China’s EV Threat Sharpens As U.S. And Europe Stumble

China’s electric vehicles (EV) are getting cheaper, while the reverse is happening in Europe and the U.S., according to a report from auto industry consultants JATO Dynamics.

This will come as no surprise to shareholders in Ford, General Motors, Mercedes and Volkswagen, who have seen stock prices hit after ambitious sales targets for EVs stumbled.

Europeans will be more worried than American buyers because the Biden administration insists EV buyers can only claim a $7,500 tax credit if batteries contain certain components made in North America and critical minerals sourced in the U.S.

There is no such limitation in Europe, although the E.U is investigating whether China’s sales of electric cars might require anti-dumping action.

JATO Dynamics said Chinese EV-makers continue to accelerate ahead of their Western counterparts in their ability to make competitively priced vehicles.

“The price gap has widened, with the average retail price of an electric car available in China now less than half the price seen in both Europe and the USA. In the first half of 2023, and electric car cost €31,165 ($33,000) in China, €66,864 ($70,700) in Europe, and €68,023 ($72,000) in the U.S.,” JATO said.

“Despite efforts by Western (manufacturers) to produce more affordable EVs, these models continue to cost more than their gasoline and diesel equivalents. Today, consumers would need to spend €18,285 ($19,500) and €24,400 ($25,800) to buy an EV in Europe and the U.S., respectively – this is 92% and 146% more than they would need to pay for the cheapest combustion car available. In comparison, in China the cheapest electric vehicle costs 8% less than the cheapest ICE (internal combustion engine) equivalent,” JATO said.

“China’s EVs are not only competing on price but also in terms of quality and power. Today, China can produce and sell an electric car with 200-300 hp for an average of €30,500/$33,150,” the report said.

It cited the BYD Seal – a midsize sedan – with 204 hp in Elite trim in China for just €24,106/$26,197. In Europe, the closest rival in price is a little Renault Twingo Equilibre – a city-car produced in Slovenia – priced at €24,320/$26,430 with just 81 hp.

Meanwhile Western wannabe competitors are conceding defeat and going back to the drawing board.

Last week, Ford Motor’s stock price dived after it reported big losses from its EV business, citing pressure from a price war sparked by Tesla. Ford also cut production of its Mustang Mach-E and scaled back its £12 billion EV investment plan.

Ford’s EV division more than doubled losses to $1.3 billion in the 3^rd quarter, compared with the same period last year.

GM cut its profit forecast earlier in the week and said it was abandoning its target to build 100,000 EVs in the 2^nd half of this year and another 400,000 in the 1^st half of 2024 but didn’t say when these targets would be restored.

The Wall Street Journal said GM was rethinking its EV project.

“It (GM) scrapped EV production targets and said it was slowing its growth plans. It wants time to incorporate engineering changes that should boost the profitability of its production platform,” Heard on the Street columnist Stephen Wilmot said.

“A slower rollout of EVs might strengthen the company’s profit next year, but it weakens GM’s position as an auto-industry leader,” Wilmot said.

Mercedes conceded having to slash prices to move its EVs and said the consumer adoption rate was lower than expected. Volkswagen has had to cut production of EVs below its earlier expectations.

Investment bank UBS pointed to the growing financial risks to EV programs as demand plateaus, saying the relative affordability of EVs has worsened as ICE discounts increased.

JATO Dynamics said in the report intense price competition in China had forced its EV makers to become more efficient to survive, while the Chinese government provided “robust” support, with subsidies totalling $57 billion between 2016 and 2022. Tax breaks had supported sales, while most EVs were exempt from sales tax. China’s low labor costs helped too. The average European hourly wage rate is just under 10 times the Chinese one.

Felipe Munoz, Global Analyst at JATO Dynamics, said European and U.S. manufacturers need to intensify R&D and cut costs to improve affordability.

“As China becomes an increasingly influential player on the global automotive stage, its brands are becoming more visible in countries where, just a few years ago, consumers would not have considered them a viable alternative.”

“This is a trend that has been driven by the relative affordability of its models in comparison to those produced by its Western peers, and while the U.S. and the EU have responded to the challenge posed by China through major policy decisions, policy alone will not be enough to address the issue of affordability.”

“Western (manufacturers) must shift their focus towards the research and development of new technologies and production processes designed specifically for a fully electrified future,” Munoz said in the report.