As the world shifts gears towards electric vehicles (EVs), a new player is making waves in the global automotive industry. The Chinese EV market is making its mark, offering affordable electric cars that are increasingly being exported around the world. This development has sent shockwaves through leaders of automakers outside of China, with many wary of the potential threat posed by these cost-effective Chinese alternatives.
Stellantis CEO, Carlos Tavares, likened China’s automotive emergence to the arrival of Japanese carmakers in the U.S. in the 1970s, followed by South Korean rivals three decades later. “The Chinese offensive is possibly the biggest risk that companies like Tesla and ourselves are facing right now,’’ Tavares said. His company, Stellantis, is a major player in the automotive industry with brands that include Dodge, Chrysler, Jeep, Ram, and Maserati.
China’s EV Dominance
The Chinese carmaker that has perhaps instilled the most fear in global automakers is BYD, backed by Warren Buffet’s Berkshire Hathaway. BYD recently surpassed Tesla in global EV sales, a testament to its dominating presence in the industry. “No one can match BYD on price. Period,” stated Michael Dunne, CEO of Asia-focused car consultancy Dunne Insights. “Boardrooms in America, Europe, Korea, and Japan are in a state of shock.”
BYD’s secret to keeping costs low lies in its ownership of the entire supply chain of its EV batteries, from raw materials to finished battery packs. This is noteworthy considering that the battery accounts for about 40% of a new electric vehicle’s price.
The Fight Back Against China’s EV Invasion
While protectionist measures, including a 25% tariff on Chinese-made cars, currently prevent Chinese EVs from flooding American roads, there are concerns that Chinese carmakers will use factories in Mexico to bypass these tariffs. This would be possible through the North American free trade agreement.
“So do we want that the Chinese carmakers take a significant share of the U.S. market in the next 20 years, or the next 10 years? I don’t know. That is the question,” Tavares said. He believes that the key to preventing this lies in “making our consumers happy.” Stellantis plans to launch 18 new EV models this year in a bid to compete with affordable Chinese EVs.
Avoiding a Price War
Tavares warned about the perils of entering a price war, stating, “If you go and cut pricing disregarding the reality of your costs, you will have a bloodbath. I am trying to avoid a race to the bottom.” His comments came after Tesla cut prices on its Model Y and Model 3 in China, an indication of the intense competition in the Chinese EV market.
Elon Musk, Tesla’s CEO, has also acknowledged the prowess of Chinese carmakers, stating, “If there are no trade barriers established, they will pretty much demolish most other car companies in the world. They’re extremely good.”
In the face of this mounting competition, Tesla is planning to launch a more affordable EV starting at $25,000 next year. However, the question remains whether Western automakers will be able to compete with China’s cost-effective EVs without compromising their profitability.
The world is watching as this new era of the automotive industry unfolds. Will the Chinese EV market take the lead, or will traditional automakers rise to the challenge? Only time will tell. To stay abreast of these developments, consider subscribing to the Eye on AI newsletter, which focuses on how AI is shaping the future of business.
