Equities

VW Focuses on Cost Cuts Over Tariffs to Compete with Chinese EVs in Europe

VW Urges Cost Cuts Over Tariffs to Compete with Chinese EVs, as Chinese Brands Capture 19% of Europe’s Market.

By Athena Xu

5/23, 13:20 EDT
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Key Takeaway

  • Volkswagen emphasizes cost reduction over tariffs to stay competitive against Chinese EVs, with a focus on the next 2-3 years.
  • Chinese automakers like BYD are expanding in Europe, planning new plants and affordable models, intensifying competition.
  • European automakers face a 30% cost disadvantage and must quickly adapt strategies amid cooling EV sales and reduced subsidies.

Tariff Impact on European Automakers

Volkswagen AG has expressed concerns that higher import tariffs for Chinese-made electric vehicles (EVs) in the European Union will provide only a temporary relief. Chief Financial Officer Arno Antlitz emphasized that European automakers need to focus on reducing costs to remain competitive in the long term. "We have to use the next two to three years to become even more competitive on the cost side," Antlitz stated in a LinkedIn post. He also questioned the effectiveness of the current tariff discussions, suggesting they may not lead in the right direction.

The European Union is expected to inform Chinese exporters of the results of a probe into EV subsidies by early June, with potential higher tariffs taking effect a month later. This comes amid escalating trade tensions between the EU and China, which have been exacerbated since the EV probe was announced last year. Chinese automakers are gaining ground in Europe, with brands like MG Motors and BYD Co. accounting for nearly 9% of battery-only vehicle sales last year, a figure expected to rise to about 20% by 2027, according to Transport & Environment.

Competitive Landscape and Strategic Adjustments

Chinese automakers are planning to establish manufacturing plants in Europe, which could further intensify competition. BYD, for instance, is considering two plants in Europe and plans to introduce its Seagull hatchback in the region next year at a price below €20,000 ($21,657), undercutting offerings from VW, Stellantis, and Renault. "The next few years present a significant opportunity to advance our cost competitiveness," said Antlitz, highlighting the need to improve the affordability of VW's EVs while maintaining necessary margins.

Volkswagen is also contemplating a slower ramp-up of its upcoming battery factories in Europe due to cooling EV sales in the region. The company still plans to start production next year but may take longer to reach full capacity. Under its current €20 billion ($21.7 billion) plan, PowerCo aims to supply cells for about 3 million EVs by 2030. However, the downturn in EV sales, partly due to reduced subsidies in countries like Germany and Sweden, has led manufacturers to rethink their strategies.

Industry Challenges and Responses

European automakers are facing significant challenges from Chinese competitors, who have a cost advantage of 30% or more. Chinese carmakers captured 19% of Europe’s EV market last year, up from 16% in 2022, according to the Rhodium Group. "The window is closing. From my point of view, we have two or three years. If we are not fast…it will be really tough (for German industry) to survive," said Thomas Schmall, a board member at Volkswagen, during a Reuters event in Munich.

Stellantis CEO Carlos Tavares echoed similar sentiments, stating that carmakers "don’t have much time" to adjust their businesses and need to eliminate "regulatory chaos and bureaucracies." The surge in Chinese exports and the potential for Chinese factories in Europe are pushing European automakers to explore partnerships, pressure suppliers to cut costs, and engage in discussions with unions about the future of plants and jobs. However, some of these efforts are facing hurdles, as seen with Renault and VW pulling out of talks to develop lower-cost EVs due to disagreements on production locations.

Management Quotes

  • Arno Antlitz, CFO of Volkswagen AG:

    "We have to use the next two to three years to become even more competitive on the cost side. It is very questionable whether the current tariff discussion leads into the right direction."
    "The next few years present a significant opportunity to advance our cost competitiveness. This will improve the affordability of our EVs while securing the margins we need to finance the transformation ahead."