The financial results for January to September 2023 of the large European car companies have all been published recently. Sales of pure electric vehicles (EVs) rose 63% year-on-year, higher than the world average (33% year-on-year). However, there are many companies with expanding sales and shrinking profits, and along with the transition to EVs, which cost more than engine cars, European car companies have been suffering from growing pains.
Volkswagen Chief Financial Officer (CFO) Arno Antlitz said with a sense of crisis, “We can say that the performance is strong, but the profitability is not satisfactory as it does not reach the target. ” Volkswagen’s EV world sales from January to September rose 45% year-on-year to 531,500 units, while sales operating profit margin fell from 8.4% to 6.9%.
Volkswagen’s Chief Executive Officer (CEO) Oliver Blume, who has proposed a profit margin target of 10%, is pushing ahead with bold layoffs. The group’s software subsidiary CARIAD is lagging behind in the development of a standard software platform for EVs, and seeing cost increases as a problem, it is expected to propose union layoffs of around 2,000 people, equivalent to one-third of the total, after 2024.
Not only Volkswagen. The passenger car division of Germany’s Mercedes-Benz Group, whose EV sales rose 82 percent year-on-year from January to September, also saw its profit margin fall 1.3 percentage points to 13.6 percent.
The background is the high cost of EV manufacturing. In addition to development investment, the cost of procuring electric components has increased, and the cost is thought to be 1.5 times that of an engine car. Most of the large European automobile companies outsource the on-board battery, which accounts for 40% of the cost. The cost competitiveness gap with BYD, which is also a battery maker, and Tesla in the U.S., which is promoting in-house production, has not been bridged.
Companies are facing particularly serious difficulties in the Chinese market, which accounts for two-thirds of EV sales. “Price competition is fierce, and for the first time, we are experiencing such a tough market environment” (Harald Wilhelm, CFO of Mercedes-Benz), and the large European automotive companies have had to cut prices by a further 10% or so on top of subsidies.
In this case, there are even large European car companies that are dependent on Chinese automakers. European Stellantis announced on October 26th that it will acquire about 20% stake in Chinese EV start-up Zhejiang Leapmotor Technology.
Carlos Tavares, the chief executive officer (CEO) of Stellantis, who has been critical of subsidized Chinese EVs, revised his earlier remarks at a press conference on the same day, saying that “the European market is open and friendly to China, and we are ready to fight! “. At the same time, said: “Chinese automakers cost competitiveness is 30% higher than ours”. And believes that cooperation is necessary to improve the profitability of EVs.
VW has also decided to contribute to China’s Xiaopeng Automobile. VW will utilize Xiaopeng’s EV chassis to launch two new EV models in 2026. In addition, Volkswagen has also acquired a 26% stake in Guoxuan Gaoke, a large Chinese car battery company, with the aim of reducing battery costs.
In 2022, BMW Deutschland increased the proportion of its capital contribution to its joint venture in China, and from January to September 2023, EV sales increased by 93% year-on-year, resulting in an increase in operating profit. With sales of its main engine cars declining, BMW faces a difficult situation to improve profit margins while transitioning to EVs.