Do Toyota and Honda have a fleet of low-cost, entry-level sedans powered by batteries? Nissan does, but only the Leaf. What about Ford? The company has its made-in-Mexico Mustang Mach-E that only the super-rich in Mexico City can afford. The Mexican production is primarily aimed at the U.S. market at this time. Tesla’s least expensive vehicle is priced over $40,000 and has an over half a year waitlist.
The EV auto market has been heavily invested in by the Chinese – with at least three mid-sized sedans from Nio, XPeng and BYD ready to roll, or in the works for next year. All of them can outsubsidize any European, South Korean, Japanese, or American automaker, helping to capture markets south of the Rio Grande.
China is poised to be to the EV market and a leading manufacturer, having an impact on the U.S. auto market that is no different than what the low cost, high gas mileage Toyota and Honda sedans did to the big American car market starting in the 1970s.
The extent to which Chinese brands capture U.S. market share like the Japanese automakers did in the 1970s remains to be seen, of course. That’s because we still have Trump’s 25% tariff on Chinese cars in place.
But in Latin American markets, the Chinese are sure to beat out the expensive German automakers, Americans, and the Japanese, who are arriving late to the EV game. The battery-powered vehicle market will put China cars on the map in this hemisphere. That trend is China’s friend.
On November 3, auto industry specialist, Sandy Munro, spoke to the YouTube channel “Now You Know”. In the segment, which garnered over 1 million views, Munro said China will basically eat GM and Ford’s lunch in the EV segment. Not only that, both American automakers are so enmeshed in China as a profitable market for them, that they will effectively serve as a China lobbying operation should the day come that Washington opts to play hardball against Chinese EVs in an attempt to save the remaining Detroit automakers (who are now more interested in the Chinese market than their home one).
“A lot of people laughed at the Japanese cars when they first came to the U.S. and now they are laughing at the Chinese EVs,” Munro said. You can watch the half-hour interview here.
Like many of America’s top business minds, Munro has also advised China automakers on how to outwit, outlast, outplay, and how to manufacture cars American drivers will love (see the Polestar, for example, the first real foreign competition for the Tesla Model 3, made by Geely in China).
“I’ve been working with the Chinese for the last five years. Three months of the year I was in China working on the design of new cars. In 2018, they built 27 million cars, and this year 24 million. The U.S. sold 17 million cars in 2018 and this year might do 14 million maybe 15 million. China is making cars at a ferocious rate. They know what a good car looks like and how to make it to scale,” he said, noting that China is already the world’s biggest auto market for both internal combustion engine cars (known now as ICE vehicles) and EVs.
Detroit is investing tens of millions in China, mostly to sell to the Chinese, although before Trump put in his tariffs, there were beginnings of exports from China to the U.S.; notably GM, with their China-made Buick Enclave.
Tesla makes its cheapest car, Model 3, in both California and Shanghai, but the Shanghai Model 3s are also exported to Europe. The slightly more expensive, and higher volume Tesla Model Y will be made at Tesla’s new assembly line in Germany.
Chinese car companies that were once in joint ventures with the likes of Ford and GM are now building their own models and all of them are EVs.
“They’re going to hit California first just like Japan did,” Munro explained. “California has no allegiance to a car company, except maybe Tesla. Californians care about what the car looks like, is it a good price…and they don’t really care about buying American because a lot of people there come from different parts of the world. There are no WWII guys left over. My dad would never buy a Japanese car, for instance.”
Many of the new EVs are going to be China-made. They are going to arrive on ships, wave after wave of them into the Ports of Los Angeles, Long Beach, and Seattle, and if the U.S. government says no more tax credits and discounts for foreign-made electric vehicles, China will put pressure on foreign car companies on the mainland, including the Europeans, hurting their bottom line; a bottom line that is increasingly underwritten by China consumers. “I see a tidal wave of problems coming,” Munro said.
