VW, BMW and Renault take the fight to Chinese rivals

Europe’s embattled auto giants are embarking on a product blitz, seeking to counter intensifying competition from Chinese rivals on their home turf.

In the run-up to the IAA Mobility conference, a major auto show in Munich which kicks off on Tuesday and runs through to Sunday, Germany’s Volkswagen and BMW both unveiled new electric vehicles.

With a heavy focus on software, Volkswagen revealed the small ID.Cross Concept car, as it looks to double down on its electromobility dominance in Europe.

BMW, meanwhile, introduced the world premiere of the iX3 sports utility vehicle, showcasing its so-called “superbrain architecture,” which replaces hardware with a centralized computer system.

France’s Renault, for its part, also launched the sixth generation of its best-selling Clio model, alongside the Renault 5 Turbo 3E, which it described as the first electric “mini supercar.”

The product launches demonstrate how Europe’s legacy manufacturers are taking the fight to their Chinese rivals, in a bid to both retain market share in the European Union and offset declining sales in China, the world’s largest car market.

Europe’s auto sector is currently grappling with a multitude of challenges, from rising production costs to U.S. tariffs, as well as supply chain disruptions and regulatory pressures.

Rico Luman, senior sector economist for transport and logistics at Dutch bank ING, said Volkswagen and BMW’s model launches were destined for the European home market in the first instance.

“We know that Chinese players are valued for their digital features among European consumers,” Luman told CNBC by email.

“It’s clearly a signal that they are ramping up competition with EV-only competitors by introducing a next level technology for their models,” he added.

For Volkswagen, an affordable EV is “an important strategic focus point” to try to unlock and sustain market share, Luman said.

Volkswagen CEO Oliver Blume said he doesn’t fear the competition posed by Chinese players.

“Competition, for me, is very positive. It is like in sport: when you have good competitors, you have to be better. That’s what we have been prepared to do in the last years, in terms of improving ourselves,” Blume told CNBC’s Annette Weisbach on Monday.

Chinese car manufacturers, such as BYD and Xpeng, have rapidly made inroads in Europe’s car market in recent months, benefitting from a combination of factors which means they are able to more cheaply produce EVs than their competitors.

The Asian giant’s auto sector growth has been attributed to subsidies, tax incentives and, between 2009 and 2023, an estimated $230 billion in EV development costs. Analysts also cited lower labor costs, the weaker yuan, innovative technological developments and a robust battery supply chain among Beijing’s key advantages.

In Munich this week, however, BMW CEO Oliver Zipse said the IAA Mobility conference would showcase the strength of the German and European auto industry.

“You will see a lot of competitors showing their best, it is not only BMW,” Zipse told CNBC on Friday.

“This is not an either/or competition. This is happening all at the same time. And I think that is the one message in this car show: This industry is connected [worldwide] and that is something to safeguard,” Zipse said.

Elsewhere, Klaus Rosenfeld, CEO of German car parts maker Schaeffler, told CNBC that this week’s IAA conference would be a demonstration of “self-confidence” and “optimism” for the European auto industry.

“It is very encouraging to see that, particularly the German car industry, has done its homework despite all these geopolitical challenges, the competition [and] the things that are happening around us that are unpredictable,” Rosenfeld said.

Schaeffler’s CEO described China as the world’s “most important” car market, saying that a company that can succeed in China can succeed globally.

“That is, from my point of view, the most important thought that you need to have when you think into the future,” Rosenfeld said.