Automotive News Europe — 2024-02-21
Automotive Industry
Slowing the electrification shift now with the aiming of catching up when margins are better is the wrong approach -- for the planet and for companies' survival.
Renault unveiled its Renault 5 at the 1972 Geneva auto show. The Cinq went on to sell m and inspire many in the industry. As this year's Geneva show gets ready to open its doors on Monday 25 February 2024, the world looks very different.
2023 was the hottest year on record. With much of carbon emissions coming from road transport, governments are mandating a faster switch electric car sales. But while Renault will show a full-electric version of the 5 at Geneva, questions remain over whether legacy automakers will be able to reinvent themselves for the new era.
Battery-electric car sales grew by almost a third across Europe last year. This is decent growth given high interest rates, shipping disruption and the phaseout of some EV subsidies. But the pace of growth has slowed, and CO2-emission reductions are nowhere near what the European Union's climate goals require.
Automakers can and must do better.
Instead, some are questioning government mandates and scaling back plans -- to quiet cheers from some investors.
Such short-sightedness will not only cost the climate but the very survival of Europe's car industry and auto jobs.
EV sales are slowing because the electric offering is a far cry from what the average European car buyer wants. In the overall car market, more than four-fifths of drivers go for small and compact mass market cars. But close to half of electric models on offer today are large, premium cars.
The demand for small affordable electric cars is there. The launch of the French low-cost leasing program earlier this year, which makes €25,000 small electric cars available for €100 a month, was oversubscribed fourfold. But even if Renault, Stellantis and Volkswagen all announced affordable models, a mere 42,000 of those are expected to be produced this year.
Instead, the need for affordable EVs is being addressed from elsewhere. About 370,000 of the roughly 2 m electric cars sold across Europe last year were imported from China. Previous big sellers such as the Tesla Model 3 and Dacia Spring are being fast replaced by Chinese models including BYD's Atto 3 and the MG 4.
How the European automotive industry responds will determine its future.
Some in the industry think they can slow down now and catch up later when margins on electric cars are better. Ford and VW are cutting their EV production plans, and Stellantis is hedging on a "populist win" scenario in the EU and the US This will do nothing to improve companies' bottom lines or preserve their market shares. There will be peaks and troughs on the way, but from India to Chile, the world is going electric.
Instead legacy automakers should learn to play the long game. This means expanding EV production faster and investing in the next-generation battery technologies. It may mean lower profits initially, so it will not please shareholders. But it is the only path to remaining competitive in the long run.
European policymakers should also step in to help. EV incentives that reward clean, local manufacturing are a good start. The European Commission is also right to look at EV tariffs, but wrong to assume this will stop Chinese brands from coming to Europe. They will build local factories. The only thing that can stop this is a ramp up in the supply of local, affordable full-electric vehicles.
This means a lot more capital should be poured into scaling compact electric cars for the mass market. Dropping prices of raw materials and improvements in battery technology make this possible. Transport & Environment's analysis last year that a small €25,000 electric car can be produced in Europe in 2025 with a reasonable margin is already on the conservative side.
The competition for the European mass market driver is about to start in earnest. Learning to play the long game and reinvent their iconic small cars for the electric age en masse is how legacy automakers can stay in the race.