CARMAKERS RACE TO LOWER EV COSTS
UNDER pressure from Chinese competitors, major United States and European auto manufacturers are pushing hard to cut electric vehicle (EV) costs so they can have price tags and profit margins similar to those of fossil-fuel models, said industry executives.
Europe’s Stellantis and Renault are trying to develop more affordable EVs, which are more expensive than combustion-engine equivalents, as electric car sales growth has slowed, while US giants General Motors (GM) and Ford broached the possibility of partnerships that could lower EV costs.
The high cost of EVs has become a significant barrier to broader mass adoption for zero-emission cars. Carmakers have struggled to keep up with Tesla, the leading EV maker in the US and Europe, but lower-cost Chinese models have heightened the competitive stakes.
“If I were a short-termist, I could immediately increase my sales of EVs simply by letting the margins slide,” said Stellantis chief executive officer (CEO) Carlos Tavares after the company posted full-year results and warned of a turbulent year ahead.
The arrival of lower-cost Chinese EVs has added new impetus to European carmakers’ ongoing efforts to develop more affordable models.
BYD and other low-cost Chinese EV makers are accelerating exports of vehicles to Europe and other regions, and US carmakers are fearful that those companies will establish factories in Mexico to hip EVs to the US.
“Of course, everybody is trying to reduce the cost of EVs” to reach price parity with combustion-engine models, Renault CEO Luca de Meo told analysts when asked about prices and profitability.
De Meo, speaking after Renault published 2023 results, said reducing prices would be easier for smaller cars because carmakers could cut the size of the battery pack — which typically makes up around 40 per cent of an EV’s cost — but means prices will remain higher for those with bigger batteries.
Ford is also evaluating its battery strategy and has started a dedicated team to design a lower-cost EV that could compete with BYD.
“We can start having a competitive battery situation. We can go to common cylindrical cells that could add a lot of leverage to our purchasing capability,” said CEO Jim Farley. “Maybe we should do (this) with another original equipment manufacturer (carmaker).”
BALANCING ACT
Both US and European carmakers face a delicate balancing act where they need to reduce EV price tags, but have to cut costs first in order to produce the profits investors seek.
Ford and GM face pressure from investors to rein in spending on EVs; the former is expected to lose US$5 billion to US$5.5 billion this year on those vehicles.
Last October, Stellantis brand Citroen unveiled its new electric e-C3 sport utility vehicle, a low-cost model starting at ?23,300 aimed at taking on Chinese rivals in the affordable EV market.
Thanks to falling raw material costs for batteries, Tavares said margins between its electric and fossil-fuel models “are converging” and that he wanted to accelerate that process.
The Fiat 500 currently starts at £16,790 pounds in Britain, based on Stellantis’ Fiat website, while the electric e500 starts at £28,195.
Renault chief financial officer Thierry Pieton said the electric Scenic due for launch this year would start at slightly under ?40,000.
“If you look at the competition, including Chinese competition, Scenic is going to be very well positioned,” he said.
STELLANTIS
Stellantis is considering building up to 150,000 low-cost EVs in Italy, in its Mirafiori complex in Turin, as part of its agreements with Chinese carmaker Leapmotor, said Automotive News Europe.
The Franco-Italian carmaker last year bought a 21 per cent stake in EV maker Leapmotor in a US$1.6 billion deal. As part of that deal, the two groups announced a joint-venture,
which is 51 per cent-controlled
by Stellantis and which gives the European carmaker exclusive rights to manufacture Leapmotor’s products outside China.
Tavares said at that time Leapmotor’s cars would be visible in Europe within a maximum of two years.
Production of Leapomotor’s cars in Italy could start as soon as 2026 or 2027, Automotive News Europe said, quoting sources familiar with the matter.
Replying to a question when presenting full-year earnings, Tavares said the group could manufacture Leapmotor’s cars in Italy “if there was a business case for that”.
“It only depends on our cost competitiveness and our quality competitiveness. So it’s open for us to grasp that opportunity at one point in time,” he said.
A spokesman for Stellantis said the company had nothing further to add to comments made by its CEO.
Assigning the production of Leapmotor cars to Mirafiori might help Stellantis meet a target, agreed with the Italian government, to increase the group’s output in the country to one million vehicles by the end of the decade, from 750,000 last year.
The group has said the its Italian output goal depended on several factors, including public auto purchase incentives, the development of an electric charging network and lower energy costs.
UNITED STATES GIANTS
The chief executives of Ford and GM said they would consider partnerships to cut EV technology costs.
“If there’s ways that we can partner with others, especially on technologies that are not consumer-facing, and be more efficient with R&D as well as capital, we’re all in,” GM CEO Mary Barra told investors at a conference sponsored by Wolfe Research.
Farley opened the door to collaboration with other carmakers to cut EV battery costs during a separate presentation at a conference.
“If you cannot compete fair and square with the Chinese around the world then 20 to 30 per cent of your revenue is at risk” over the next several years, he said.
The company has launched a dedicated “skunk works” team — separated from the company’s main engineering operations — to design a small, lowcost EV that could compete with BYD’s Seagull model, the CEO said.
BYD could produce its small Seagull EV for US$9,000 to US$11,000 in materials, Farley said.
Wolfe Research analyst Rod Lache said he estimates Chinese production costs are 30 per cent lower than Western carmakers’ costs.
“Last year, 25 per cent of all vehicles sold in Mexico were sourced in China,” Farley said. “The world is changing.”
Farley said he had ordered Ford engineers to develop a new, affordable EV, “and you have to make money in the first 12 months. If you can’t make money we aren’t launching the car.”
Barra said GM was already wellpositioned to begin breaking even on its North American EVs during the second half of this year if it could achieve an annualised production rate of 200,000 to 300,000 vehicles - and continue benefiting from federal EV subsidies authorised by the Inflation Reduction Act.
GM fell short of its 2023 North American EV production targets in part because of problems manufacturing battery modules.
“I own that,” Barra said. But now, she said GM was on track to overcoming those problems, as well as fixing software glitches that hobbled the launch of the Chevrolet Blazer EV this year.
In China, Barra said GM’s brands would concentrate on premium and higher-priced segments as domestic Chinese carmakers crowded into mainstream market segments.
GLOBAL SALES UP
Global EV sales jumped 69 per cent last month from a year earlier but were down 26 per cent from December, reflecting subsidy cuts or tighter rules in Germany and France and seasonally weaker sales in China, market research firm Rho Motion said.
Sales of fully-electric cars, or battery electric vehicles (BEVs), and plugin hybrids hit 1.1 million last month, up from 660,000 in January last year.
Rho Motion data manager Charles Lester said EV sales in Germany and France fell around 50 per cent last month versus December after Germany scrapped its subsidies and France tightened requirements for its subsidies.
But he added that new CO2 limits for the European Union that would come into effect next year meant carmakers would spend this year beefing up their offerings of BEV and hybrid models.
“What is really going to spur on sales is the EU emission standards for 2025,” Lester said.
In the US market and Canada, sales were up 41 per cent last month versus a year ago and they almost doubled in China.
Sales in the EU, European Free Trade Association (EFTA) and the United Kingdom rose 29 per cent.
Against December, sales in China were down 26 per cent ahead of the Chinese New Year. They were down 32 per cent in Europe and 14 per cent in the US and Canada.
Last month, when reporting results, GM said it would launch plug-in hybrid vehicles in North America, reversing a strategy of bypassing hybrid powertrains in that market.
US hybrid sales have been rising as consumers balk at high EV prices and recharging infrastructure challenges.
“Looking at the US and Canada, the main story right now is the potential reemergence of plug-in hybrids that GM announced,” Lester said.