Though Trump’s speech sparked a controversy when some interpreted him as saying there will be a ‘bloodbath” in the US if he isn’t elected, his comments exhibit a wider concern in the West about China’s growing electric vehicle (EV) industry which threatens to dominate Western markets with its pricing advantage. Building at a huge scale and with better access to raw materials and batteries, Chinese EV makers have been able to make cheap EVs which can outcompete western EV makers.
US Commerce Secretary Gina Raimondo has said recently that Chinese EVs can one day drive on American roads if there are enough government controls on software and sensors. “…cars these days are like an iPhone on wheels,” she said in a recent interview with US media outlet MSNBC. “You connect your phone and you might receive the text message. Imagine a world with 3 million Chinese vehicles on the roads of America, and Beijing can turn them off at the same time.”
A Chinese official refuted her remarks and said the US is creating a false narrative, and this clearly reflects Washington’s practice of making economic and trade issues into ones of politics and security.
The car that launched the scare
Chinese EVs have scared Western automakers more for their cheap prices than security concerns. Bloomberg has reported recently that affordability of Chinese EVs has frightened American automakers such as Ford and GM. BYD’s sub-$10,000 Seagull electric car sets a new bar for global automakers, forcing Detroit, America’s auto hub, to pivot toward cheaper rides.BYD doesn’t sell in the US but cheap Chinese EVs such as BYD’s Seagull hatchback are signalling a future threat to the American automakers. The car’s most extraordinary feature, its $9,698 price tag, undercuts the average price of an American EV by more than $50,000, Bloomberg has reported.BYD, the Shenzhen-based company, backed by Warren Buffett’s Berkshire Hathaway, overtook Tesla in late 2023 to become the world’s largest producer of electric vehicles.
Imported Chinese cars in the US are subject to 25% tariffs, but those from Mexico, which are built with Chinese parts, pay a 2.5% tariff due to the US-Mexico-Canada trade pact. Though BYD has no immediate plans to sell in the US, it is looking to set up a plant in Mexico.
In February, Tesla CEO Elon Musk warned investors in an earnings call that Chinese EV firms will “demolish” their Western rivals if trade barriers aren’t put in place to limit their expansion, after BYD overtook Tesla as the world’s top seller of electric cars. “The Chinese car companies are the most competitive car companies in the world,” Musk told investors during Tesla’s Q4 earnings call.
Foreign push of Chinese EVs
Chinese automakers seeking global growth are building more car factories in overseas markets, as foreign regulators mull imposing measures against imports of China-made electric cars. Chery Auto is holding talks with the Italian government to manufacture there, Reuters has reported. Should the talks succeed, Chery would be among the first Chinese automakers with a European manufacturing presence.
BYD, the world’s largest EV maker, has been building car factories in Thailand, Brazil, Hungary and Uzbekistan. BYD has the capacity to produce 4 million cars in China annually. Its biggest overseas markets in 2023 included Thailand, Brazil, Israel and Australia.
Chery Auto, China’s largest automaker by export volume, said last year it would invest $400 million to set up a factory in Argentina producing 100,000 cars by 2030. The company sold more than half of its cars outside of China in 2023, the majority of them with gasoline engines. Russia is its largest overseas market while it also has a big presence in Latin America. In 2014, it set up a plant in Brazil which has an annual capacity of 150,000 units. Chery is considering building a car factory in the UK this decade, the Financial Times has reported.
State-owned SAIC, China’s second-largest auto exporter with its MG-branded cars, is looking for a site in Europe to set up a plant for EV production.
SAIC has built three overseas car plants in Thailand, Indonesia and India. Great Wall Motor has a factory in Thailand with an annual capacity of 80,000 units. Geely, whose brands include Lotus and Volvo, has factories in Belarus, United Kingdom and Indonesia.
China is estimated to have overtaken Japan as the world’s largest auto exporter last year, shipping 5.26 million vehicles valued at about $102 billion, a Chinese auto association said this week.
The Chinese government plans to tap all the policy resources available to create a made-in-China electric vehicle supply chain, pressing three state-owned automakers to spend more on research and development, Nikkei has reported. Beijing will likely instruct the three automakers to pour more money into development, even if their profits take a hit. The initiative is expected to include technology that incorporates semiconductors.
The threat from cheaper Chinese EV has forced rivals Honda and Nissan to join hands. They have announced that they will work together to develop EV technology and auto intelligence. The partnership is expected to help the two develop economies of scale in EVs and thus fend off competition from Chinese companies.
The European probe
The growing clout of China car exports has been causing friction with the US and Europe who are mulling various controls on import of these cars. European Commission investigators are probing Chinese automakers such as BYD, Geely and SAIC to decide whether to impose punitive tariffs to protect European EV makers, Reuters reported in January, but investigators won’t visit plants of non-Chinese brands produced in China, such as Tesla, Renault and BMW.
The probe, launched in October and scheduled to last 13 months, seeks to determine whether cheaper, Chinese-made EVs benefit unfairly from state subsidies. Called protectionist by China, the investigation has escalated tensions between Beijing and the EU.
Chinese-made vehicles’ share of the European Union’s EV market has risen to 8% and could reach 15% in 2025, with these EVs typically selling for 20% less than EU-made models.
The terrain in India
India has yet to allow Chinese automakers in the mass EV segment where SAIC’s Indian subsidiary MG Motor India operates but with Indian partner JSW Group, which acquired 35 per cent stake last year. BYD sells only higher-priced cars in India. It plans to cover 90% of the EV market in India by the end of the year as it strengthens its product portfolio in EVs priced above Rs 30 lakh category. The company, which launched its electric sedan SEAL priced between Rs 41 lakh and Rs 53 lakh, is working to achieve homologation certification from ARAI for its electric SUV Atto 3, which will lift the restriction on import volume of 2,500 units.
India has recently announced concessional tariffs for global EV makers such as Tesla, including a drastic cut in customs duty, as an incentive to set up manufacturing facilities in the country. The contours of the Scheme to Promote Manufacturing of Electric Passenger Cars in India are in line with a persistent demand from the Elon Musk-led company to lower India’s 70% import duty on cars if it was to establish a plant in India. The policy allows a sharply reduced rate of 15% customs duty for up to 8,000 EVs annually imported by a company that commits to Make in India.
It is not clear if Chinese companies will be allowed under this scheme. But the utter affordability of Chinese EVs will pose a challenge to any aims of Indian EV makers to target smaller export markets in future. Other Asian EV makers planning to operate in India such as Vietnam’s VinFast can ride on Chinese collaborations to develop an edge over Indian EV makers. It will be difficult for Indian or global EV makers to match prices of Chinese EVs in near future because China has built its EV industry on the back of an elaborate ecosystem which spans from minerals to batteries to components.
(With inputs from agencies)