The electric vehicle (EV) market is proving to be a challenging arena for car manufacturers, with Mercedes-Benz highlighting the intense competition forcing price reductions. While EV sales are experiencing a surge in regions like Europe and China, the influx of new models is creating significant pressure, particularly on European automakers. These companies are facing difficulties competing with the more affordable EVs emerging from China.
Harald Wilhelm, Mercedes-Benz’s Chief Financial Officer, described the current EV market as “a pretty brutal space” during a recent analyst call, as reported by Reuters. This statement followed the German automotive giant’s announcement of a profit decline.
Wilhelm pointed out that some manufacturers are strategically pricing their battery electric vehicles (BEVs) at levels comparable to their gasoline-powered counterparts. This is happening despite the higher production costs associated with EVs, fueled by what he termed “intense price competition.” He expressed doubt about the long-term sustainability of this situation for all industry players. “I can hardly imagine the current status quo is fully sustainable for everybody,” he added, underscoring the precariousness of the current market dynamics.
Established automakers like Mercedes-Benz are navigating various stages of the transition from traditional internal combustion engines to electric powertrains. JLR, the UK’s largest car manufacturer, also announced plans to produce an electric version of their popular Land Rover Defender at their Nitra, Slovakia plant. While the decision to move Defender production to Slovakia in 2019 was a setback for the British automotive industry, JLR has since committed to manufacturing at least six electric Jaguar and Land Rover models within the UK. Barbara Bergmeier, JLR’s Executive Director of Industrial Operations, confirmed that the Slovakian factory would be producing electric Defenders within the current decade.
A significant portion of the pressure driving European car manufacturers towards electrification originates from China. The Chinese government has provided substantial subsidies to its EV industry, enabling domestic manufacturers to scale rapidly and offer competitive pricing. Historically, Chinese brands struggled to export large volumes of gasoline and diesel vehicles to Europe and the US. However, brands such as BYD, Nio, Xpeng, and the Chinese-owned MG are now rapidly increasing their market share in the EV sector, causing concern among traditional automakers in both Europe and the United States.
This growing pressure on the European automotive industry prompted the European Union to launch an investigation last month into Chinese electric vehicle subsidies. This investigation could potentially lead to the imposition of tariffs on EV imports from China, aiming to protect the domestic European industry.
However, not all automotive companies share Mercedes-Benz’s pessimistic outlook on the EV market. Swedish manufacturer Volvo, owned by Chinese automotive conglomerate Geely, has announced an ambitious plan to transition to a fully electric vehicle lineup by 2030. This represents one of the most aggressive shifts away from internal combustion engines among established major brands.
Volvo’s CEO, Jim Rowan, stated that the company has avoided “price discounting,” noting that “Most of that indiscipline has been in the mass market sector.” Volvo reported strong operating profits of 4.5 billion Swedish krona (£330 million) between July and September, more than double the figures from the same period last year, indicating a robust financial performance even amidst market pressures.
Rowan highlighted Volvo’s new electric model, the EX30, a compact SUV, as being as profitable as their traditional petrol and diesel vehicles. This achievement represents a critical benchmark for established manufacturers aiming for profitable EV transitions. Volvo plans to discontinue diesel car production early next year, further solidifying their commitment to electric mobility.
Volvo achieved a 9% profit margin on their EV sales during the reported period, and Rowan anticipates that the EX30 model will further boost this margin to between 15% and 20%. The new model has experienced higher-than-expected demand, with a starting price of £34,000, positioning it as a more accessible EV offering within the Volvo lineup.
“The EX30 gets us to price parity,” Rowan explained. “That’s really a big pivot point for us. We’ll be one of the first that gets to BEV/ICE parity.” He also expressed reservations about potential tariffs on trade between the EU and China, though he noted Volvo’s strategic advantage of having manufacturing facilities in both regions, providing a natural hedge against such trade barriers.
In conclusion, while Mercedes-Benz voices concerns about the “brutal” competition and price pressures in the EV market, particularly from Chinese manufacturers, other players like Volvo demonstrate that profitability and growth are still achievable through strategic product development and market positioning. The EV landscape remains dynamic and complex, with established brands navigating a shifting terrain marked by both challenges and opportunities.
