will make inroads into Europe as I think this segment will remain of interest to car users,” Bedwell said.
Automotive analyst Charles Tennant agrees that big European manufacturers seem unwilling to enter this end of the market but might have to change their minds in a hurry.
“Regarding low cost EVs I don’t think the (big manufacturers) will be paying any attention to what I would call the sub-low cost EV segment, where cars such as the FreZE will be sold at around €10,000 Euros, because they do not see this area of white space in the market as a driver of profitable growth. The likes of VW and Ford see a low cost EV as being at the price parity point of a conventional ICE car, which may already be out of reach for many customers even with lower cost monthly lease deals,” Tennant said.
“The auto industry has a track record for only developing new technology for safety and low emissions when forced by legislators, so if European and U.K. cities push for smaller low cost city cars then that along with pent up consumer demand for cost effective urban transport then they may sit up and take notice. The type of EV city car that we are talking about does not require high performance or long battery range, or even lots of expensive options, but it must be safe and not marketed as merely a cheap car,” Tennant said.
This is a hard decision for Europeans to make, but given the long term consequences of conceding this lower end market to China is their own survival, expect some reuluctant action on this front as the electric revolution gains momentum.