In its 87-year historical past, Volkswagen has by no means closed a manufacturing facility in its German heartland. It’s now contemplating shutting three and slicing employees’ pay by 10 per cent.
The plans have been disclosed at an worker assembly by the pinnacle of VW’s highly effective works council and haven’t been confirmed by the corporate, which is because of report third-quarter outcomes on Wednesday.
However the world’s second-biggest automobile producer, which additionally owns Audi, Škoda and Seat, has already warned on earnings twice this yr and flagged the beforehand unthinkable step of closing factories in Germany.
It isn’t the one European carmaker considering deep and controversial retrenchment. Stellantis, proprietor of Opel, Fiat and Peugeot in Europe, is beneath intense stress from Italian politicians and unions to maintain its oldest Fiat manufacturing facility in Turin operating regardless of a stoop in gross sales.
Meeting traces in France are already being shifted to lower-cost areas similar to Morocco and Turkey. Earlier this month, a number of hundred French employees, together with from suppliers like Bosch, protested exterior the Paris Motor Present.
Europe’s automotive business, which employs practically 14mn folks and accounts for 7 per cent of the EU’s GDP, is confronting an ideal storm. Demand for vehicles is falling at house and overseas, whereas carmakers are navigating a dangerous and costly multiyear transition from combustion engines to electrical propulsion.
All these issues are being exacerbated by China — the place competitors for gross sales within the once-lucrative home market is ferocious, and whose high-quality, lower-cost EVs are actually being exported to Europe in higher numbers.
There are not any straightforward options. The EU has adopted the US in elevating tariffs on automobiles imported from China, however business leaders similar to Carlos Tavares, chief govt of Stellantis, and BMW chief govt Oliver Zipse, say protectionism will solely make vehicles costlier for customers and speed up plant closures in Europe.
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“We don’t want safety,” Zipse mentioned just lately on the sidelines of the Paris Motor Present, including that European carmakers “shouldn’t be over-afraid” of Chinese language competitors.
Producers have urged governments to roll out charging infrastructure and introduce or reinstate monetary incentives for electrical automobiles — however this is not going to assist sluggish exports exterior the continent.
Working with Chinese language carmakers, who’ve learnt the best way to make high-quality EVs at decrease price, might present formidable present and future rivals with a ready-made distribution community in Europe, accelerating their growth.
Roberto Vavassori, who heads the Italian Affiliation of the Automotive Trade, describes China as “the elephant within the room” and the issue that makes this downturn completely different from earlier ones. “For a lot of suppliers within the automotive business, [the Chinese] are each the largest menace and largest buyer.”
Tavares has a easy query for Europe’s carmakers and politicians: “Do you wish to race or not?” The result for individuals who select to not step up, he warns, is that “you disappear”.
The issues of European carmakers start at house. Car gross sales in Europe haven’t recovered to pre-pandemic ranges and better rates of interest are hurting demand.
This stress comes at a time when producers are grappling with the inexperienced transition. Underneath present laws, will probably be unattainable to promote a petroleum or diesel automobile within the EU, and in different markets such because the UK, after 2035.
Electrical vehicles are nonetheless costly to supply in Europe, largely due to the excessive price of batteries, making them costly to purchase. Customers need cheaper EVs and extra charging stations, and plenty of are holding off shopping for till they get them. Consequently, gross sales are slowing simply as harder EU emissions guidelines from subsequent yr mandate a quicker shift to cleaner automobiles.
Vavassori factors out that Europe’s carmakers can not export their means out of hassle both. Final yr, China changed Japan because the world’s largest exporter of latest vehicles as its personal producers regarded to diversify away from their overcrowded home market.
China is an issue for European carmakers in different methods. Chinese language producers similar to BYD, Nio, MG-owner SAIC, Nice Wall and Chery are constructing extra superior electrical vehicles with prices 30 per cent decrease than these of European carmakers, in keeping with Tavares and others. On Chinese language showrooms, EVs are nearing value parity with petrol vehicles.
The rise of homegrown manufacturers has sharply diminished the gross sales of European, US and Japanese carmakers in China, which in recent times has been the largest and most profitable marketplace for manufacturers similar to Volkswagen, Mercedes-Benz and BMW.
International manufacturers’ market share of Chinese language auto gross sales is trending at a report low of 37 per cent within the first eight months of 2024, down from 64 per cent in 2020, in keeping with knowledge from Shanghai consultancy Automobility.
