Chinese EV Makers: A Threat to Ford and GM?

The global automotive industry is witnessing a significant shift towards electric vehicles (EVs), with Chinese manufacturers emerging as formidable competitors to established automakers like ford and gm. This article explores the strategies employed by Chinese EV makers to undercut their Western counterparts, the impact of tariffs and trade policies on the competitive landscape, and the role of government subsidies in the growth and competitiveness of Chinese EV makers.



Strategies for Success

Chinese EV makers have employed several strategies to gain a competitive edge over Ford and GM:

1. Low-cost supply chains: Access to low-cost supply chains enables Chinese EV manufacturers to produce vehicles at a lower cost than their Western counterparts. For instance, Xiaomi, a Chinese consumer electronics company, was able to launch its first electric car after just three years of development by tapping into China's established EV supply chain, allowing it to get components quickly and cheaply (Source: Statista, Jan 3, 2024).
2. Rapid innovation and iteration: Chinese EV companies are known for their ability to rapidly innovate and iterate, allowing them to quickly introduce new models and features at competitive prices. For example, BYD, a Chinese automaker backed by Warren Buffett, has leveraged this advantage to gain significant ground in the domestic market and expand its influence globally (Source: Statista, Jan 3, 2024).
3. Government support and subsidies: The Chinese government has provided substantial support and subsidies to the EV industry, helping local manufacturers to lower production costs and offer more competitive pricing. In 2023, China's EV market grew by 35% despite the removal of national subsidies for EV purchases, indicating that the industry is maturing and becoming more price-competitive (Source: IEA, Global EV Outlook 2023).
4. Advanced technology integration: Chinese EV makers are rapidly advancing in terms of technology, integrating advanced features like artificial intelligence (AI) in their vehicles. This allows them to offer tech-savvy models at competitive prices, making them particularly appealing to consumers. Even Tesla's CEO Elon Musk has acknowledged the competitive edge of Chinese manufacturers in this regard (Source: Statista, Jan 3, 2024).

These strategies have proven effective so far, as Chinese EV makers have gained significant market share both domestically and internationally. In 2021, BYD realized a global EV market share of 8.8%, behind only Tesla and Volkswagen Group, and six Chinese models were among the top 10 best-selling EVs worldwide (Source: Statista, Jan 3, 2024). Additionally, Chinese EV companies like Leapmotor, Li Auto, and Seres Group have started to turn a profit after years of intense competition in the world's largest auto market (Source: Statista, Jan 3, 2024).



Tariffs and Trade Policies

The tariffs and trade policies implemented by the US and EU governments have significantly impacted the competitive landscape between Chinese EV makers and established automakers like Ford and GM, with potential long-term effects on the global EV market:

1. US Tariffs on Chinese EVs and Components:
- The Biden administration announced a 100% additional tariff on Chinese EVs, along with other tariffs on components and critical minerals, to protect US automakers (Source: "The threat of Chinese EV companies looms large over the industry").
- These tariffs aim to make Chinese EVs less competitive in the US market, giving established automakers like Ford and GM an advantage.
- However, the delayed confirmation and implementation of these tariffs have allowed Chinese EV makers to maintain their presence in the US market, at least temporarily.
- The tariff rate on lithium-ion EV batteries is also increasing, from 7.5% to 25% this year, and the tariff rate on lithium-ion non-EV batteries will increase to 25% in 2026, further impacting Chinese EV makers (Source: "Material objections: tariffs on graphite, batteries and their impact on EVs").

2. EU Tariffs on Chinese EVs:
- The European Union plans to implement tariffs that could reach nearly 50% on Chinese EV imports, aiming to protect its domestic industry (Source: "Farley views Chinese EV makers as an immediate competitive threat in Europe and other global markets").
- These tariffs will make Chinese EVs more expensive in the European market, benefiting established automakers like Ford and GM.

3. Long-term Effects on the Global EV Market:
- The tariffs and trade policies may slow down the growth of Chinese EV makers in the US and EU markets, giving established automakers more time to catch up and invest in their EV offerings.
- However, these policies may also lead to retaliation from China, potentially disrupting global supply chains and trade relations.
- In the long run, the global EV market may become more fragmented, with regional champions emerging in different markets, rather than a single dominant player.
- The tariffs and trade policies may also encourage established automakers to invest more in their domestic supply chains, reducing their dependence on foreign components and increasing their resilience to geopolitical risks.

Government Subsidies and Incentives

Government subsidies and incentives have played a significant role in the growth and competitiveness of Chinese EV makers. These policies have facilitated the expansion of the market for more than a decade, with tax exemption for EV purchases and non-financial support remaining in place even after the removal of national subsidies for EV purchases in 2023. Some province-led support and investment also continue to play an important role in China's EV landscape.

However, as the market matures, the industry is entering a phase marked by increased price competition and consolidation. This shift suggests that government support may evolve to focus more on promoting innovation, improving battery technology, and enhancing charging infrastructure rather than direct subsidies for EV purchases.

In the future, government policies may aim to support the development of a more sustainable and competitive EV industry by:

1. Encouraging research and development in battery technology and charging infrastructure.
2. Promoting the adoption of advanced manufacturing processes and materials.
3. Fostering international collaboration and partnerships to share technology and expertise.
4. Implementing policies that support the growth of the domestic EV supply chain and reduce dependence on foreign components.

These evolving policies may help Chinese EV makers maintain their competitive edge while also addressing the challenges posed by increased international competition and potential changes in government support.

In conclusion, Chinese EV makers have employed various strategies to undercut Ford and GM in terms of pricing and technology, with tariffs and trade policies significantly impacting the competitive landscape. Government subsidies and incentives have played a crucial role in the growth and competitiveness of Chinese EV makers, with potential changes in these policies shaping the future of the global EV market. As the industry continues to evolve, established automakers and Chinese EV makers alike must adapt to the changing landscape to remain competitive.