PARIS, Oct 14 (Reuters) – At the Paris car show on Monday, Chinese and European automakers competed fiercely, with mounting tensions as the EU prepares to impose significant import tariffs on electric vehicles from China, while both regions face sluggish demand.

This year’s show, the largest in Europe, arrives at a crucial moment for the automotive industry. European manufacturers are striving to demonstrate their competitiveness, while their Chinese counterparts seek to establish a presence in this challenging market.

Despite the rivalry, industry leaders from both regions expressed concerns about the potential impact of EU tariffs.

“Who bears the cost? Consumers will.” Stella Li, executive vice president of BYD, one of China’s leading EV companies, told Reuters. “This raises significant concern as it may hinder access for lower-income individuals.”

Stellantis CEO Carlos Tavares cautioned that such tariffs could drive Chinese companies to set up production facilities in Europe, exacerbating overcapacity issues and potentially leading to local factory closures.

“This year, nine Chinese brands, including BYD and Leapmotor, are showcasing their latest offerings, as noted by Paris auto show CEO Serge Gachot. In 2022, these brands made up nearly half of the exhibitors.

However, this year they represent only about 20% of the brands, as European manufacturers display stronger participation, showcasing their resolve to protect their domestic market.

Earlier this month, EU member nations narrowly voted in favor of imposing import duties on Chinese EVs of up to 45%. This decision is aimed at countering what the EU perceives as unfair subsidies provided by the Chinese government to local manufacturers. In response, Beijing has denied any allegations of unfair competition and has threatened to retaliate.

Even though Chinese automakers have condemned the EU’s decision, they are continuing their plans for European expansion and none have indicated they will raise prices to offset the tariffs.

GAC, another Chinese company, informed Reuters on Sunday that the show marks the beginning of its European journey, while Leapmotor expressed its ambition to establish 500 sales points in Europe by the end of 2025.

Chinese EV manufacturers, including BYD, are pricing their vehicles slightly below their European competitors, which gives them a competitive edge. This helps to balance out lower profit margins domestically. They are also promoting improved features and better equipment comparisons, similar to the strategies adopted by Japanese and South Korean carmakers in the past.

Despite BYD’s expansive presence in European markets and its sponsorship of the recent European soccer championships, its brand recognition remains modest. To enhance visibility, the company is introducing the electric Sea Lion 07 SUV.

New Chinese players like Dongfeng, Seres, and FAW are also showcasing their latest models by targeting the European market to counteract a weak domestic scene and ongoing price wars.

Maintaining competitive prices in Europe is crucial as EV makers work to bridge the price gap with more affordable gasoline vehicles.

“I believe we can achieve price parity in Europe within 2-3 years. If manufacturers aspire to compete, they must strive towards this objective,” stated Leapmotor’s International CEO Tianshu Xin.

In September, passenger vehicle sales in China surged by 4.3%, breaking a five-month streak of declines, bolstered by a government initiative designed to encourage trade-ins as part of a broader economic stimulus. In contrast, European vehicle sales plummeted to a three-year low in August.

The French government announced on Thursday it would be scaling back its incentives for EV buyers, following Germany’s decision to terminate its subsidy program late last year.

‘Alarm Bells’

Chinese automakers are keen to succeed in Europe, particularly since they have been largely excluded from the U.S. market.

On the other hand, European manufacturers are facing difficulties, with major companies like Volkswagen, Mercedes-Benz, and BMW recently issuing profit warnings, mainly driven by challenges in the weaker Chinese market.

The earnings outlook has been revised downwards due to inventory challenges in its U.S. operations.

On Monday, Stellantis’ CEO, Tavares, did not dismiss the possibility of job reductions or selling off some brands.

“We will have to put in significant efforts,” he stated, emphasizing that customers will ultimately determine which brands continue to thrive.

Volkswagen is currently facing tough negotiations with influential unions regarding cost-saving measures, which might lead to the first-ever closure of German factories and significant job losses.

European manufacturers find themselves at a disadvantage against their Chinese competitors, who can produce new electric vehicles (EVs) in as little as two years—double the speed of conventional Western automakers.

“There are serious concerns among European companies,” stated Dunne from Stax. “They understand the need for radical changes, and they have only a short time frame to act.”