That has additionally put stress on the joint ventures that western carmakers shaped with native companions after they first entered the Chinese language market. Two years in the past, Beijing permitted international corporations to function independently; in September, Mercedes-Benz withdrew from a 13-year EV three way partnership with BYD. Volkswagen, one of many first to enter the Chinese language market, is contemplating closing a Nanjing manufacturing facility operated with its oldest three way partnership associate, SAIC.
If Chinese language carmakers decide to avoid EU import tariffs by opening manufacturing websites in Europe, as their Japanese friends did within the Nineteen Eighties and Nineties, the overcapacity in European carmaking will worsen.
New arrivals are additionally extra seemingly to decide on low-cost areas in japanese Europe to supply their automobiles, particularly nations similar to Hungary with comparatively China-friendly governments. That will put extra stress on producers in high-cost international locations and undermine the effectiveness of tariffs for German and French carmakers.
As China’s advances in EVs, battery know-how and software program proceed to ripple by means of the worldwide business, some European automobile corporations are pursuing a unique technique for survival — changing into extra Chinese language.
“What did the Chinese language do, what did the Japanese do and what did the Koreans do after they have been behind on know-how? They collaborated,” says Andy Palmer, a advisor who was beforehand chief govt of luxurious marque Aston Martin.
“The European business must get the Chinese language to localise in Europe and it must collaborate with them, notably round battery know-how, with a view to catch up,” he provides.
VW is already partnering with Chinese language start-up Xpeng to develop EVs at a quicker velocity and decrease price. France’s Renault, which has largely minimize its publicity to the Chinese language market, has partnered with Volvo Automobiles proprietor Geely to construct extra superior combustion engine applied sciences.
After winding down its ventures in China, Stellantis is now playing on a brand new technique that breaks with that of its rivals: bringing a Chinese language model to Europe itself. Final yr it took a 20 per cent stake in Chinese language start-up Leapmotor for €1.5bn, giving it unique rights to construct and promote Leapmotor vehicles exterior China by means of a three way partnership. Consequently, the model already sells by means of 200 sellers in 13 European markets.
Its T03 compact electrical automobile is likely one of the most cost-effective choices within the UK, with a price ticket under £16,000. On the latest Paris Motor Present, Leapmotor additionally unveiled its first world mannequin for an electrical compact sport utility car.
Entry to the huge distribution and aftersales community of Stellantis will enable Leapmotor to develop quicker exterior China. The T03 is produced in China and at a Stellantis plant in Poland that used to construct the Fiat 500, so the corporate can keep away from the EU’s tariffs.
“We’ve got the agility, the flexibleness and capability to localise the fashions exterior of China if we would like as enterprise wants develop,” mentioned Tianshu Xin, who heads the three way partnership between Leapmotor and Stellantis. “There’s a number of alternative to be additional explored.”
For Stellantis, the bizarre tie-up offers it a much-needed inexpensive addition to its personal EV providing, permitting it to higher compete with different Chinese language imports. If Leapmotor gross sales develop in Europe, Stellantis might utilise extra spare capability at its personal factories and keep away from politically controversial closures.
“The Chinese language carmakers may have 10 per cent of the European market in a number of years,” Tavares says. “So if the Chinese language promote 1.5mn vehicles, it means the equal of seven crops.”
China’s management in electrical propulsion is not only a matter of price. One other main hole that’s rising is in know-how.
Christoph Weber, who leads the China enterprise for Swiss engineering software program group AutoForm and is predicated in Shanghai, says conventional European and US carmakers want to transform the way in which they work if they’re to match the velocity at which their Chinese language rivals are embracing new applied sciences and designs.
He factors out that William Li, the founder and chief govt of Nio, and Joe Xia, the chief govt of Geely-Baidu joint-venture Jidu Auto, each attend weekly design conferences and make choices “on the spot”. The end result, Weber says, is that Chinese language corporations are growing new vehicles in round one yr, in comparison with the four-year timeframes typical of extra bureaucratic European teams.
The entry of telecoms and tech giants Xiaomi and Huawei into the auto sector presents a brand new menace to international teams, Weber provides. “When customers see what Xiaomi and Huawei are providing, they’re very fast to anticipate that of everybody, and it places everybody else beneath much more time stress,” he says.