If Washington ever did threaten to remove tax credits for foreign-made EVs, or targeted China in particular (as the Mach-E is also foreign-made), the Chinese Communist Party would make it harder for Western companies to do business in China – including frivolous lawsuits – to make them feel unwelcome. GM and Ford, VW and BMW, would lobby Washington on China’s behalf, telling policymakers to cool the engines.
For CPA, Washington needs to be laser-focused on protecting the 25% Section 301 tariffs on Made-in-China cars. That is the most important move.
China, of course, will not let tariffs stop all shipments of their cars to the US. They would use that time to flood the Americas with heavily subsidized $27,200 Zpeng G3 crossovers, and $40,000 NIO ET5 sedans.
Worth noting, the fact that these cars are eligible for the $7,500 credit, while Teslas and GM EVs aren’t anymore, takes a lot of the sting out of the 25% tariff.
In a way, Detroit automakers are being co-opted by the CCP to stay in China. The argument is that if you cannot get rid of those tariffs for us, then things are going to start getting harder for you over here. This is a major pressure point for the 301s, let alone the coming flood of China EVs into the U.S. Groups like the U.S. Chamber of Commerce continues to oppose the 301 tariffs on China.
There’s never going to be a Made in the USA tax credit for EVs. For that to happen, the U.S. would have had to withdraw from both the WTO and the USMCA, which – when it comes to automotive manufacturing – has basically turned Mexico into the 51st state.
Prior to the Section 301s, Chinese cars were rolling into the U.S. The Geely Volvo partnership at the time set the table for Polestar. And there is the famous Buick Envision set up by GM to manufacture a car for the U.S. market entirely in China (with the sticker price as if it were made in Lordstown, OH).
The main problem for China is the trade war tariffs, not the cars themselves. When the Japanese invasion of cars happened, the U.S. Japanese relationship was not adversarial.
As it stands, around half the cars sold in the U.S. are assembled here. Imports are rising, mainly from Mexico. Big U.S. brands no longer run the market. They used to have around a 40% market share. Now it is down to around 18%.
It’ll take some more time, but we will have Japan, South Korea and China car brands being the main cars on American roads in our lifetimes.
Demand for EVs will outstrip supply for at least this decade. This is where China’s going to kill it. China doesn’t want to be reliant on oil imports to power its car fleet. EVs are self-sufficiency for them, for the most part (still have to plug the cars into a power grid).
China has the manufacturing capacity to make EVs at a larger scale than Japan and South Korea. The popular Polestar is now priced equal to an entry-level Tesla, so you’re not getting them too cheaply (the Nissan Leaf is one of the lowest-priced EVs in the market). But China doesn’t have to think too much about the price for the moment, knowing they can drop the price fast if needed. Lastly, if China can churn these cars out faster due to their factory capacity, people aren’t going to wait two years for the new Volkswagen EV, or the Fisker Ocean. The pressure to buy EVs – all of it coming from the Western governments – serves China’s interest most. No one can churn these cars out faster.
Some might argue that it’d be a good thing if Geely set up shop in Ohio or California and made Polestars there. Try and imagine a large assembly line in those states with hundreds, if not thousands of employees. Local politicians will listen to their largest employer in their district, even if that company is from China. Now imagine where they would stand on China tariffs or legislation like the Uyghur Forced Labor Prevention Act. Imagine how their Senators and Representatives in Washington would vote on bills regarding protectionist measures for U.S. companies against a mercantilist Chinese economy.
Sandy Munro is nervous.
“I’m worried about the United States (auto industry),” Munro said. “I’m worried that they’re sitting on their hands too much. I’m worried that they’re not making strategic decisions; they’re making tactical decisions just to appease Wall Street or maybe get their name in the paper.”
He mentioned the recent move by Tesla to be the go-to electric car rented by Hertz, with Tom Brady as the commercial’s star. The old legacy carmakers never thought of that.
Detroit is “frozen in time,” Munro said. “This is going to be a train wreck that everyone will be watching in slow motion. But it will all unfold fairly quickly. I think in two years, it’s going to be tragic. Some of these companies will die completely.”