European automakers pivot to affordable EVs to counter Chinese competition

European auto manufacturers are refocusing on small, affordable electric vehicles to counter Chinese competitors like BYD and Geely, whose market share in Germany’s EV segment rose from 8.5% to 12.1%. Volkswagen CEO Oliver Blume reported 150,000 pre-orders for the new electric Polo, priced at a base of €25,000. However, Blume plans to close underutilized German plants as production shifts to a shared platform in Spain for VW, Škoda, and Cupra. He noted that 40% of orders are for pure battery-electric vehicles, but high battery and development costs are currently eroding margins.

Other major players are following suit. Mercedes-Benz, under CEO Ola Källenius, is reviving the A-Class to boost volume, while BMW and Audi are developing electric 1-series and A2 successors. Stellantis CEO Antonio Filosa stated that European car sales are 3 million units lower than pre-pandemic levels, with 1 million missing in the budget segment. The EU has agreed to cap Chinese hybrid car imports at 350,000 units per year, pushing Chinese firms toward partnerships with European plants, such as Li Auto in Zaragoza and Dongfeng in Rennes.

European automakers must accept lower initial margins on small EVs to secure volume and prevent factory underutilization, as brand loyalty is eroding in the electric transition. The strategic pivot reflects a recognition that the smallest models may determine the future scale of European carmakers. By targeting the budget segment, these manufacturers aim to recapture market share from Chinese rivals who have gained a foothold through aggressive pricing and rapid production cycles. This approach prioritizes volume and market presence over short-term profitability, a necessary trade-off in the face of intensifying global competition.