China’s Strategy to Dominate Global EV Market, Poses Existential Threat to US Auto Industry

BYD EVs waiting to be loaded. Photograph by STR/AFP via Getty Images

A Paradigm Shift in Global EV Market

China’s electric vehicle (EV) industry has overtaken the competition by dethroning Tesla in global EV sales. Tesla’s CEO, Elon Musk, has explicitly acknowledged the superior abilities of Chinese automakers, raising concerns on the global dominance of Chinese cars. The rising threat comes in the form of China’s potential to overwhelm the world’s leading automakers without the establishment of appropriate trade barriers. The strategic superiority of the Chinese has proven alarming to industry experts and has prompted worldwide concern.

The Gateway: China’s Route Through Mexico

The Alliance for American Manufacturing, echoing these concerns, released a report titled “On a Collision Course: China’s Existential Threat to America’s Auto Industry and its Route Through Mexico.” The report highlights China’s ambitious actions, including the establishment of export hubs in Thailand and Hungary by BYD, China’s top automaker. The report draws attention to Chinese firms’ substantial investments in Mexico, which aim to leverage the more favorable tariffs enforced by the United States-Mexico-Canada Agreement (USMCA) and attempt to secure direct backdoor access to American consumers. This penetration strategy by circumventing existing policies hinders China’s autos from the US market, thereby threatening American automakers.

Mexico: A Game-Changing Manufacturing Hub?

Currently, Chinese-made EVs entering the United States face a 25% tariff, which adds to the existing 2.5% tariff on imported vehicles. Nonetheless, manufacturing in Mexico presents a potential game-changer for Chinese automakers. The favorable tariff conditions under the USMCA would enable these automakers to revise the existing market equation and make substantial inroads in the American auto market.

‘Coming Wave’ of Chinese EVs sets Alarm Bells Ringing

The alarm was further raised by a recent warning from House lawmakers about China’s industrial strategy aimed at global automotive market domination. The lawmakers emphasized the encroaching presence of Chinese-made EVs in the US market through key trading partners. They emphasized the need to retain or even increase existing tariffs on Chinese automobiles as a countermeasure. The lawmakers alerted the public about the impending “coming wave” of Chinese vehicles, which would be exported through trading partners such as Mexico.

The Financial Times has also reported that major Chinese automakers like MG, BYD, and Chery are actively evaluating manufacturing locations in Mexico. Simultaneously, the influx of Chinese car imports into Mexico has surged, raising further concerns.

The Chinese Advantage and US Auto Sector Vulnerability

While Elon Musk praised the exceptional capabilities of Chinese automakers, the Alliance for American Manufacturing underscores the heavy state support received by the Chinese government as a crucial factor. As the Chinese government heavily subsidizes the industry, Chinese automakers and suppliers have gained dominance in the entire electric vehicle value chain. BYD, backed by Warren Buffett’s Berkshire Hathaway, effectively controls EV costs by vertically integrating its entire supply chain, with EV batteries being their key strength. Notably, the battery represents around 40% of the electric vehicle’s total price.

Michael Dunne, CEO of the Asia-focused car consultancy, Dunne Insights, acknowledges BYD’s cutting-edge pricing advantage: “No one can match BYD on price. Period.” This has caused a state of shock among industry leaders in America, Europe, Korea, and Japan.

The American Response and Impending Danger

Ford CEO Jim Farley highlighted the necessity of collaboration to tackle the Chinese EV threat. He expressed openness to partnering with competitors on battery production. This sentiment was echoed by the CEO of General Motors, Mary Barra. These concerted efforts by American automakers demonstrate the deep concerns about the Chinese threat.

The Alliance for American Manufacturing sheds light on the significant danger posed by the introduction of cheap Chinese autos into the US market. Subsidies from the Chinese government, propelling the high value proposition with affordability, carry the potential to become a catastrophic event for the US auto industry. Preventing this extinction-level threat from becoming a stark reality for the US auto sector necessitates comprehensive and decisive countermeasures.