The electric vehicle market is dynamically evolving not only in China, the largest market for new energy vehicles, but also in the European Union. In 2023, the market share of pure electric vehicles rose to 14.6%, and the market share of plug-in hybrid vehicles rose to 7.7%.
The European market is poised to become the future home of electric vehicles (EVs), driven by strict CO2 emissions limits until 2035. New entrants from China and the US aim to take advantage of this planning certainty to pursue expansion strategies into Europe.
Competitive pressure intensifies due to slowing growth rate
However, the growth rate of EVs in Europe has slowed recently, and in December 2023 it was down 16.9% compared to the same month last year. The most significant decline was in Germany, Europe’s largest individual market, where sales of fully electric vehicles were down 47.6% compared to December 2022, and the overall car market was down 23%. Particularly in Germany, where EVs are still up to 25% more expensive than comparable internal combustion engine cars, preference has shifted back to petrol cars.
Additionally, state-backed environmental bonuses of up to €6,750 (US$7,303.67) available to commercial and private customers expired in September and December, respectively. Many customers are currently taking a wait-and-see approach, observing how prices and the EV market develop. A significant portion of customers remain skeptical about whether EVs are suitable for their driving habits. The considerations are further exacerbated by higher overall costs.
Convinced of the future viability of this technology, the first EV customers have already purchased EVs in recent years. The challenge now is to penetrate larger market segments, such as the lower compact and small car segments. Hesitancy is compounded by the slow pace of expansion of public charging stations.
As the number of products on the market increases, the price of EVs is expected to trend towards internal combustion engine vehicles.
The environmental bonus, which expired early, is being factored into sales plans for 2024 by automakers. As a result, many automakers are now trying to offset the eliminated bonuses with discounts and price reductions. Price pressures are intensified by new entrants seeking to quickly gain market share in Germany by lowering prices. In some cases, the discount offered may be even higher than the environmental bonus originally granted. As the number of products on the market increases, the price of EVs is expected to trend towards internal combustion engine vehicles.
The expansion of production capacity by emerging automakers is changing the price structure and impacting profitability. The growth strategies of companies like Tesla and the entry of new competitors from China, such as BYD, are increasing competitive pressure on local providers.
A study conducted at Wolfsburg’s Ostfalian University found that newer Chinese brands in particular have a more attractive price-performance ratio than well-known local brands. New competitors are entering the market with attractive lease rates and are particularly popular in Germany. In this setup, the car is returned to the autobank after a certain mileage and contract period. Customers benefit from predictable monthly fees.
Traditional advantages: quality, reliability and driving comfort
The world of cars has undergone a revolution in Germany in recent years, turning the car into an increasingly extended personal space. Digitalization is redefining the driving experience, but traditional quality features remain important.
According to another recent study by Ostofalia University, traditional quality features such as high quality, reliability and driving comfort top the expectations list of German customers. Even among EV buyers, who are expected to have a strong affinity for digital features, traditional high-quality features remain paramount. These attributes are commonly associated with established German car manufacturers such as VW, BMW, and Mercedes.
The question therefore arises: Are our competitors, who are equipping their vehicles with lots of digital features, AI-supported voice control and various third-party applications, misleading the German market? Appearances are deceptive.
The importance of infotainment systems is closely related to the development of driver assistance systems for autonomous driving.
The challenge lies in anticipating the added value of innovative features that create entirely new usage situations and experiences. Until now, German manufacturers have focused on traditional performance characteristics such as quality craftsmanship, driving comfort and performance. Connectivity has become a more important criterion in EVs, and new competitors are focusing on offering attractive infotainment systems.
According to the survey, Chinese car manufacturers are equipping their vehicles with higher levels of equipment in terms of infotainment. The importance of infotainment systems is closely related to the development of driver assistance systems for autonomous driving.
Drivers might not be as excited if they had to concentrate on moving through slow traffic and only passengers could enjoy the full streaming service. But things will change if drivers can divert their attention from the road to their smartphones and emails for extended periods of time. And this situation is already a reality.
Mercedes and BMW have introduced Level 3 autonomous driving for special driving situations in Germany. In this situation, the driver does not have to explicitly pay attention to traffic because the vehicle takes control, including responsibility. In this context, digital features such as video calling systems and e-commerce apps take on a whole new importance.
German automaker leverages established brand value and customer loyalty
Many customers associate German car brands with a certain lifestyle and image. The Volkswagen Golf, in particular, represents a generation in Germany and is known as the “Generation Golf.” German automakers are leveraging their high name recognition and brand value in electric vehicles to differentiate themselves from younger, emerging EV brands.
Perhaps awareness will increase, but currently 50% of Germans cannot name a Chinese car brand. However, 35% of respondents said they would consider new Chinese brands when purchasing their EV. Durability plays an important role for German customers, who are asked to wait and see how new models perform over time.
…Carmakers that still generate the majority of their revenue from internal combustion engine models have an advantage.
The German car manufacturer has a strong position in internal combustion engine models. The European EV market varies greatly from region to region and is highly dependent on national support measures. The expiration of environmental subsidies in Germany shows the importance of subsidies to the uptake of electromobility in Europe, while other European markets such as France maintain support. Therefore, automakers that still generate the majority of their revenue from internal combustion engine models have an advantage.
Those who focus on classic models that can be sold at stable prices will find it easier to survive the current downward spiral in electric vehicle prices. The battle for market share will determine who can withstand the dynamic development of the electric vehicle market and maintain price reductions over the long term.
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