Shanghai Shows EV Threat To Europe Needn’t Be Lethal

Shanghai Shows EV Threat To Europe Needn’t Be Lethal.

“The Chinese car market is marked by significant overproduction, driven by a proliferation of brands and state-supported industrial expansion”

The Shanghai auto show   demonstrated again the lead China is likely to have over European manufacturers in their home market, but not everybody sees the problem as terminal.

It’s all very well making cars efficiently, but it takes a bit more than low prices to beat the brand power of the likes of BMW, Mercedes, Audi and Porsche, even if the power is electricity. That’s the hope anyway for those who say it’s not all over yet for Europeans. 

Meanwhile, sales of Chinese EVs in Europe have accelerated this year, in an overall flat market, but in areas which so far won’t threaten the upmarket German brands. In April, BYD sales more-than-tripled to 12,600 compared with the same month last year, according to Dataforce. Sales at SAIC’s MG rose 25%. These sales were mainly in the mass market segment. BYD also announced the launch of its little Dolphin Surf in Europe with prices starting below €20,000 after tax ($22,700). The Surf is a slightly larger version of the Dolphin Seagull, which starts at just below €9,000 ($10,200) in China. BYD has sold almost 1 million Seagulls since its launch in 2023 and promises fat profits in Europe for BYD despite the EU’s new tariff barriers. The Surf’s price and high-equipment level suggest it could be the vehicle that kickstarts the EV revolution in Europe.  

The biennial Shanghai show, which alternates with Beijing, closed May 2. Debutants included several plug-in hybrids and extended range electric vehicles, suggesting that Chinese manufacturers still see a long-term future for vehicles with more than just electric power. China’s lead in autonomous driving wasn’t helped by a fatal crash of a Xiaomi SU7 the previous month, which led to the government ordering a slow-down in the development of driverless technology, and an understated profile for its supporters at the show.

Consolidation is coming
Improved technology concepts included BYD’s fast charger, and sodium-powered batteries. Investment researcher Jefferies said China’s auto sector is transforming from high growth to consolidation to cut excess production. Consolidation winners will be BYD, Geely, Leapmotor and Li Auto, according to Jefferies. 

Reuters Breaking Views talked about China’s vicious price war and said what it called barely profitable “state-backed behemoths like Dongfeng Motor, GAC and BAIC motor” are coming under pressure. 

 Professor Stefan Bratzel, director of the Center of Automotive Management, pointed out how China’s “massive overcapacity” will have a big impact on the European market, as it has become the world’s largest exporter of sedans and SUVs, with more than 4 million exports annually. 

“The Chinese car market is marked by significant overproduction, driven by a proliferation of brands and state-supported industrial expansion. With domestic demand stagnating, exports are becoming a strategic necessity to absorb production volumes and mitigate effects of  internal price erosion,” Bratzel said in a LinkedIn publication. 

China has already built an impressive bridgehead in Europe with its lead in electric vehicle manufacturing, batteries and charging technology. 

But according to Matt Schmidt, founder of Schmidt Automotive Research, Europe still has an ace card to play with its leading manufacturers’ brand power which has the ability to induce excitement and envy. Europeans need to mimic “China time” where its manufacturers have accelerated the time taken from concept to production and slashed costs in the process.

Speed to market
“With Europeans starting to adopt strategies like this to increase speed to market I am confident they still have a good chance of preventing that wave from crashing the domestic European market. In Shanghai, good products lacked real brand equity and character, key for success in Europe,” Schmidt said in an email exchange. 

Pedro Pacheco, senior research director at Gartner Group, agrees Western manufacturers need to address the speed-to-market issue.

“Chinese players keep progressing but, at the same time, some Western players are trying to address the problem. This advantage is quite significant in at least two ways. On one hand, speed always enables Chinese players to adapt faster and, if necessary, correct mistakes faster. On the other hand, a low-cost level provides great flexibility in terms of price point which can be used either for profitability or to offer competitive prices,” Pacheco said in an email.

Last October the EU raised tariffs on Chinese EVs ranging from 17% to 35.3% on top of the existing 10% import duty, potentially reaching a total of 45.3% for some manufacturers deemed to have received most government subsidy. 

Pacheco said the EU is talking to China about alternative arrangements which might force its manufacturers to share technology with European companies in return for more open access to the EU market. 

EU mandates in trouble
Expert forecasts for EV sales in the European market predict a large shortfall from EU mandates. One way to plug this gap would be to encourage manufacturers to quickly design and make cheap EVs with limited utility. Wouldn’t this be quickly overwhelmed by China’s carmakers? 

“That depends on how you define “low-cost EV market,” Pacheco said.

“If you mean A segment, (Fiat 500, Toyota Aygo, Ford Ka) the risk would be low as this is a small, shrinking segment. However, B segment (Ford Fiesta, Volkswagen Polo, Seat Ibiza, Renault Clio) would be different, as it’s one of the largest segments in Europe. In this case, it’s possible Chinese (manufacturers) may eventually start taking volume away from Europeans with a low-price positioning,” Pacheco said.

But according to Schmidt, potential Chinese market share market wouldn’t be overwhelming, and probably mirror the Koreans Kia and Hyundai/Genesis.

“Koreans managed to muscle their way into the European market and now command between 7-8% market share and I expect the Chinese to do the same but not get beyond that as Europeans fight back. In the Western Europe new passenger car market, and broke through the 5% barrier in March,” Schmidt said.