(Bloomberg) — European carmaking leaders are heading to next week’s Paris Motor Show after winning some breathing room from Chinese competitors.
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Trade officials from China and the European Union on Friday agreed, in principle, on curbing Chinese exports of hybrid vehicles to the bloc by more than half. The deal follows the EU taking a more assertive approach on trade imbalances with China that had raised the prospect of a deepening rift.
The agreement is likely to lighten the mood from Volkswagen AG, Stellantis NV to Renault SA who are due to present a slew of new models in Paris. Details on how the agreement would work remain scant for now, and the likes of BYD Co. will remain a competitive force pushing EVs into the region.
Chinese carmakers like Chery Automobile Co. have massively stepped up vehicle shipments to the region in response to a slump in sales in their home market. Hybrids, unlike battered-powered cars, currently don’t attract punitive tariffs in the EU. Their sales have rocketed to make up a quarter of deliveries in August.
Hildegard Müller, president of Germany’s VDA car lobby, called the accord “an initial positive signal,” but said more information was needed for a definitive assessment.
“The decisive factor will be whether the results contribute to fair competitive conditions, provide planning certainty, and strengthen open, rule-based trade,” Müller said in a statement.
European manufacturers are struggling to reverse a deepening slump. Mercedes-Benz Group AG car sales dropped by 8% in the third quarter, while Volkswagen last month slashed its profit forecast following a similar warning from BMW AG in June. The sector is among the worst-performing globally.
Friday’s appeasement on trade also spells some detente over potential retaliation by China.
Beyond government support and subsidized energy, the source of China’s strength — and Europe’s weakness — runs right through the supply chain.
Beijing’s grip on rare earths, battery materials and a growing share of automotive components gives it what some car executives privately call a “kill switch” over European production. Chinese export curbs last year halted work at several supplier plants and production lines, disrupted parts of BMW’s network and prompted Mercedes to consider larger stockpiles.
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China’s competitive strength on EVs and supply imbalances will still hang over the Paris gathering, which runs from Oct. 12-18. VW, Renault and Stellantis will unveil models aimed at defending their home market, while BYD and Chinese peers Denza, XPeng and Zeekr arrive with broader lineups. The show will test whether Europe can still compete on price, technology and desirability — or increasingly needs government protection.
French President Emmanuel Macron is due to attend Monday, while chief executive officers expected include VW’s Oliver Blume, Antonio Filosa of Stellantis and Renault’s François Provost. They’ll be joined by the likes of He Xiaopeng, founder and CEO of Xpeng.
For drivers, the contest begins with price. Renault’s low-cost Dacia brand is betting on the second-generation Spring, a small electric city car assembled in Slovenia and that starts at less than €18,000 ($20,200) in France.
Renault was able to keep costs down with measures including drastically reducing the number of parts and co-developing the vehicle with the group’s engineering team in China, according to Chief Design Officer Laurens van den Acker.
“There’s not one magic button that improved the economy of the car but many elements,” he said in an interview.
The Spring illustrates the challenge facing Europe’s mass-market brands. Dacia has stripped out equipment and complexity; Chinese rivals increasingly combine low prices with richer digital features and faster model cycles.
VW is betting on scale and shared engineering. It’s showing the ID. Tiguan as part of a broader “For Europe” offensive centered on four smaller EVs built in Spain.
For its part, Stellantis is pursuing multiple Chinese partnerships to reinforce its European lineup in a bid to recoup market share.
The owner of Peugeot, Alfa Romeo and Fiat will showcase more than 60 vehicles across eight brands at a stand roughly the size of an American football field. New concepts include the Citroën all-electric 2CV based on tech underpinnings from its EV partner Leapmotor. It’s price tag that should be below €15,000.
Leapmotor, meanwhile, is bringing the B03 all-electric compact hatchback, targeting young urban users with a driving range of nearly 400 kilometers (249 miles) on one charge. It will also present the flagship luxury D19 hybrid SUV.
BYD will range from the Atto 2 plug-in hybrid to premium Denza models, while XPeng will show its G9L flagship SUV alongside robotics and flying-car technology.
The fair takes place after data showed Chinese brands captured almost 12% of Europe’s new-car market in August. According to figures from Dataforce, the number of Chinese cars and light commercial vehicles imported into the EU in the January through August period this year surged by nearly three quarters, to more almost 770,000.
“Loyalty to Europe’s brands is pretty much gone,” François Roudier, secretary general of the International Organization of Motor Vehicle Manufacturers, said in an interview.
Officials in Brussels are pursuing a potential two-track defense. Aside from curbing imports, the proposed Industrial Accelerator Act would favor EU-assembled vehicles with substantial European content. The regulation is still under discussion.
“It’s five minutes to midnight but still it’s not too late to save Europe’s automotive industry,” according to Christophe Perillat, chief executive officer of auto parts maker Valeo. “We still have the means to fight for it.”
–With assistance from Chunying Zhang and Stefan Nicola.
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