At last year's Munich Auto Show, Chinese automakers virtually dominated half of the exhibition, stealing the spotlight and igniting a sense of crisis among European and global media outlets, who exclaimed, “The wolves are here.” At this year's Paris Motor Show, Chinese automakers not only didn't back down but instead stepped up their game, seemingly unfazed by tariff disputes.

For example, Leapmotor showcased two upcoming models for sale in Europe: the T03 compact SUV and the C10 mid-size SUV. BYD unveiled the Sea Lion 07 EV, which is expected to officially launch in Europe in November. Hongqi exhibited its latest all-electric offerings, the EH7 and EHS7. Additionally, AITO's flagship model, the M9, made its European debut under the new name AITO 9.

A notable change at this year's Paris Motor Show was the shift by automakers, traditionally focused on showcasing luxury and premium vehicles, towards introducing low-cost models and emphasizing cost-effectiveness. This aligns perfectly with the strategy of Chinese automakers.

As the compass of the European electric vehicle market shifts towards cost-effectiveness, does this mean that Chinese automakers, with their core advantage of cost-effectiveness, will “sweep” through Europe, as overseas media have claimed, becoming the “global leader in the automotive industry”?

It's undeniably an opportune moment. However, domestic automakers should remain cautious amidst optimism.

European Market Forces Automakers to Compete on Price

At the auto show, virtually all automakers centered their displays around low-cost vehicles.

Take BMW, for instance, which brought over 15 pure electric models, highlighting its compact luxury brand MINI electric vehicles. Similarly, local automaker Renault introduced seven global premieres and two concept cars, including the Renault 4 E-Tech pure electric vehicle, Renault 5, and the upcoming new generation Twingo. Most of these models are priced below 40,000 euros, with the starting price of the all-electric five-door Twingo E-Tech, set to launch in 2026, being less than 20,000 euros.

Why did automakers suddenly change tactics and begin promoting low-cost vehicles at the Paris Motor Show? This shift is linked to Europe's recent sluggish, even dismal, market conditions.

According to data from renowned automotive research firm Clean Technica, global new energy vehicle registrations reached 1.5 million in August, a year-on-year increase of 19%, with market share also up 2 percentage points from the previous month. However, Europe's poor sales performance significantly dragged down the global growth rate of new energy vehicles, with sales in the region declining by as much as 33% year-on-year, marking the lowest sales level since January 2023.

It's not just electric vehicles; the entire European automotive market has suffered a significant decline. In August, registrations of vehicles from Europe's top three automakers – Volkswagen, Stellantis, and Renault – fell by 14.8%, 29.5%, and 13.9% year-on-year, respectively.

Can't Europeans afford cars anymore? This might have sounded like a joke in the past, but it's now a reality. The disappearance of subsidies has made already expensive electric vehicles even more unaffordable, while economic downturns and inflationary pressures have forced most households to tighten their belts and cut expenses.

Since 2019, Europeans' wages and purchasing power have steadily declined, and their long-envied standard of living has significantly deteriorated. Overseas media reports suggest that the French are eating less foie gras and drinking less wine, Spaniards are stingy with olive oil, and Finns are urged to use saunas on windy days because energy prices are less expensive when wind power is available.

Given this situation, automakers must lower the barriers to entry for electric vehicles in Europe to expand their market share. When it comes to cost-effectiveness, Chinese automakers naturally have a competitive edge. The rapid penetration of domestic new energy vehicles in recent years is largely attributed to their low-cost models with high sales volumes.

At the Paris Motor Show, Leapmotor's C10 and T03 had starting prices of 36,400 euros (approximately 286,000 yuan) and 18,900 euros (approximately 148,000 yuan), respectively, significantly higher than in China but still price-competitive in the European market. For comparison, the Dacia Spring, a popular low-cost electric vehicle in Europe, retails for around 20,000 euros (approximately 156,000 yuan).

Will Cost Advantages Be Eroded Under Intense Pressure?

While changes in the European market have created an unprecedented opportunity for Chinese automakers, occupying the market and establishing a leading position in the global automotive industry will be fraught with multiple and complex challenges.

Prior to the Paris Motor Show, China and Europe engaged in several rounds of negotiations over electric vehicle tariffs. In early October, the European Union formally voted to impose tariffs on electric vehicles manufactured in China, raising the rate from a previous 10% to a maximum of 45%. According to information previously released by the European Commission, SAIC Motor, Geely, and BYD will face tariffs of 35.3%, 18.8%, and 17%, respectively.

An increase in tariffs could hinder Chinese automakers' plans to rapidly penetrate the European market through cost-effectiveness.

To avoid the impact of tariff hikes, automakers can invest in European factories, which is also one of the EU's objectives in raising tariffs. Currently, BYD plans to build electric vehicle factories in Hungary and Turkey, while SAIC Motor is considering establishing its first European electric vehicle factory in Spain or another region. Other automakers are collaborating with local European automakers through joint ventures.

However, building factories in Europe inevitably leads to increased costs, raising concerns about whether this will erode the cost-effectiveness of Chinese automakers' products.

