Western car giants are being forced to slash their production costs in a desperate bid to compete with Chinese rivals, like BYD and SAIC.
An “invasion” of cheap Chinese electric cars has prompted France’s Renault to say on Thursday it was aiming to cut manufacturing costs for its electric models by a whopping 40%.
Finance chief Thierry Pieton said the best way to fend off price competition was for Renault to cut its own development and manufacturing costs.
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While the targeted 40% reduction is from 2027 onwards, Chief Executive Luca de Meo said the group would start seeing significantly lower production costs from the second half of this year, thanks to a fall in raw material costs.
“It’s clear we are in competition and that time is of the essence, but that’s the business we are in,” he said.
Delivering affordable electric vehicles (EVs) has become a priority for car makers worldwide as the shift to cleaner driving has come with high prices, due largely to battery costs.
Chinese manufacturers such as BYD and SAIC have invested heavily in the shift, using lower labour costs and local battery suppliers to get a head start over many rivals.
In 2022, Chinese car makers had a 9% share of Europe’s EV market, nearly double the previous year’s figure, according to forecasts by consultancy Inovev. And the pace is picking up.
Like other EV makers, Renault also faces increased pressure from US rival Tesla, which has cut prices several times this year even as that has eaten into its margins. As an example, Tesla this year cut US prices of its Model Y long-range version by a quarter to $50,490.
According to researchers Jato Dynamics, Tesla and SAIC’s MG were the biggest market share winners in Europe during the first half of this year.
Mercedes-Benz Shuns Price War
Carlos Tavares, the CEO of Peugeot-to-Fiat carmaker Stellantis, warned on Wednesday the competition with Chinese manufacturers would be “extremely brutal”.
“Their cost competitiveness is 25% against us. We have to fight,” he said, describing the Chinese push as an “invasion”.
“We need to use our own costs to make sure that we keep on making profit with affordable prices for our middle classes.”
Tavares said Western car makers needed to use “the same weapons” as their Chinese rivals, sourcing parts in lower cost countries and striking partnerships with battery suppliers that offer the best combination of energy, cost and weight.”
Once-dominant Western automakers are also striving to regain ground in China itself, the world’s largest car market, after losing share to local manufacturers.
But Mercedes-Benz said on Thursday it was sticking to its strategy and would not engage in a price war to “buy” market share in China.
- Reuters with additional editing by Sean O’Meara
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