“It is not the transition to electric vehicles that is the cause of the European industry’s difficulties, but the way in which it was carried out”

LClouds are gathering over the European automobile industry. For once, the thunderbolt is not coming from a weak link in the sector, but from the leader, Volkswagen. The German group has just caused an earthquake across the Rhine by breaking an eighty-seven-year-old taboo. For the first time since its creation, it is considering closing industrial capacities in Germany.

Management believes that there are two factories too many compared to what Volkswagen is able to sell today. The event goes beyond an adjustment to deal with a cyclical hazard. It is a harbinger of significant difficulties for European manufacturers faced with the transition to electric cars and the lead taken by Chinese competition.

The awakening is all the more painful because the last few years have been prosperous. Volkswagen, Mercedes, BMW, Stellantis, but also Renault, which was on the brink of a precipice not long ago, have posted more than comfortable profits in recent semesters. But the favorable environment they have benefited from since the Covid crisis was largely deceptive because it was based on a strategy that was unsuited to the new situation.

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The industrial disorganization caused by the pandemic has led to an imbalance between supply and demand, from which European groups have taken greater advantage than was reasonable. The disruptions in the supply of semiconductors have led them to equip the most expensive, most profitable cars as a priority, falling behind in the development of an accessible range.

Customer failure

Coming out of Covid, individual savings had increased thanks to public aid, interest rates were at their lowest and States did not hesitate to subsidize the purchase of low CO2 emission vehicles.2. But all this support has disappeared one by one, and the wealthy customer segment, which had the means to try the electric experience, is now tending to dry up. Having failed to develop other growth drivers, European manufacturers are about to run out of customers. After having sunk 250 billion euros into this technology, the return on investment is slow in coming. Brands and battery manufacturers are, one after the other, revising their ambitions downwards.

It is not credible to blame the transition to electric vehicles for this slump. It is the way in which it was conducted that is at fault. You only have to look at what is currently happening in China to understand this. In July, for the first time, hybrid and electric vehicles represented more than 50% of sales there, compared to 36.1% a year ago. Europe is capped at 25%. The difference is in the accessibility of electric models, some of which are cheaper in China than their thermal equivalents.

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