The rivalry between the United States and China has a new high point in the battle for technological supremacy: electric cars.
So far, the United States is losing.
Last year, China became the world's top auto exporter, according to the China Passenger Car Association, surpassing Japan with more than 5 million overseas sales. New energy vehicles accounted for about 25% of those exports, and more than half of them were created by Chinese brands, a shift from the traditional assembly role China has played for foreign automakers.
“The big growth has come in the last three years,” said Stephen Dyer, head of the Asia industrial and automotive unit at AlixPartners, a consulting firm. “As Chinese automakers are capturing most of the market share, this poses a huge challenge to foreign automakers.”
China's rapid expansion at home and abroad has added fuel to a series of clashes between the United States and China over trade and advanced technology, as competition between the two superpowers intensifies.
The United States has big goals to expand its own electric vehicle industry. California, which accounted for 37% of the country's electric car sales in 2022, aims to phase out purchases of new fossil fuel-powered cars by 2035.
Concerns about Chinese oversupply have come just as a broader sales slowdown has hit electric vehicle makers. Tesla announced Monday that it would lay off more than 10% of its workforce in an effort to reduce costs and increase productivity.
In the company's latest earnings report in January, CEO Elon Musk warned about the competitiveness of Chinese brands. BYD, China's largest electric vehicle maker, surpassed Tesla in car sales last year.
“If trade barriers are not put in place, they will virtually demolish most other automotive companies in the world,” Musk said.
This year, Fisker Inc., a Manhattan Beach-based electric vehicle startup, cut 15% of its workforce, delisted its stock and said it may file for bankruptcy. Apple also recently announced the end of its long-standing ambitions to make an autonomous electric vehicle.
One area where Chinese automakers handily beat their Western competitors is on price, thanks to government subsidies that supported the industry's initial rise, as well as cheap access to minerals and critical components such as ion batteries. lithium, which represent about a third of the total cost. production cost.
“It always had these ingredients waiting,” said Cory Combs, associate director of Chinese energy policy at consulting firm Trivium China. “It was a magical moment for these things to come together.”
That allowed the success of BYD, which began producing lithium-ion batteries in 1996 and manufacturing cars in 2005.
In March, BYD reduced the price of its cheapest electric vehicle model in China to less than $10,000. According to Kelley Blue Book, the average retail price of electric vehicles is $55,343 in the United States, compared to $48,247 for all vehicles.
While price wars have forced Chinese automakers to cut their profit margins at home, they can charge more in overseas markets, further incentivizing exports as domestic growth has slowed. According to research firm Gavekal Dragonomics, demand in China has cooled due to the elimination of tax breaks and increased use of public transport after the pandemic.
“There's a lot of pressure, especially if you're a smaller player, to find a market that's less competitive,” Combs said. “And all markets are less competitive than China.”
Although the 27.5% tariffs have effectively locked Chinese electric vehicles out of the US market, fears have begun to spread that cheaper models could eventually undercut US automakers.
The American Manufacturing Alliance warned in a February report that allowing Chinese electric vehicles into the country would be an “extinction level event” for the American auto industry. The group also cited risks of Chinese auto companies building facilities across the border in Mexico that could circumvent tariffs.
When the global market is flooded with artificially cheap Chinese products, the viability of American and foreign companies is called into question.
-Janet Yellen
After a trip to China in April, Treasury Secretary Janet L. Yellen expressed concern about government-funded excess capacity in Chinese manufacturing of electric vehicles, batteries and solar panels. She noted that other advanced and emerging markets shared those concerns and compared the oversupply to a flood of low-cost Chinese steel that hit the global economy more than a decade ago.
“When the global market is flooded with artificially cheap Chinese products, the viability of American and foreign companies is called into question,” Yellen said.
The European Union has opened an investigation into government subsidies used by China's electric vehicle industry and whether such support violates international trade laws.
China's state news agency rejected accusations of overcapacity in an April article, which said exports accounted for 12% of China's electric vehicle sales last year. He attributed the industry's success to competitive pricing and technology, rather than government subsidies.
After meeting German Chancellor Olaf Scholz in April, Chinese President Xi Jinping condemned protectionism in other countries and said Chinese exports of electric vehicles have helped ease global inflation and combat climate change.
How the United States is addressing China's emerging dominance of electric vehicles has already become a hot topic heading into November's presidential election.
President Biden has encouraged domestic expansion with the passage of the Inflation Reduction Act, which includes electric vehicle tax credits for American manufacturers, but not if they source minerals and materials from “foreign entities of interest,” such as China. Meanwhile, presumptive Republican nominee Donald Trump has claimed that electric car manufacturing will reduce auto industry jobs and called for a rollback of pro-EV policies enacted under Biden.
Politicians from both parties have proposed even harsher tariffs on Chinese-made electric vehicles should they try to enter the U.S. market, prioritizing protecting American jobs over goals of reducing carbon emissions.
“That will make it even more important for Chinese companies to set up local assembly operations to minimize those costs,” said Gregor Sebastian, senior analyst at New York-based research firm Rhodium Group. “Many companies are taking a wait-and-see approach.”
Even without Chinese car imports, the technology inside the vehicles has made U.S. officials nervous. In March, Biden announced an investigation into Chinese-made “smart cars” and the data that Internet-connected vehicles could collect on American users. Collaborations between American companies and CATL, the Chinese battery manufacturing giant, have also come under increased scrutiny as tensions between the two countries have worsened.
But China has spent decades cementing its status as a global leader in the acquisition of minerals and the development of critical technologies, such as batteries for electric vehicles, while the United States has lagged behind. That will now make it more difficult for Western automakers to completely exclude Chinese suppliers, said Tu Le, founder and CEO of Sino Auto Insights, a consulting firm.
“If automakers are going to build affordable, clean energy vehicles this decade, the only way to do it is to use Chinese batteries,” Le said.