Firstly, Europe has yet to develop a complete and stable supply chain for electric vehicle production. Importing key components from other countries, such as China, inevitably increases transportation costs.

Currently, European electric vehicle manufacturing heavily relies on imported key raw materials, particularly from a single country: China. Moreover, the development of related supply chain enterprises is immature. According to a research report by the European Transport and Environment Federation (T&E), European automakers have only secured one-sixth of the key raw materials needed for electric vehicle batteries to meet their sales targets by 2030, lagging far behind Tesla and BYD.

Even Northvolt, Europe's largest domestic battery company, seen as crucial to reducing Europe's dependence on China's battery industry, struggles to source battery cell raw materials without relying on China and other Asian supply chain companies.

Secondly, labor costs cannot be ignored. Despite Europe's overall economic downturn, labor costs continue to rise. According to Eurostat, the average hourly labor cost for the entire EU and euro area economies was 31.8 euros (5.3%) and 35.6 euros (4.8%), respectively, in 2023, compared to 30.2 euros and 34.0 euros in 2022.

Hungary has relatively lower labor costs compared to other countries, explaining why many automakers choose to establish factories there. However, labor shortages remain a significant challenge. Outside of Budapest, most Hungarian cities have populations in the hundreds of thousands, making it difficult to recruit thousands of workers, akin to recruiting over 100,000 workers within Shanghai's boundaries.

Compared to automakers in the US, Europe, and Japan, Chinese new energy vehicle enterprises enjoy significant manufacturing cost advantages. However, these advantages are predicated on domestic operations; transferring them to Europe makes cost control more challenging.

Leading European Automotive Culture Takes Time

While changes in the European market seem to favor the entry of Chinese automakers, actual sales figures for brands like BYD, XPeng, and NIO remain unsatisfactory.

Preliminary data from market research firm Dataforce shows that while Chinese brands like BYD, ZEEKR, and Hozon Auto experienced sales growth in the European market in August, their overall sales remain low. BYD sold 3,059 vehicles, up 11.7% year-on-year. While ZEEKR's sales surged 4,475.0% year-on-year, it only sold 183 vehicles. NIO (154 vehicles) and SAIC Motor's MG sales declined by 70.2% and 27.8%, respectively, year-on-year.

The European August car sales rankings also reveal that only one Chinese automaker made it to the top 20.

In Europe, Chinese automakers are constrained by brand recognition. For instance, SAIC Motor's MG, which performs relatively well, leverages the century-old British automotive brand. In contrast, new energy vehicle brands like BYD, NIO, and XPeng have low brand awareness among European consumers. Apart from brand issues, the slow penetration rate of electric vehicles in Europe, the most developed automotive region, also limits sales growth for Chinese automakers.

Even as major automakers introduce low-cost electric vehicles, narrowing the price gap with gasoline-powered vehicles, an immediate explosion in electric vehicle sales in Europe is unlikely.

Why? European consumers' enthusiasm for electric vehicles pales in comparison to that in China.

According to a survey by the European Automobile Manufacturers' Association (ACEA), less than 30% of European consumers choose to buy electric vehicles, with over half firmly stating they would not purchase one costing more than 35,000 euros. This sentiment mirrors that in the similarly advanced automotive industry of the US, where a KPMG study revealed that, when differences in vehicle prices and features are disregarded, Americans prefer standard gasoline-powered vehicles over hybrids or electric vehicles.

As the birthplace of the automobile, Europe has developed a rich automotive culture influenced by geography, culture, and living environments. This culture significantly impacts automotive consumption. For instance, Europeans favor compact cars like the iconic Fiat 500, Beetle, MINI, and Smart, which have all enjoyed immense popularity in Europe. Additionally, vintage cars can be spotted on the streets of various European countries. Furthermore, the historical roots of Europe have contributed to the origins of classic luxury cars.

Europe's pursuit of unique design, craftsmanship, and culture in automobiles contrasts with some core characteristics of Chinese new energy vehicles, sometimes even clashing with them. For example, Chinese automakers emphasize large exterior dimensions, spacious interiors, and large screens, appealing to consumers who prefer lengthy, wide vehicles with prominent screens. Meanwhile, the selling point of Chinese new energy vehicles is intelligence, which stands in contrast to Europeans' preference for retro designs and sentimental value.

It's evident that Europe's unique automotive culture poses obstacles for the localization of Chinese automakers. More importantly, it slows down the transition from gasoline-powered to electric vehicles in the automotive industry. Time is of the essence for Chinese automakers seeking to capture the European market.

Fundamentally, Europe's long-standing leadership in the automotive industry may make Europeans more attached to traditional gasoline-powered vehicles, which represent a glorious past. In contrast, China, as a follower in the gasoline-powered vehicle market, has embraced electric vehicles more actively and proactively, aiming to overtake and disrupt the status quo.

Of course, disrupting the traditional automotive landscape requires Chinese automakers to gain a stronger voice in the global automotive industry, with the European market being particularly crucial. Despite the challenges, the future looks promising.

Dao Zong You Li, formerly known as Waidaodao, is a new media outlet focusing on the internet and technology industries. This article is original and reproduction in any form without retaining author information is prohibited.