Shareholders of Ford, General Motors, Mercedes, and Volkswagen have experienced a predictable decline in stock prices as their ambitious EV sales targets face obstacles. European investors may be particularly concerned, as the Biden administration restricts the $7,500 tax credit for EV buyers to vehicles with specific North American battery components and U.S.-sourced critical minerals.
In contrast, Europe does not impose such restrictions, although the European Union is exploring potential anti-dumping measures against China’s electric car sales. JATO Dynamics’ report confirms that Chinese EV manufacturers maintain a competitive edge over Western counterparts in producing cost-effective electric vehicles.
The price disparity has grown significantly, as the average retail cost of an electric car in China is now less than half the price observed in both Europe and the USA. During the first half of 2023, an electric car was priced at €31,165 ($33,000) in China, while the same vehicle cost €66,864 ($70,700) in Europe and €68,023 ($72,000) in the United States, according to JATO.
Even though Western manufacturers are striving to create more budget-friendly EVs, these electric models persist in being more expensive than their gasoline and diesel counterparts. Presently, in Europe and the U.S., consumers would have to allocate €18,285 ($19,500) and €24,400 ($25,800) to purchase an EV, which is 92% and 146% higher than the cost of the most affordable combustion engine car available. In contrast, in China, the least expensive electric vehicle is priced 8% lower than the most affordable ICE (internal combustion engine) equivalent,” as per JATO’s findings.
China’s electric vehicles are not just competing based on price; they’re also excelling in terms of quality and performance. Currently, China has the capability to manufacture and market an electric car with 200-300 horsepower for an average price of €30,500/$33,150,” according to the report.
The report highlighted the BYD Seal, a midsize sedan with 204 horsepower in its Elite trim, priced at only €24,106/$26,197 in China. In Europe, the nearest competitor in terms of price is the Renault Twingo Equilibre, a city car manufactured in Slovenia, which is priced at €24,320/$26,430 and has only 81 horsepower.
In the meantime, aspiring Western competitors are admitting defeat and returning to the drawing board.
Just last week, Ford Motor witnessed a significant drop in its stock price as it reported substantial losses in its EV business, attributing these setbacks to the price competition initiated by Tesla. Ford also reduced production of its Mustang Mach-E and scaled down its £12 billion EV investment plan.
In the third quarter, Ford’s EV division experienced losses that more than doubled to $1.3 billion compared to the same period the previous year.
GM, earlier in the week, revised its profit outlook and announced the abandonment of its goal to produce 100,000 EVs in the second half of this year and an additional 400,000 in the first half of 2024. However, GM did not specify when these targets would be reinstated.
The Wall Street Journal reported that GM was reassessing its EV project.
GM abandoned its EV production goals and announced a slowdown in its expansion plans. The company aims to take the time needed to implement engineering adjustments that will enhance the profitability of its production platform, according to Stephen Wilmot, the Heard on the Street columnist.
Delaying the expansion of EVs could potentially improve the company’s profitability next year, but it diminishes GM’s standing as a leader in the auto industry,” noted Wilmot.
Mercedes acknowledged the need to reduce prices to boost the sales of its EVs, citing lower-than-expected consumer adoption rates. Volkswagen also had to lower its production of EVs below initial projections.
UBS, an investment bank, highlighted the increasing financial risks associated with EV programs as demand plateaus, noting that the relative affordability of EVs has deteriorated due to increased discounts on internal combustion engine (ICE) vehicles.
According to the report by JATO Dynamics, fierce price competition in China compelled its EV manufacturers to enhance their efficiency in order to thrive. The Chinese government also played a significant role by providing substantial support, including subsidies amounting to $57 billion from 2016 to 2022. Tax incentives further bolstered EV sales, and most electric vehicles were exempt from sales tax. China’s advantageous low labor costs also contributed to this competitive edge, with the average European hourly wage rate being nearly ten times higher than that of China.
