Indeed, European automakers are under pressure to cut costs and accelerate the transition to electric models amidst competition from leaner Chinese rivals.
The challenge lies in balancing cost reductions while maintaining quality and innovation.
The strain on suppliers, many of whom have faced layoffs and supply chain disruptions during the pandemic, adds complexity to the situation. Collaboration and strategic planning will be essential for navigating these challenges successfully.
The contrast between Europe’s traditional automakers and the EV-focused Chinese manufacturers will be evident at the Geneva car show, with Renault and Chinese companies SAIC and BYD taking the spotlight.
While Renault is unveiling its electric R5, SAIC’s MG brand is presenting its M3 hybrid, and BYD’s Seal sedan is a contender for the prestigious Car of the Year Award.
The difference in approach is stark, with European automakers relying on external suppliers and facing challenges in cost reduction, while Chinese rivals are vertically integrated, producing components in-house to keep costs down.
This allows them to offer competitive prices, posing a challenge to European automakers’ profit margins.
The transition to electric vehicles has been slower than anticipated, presenting a challenge for legacy automakers who are still maintaining dual supply chains.
Recent data showing a significant decrease in EU fully-electric car sales in January highlights this challenge.
Companies like Renault and Stellantis are emphasizing their efforts to cut costs in the EV sector, while Mercedes is adjusting its expectations for EV demand and planning updates to its traditional lineup into the next decade. Stellantis CEO Carlos Tavares has even called on suppliers to bear a
proportionate burden in reducing EV costs, signaling the urgency for cost-cutting measures across the supply chain.
“I am translating that reality to my partners: if you don’t do your part of the job, then you exclude yourself,” he said.
The increase in nickel and aluminum prices last week coincided with Western countries expanding their sanctions lists against Moscow. This situation underscores the persistent risks to raw materials prices, despite the absence of direct mention of these two metals in the sanctions.
The pressure of cost cuts is already being felt by many legacy suppliers, with Forvia, Continental, and Bosch recently announcing layoffs or issuing warnings, and further reductions anticipated in the near future.
During the recent semiconductor shortage, automakers prioritized the production of higher-margin models to safeguard their profits.
However, this approach resulted in reduced revenue and limited upside for their suppliers.
While larger, well-capitalized suppliers can adapt to this new reality, numerous smaller suppliers are facing financial instability.
For instance, Germany’s Allgaier filed for insolvency in July, indicating the precarious situation faced by some suppliers.
As a result, European automakers must navigate a delicate balance between cost-cutting measures to compete with Chinese rivals and ensuring the stability of their supply chain.
Philip Nothard, insight director at Cox Automotive, suggests that automakers may need to intervene and provide support to struggling suppliers, further emphasizing the complexity of the situation.
“The risk is if [European automakers] try and screw those suppliers down too much, they’ll either push them into administration or they’ll push them into seeking different markets,” he stated.