Post by account_disabled on Feb 25, 2024 16:58:49 GMT 10
Thunderstorms are characterized by a large amount of thunder and lightning. So is the dispute between the EU and China over the latter's exports of cheap electric vehicles. The EU threatens to impose tariffs on imports if it finds that Chinese electric vehicles violate trade rules. China is making retaliatory noises. The growing animosity is a reflection of the dangerous place European automakers find themselves. Europe's traditional car companies have a long and illustrious history in the production of internal combustion engines. Their huge spending on branding has supported this type of product. But ICE are about to disappear. Electric vehicles are now materially cheaper to operate than their fossil fuel equivalents. Worse still, the purchase price of electric vehicles has also fallen. That alone helps attract consumers. Sales are expected to increase worldwide from about 10 million in 2022 to about 14 million in 2023, or 18 percent of all cars sold.
This partly explains the low valuations of traditional automakers. Volkswagen trades at 3.5 times this year's forecast earnings. Stellantis and Renault are even cheaper, around three times as much. Additionally, consumers Job Function Email Database are increasingly focusing on cockpit software in addition to hardware. So far, Chinese automakers have integrated these capabilities well. Volkswagen, previously the leader in China's car market, has been overtaken by electric vehicle specialist BYD. The shift to electric vehicles, where the legacy brand matters less, lowers barriers to entry into the European market. In fact, Chinese imports already account for around 15 percent of electric vehicles sold on the continent. Currently, Chinese automakers like BYD are penetrating the mass market segment, which offers a $130 billion revenue opportunity.
It is no surprise, then, that EU policymakers are keen to protect their domestic industries, especially if Chinese carmakers are found to benefit from market-distorting subsidies. But imposing tariffs would not be an easy victory. On the one hand, it raises the possibility of a trade war. This would hit German automaker Volkswagen especially hard: More than half of its net income comes from Chinese operations, estimates Bernstein's Daniel Roeska. BMW's is above 30 percent. Investors are fully aware of the problems facing traditional automakers. Their persistently low stock valuations, even as operating margins increased in 2021-2022, point to this reality. If you are a subscriber and would like to receive alerts when Lex articles are published, simply click the “Add to myFT” button at the top of this page, above the title.
This partly explains the low valuations of traditional automakers. Volkswagen trades at 3.5 times this year's forecast earnings. Stellantis and Renault are even cheaper, around three times as much. Additionally, consumers Job Function Email Database are increasingly focusing on cockpit software in addition to hardware. So far, Chinese automakers have integrated these capabilities well. Volkswagen, previously the leader in China's car market, has been overtaken by electric vehicle specialist BYD. The shift to electric vehicles, where the legacy brand matters less, lowers barriers to entry into the European market. In fact, Chinese imports already account for around 15 percent of electric vehicles sold on the continent. Currently, Chinese automakers like BYD are penetrating the mass market segment, which offers a $130 billion revenue opportunity.
It is no surprise, then, that EU policymakers are keen to protect their domestic industries, especially if Chinese carmakers are found to benefit from market-distorting subsidies. But imposing tariffs would not be an easy victory. On the one hand, it raises the possibility of a trade war. This would hit German automaker Volkswagen especially hard: More than half of its net income comes from Chinese operations, estimates Bernstein's Daniel Roeska. BMW's is above 30 percent. Investors are fully aware of the problems facing traditional automakers. Their persistently low stock valuations, even as operating margins increased in 2021-2022, point to this reality. If you are a subscriber and would like to receive alerts when Lex articles are published, simply click the “Add to myFT” button at the top of this page, above the title.