Mercedes Calls EV Market ‘Brutal,’ Expects Squeezed Sales Margins

German automaker Mercedes says the electric vehicle market is becoming increasingly “brutal” for automakers, forcing many to cut vehicle prices amid intense competition. While Tesla has been the most dominant player in the global EV industry for almost a decade, with  established automakers and startups are quickly catching up to the Texas-based automaker.

China and Europe have seen a surge in EV sales in recent months, primarily thanks to a major influx of affordable Chinese electric cars. Massive subsidies from the Chinese government have allowed EV makers in China to significantly reduce production costs and pass the savings on to their customers, resulting in incredibly affordable electric cars.

Tesla has cut prices for best-selling EVs such as  the Model 3 and Y in a bid to remain competitive, resulting in an intense price discount war in China that even attracted the attention of local authorities. Affordable Chinese EVs have also become incredibly popular in the European market in recent months, undercutting European automakers and triggering an EU probe into Chinese EV subsidies.

EV sales in China and Europe, currently the largest EV markets on the globe, have surged in recent months, leaving the U.S. market behind. The market is becoming especially hot for European carmakers that have been forced to contend with cheap electric car imports from China. Mercedes-Benz’s chief financial officer Harald Wilhelm says the current EV market is a “pretty brutal space” for many players.

Even though the cost of EV production is higher, automakers are pricing their EV offerings at internal combustion engine (ICE) levels just to get them off their lots, severely limiting their profitability. According to Wilhelm, the current status quo in the EV market cannot be sustainable for most players in the automotive industry.

With the exception of a few companies such as Toyota, most established automakers are in the process of transitioning from ICE car production to electric vehicles. On top of national and global pledges to transition to electric cars, the Chinese EV industry is also forcing European automakers to transition much faster than they anticipated.

Chinese companies such as NIO Inc. (NYSE: NIO) are flooding the European market with heavily subsidized EVs and threatening to take over the entire space before local automakers have a chance to compete. The recently launched EU probe could lead to the EU levying tariffs on Chinese EV imports in an effort to protect local automakers. Beijing has condemned the EU probe, calling it a “naked protectionist act” that could negatively impact the nascent EV industry.

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