U.S. Auto Industry Faces a Rising Challenge From Chinese Automakers

China became the world’s top car exporter in 2023, with more than 5 million vehicles shipped overseas, surpassing Japan. China’s export growth was driven by established state-owned firms like SAIC and Dongfeng, as well as new players like BYD, which jumped from the sixth spot to the first in just three years.

Meanwhile, the U.S. saw its vehicle exports drop by 25 percent from their peak in 2016, as companies like General Motors scaled back their international operations, according to the U.S. Bureau of Economic Analysis. The U.S. fell from fourth to sixth place in global car exports last year, behind Mexico, South Korea, and Germany, according to AlixPartners, a consulting firm.

“The Chinese carmakers are my main rivals,” said Carlos Tavares, CEO of Stellantis, the parent company of Chrysler, at a virtual media event on Friday. “We have to face them head-on. There is no other option for a global carmaker like Stellantis that operates worldwide.”

Tavares warned of a “terrible fight” with Chinese automakers, who are invading Europe with cheap and competitive cars. He spoke to Automobilwoche at the CES 2023 in Las Vegas. He said that Europe’s auto industry might have to cut its production drastically because of China’s growing challenge.

“European and Chinese vehicles have a big price gap. If the situation stays the same, more and more European middle-class customers will choose Chinese cars. Many people in Europe have less money to spend.”

His remarks were similar to those of Forvia CEO Patrick Koller, who also said that European automakers need to make low-cost small electric vehicles for city use.

The Chinese automakers are not only selling more cars, but also making them faster and cheaper, especially electric vehicles (EVs), which have eluded the profitability and efficiency of global automakers like GM and Ford.

Tesla CEO Elon Musk, who runs a large factory in China, has acknowledged that Chinese automakers are his biggest competitors.

“Some people think that the top 10 car companies will be Tesla and nine Chinese car companies. They might be right,” Musk said at The NYT Dealbook conference in November.

The Chinese government has supported its EV industry with billions of dollars in subsidies and incentives, according to The Economist. BYD, which received about $4.3 billion in state aid between 2015 and 2020, according to Rhodium Group, has mastered the art of making low-cost EVs that can compete globally. Its BYD Seagull, a small EV that costs around $11,400, would be much cheaper than U.S. EVs even with the 27.5 percent tariff that the U.S. imposes on Chinese-made vehicles.

“This car frightens me,” said Kristin Dziczek, an automotive policy advisor for the Federal Reserve Bank of Chicago’s Detroit branch, at the Automotive Insights Symposium last week. “How can we halve the price of EVs? China has already done it.”

Buffett Invests in BYD

Warren Buffett bought 225 million shares of BYD in 2008 through his company Berkshire Hathaway and still owns about 88 million shares as of October 2023. Buffett’s stake in BYD is worth more than his stake in General Motors, according to a letter to shareholders.

Buffett and his business partner Charlie Munger have praised BYD as an “extraordinary” company. However, Berkshire Hathaway has also sold more than 60 percent of its BYD shares since last August for reasons that are not clear.

Chinese Automakers Jump to Mexico

BYD is reportedly considering building a plant in Mexico, but it depends on the market demand and the trade policies. BYD has been operating in Mexico for 10 years, mainly selling electric trucks to companies like Femsa, Lala and Bimbo. BYD launched its Dolphin models in the Mexican market last year, and expects to sell between 20 and 30 thousand units in the next 12 months. (I rode in one via Uber in Queretaro.)

However, BYD also faces competition from other automakers, such as Tesla, Volkswagen, and Toyota, who are also expanding their electric vehicle production and sales in the region. BYD also needs to comply with U.S. regulations and tariffs, which may affect its profitability and competitiveness.

Some other Chinese automakers that are present or planning to enter the Mexican market are MG Motors, Chirey Motor, JAC, Geely, GAC, Jetour, and BAIC. These automakers offer a range of vehicles, from compact sedans to SUVs, and some also produce electric and hybrid vehicles. But they also face challenges such as competition, regulation, and infrastructure.

BYD launched three new EVs in Mexico in 2023. It has two distributors that sell vehicles in Mexico City and Guadalajara. BYD may build a new plant in Mexico, depending on market demand, press reports say.

Chinese manufacturers are using Mexico as a way to avoid or reduce the U.S. tariffs on Chinese-made goods, by setting up plants and warehouses in Mexico and exporting their products to the U.S. under the free-trade agreement between the two countries. That said, U.S. regulatory and safety standards will require compliance and certification.

Will we be seeing Chinese electric vehicles being sold in the United States in the next five years? Hard to say. The U.S. tariffs on Chinese-made vehicles, which add an extra 25 percent on top of a 2.5 percent import duty, make Chinese cars more expensive and less competitive.

The U.S. tax credits for electric vehicles, which require a certain percentage of the value of the vehicle to come from North America, exclude Chinese cars from the incentives.

How Chinese automakers adapt to the U.S. market conditions and consumer needs, and how the U.S. government and industry respond to the Chinese competition, will tell the tale.

The November Election is Far Away But ...

Most business leaders avoid politics, especially in this presidential election year, but they do have key issues on their minds, such as national debt and geopolitics.

A Conference Board survey of about 1,200 C-suite executives revealed that they viewed the biggest risk as the growing national debt. Neither Trump nor Biden speak much about that subject.

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