European car makers explore tie-ups amid China threat

Volkswagen, Renault and Stellantis are exploring tie-ups with sworn competitors to make cheaper electric vehicles and fend off existential threats.

As Chinese rivals and Tesla expose competitive weaknesses at Europe’s biggest mass-market car makers, it has become clear that a sense of urgency is growing and a business-as-usual approach is a losing option.

There is a “perfect recognition that in the future, the companies which are not fit to face the Chinese competition will put themselves in trouble”, Carlos Tavares, chief executive of Stellantis – the company created from the 2021 merger of Italy’s Fiat and France’s PSA Group – said last week. He has previously said that Europe’s car industry faces a “bloodbath” if it does not adapt.

Pushed by a slowdown in the pace of EV adoption, car executives are discussing options such as pooling development resources and bundling businesses across European borders to better compete in the once-in-a-generation shift. The coming months are crucial.

Rather than muscling aside gas guzzlers, sales of fully electric cars this year are set to expand at the slowest rate since 2019, according to BloombergNEF.

Even for Tesla, the slowdown, which has led to widespread discounting, has made an impact. A 20 per cent share slump this year has erased about $150 billion from its market capitalisation – more than double Volkswagen’s

value. Headwinds for the sector include governments dropping incentives, rental companies baulking at ballooning repair costs and consumers increasingly frustrated with climate policies affecting their pocketbooks. Elections in the US and Europe could further stoke anti-EV sentiment, just as an inflection point approaches.

In 2025, tighter emissions rules come into effect in the EU, meaning manufacturers need to sell more battery-powered cars or face hefty fines.

In an unlikely worst-case scenario, Volkswagen could face penalties of more than €2 billion ($2.2 billion) if it fails to sufficiently reduce fleet emissions, according to Bloomberg.

As pressure builds on European car makers to sell more EVs, China’s state-supported manufacturers are entering the cooling market with models that are often better and cheaper.

BYD’s Dolphin, for instance, is listed at about €7,000 less than a similarly equipped Volkswagen ID.3, which the German car maker originally pitched as the Beetle of the EV era.

Failure for Europe’s car makers to come up with a working alternative plan risks upheaval in an industry that employs about 13 million people and accounts for 7 per cent of the EU economy.

“We have spent billions as an industry to make electric mobility possible,” said Holger Klein, the chief executive of ZF Friedrichshafen, a German parts maker that employs about 165,000 people worldwide. “Now the question is: Do we have the right parameters?”

Renault chief executive Luca de Meo has been advocating an alliance akin to the tie-up that created a European plane maker to vie with Boeing by pooling assets in Germany, France, Spain and the UK.

Mr de Meo has said an “Airbus of autos” would help share the massive cost of building cheap EVs, while allowing them to benefit from greater scale.

Sales of fully electric cars this year are set to expand at the slowest rate since 2019, according to BloombergNEF