Or CEO from Stellantis couldn’t handle the pressure and asked for the cap last Sunday (1st), leaving command of the group that brings together Fiat, Jeep, Peugeot, Citroën and a dozen other brands to an interim committee.
On Monday (2), it was the turn of Volkswagen’s executives to suffer: nine of the company’s 10 factories in Germany woke up with their workers on strike. It was the response of Volkswagen employees to the company’s proposals, which would include the unprecedented closure of German plants and a 10% pay cut for 120,000 employees.
Here in Brazil, however, the situation of the two giants is more comfortable.
Fiat is the leading brand in the national market. One in every five new cars sold here comes from the Italian factory controlled by Stellantis. Volkswagen remains in a somewhat distant second place, with 15.9% of market share. Furthermore, automakers with factories here took a ride on Green Mobility and Innovation (Mover), a federal government tax incentive program, and announced tens of billions of reais in investments in the country.
So things are bad out there and here, it’s heavenly heaven, right? It’s not that simple. The existential battles between Volkswagen and Stellantis reflect the profound transformations in the automotive industry in recent years.
And it’s not just Volkswagen and Stellantis. There are a lot of things going wrong in the lives of several traditional automakers – and the advancement of Chinese companies like BYD and GWM, including in Brazil, has everything to do with it.
China’s role
The automobile industry is not what it used to be. And this has nothing to do with quality or nostalgia, but with the energy transition. Global warming began to be taken seriously by developed countries, which made commitments to electrify their fleets.
Governments have set bold decarbonization goals. In Europe, they announced that the production of combustion cars would be banned in the next decade. There was only one direction: go eletric. Automakers responded with successive announcements of electron-powered models and, sometimes, with more ambitious targets than those set by government officials.
But electrifying meant increasing dependence on China. The Asian country has invested heavily to be the global leader in electric cars. And the results were remarkable.
Just to give you an idea: in 2023, the Chinese company CATL took almost 40% of the global market for batteries for electric vehicles, selling its products – which are something between the heart and the very definition of an EV – to dozens of traditional automakers , not to mention the untraditional Tesla, owned by Elon Musk, which manufactures its cars aimed at the Asian market in Shanghai.
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Dominance in the production of automotive batteries – which represent up to 60% of the price of an electric car – has placed rising Chinese automakers in an advantageous position over their competitors. Today, a global leader in the manufacture of electric and electrified vehicles (the class where hybrids come in), BYD began, you see, as a battery factory – in Shenzhen, in the 1990s.
Furthermore, China provided generous tax benefits that encouraged the emergence and multiplication of automakers specializing in electric vehicles. They took advantage of the advantages and quickly improved the quality of their cars, transforming brands that inspired jokes among consumers and competitors just a few years earlier into objects of desire.
Design, battery and software. China has been diligent in building the industries that are the basis for the production of electric cars. In doing so, it made a large part of the global automobile industry dependent on its production chain and, at the same time, made Chinese brands the protagonists of electrification.
What went wrong for Stellantis?
Born from the merger between the PSA and Fiat Chrysler groups in 2021, Stellantis emerged with the aim of reducing production costs, sharing platforms (the “skeleton” of the cars) between the group’s 14 brands, with emphasis on the electrification process.
The bet on electric cars, however, has become a big problem. Stellantis took a while to present really efficient models with prices capable of competing with cars from brands like Tesla and BYD. Next to these two, the global leaders in electric sales, Stellantis – even with its multitude of brands – still has a very limited portfolio. And expensive.
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In markets such as Latin America and Asia, Chinese automakers are also celebrating. For consumers in developing countries interested in battery-powered cars, “my first electric car” tends to sport a Chinese automaker logo.
And in the United States? Well, the issue there is not with Chinese cars – practically banned in the country. There was a timing problem. Stellantis launched its electric and hybrid vehicles there at a time when sales of these vehicles were no longer rising so much. To make matters worse, they arrived with expensive models at a time when Tesla cut its prices by up to 30%. I couldn’t compete.
And it was the poor performance in the American market that buried the career of Portuguese Carlos Tavares as CEO of Stellantis. The automaker lost market share, saw its stocks fill up, left its dealers unhappy and saw its profit margins squeeze.
What went wrong for Volkswagen?
The relationship between the German automaker and China is relatively old. It was one of the first major automobile companies to enter the Chinese market, back in 1984.
Setting foot in China was very profitable for Volkswagen for many years. Models such as the Santana, Passat and Jetta have become the kings of Chinese roads, but the company has not been able to resist the advances of local competitors. In 2023, Volkswagen lost leadership of the Chinese market to BYD.
In addition to losing space in China and also in Europe, Volks has suffered in the American market – the company is frustrated with different brands and models there – and, recently, invested US$5 billion in Rivian, a United States brand specializing in vehicles. electrical.
It’s a lot of money, but Volks got tired of losing money trying to develop the software solutions necessary to produce a good electric car – and which make the process of manufacturing an EV very different from the production of a typical vehicle, the combustion.
A symbol of German industry and engineering, Volkswagen has become a thorn in the country’s side. In a way, Volkswagen’s crisis is also the crisis of Europe’s largest economy: dependence on gas from Russia became a big problem for the Germans after the invasion of Ukraine.
Energy prices have soared, and with them production costs in the country where Volkswagen concentrates its production. Furthermore, German worker costs are admittedly higher than Chinese worker costs, to make the comparison that matters most here.
For Volkswagen, there seems to be little alternative to an aggressive cost-cutting plan – the same one that is now motivating the major strike among workers in German factories.
And what about Brazil with this?
The sixth automotive market in the world, Brazil is not essential, but it is far from being negligible for large automakers. Volkswagen and Fiat, for example, have been operating in the country for decades and remain firm and strong in the top positions among the brands that sell the most.
Luckily for them, the electric market in Brazil has not yet picked up like it has in Europe and the United States – and is very far from China, where more than half of new vehicles sold run on batteries.
Still, Fenabrave’s list leaves no doubt: electric and electrified, in Brazil, are territories of Chinese brands, with emphasis on BYD and GWM. Among the 100% electric vehicles sold here between January and October, 73.5% are from BYD. GWM comes next, with 10.3% of this market.
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The two Chinese companies are about to open their Brazilian factories, which will even produce hybrid cars (which mix combustion engines and batteries) that can be fueled with gasoline and ethanol.
Stellantis and Volkswagen also announced investments in Brazil, much larger than the sums promised by the Chinese. The owner of Fiat said that it will invest an impressive R$30 billion between 2025 and 2030, which would be the largest amount ever invested by a company in the Brazilian automotive industry.
Volkswagen says it will invest R$16 billion by 2028 to expand its portfolio in Brazil and modernize its factories.
Both say the focus is on electrification combined with flex engines.
The question is whether these investments will actually happen, of course. And whether they will be enough to face the Chinese.
