‘Carmageddon’ hits China
Ford shocked by loss of electric vehicles
Third quarter net profit plummeted by 25%
Volkswagen cuts wages by 10%
Sales plummet due to slump in Chinese consumption
Demand for electric vehicles slows due to ‘chasm’
Chinese car raids in Europe and the US
Armed with technological innovation and cost-effectiveness
◆ Restructuring of the global automobile industry ◆
Enlarge photo In 1913, representative automakers in Europe and the United States, symbolized by Henry Ford’s conveyor belt system, were forced into a severe restructuring crisis, leaving behind the glory they had enjoyed over the past century.
This is because China, the world’s largest consumer market, has experienced a sharp sales shock due to a slump in domestic demand, and Chinese companies are playing a game of chicken by targeting European markets with cost-effective electric vehicles (EVs). In addition, while Chinese companies have succeeded in technological innovation in the form of nimble startups in the software-driven vehicle (SDV) competition, there is criticism that dinosaur-sized Western automakers such as Volkswagen and Ford are moving slowly in the innovation competition.
On the 28th (local time), the British Financial Times (FT) pointed out that European and American automakers such as Volkswagen, Stellantis, and Peugeot are experiencing difficulties. The analysis is that traditional strong European and American companies are losing competitiveness due to Chasm (temporary slowdown in demand), overproduction, Chinese EVs, and strengthening environmental regulations.
On this day, Ford announced that it recorded a large loss in the EV division, reducing its third quarter net profit to $900 million (approximately KRW 1.25 trillion). This is a 25% decrease compared to the net profit of $1.2 billion (about 1.7 trillion won) in the same period last year. Third quarter sales were recorded at $46.2 billion (approximately 64 trillion won). Volkswagen decided to close three German production facilities and cut employee wages by 10%. It is interpreted that it has taken a direct hit as demand for EVs has decreased. The FT pointed out, “EV production costs are high in Europe because batteries are expensive,” and “consumers continue to postpone purchases because they want cheaper electric vehicles and more charging stations.” Recently, as eco-friendly regulations in the European Union (EU) have been strengthened, demand for gasoline and diesel vehicles is decreasing.
However, overproduction is expected to become more serious. If Chinese companies establish production bases in Europe and the United States to avoid tariffs, production will inevitably increase rapidly. At the earnings announcement, Ford CEO James Farley explained the market situation heading toward crisis, saying, “There is no doubt that a global price war is taking place.”
Chinese companies are taking advantage of the gap by introducing low-cost, high-quality EVs. The FT pointed out that “EVs are produced at a cost that is 30% lower than European companies.”
Chinese companies are continuing to make headway in Europe and the United States based on joint partnerships between the information technology (IT), software, and battery industries. Huawei, Xiaomi, etc. have formed strong partnerships with automakers and are playing an active role from the new car development stage.
Accordingly, Europe and the United States are building high tariff walls. The Office of the United States Trade Representative (USTR) decided to raise tariffs on Chinese EVs from 25% to 100% ahead of the presidential election. The EU also increased tariffs on Chinese EVs from 10% to up to 45%.
Companies are reluctant to adopt a protectionist stance. BMW Group Chairman Oliver Chipse said, “Protectionism is making consumers buy cars more expensive,” and expressed concern that “it will ultimately accelerate the closure of European factories.” This is because China is both a competitor and the largest market. “China is the elephant in the room,” said Roberto Barbassori, head of the Italian Automobile Industry Association. “For automakers, China is the biggest threat and the biggest customer.” The elephant in the room is a problem that everyone knows is a crisis but is unwilling to solve it.
The presence of European and American automakers in China is also narrowing. Last month, FAW Volkswagen and SAIC GM’s sales in China decreased to 148,285 units and 22,063 units, respectively. In March last year, the two companies sold 165,484 units and 62,803 units, respectively. This is in contrast to Weda Kia’s sales volume, which surged from 9,594 units to 21,958 units during the same period. High-interest car loan conditions and depressed consumer sentiment are also problems. The European Central Bank (ECB) has cut policy interest rates one after another to protect the economy, but it is not enough to revive the consumer market.
[성승훈 기자]
