There’s lots Ford and GM could learn from the likes of BYD about building affordable electric cars.
For a century, America’s car plants, dealer lots and highways have been the world’s preeminent automotive battlefield. No longer.
China has grown to be simultaneously the biggest vehicle market, the biggest vehicle exporter and, with an eye to the future, the global center for electric vehicles. If the US auto industry, wedded as it is to gas-guzzling trucks and SUVs, is to remain relevant, it should ditch the siege mentality and consider inviting its chief adversary inside.
China’s sudden rise has upended the old order, causing a schism that extends down to what drives the wheels. This summer, for the first time, China recorded a month where more than 50% of new vehicles sold were battery electric vehicles or plug-in hybrids, overtaking internal combustion engines. In the US, meanwhile, EVs seem stalled at 10% of the market, with sales even in California, the country’s EV heartland, suddenly flatlining amid a paucity of more affordable models.
That the world’s two largest auto markets, which together account for more than half the vehicles sold globally, are essentially moving in opposite directions has geopolitical, technological and even climatic consequences. Alarmed, Washington has thrown up defensive tariffs against Chinese-made EVs. A better option would be to co-opt Chinese competitors—just as China did with the likes of Ford Motor Co. and General Motors Co. a generation ago.
For years, China was where Western auto manufacturers, their home markets mature to the point of senescence, chased growth. To make and sell cars there, they had to partner with local companies, and 30 years of collaboration spawned a dragon ready to devour them.
Chinese brands such as BYD Co. had less than half of their home market four years ago but will account for more than 60% of sales—of all types of vehicles—this year, according to Dunne Insights, an auto sector consulting firm. GM’s operations in China last year earned only a quarter of what they did five years before. China’s manufacturers embraced electrification to a far greater degree than most foreign operators, save Tesla Inc., and even Elon Musk’s EV powerhouse is now losing market share there.
Moreover, China has displaced Japan as the world’s biggest auto exporter. Its manufacturers have established leading positions in growing EV markets from Thailand to Brazil. The seismic news that Volkswagen AG is considering plant closures in Germany, risking a showdown with the country’s powerful unions, can also be traced in part to encroaching Chinese competition.
In contrast, Detroit has retreated to mostly serving a home market that’s big but also weird. As Michael Dunne, founder of Dunne Insights, says, “Detroit are essentially SUV and truck manufacturers for the North American market—full stop.” The US is one of only three of the world’s top 10 markets where the bestselling model is a truck, in this case Ford’s F-Series. (The other two are Canada and Brazil.) Elsewhere, compact vehicles, crossovers or sedans top the rankings. In China the top seller last year was an EV, Tesla’s Model Y. Even before EVs took off, Detroit was pulling away from foreign markets where form factors are now a world away from those of the US.
The sense of an old power being shoved offstage by a rising one is unmistakable. In an echo of the panic about Japanese imports in the 1980s, the Biden administration has quadrupled duties on Chinese EVs, even though these made up just 2% of US EV imports in 2023. Washington also has opened an investigation into potential national security risks posed by the internet-connected software in vehicles, which may also be aimed at preventing Chinese brands from building plants in Mexico as a way to circumvent the duties. Such protectionism is understandable: Why let subsidized Chinese companies also profit from US sales rebates in the Inflation Reduction Act? Still, it reinforces Detroit’s isolationism.
By intertwining disparate policy goals—reshoring of supply chains, spurring manufacturing employment and containing China—the Biden administration is undercutting its climate objectives. Putting affordable green products into Americans’ hands as quickly as possible is essential for decarbonization. Cost declines in all manner of cleantech, including EV batteries, have relied on China’s world-beating manufacturing. Chinese drivers can currently choose from more than 200 electric models priced below $50,000, while North Americans have access to fewer than 50, according to Bloomberg NEF. Tesla has deprioritized plans to build an EV for the masses and diverted its energies into $100,000 Cybertrucks and elusive robotaxis. And while keeping China out is supposed to buy time for what’s left of America’s Big Three to catch up, Ford and GM keep scaling back their electric ambitions.
This leaves them vulnerable. US vehicle sales stopped growing a generation ago. Pushing drivers to ditch sedans for bigger, more expensive models protected profits, but demand for trucks and SUVs is now saturated and average prices have reached almost $50,000. The lack of growth prospects is evident in Ford’s and GM’s minuscule price-earnings multiples and the latter’s resorting to big stock buybacks to court investors. Turning the vehicle fleet over to electric models offers another way to grow in an ex-growth market. But the reliance on trucks complicates this: Weighing several tons and with the aerodynamics of a brick, they are particularly hard to electrify. This raises the worrying prospect that the US will become saddled with a stagnating auto industry that’s unable to decarbonize, while ceding much of the rest of the world to Chinese rivals.
It need not be that way. Speaking at the Republican National Convention in July, former President Donald Trump, an avowed China hawk and EV skeptic, floated the idea of inviting Chinese manufacturers to build auto plants in the US (rather than in Mexico). For all the risks involved, both sides could gain from this.
When China opened its then-tiny auto sector to foreign manufacturers three decades ago, it required them to enter into joint ventures, with domestic companies holding at least a 50% stake. The entrants got growth, and Chinese companies gained technology and know-how. Washington could set similar conditions and even add security requirements around connectedness and stipulations on which models could be built, prioritizing cheaper EVs.
US manufacturers may still balk at allowing the Chinese even a toehold on their home turf. Yet they could use the competitive pressure and expertise that the likes of BYD would bring. Admitting they might have something to learn from foreign rivals previously viewed as junior partners would be a tough pill to swallow. But Detroit has done it before. When Washington strong-armed Japanese rivals such as Toyota Motor Corp. into building “transplant” factories in the US in the 1980s, it helped a reluctant, hidebound domestic industry reeling from oil price shocks to learn new manufacturing techniques, exemplified in the GM-Toyota NUMMI plant in Fremont, California. (This, ironically, eventually became Tesla’s first EV factory.)
China’s cost advantage and grip on the EV supply chain is virtually unsurmountable, at least for now. The political storm around Ford’s licensing of cheaper lithium-iron-phosphate battery technology from Chinese giant Contemporary Amperex Technology Co. is, from the perspective of developing a viable US EV industry, absurd. The US could draw from China’s playbook to level up.
And China, for all its prowess, also needs the US. While smaller in terms of unit sales, the US auto market remains bigger by revenue. An agreement structured around US-led joint ventures could also slow the downward spiral in trade relations, not just with the US but also with other markets that are now placing limits on Chinese imports, such as the European Union and Canada.
Beijing has built prosperity around “a decades-old economic strategy that privileges industrial production over all else, an approach that, over time, has resulted in enormous structural overcapacity,” wrote Zongyuan Zoe Liu, of the Council on Foreign Relations, in a recent essay. Factories capable of churning out 40 million vehicles for a domestic market buying fewer than 30 million per year fit that description perfectly. For all its swagger, China’s automotive industry needs to consolidate and enter foreign markets in a way that doesn’t prompt governments to slam the door shut.
The US, meanwhile, should resist retreating into a protectionist cul-de-sac and embrace the race of the open road. Acceptance of China’s edge, even under negotiated conditions, may feel like a climb-down. On the contrary: Taking a risk in the hope of learning from, and in time perhaps beating, the competition would be the truer expression of US self-confidence.
Written by: Liam Denning @Bloomberg
The post “To Catch Up in EVs, Detroit Needs to Invite China In” first appeared on Bloomberg