Background: The consequences of the discount battle for electric vehicles
Fatal domino effect
Renault Megane E-Tech Electric EV60
© press-inform – the press office
After the sudden loss of private funding for electric cars, car manufacturers are stepping in for a limited time and covering the costs. But behind the apparent charity there is a tough business calculation. But now the Chinese manufacturer BYD is permanently lowering the prices of its BEVs, setting off a disastrous chain reaction.
The laws of the market economy are inexorable. If a product is not in demand, there are various ways to make it interesting for the customer. One of them is to lower the price. Actually sounds quite logical. But when it comes to… When it comes to electric cars, things get even more tricky. Not every manufacturer manages to keep margins high like Tesla. Given the still gloomy economic climate, things are not made any easier. The production of electric vehicles is currently more expensive than that of comparable vehicles with gasoline engines. The fact that some car manufacturers still offer their electric vehicles cheaper than a car with a conventional drive was described by Mercedes CFO Harald Wilhelm as “brutal” in October last year, according to the Reuters news agency.
In the meantime, the situation has worsened again as private funding for electric cars abruptly expired in December 2023. Almost 55,000 fewer electric vehicles were registered this month than in the same period last year. A whopping minus of around 47 percent. But the effects of the subsidy brake are hardly noticeable because most of the cars were ordered beforehand. The situation for automobile manufacturers is precarious. Customers take the subsidy into account when buying an electric car and under no circumstances want to pay a few thousand euros more for the same car than the neighbor who got it earlier. In order to prevent sales from collapsing completely, car manufacturers are jumping into action to stop state funding. However, many people only want to distribute the cornucopia for a limited time, usually until the end of March this year. VW is reducing the prices of its ID models between 4,760 euros (ID.7 Pro) and 7,735 euros (ID.4, ID4 GTX, ID.5). Interestingly, the Wolfsburg sales experts shaved off 7,020 euros for the ID.3 Pro, but for the ID.7 Pro it is 2,260 euros less. VW is also only discounting the ID.3 Pro S by 5,335 euros.
The reason for this heterogeneous pricing could be the fact that manufacturers are now selling discounts that were already included in sales programs more prominently. Sales of the VW ID.3 in particular are not going through the roof. In December 2024, VW dealers handed over just 1,573 units of the compact BEV to customers. That is 77.1 percent less than in the same month last year. The ID.3 is far from becoming the Golf of electric cars. Looking over 2023, sales fell by around 4.4 percent. So the ailing model could use a boost in the form of discounts. If you can sell the already planned discounts as customer service, the salespeople’s hearts will smile. After all, you kill two birds with one stone.
The fear is spreading in the corporate headquarters. Once the price has dropped, you cannot increase it back to the original level and an electric vehicle generates even less profit. A vicious circle. In corporate terms, of course, it sounds different. “Our goal is clear: We want to make sustainable mobility accessible to as many people as possible. That’s why we launched the “Volkswagen Environmental Bonus” campaign in Germany at the beginning of the year. We are therefore making attractive offers to our customers for our fully electric ID. Models that are valid until the end of March,” says VW Sales Director Imelda Labbé.
But now BYD has triggered a fatal domino effect by permanently reducing the prices of its models by five to 14.9 percent. This means that the compact BYD Dolphin costs 32,990 euros and the 4.80-meter Seal Excellence sedan costs 50,990 euros. BYD wants to gain a foothold in Europe, whatever the cost, and has thus opened a discount battle that other car manufacturers will find difficult to escape. Renault has capped the price for the Megane E-Tech at 35,600 euros. The next competitive price model is already in the starting blocks. “Stellantis aims to make electromobility more affordable. The Citroën brand presented the new ë-C3 last autumn, a fully electric and family-friendly vehicle that starts at 23,300 euros,” explains Lars Bialkowski, Germany boss at Stellantis. For Andreas Radics, the price war is a completely normal process. “E-mobility has become widespread and with it the discounting that is usual for the automotive industry. This was to be expected after the initial hype died down. The number of available models is growing, as is the number of manufacturers entering the market. As a result, the pressure on everyone involved is increasing and prices are falling. In particular, models whose design is not fully convincing or whose technology is no longer up to date can no longer be sold to customers at the RRP,” says the analyst from the Munich-based management consultancy Berylls.
The reluctance to grant customers coveted discounts in the long term is no coincidence. With these tightly knit business models, money has to flow into the coffers at some point. Basically, every cent counts. Nobody knows this better than Audi, who react cautiously when it comes to price reductions. “Basically, our pricing policy is stable and sustainable, which is why we are currently not planning any permanent price reductions. We use incentives with a sense of proportion. In this way, we ensure a value-oriented offering structure that is based on customer needs. Despite this, we are of course monitoring the individual market situations very closely,” says Ingolstadt. Hyundai is stonewalling and regrets not being able to comment at this time. Above all, future pricing seems to be a concern for the Korean manufacturer. But Asians are not alone in this. It remains to be seen how long the established manufacturers’ price barriers will be able to withstand the pressure from China.