Automakers Shun Low-cost Small Cars, Focus on Producing Small EVs

Of late, the world’s biggest automakers have been putting an end to their production of smaller cars among internal combustion engine models and are shifting towards making smaller EVs due to their growing popularity.

Rising Costs A Driver Now

One reason for this change in the industry is rising commodity and labor costs pertaining to low-cost vehicles.

For instance, Audi is planning to discontinue the A1 supermini. The company’s CEO Markus Duesmann said last month: “We know that offering combustion engines in the smaller segments in the future will be pretty difficult because the costs will go up. Therefore, we won’t have a successor to the A1. If the new Euro 7 rules are not too harsh, it will allow us to invest more in e-mobility.”

This trend goes back as far as 2018 when General Motors Co. Stopped selling the Chevrolet Aveo subcompact, and Stellantis’ Opel ceased the Karl city car hatchback and the Adam city car. In South Korea, Hyundai Motor Co. retired the Accent subcompact, while Renault Samsung Motors Corp. discontinued the Clio supermini. The reasons for those decisions could be attributed to declining sales of smaller cars in the local market. Kia Corp. sold 21,359 units of the Picanto in the first seven months in 2021, down 13.8% on-year, while GM Korea sold 13,102 units of the Spark, down 22.8%.

Factors Driving Manufacturers To Mass Market 

In contrast, automakers such as Tesla Inc., Volkswagen, Suzuki Motor Corp. and Mitsubishi Motors Corp. are developing smaller EVs to attract drivers that are looking for affordable EVs. Their consumers have already started focusing more on cost-effectiveness than mileage and charging speed, which are the main factors that have been driving EV sales. The Hongguang MINI EV launched by GM’s local Chinese venture, was the world’s No. 2 best-selling EV. The two-door micro EV attracted about 180,000 drivers with a starting price of about $4,500 in the first half.

Why this matters is because the largest carmakers initially sought to deliver performance comparable to sedans for their EV’s, which necessarily demanded a push to extend the range as far as possible. This range driven mindset effectively pushed them towards luxury or high end EV’s, as only there could the core battery cost be justified. Now, with lower performance expectations driven by factors ranging from  higher fuel prices, better charging network availability and the nature of usage of small cars, many are finally shifting to serve the mass market.

Volkswagen is scheduled to launch the ID.1 supermini in 2025 and the ID.2 small sport utility vehicle to kick-start its push into small EVs. The group’s Czech unit Skoda Auto is also set to release a low-cost EV to be sold for around €19,000 ($22,436).

Tesla is also working on a small and affordable EVs. The company is developing a small hatchback EV for the mass market which is expected to be retail for about $25,000, Tom Zhu, president of Tesla’s operation in China, said in a recent interview with foreign media.

Prices To Fall Further 

Japanese automakers plan to release small EVs with cheaper prices in the local market, given strong demand for minicars, equivalent of the European Union’s A-segment. Mitsubishi announced it would release an EV to be sold at around 2 million yen ($18,217) by 2030, about 20% cheaper than the current prices. Suzuki aims to develop an EV of around 1 million yen by 2025 and sell it in Japan and India.

EVs are increasingly gaining popularity in the Indian auto market. According to a new report by Grant Thornton Bharat-Ficci, India needs around four lakh charging stations for 20 lakh electric vehicles (EVs) by the year 2026. The report says that to achieve its target of 100 percent electric mobility by 2030, India needs to focus on key points, including increasing government support, decreasing the cost of technology, and distressing pollution levels to accelerate this transition. There are 1,800 charging stations in India as of March 2021 for approximately 16,200 electric cars. The U.S., on the other hand, is racing to deploy over 50 million EVs by 2030.