Europe’s Automotive Manufacturing Hub Squeezed by North America and China

Car makers in Europe are expressing concerns about the rising costs of developing and building cars and automotive technology in the region. As competition from cheaper and more profitable Chinese electric cars looms, manufacturers in traditional automotive manufacturing hubs like Germany and the UK are feeling the squeeze.

Thomas Schaefer, head of the Volkswagen brand, highlighted the high costs of battery plants as a major obstacle to onshoring investments in Europe. He pointed out that electricity prices in China are significantly lower than in Europe, making it cheaper to build battery plants in Canada and re-import them into Germany.

Europe is facing pressure as an automotive manufacturing hub from both North America and China. Factors such as local subsidies, lower energy prices, cheaper labor costs, and efficient supply chains have made North America and China more attractive for car manufacturing.

The threat from China is particularly significant as local manufacturers are exporting vehicles that undercut European-built models. At the recent Munich mobility show, Chinese competitors like BYD, MG, Leapmotor, Seres, and HiPhi showcased their vehicles, highlighting the challenge faced by European manufacturers.

Currently, legacy car makers hold a 95% market share in Europe, with Tesla and Chinese players accounting for only 5%. However, a recent report by UBS predicts that by 2030, Chinese manufacturers will capture 20% of the European market, while Tesla will hold 10%.

One of the key advantages Chinese manufacturers have is their lower cost base. A UBS teardown of the BYD Seal saloon revealed that even the base-model Seal carried a 5% profit margin, while the entry-level German-made Volkswagen ID 3 suffered a 1% loss. Despite selling for 50% less in China compared to Germany, the Seal was more profitable.

In response to the threat posed by Chinese electric vehicles with government-subsidized prices, the European Union has launched an investigation into whether these vehicles are distorting the car market and threatening European manufacturers.

European manufacturers have started manufacturing in China to take advantage of the lower cost base. For example, Mini’s plant in Oxford will lose production of the electric Cooper to China next year, while the plant undergoes an overhaul to improve cost efficiency. This move is supported by a £75 million boost from the UK government.

The list of cars built in China and sold in Europe is growing, with global auto manufacturers exporting their development and production to China due to cost considerations. However, completely shutting off Europe from Chinese products and the battery supply chain is not feasible, as China leads in EV technology.

European auto industry lobby group ACEA emphasizes the need for more state support in Europe to compete with China. They argue that Europe needs a robust industrial strategy that supports critical industries and reduces manufacturing costs.

In conclusion, Europe’s automotive manufacturing hub is facing challenges from North America and China. The rising costs of development and production, coupled with the competition from cheaper Chinese electric cars, are putting pressure on European manufacturers. To stay competitive, European manufacturers are considering manufacturing in China and seeking more state support to reduce costs and develop new technologies.