China has become a powerhouse of electric vehicles. Its automaker BYD recently surpassed Tesla in global electric vehicle sales, and Elon Musk warned Chinese automakers: “If trade barriers are not put in place, they will pretty much destroy most other car companies in the world.” They are very good.”
On Friday, the Alliance of American Manufacturers sounded the alarm when it published report entitled: “On a Collision Path: China’s Existential Threat to the American Auto Industry and Its Route Through Mexico.”
The report, which lists policy recommendations to combat overcapacity and unfair trade practices, notes that BYD is building factories in Thailand and Hungary aimed at becoming regional export hubs. Then he adds:
“More troubling, however, are the large expenditures by Chinese firms on factories in Mexico, through which they can gain access to the United States through more favorable tariffs under the United States-Mexico-Canada Agreement (USMCA). This strategy is essentially an attempt to gain backdoor access to American consumers by circumventing existing policies that prevent Chinese cars from entering the US market.”
In the US, electric vehicles made in China are currently subject to a 25% tariff, which is higher than the 2.5% tariff on imported cars. This prevented them from making significant progress. Manufacturing in Mexico, however, could change that.
The ‘coming wave’ of Chinese electric vehicles
Members of the House of Representatives recently warned about China’s “industrial strategy to dominate the global auto market” and its electric vehicle makers are “getting a back door into the US market through our key trading partners.” Calling for maintaining or even increasing existing tariffs on cars made in China, they described a “coming wave” of Chinese cars that “will be exported from our other trading partners, such as Mexico.”
Financial Times recently reported that Chinese automakers including MG, BYD and Chery are seeking production sites in Mexico. Meanwhile, Chinese car imports into Mexico grow.
While Musk loans Because Chinese electric vehicle makers are “extremely good,” the Alliance for American Manufacturing is paying more attention to the government support they receive, writing:
“Thanks to strong government support, Chinese automakers and suppliers have emerged as industrial powerhouses that control the production nodes of virtually the entire EV value chain.”
BYD, backed by Warren Buffett’s Berkshire Hathaway, keeps its costs low in part by owning the entire electric vehicle battery supply chain, which is important because the battery accounts for roughly 40% of the price of an electric vehicle.
“No one can match BYD on price. Period,” Michael Dunne, CEO of Asia-focused automotive consultancy Dunne Insights, recently said That Financial Times. “Boardrooms in America, Europe, Korea and Japan are in a state of shock.”
Ford CEO Jim Farley recently said that to counter the Chinese threat, he is open to collaborating with competitors on battery production. Fellow Grandmaster Mary Barra made similar comments.
This threat, according to the Alliance for American Manufacturing, is worse than many people think. He’s writing:
“The entry into the American market of cheap Chinese cars that are so inexpensive because they are backed by the power and funding of the Chinese government could ultimately become an extinction level event for the US auto sector.”