European EV Makers Ask Suppliers To Lower Costs To Compete With Chinese Rivals

To compete with leaner Chinese rivals offering cheaper electric vehicles (EV), European automakers and their suppliers are racing to reduce costs.

Furthermore, with many smaller businesses hard hit by supply chain issues during the COVID-19 pandemic, already overburdened suppliers have begun laying off more employees.

Chinese EV manufacturers are highly vertically integrated, producing almost everything in-house and thus keeping costs low, whereas European automakers rely on external suppliers with separate supply chains for fossil-fuel and electric vehicles.

In the United Kingdom, BYD's electric Dolphin hatchback starts at US$32,300, which is approximately 27% less than Volkswagen's equivalent ID.3 model.

According to Nick Parker, partner and managing director at consulting firm AlixPartners, competing with Chinese rivals means that European automakers' profit margins will be "heavily challenged" in the future because there is only so much they can squeeze out of external suppliers.

A slower-than-expected shift to EVs, with data this week showing that European Union electric car sales fell 42.3 percent in January from December, has also meant that legacy automakers must continue to rely on dual supply chains.

Stellantis CEO Carlos Tavares has informed suppliers that, with purchased materials accounting for 85 percent of EV costs, they must bear a proportionate burden in terms of cost reduction.

This week, new Western sanctions against Russia also increased nickel and aluminum prices.

To protect their profits during the recent semiconductor shortage, automakers focused production on higher-margin models, resulting in less revenue and less upside for suppliers.