The Western auto industry is now locked in a 'Darwinian' make-or-break battle with China, the chiefs of 2 major automakers warn

• Mercedes-Benz CEO Ola Källenius says automakers need to hunker down if they want to beat the Chinese.

• Källenius described the competition between automakers as a "Darwinistic-like price war."

• Ford's CEO, meanwhile, called the Chinese auto industry an "existential threat" after a visit to the country in May.

The Western auto industry is now locked in a pivotal existential battle with Chinese competitors, if recent remarks by the CEOs of Mercedes-Benz and Ford are anything to go by.

Mercedes-Benz CEO Ola Källenius was speaking at a panel at the Berlin Global Dialogue conference on October 2 when he was asked about the threat posed by Chinese EV makers.

EVs, Källenius said, are cheaper for Chinese consumers to buy than combustion vehicles even though they cost more to produce.

"It's strange. It's a Darwinistic-like price war, market purification. And many of those players that are around now. Many of those are not going to be around five years from now," he said.

"In that market consolidating phase, you have cash burn and value destruction that even affects companies that sit at the upper end of the pyramid because you cannot release yourself from the market," he added.

But automakers, Källenius added, should not remain "paralyzed" in the face of all this market turmoil.

"You must control your nerves, keep on investing, keep on innovating and make sure that at the end of that Darwinian battle, that you are one of the combatants that are left and that's what we are focusing on," Källenius said.

When approached for comment, a Mercedes-Benz spokesperson told Business Insider that the company plans to continue to build on its strengths in "innovative cutting-edge technology, safety, comfort, and quality."

"We take the competitive situation and innovative strength in China very seriously. In principle, increased competition also leads to increased innovative strength," the spokesperson said.

The Mercedes-Benz CEO isn't the only major auto chief sounding the alarm about their Chinese competitors.

After a visit to China in May, Ford CEO Jim Farley told a board member that he viewed the Chinese auto industry as an "existential threat," per a September 14 report from The Wall Street Journal.

Farley wasn't the only top executive at Ford who had an eye on the aggressive progress of the Chinese market.

In early 2023, Farley and his CFO John Lawler were in China where they tested out an electric SUV made by Changan Automobile, a state-owned automaker.

The quick test drive, which saw Farley driving and Lawler riding shotgun, left them both shocked and impressed with the quality of the Chinese-made EVs, the Journal reported.

"Jim, this is nothing like before," Lawler reportedly told Farley after the test drive. "These guys are ahead of us."

When it comes to competing in the EV market, Western automakers have been left playing a game of catch-up with the Chinese.

Chinese automakers like BYD have been expanding into Southeast Asian countries like Thailand, as well as developing markets like Brazil and Mexico.

According to data compiled by the technology firm ABI Research for BI, Chinese automakers accounted for 70% of the EV market in Thailand and 88% in Brazil in the first quarter of this year.

The seemingly unstoppable rise of Chinese automakers has prompted Western governments to intervene in the form of tariffs.

In May, the US government imposed tariffs on Chinese automakers. The crippling trade restrictions effectively shut them out of the US auto market. The European Union introduced tariffs as well just a month later.

Notably, Mercedes-Benz's Källenius isn't a fan of using trade restrictions to quell the competition.

"Don't raise tariffs. I'm a contrarian, I think go the other way around: take the tariffs that we have and reduce them," he told the Financial Times in an interview published in March.

"That is the market economy. Let competition play out," he added.

October 8, 10:30 p.m. — This story has been updated with comments from a Mercedes-Benz spokesperson.

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