Are new cars getting more expensive? A strategy that is starting to show its limits

This is the question that annoys everyone (or almost!) in the automotive sector. Why on earth do new car prices keep going up? This is not a preconceived idea: in the first half of 2023 list price of models registered in France they grew by 8% in one year. Increases that car brands justify mainly with energy and raw material inflation. And yet… These same companies, like Stellantis and Renault, posted very good profits. Enough to cause frustration among consumers, but also among manufacturers’ employees and their suppliers.

“This is an absolutely essential topic for the future of our sector,” believes Luc Chatel, president of the Automotive Platform (PFA), the association that represents French manufacturers in the sector. “What made the car successful was accessibility,” he recalls. However, the price of new cars seems to put off many customers. In September, registrations remained 21.5% lower than in 2019, before the crisis. “Some buyers are excluded from the new vehicle market and must refer to the used market“, notes Marie-Laure Nivot, analyst at AAA-Data.

Builders, profitable but not charitable

This phenomenon dates back several years. The increased safety, connectivity and electrification of cars have made them almost ‘luxury products’. But price slippage worsened after Covid-19. The shortage of semiconductors slowed car factories significantly, and as demand outstripped supply, manufacturers “compensated” for the slowdown by raising prices. Compensation is an understatement. “It was probably an unexpected effect for the manufacturer,” analyzes Laurent Favre, CEO of Plastic Omnium, a large supplier of lighting, bumpers and tanks.

After the famous electronic components crisis, now there is inflation. Energy prices have risen as have the prices of metals and plastics in vehicles. Here again, rising selling prices help builders offset rising material costs and weather the storm of inflation. In the first half of the year, Stellantis reported record profits, while Renault significantly improved its profitability.

These financial successes are troubling equipment manufacturers who also suffered the shock of inflation and at the cost of complex negotiations had to pass on the increase in costs as best they could to their customers, the car manufacturers. “A very profitable customer does not make it a charitable customer,” Valeo CEO Christophe Périllat said in September. In parallel, the historic strike that broke out in September in American car factories proves that value sharing between companies and their employees remains a very sensitive topic.

The price war for electric cars has begun

Good margins are expected for Stellantis. “Profitability for car manufacturers is essential because we have a wall of investment ahead of us that we need to make,” said Thierry Koskas, CEO of Citroën, referring to battery factory projects led by Stellantis (parent company of the brand). “The production of an electric car is more expensive than the production of a thermal car,” the manager also reminded.

Specifically for electricity, the prices of European brands are under new pressure. The price war has begun when Tesla increased discounts on its sedans. And the arrival of Chinese manufacturers on the European market is making the historical manufacturers of the old continent sweat. The French government decided to help European brands make the environmental bonus conditional on obtaining an environmental score. Will it be enough to keep Stellantis, Volkswagen, Renault and Co competitive? I’m not sure, given that Chinese groups like BYD are considering setting up in Europe. In that case, they could get better green marks, especially thanks to Europe’s electricity mix, which is less carbon-intensive than China’s.

Battery life

Some experts also question the strategy of some European manufacturers, which consists of offering electric cars with ever greater autonomy, i.e. with heavier batteries and therefore potentially more expensive ones. “Are we not going down the wrong path by wanting to reproduce what we knew about thermal vehicles, bigger and heavier performance vehicles?” asks Jamel Taganza, an expert in the sector from Inovev. At the same time, manufacturers must respond to the concerns of European customers about the insufficient autonomy of electric cars. So many conflicting orders that manufacturers will have to deal with.

Among French manufacturers, we refuse to give up the affordable automotive niche. Citroën is getting ready launch of the electric C3 at 25,000 euros while Renault is actively working on the industrialization of the R5 which will be produced in Douai (North). Both models are meant to embody the French answer to affordable electric mobility. After the famous memory of the 2 CV and 4L, the future will show whether the new popular car on French roads will carry the brands Renault, Citroën, Tesla or BYD.

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