Christoph Steitz and Joseph White
MUNICH (Reuters) – European auto giants won’t have much time to restructure their operations and production lines to compete with rising Chinese automakers, and tougher tariffs will do little to protect the status quo, industry executives said during a Reuters event.
European trade regulators in Brussels said they may impose new tariffs on Chinese electric vehicles based on the findings of an investigation into Chinese government subsidies.
European Commission President Ursula von der Leyen said on Tuesday that Europe would take a “case-by-case approach” to the investigation and that any potential tariffs imposed would be “appropriate to the level of harm.” It will inform those Chinese electric vehicle manufacturers facing preliminary tariffs by June 5th.
But industry leaders said Brussels could not prevent a reckoning as cheaper Chinese electric vehicles were forced on European automakers and their traditional suppliers.
Chinese automakers, which have a cost advantage of 30% or more over European rivals, captured 19% of the European electric vehicle market last year, up from 16% in 2022, according to Rhodium Group.
“And the window closes. From my point of view, we have two or three years. If we don’t act quickly… (German industry) will have a very difficult time surviving,” Thomas Schmall, a board member of the European Association of leading automaker Volkswagen (ETR:), told the Reuters Events auto conference in Munich.
“Today, survival is no longer about size but about speed,” he told Reuters.
Stellantis (NYSE:) CEO Carlos Tavares said automakers “don’t have much time” to adjust their businesses and are dependent on eliminating “the regulatory chaos and bureaucracy that we have in our backyard.”
Rising Chinese exports and the prospect of Chinese factories in Europe are forcing the continent’s top automakers to explore partnerships with longtime rivals, increase pressure on suppliers to cut costs and intensify discussions with European unions about the future of factories. and jobs, executives said.
Some of these tactics fail.
Renault (EPA:) and VW last week stopped talks to develop cheaper electric vehicles due to disagreements over where to make the car.
European automakers face a “form of competitive asymmetry” not only with China but also with subsidies for green cars in the United States, Renault CEO Luca de Meo told Reuters on the sidelines of the VivaTech summit in Paris. “At the end of the day, the best thing you can do is be competitive.”
Underscoring the scale of China’s ambitions overseas, Chinese electric vehicle maker NIO founder William Li said on Thursday he plans to continue expanding in Europe even amid uncertainty over tariffs.
He was in Amsterdam to open a new showroom in the busiest part of the city.
LABOR COSTS
Cutting labor costs has never been easy in Europe, where unions have political and legal leverage to block layoffs.
“The quality of the dialogue we have with the European unions is quite high,” Tavares said. “They see the trap and they see us trying to deal with this situation and get out of it.”
The threat of job cuts in the auto industry has mobilized European politicians such as Italian Prime Minister Giorgia Meloni, who wants Stellantis to increase annual production in Italy to one million cars from about 750,000 in 2023, rather than moving production to countries with low cost.
Fiat Chrysler, which merged with France’s PSA in 2021 to create Stellantis, last produced more than a million vehicles in the country, including passenger cars and light commercial vehicles, in 2017.
Since the merger, Stellantis has reduced its workforce in Europe by 13%, to about 125,000, mainly through voluntary redundancies agreed with trade unions and more than half of the layoffs in Italy.
Volkswagen has set a goal of cutting costs by 10 billion euros ($10.8 billion) by 2026, and some of those savings could be achieved by retiring workers early, chief financial officer Arno Antlitz said at a Reuters Events conference on Thursday.
“In particular, our German factories must prepare for tougher competition,” Antlitz said.
COMPETITIVE PRICES
Stellantis is launching a small electric Citroen at €20,000, which Tavares says is “at the right price” to compete with Chinese automakers whose huge cost advantage is all too obvious to their European rivals thanks to partnerships between the companies.
Stellantis global purchasing chief Maxime Pica said in an interview in Munich that the automaker is forcing its suppliers to match Chinese suppliers’ prices, using data in part from a partnership with China’s Leapmotor (HK:).
The tariffs could temporarily reduce or eliminate the cost advantage Chinese automakers gain from their supply chains.
But German automakers warn it could come at a cost if China moves beyond threats to impose tariffs on French cognac and retaliates with tariffs on Mercedes-Benz (OTC:), VW or BMW (ETR:) cars made in Europe. Mercedes generates about 16% of its global revenue in China.
To hear more about the battle with Chinese automakers over the electric vehicle market, listen to the Reuters Econ World podcast.
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