Huawei has been looking for new development drivers after the Shenzhen-based group was shut out of many telecoms markets over safety fears (which it says are unfounded). It’s co-developing automobiles with Seres, Chery, BAIC, JAC and Changan, and manufacturing parts for a lot of different teams.
It’s an method that highlights how Chinese language tech manufacturers with no prior auto business presence are quickly gaining a foothold within the business.
Tang Jin, a senior analysis officer at Mizuho Financial institution in Tokyo, says carmakers similar to Toyota are already shifting to deal with the menace by actively partnering with Huawei in China. “On account of political points, there are specific areas the place Chinese language vehicles can’t enter. So by partnering with Huawei in China, corporations can soak up the know-how knowhow and use them in different elements of the world such because the US,” he provides — a reversal of what occurred when western carmakers entered China.
The subsequent huge battleground in automotive know-how is more likely to be automation and self-driving know-how, an space the place even Elon Musk’s Tesla might wrestle to compete towards BYD, Huawei and different Chinese language rivals.
Invoice Russo, the previous head of Chrysler in China and founding father of consulting agency Automobility, believes the nation is getting into a brand new interval of auto business disruption, with the motion of individuals and items more and more automated as carmakers and others leverage its enormous digital financial system.
However even when China’s product-centric automobile business can develop into a service-orientated “mobility” sector, it’s unsure whether or not such know-how is exportable to some western international locations. Shopper behaviour in Europe is completely different and there could be regulatory obstacles round knowledge switch, privateness and insurance coverage.
“The portability of those options exterior of China goes to be rather more difficult to the Chinese language corporations, as a result of the ecosystems for autonomy are constructed domestically,” Russo says. “However that doesn’t take away from the collected expertise of studying and coaching the algorithms and constructing the answer units, which can commercialise a lot quicker in China.”
Brian Gu, co-president of Xpeng, says he desires to introduce the newest applied sciences developed in China to worldwide markets, arguing that they are going to warrant premium pricing of its automobiles after they arrive in Europe.
“The world ought to take pleasure in the perfect know-how that has been developed,” Gu says, whereas acknowledging the problem of assembly European requirements. “We’re not going to overthrow anyone who’s developed over 100 years. We may also help them.”
Renault’s chief govt Luca De Meo admits the European automobile business and its suppliers “want some assist” from the Chinese language, particularly within the essential battery provide chain.
“The centre of gravity of the automotive system has drifted in direction of China,” he says. “It doesn’t imply that the Chinese language are going to wipe us out. We will battle. We’re going to compete.”
Others aren’t so certain. In a 400-page report issued final month, former European Central Financial institution president Mario Draghi known as for a “new industrial strategy for Europe”, urging the EU to boost investments by €800bn a yr to spice up its competitiveness in order that the bloc doesn’t fall behind the US and China.
BMW’s Zipse has additionally demanded a extra coherent industrial framework. “The idea of our success and prosperity are beneath growing stress,” he says. “What is going on to us right here?”
Many vehicle executives are nonetheless hopeful that it’ll not be so easy for Chinese language carmakers to duplicate their home success in Europe. Customers are typically older — the typical age of a brand new automobile purchaser is over 50 in Europe in comparison with mid-thirties in China — and have constructed up real loyalty to specific manufacturers. As so many new gamers enter the market, a interval of consolidation might nicely observe the preliminary aggressive growth.
“The largest hurdles for Chinese language carmakers aren’t the merchandise themselves, however the distribution community and model recognition,” mentioned José Asumendi, JPMorgan’s head of European automotive analysis.
Matthias Schmidt, an impartial analyst, estimates that the share of Chinese language carmakers in west European markets is unlikely to surpass 12 per cent as a result of introduction of import tariffs and the rollout of latest European EV choices. Chinese language producers had an 8.3 per cent share in August.
However Palmer, who was additionally beforehand chief working officer at Nissan, warns towards complacency and wishful considering. He says carmakers similar to Nissan, Renault and BMW have been pioneers in EV know-how however didn’t observe by means of on their early management as a consequence of poor strategic planning.
“It’s not that the European business has been crushed by the Chinese language,” he says. “It’s that the European business has misplaced due to itself.”
Extra reporting by Gloria Li in Hong Kong and Amy Kazmin in Turin