China has become a powerhouse in the electric vehicle industry. Its automaker BYD recently overtook Tesla in global EV sales, with Elon Musk recently warning of Chinese automakers: “If trade barriers are not established, they will basically demolish most other automakers in the world. They are extremely good.
On Friday, the Alliance for American Manufacturing sounded the alarm, releasing a report titled: “On a Collision Course: China’s Existential Threat to America’s Auto Industry and Its Path 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 designed to be regional export hubs. Then he adds:
“More alarming, however, are Chinese companies’ large expenditures for facilities in Mexico, through which they can access the United States through more favorable tariffs under the United States-Mexico-Canada Agreement (USMCA). This strategy is, in effect, an effort to gain clandestine access to American consumers by circumventing existing policies that keep Chinese automobiles out of the U.S. market.”
In the United States, electric vehicles made in China are currently subject to a 25% tariff, which is on top of a 2.5% tariff on imported cars. This prevented them from making significant progress. Manufacturing in Mexico, however, could change the equation.
A “coming wave” of Chinese electric vehicles
House lawmakers recently warned of China’s “industrial strategy to dominate the global auto market” and its electric vehicle makers “getting a back door into the U.S. market through our major trading partners.” Calling for existing tariffs on cars made in China to be maintained or even increased, they described an “imminent wave” of Chinese vehicles that “will be exported by our other trading partners, such as Mexico.”
THE Financial Times recently reported that Chinese automakers, including MG, BYD and Chery, are looking for production sites in Mexico. Meanwhile, imports of Chinese cars into Mexico have increased.
While Musk credits Chinese EV makers for being “extremely good,” the Alliance for American Manufacturing focuses more on the government support they receive, writing:
“Backed by strong state support, Chinese automakers and suppliers have become industrial powerhouses that control production nodes of virtually the entire electric vehicle value chain.”
BYD, backed by Warren Buffett’s Berkshire Hathaway, keeps costs low in part by owning the entire supply chain of its electric vehicle batteries, significant since a battery represents about 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 Financial Times. “Boards of directors in America, Europe, Korea and Japan are in shock.”
Ford CEO Jim Farley recently said that to address the Chinese threat, he is open to partnering with rivals on battery production. His GM counterpart Mary Barra made similar comments.
This threat, according to the Alliance for American Manufacturing, is scarier than many people realize. He writes:
“The introduction of cheap Chinese cars – which are so cheap because they are backed by the power and funding of the Chinese government – into the American market could end up being an extinction-level event for the US auto industry.”