28 May 2024

Producing small electric cars in France: why is it relevant and possible?

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Jean-Philippe Hermine
Managing Director
Julien Beltoise
Head of mobility program at FNH
Thomas Uthayakumar
Advocacy & programs director at FNH

The French automotive industry has suffered more than two decades of relocation, with domestic production halved since 2000. Smaller vehicles in particular have been the victims of these relocations, while manufacturers’ commercial strategies have favoured more profitable top-of-the-range models and SUVs, at the expense of the climate challenge, resource issues and household accessibility. Faced with this situation, the ITM has joined forces with the FNH to objectivise the choice of a completely different industrial strategy.

In this study, carried out with the help of economic forecasting firm C-ways and sector expert economist Bernard Julien, the ITM and the FNH demonstrate that France can remain competitive with Spain, Eastern Europe and Chinese production. The results are based on a comparison of the cost price of a B-segment electric vehicle produced in France, Slovakia and China, analysing sensitivity to a number of factors such as the cost of labour, energy, taxes and the level of subsidies up to 2030. The conclusion is clear: French production can be competitive with all these countries by 2030. This would mean relocating the production of 700,000 small cars and creating 25,800 jobs in France.

The methodology is based on a very precise matrix of the cost price of a B-segment vehicle assembled in France, breaking down costs item by item (battery, electric motor, body, doors, chassis, seats….), taking into account all capital expenditure and operating expenditure, labour costs, margins and taxes. This is done throughout the supply chain, from the extraction of raw materials to the assembly of the vehicle. The cost price matrix thus obtained was applied to the three countries studied by varying the following cost parameters for 2028-2030: the price of energy, the cost of labour, the amount of state subsidies and production tax rates. The costs of logistics and customs duties have also been included.

By adjusting these levers as precisely as possible – even regionalising them where appropriate – the competitiveness differential is only 2.5% with Spain, or €400 of the cost price per vehicle, and 2% with Slovakia, or €260. These are small differences, which call into question the criteria for locating models or factories in the supply chain. This is all the more true given the development of the battery value chain, which requires a more integrated approach and closer proximity between gigafactories and assembly plants.
To assess in greater detail the extent to which these differences could justify relocation, the FNH and the ITM compared scenarios for the assembly of a city car in Spain and France. The conclusion: relocating production to Spain would enable the French manufacturer to boost its price competitiveness by lowering its selling price by 3%, from €25,900 to €25,370.
Once again, this is a small difference that does not justify relocating to Spain. In fact, measuring differences in list prices (of around 6% between comparable models within a country) clearly shows that the manufacturer remains at the heart of the market. In this case, the success of the model is mainly due to other parameters: style and design, brand awareness, ‘made in France’, environmental footprint. Relocations are therefore more likely to be the result of corporate strategies aimed at maximising margins and cutting costs in the very short term, diverting investment from productivity.

The case of China: a competitiveness gap of at least 6% that can be offset by taking into account the carbon footprint of vehicles or introducing customs duties.

The FNH and IMT have calculated a competitive advantage of 6% in favour of China, which represents a difference in cost of around €1,000 per vehicle. It should be remembered that today, of all French-brand small cars, only the Dacia Spring is manufactured in China and imported into France. We are therefore a long way from a ‘Chinese invasion’ of small vehicles.
Nevertheless, the FNH and the ITM were keen to identify the tools that could be used to protect against the relocation of production to China or the growing importation of Chinese-brand vehicles. Two main tools were considered:

  • Increasing customs duties, as envisaged by the European Commission, which would close the competitiveness gap in favour of France.
  • Valuing the carbon footprint of vehicles within various regulatory tools, such as the eco-score applied to the ecological bonus, which makes it possible to disqualify vehicles produced in China that could not benefit from it. The €4,000 offered to consumers under the eco-bonus scheme more than offsets the €1,000 competitive gap in favour of China.

Relocate the production of 700,000 small cars to France every year, with 25,800 jobs at stake.

As we know, BEV production is less employment-intensive. The FNH and the ITM have calculated a 28% drop in the employment index when assembly lines switch from internal combustion to electric vehicles. For 1.3 million vehicles assembled in France (current situation), this would reduce the number of jobs from 66,300 to 47,800, i.e. a loss of 18,500 jobs.
The aim is therefore to compensate for the jobs lost by relocating segment A and B vehicles. To this end, the FNH and the ITM have taken President Emmanuel Macron at his word with a scenario for the relocation in France of 700,000 small electric vehicles to achieve ‘2 million electric vehicles produced in France in 2030’. Theoretically, this scenario would generate 25,800 direct jobs, creating more than 7,000 new jobs.

Relying on the knock-on effect, as well as consistency in strategic choices and allocation: a win-win strategy

Based on the results of this study, it is clear that it is now both necessary and possible to put in place a ‘virtuous circle’ by establishing mutual trust between players and long-term consistency in industrial policy. Since 2000, France has experienced the exact opposite, with a fall in volumes, a loss of confidence and under-investment by suppliers, leading to higher costs and a loss of competitiveness. So France will remain competitive in this transition: by redirecting capital expenditure towards small vehicles with high volume potential, which will improve the utilisation rate of legacy plants and machines and thus reduce their depreciation.
by using an allocation policy to encourage suppliers and equipment manufacturers to reinvest in productivity around new industrial clusters. By working with local authorities to support the staff training and retraining required by the industrial transition.

To change this approach, the FNH and the ITM have drawn up a series of recommendations aimed at :

  • Anchor energy and environmental competitiveness by focusing on access to decarbonised energy that is sustainably competitive
  • Activate the levers of fiscal and regulatory instruments that value environmental performance (eco-score type – extended to new systems: greening quotas, tax on company vehicles, for example);
  • Greening and directing the national market for everyday vehicles towards segments A and B by means of eco-conditionalities for public and private fleets or measures such as social leasing;
  • Set up a high-intensity financial support system for industrial transformation, staff training and risk investment in innovative technologies and processes for the ecological transition.

The full report is only available in French.