Chinese Electric Cars at Slightly Higher Prices than Vespa Worry the “Motor City”
The emergence of super affordable electric cars from Chinese brands has caused many sleepless nights for the “Motor City” of the United States, Detroit. While Americans still cannot purchase Chinese electric cars, the prospect of these low-cost vehicles entering the US market has the US automotive industry on edge.
The main threat comes from cars like BYD’s Seagull hatchback. The Seagull features a sleek design with a two-tone color scheme, an eagle-wing-shaped dashboard, and six airbags. It even includes a 10-inch rotating touchscreen for entertainment. BYD’s company slogan, “Build Your Dreams,” is proudly displayed on the rear of the car.
What sets this car apart, however, is its price – just $9,698 (around 240 million Vietnamese dong). This is significantly lower than the average price of an electric car in the US, which exceeds $50,000. In fact, it is only slightly higher than the price of a high-end Vespa scooter.
The low price of these Chinese electric cars signals a potential shift in the market. Chinese automakers may force US manufacturers to pivot away from producing expensive cars for a wealthy clientele and instead focus on producing affordable electric vehicles for everyone.
While the lingering concerns about a revolutionary electric car from US tech giant Apple have subsided, American automakers now face a potentially greater challenge from Asia. China, long known as a manufacturing hub for Western companies, is determined to expand the global reach of its own companies.
China is currently the largest market for electric cars, accounting for about 70% of global sales. They are leveraging their scale and manufacturing expertise to increase the sales of competitively priced Chinese cars in a world that is increasingly concerned about climate change.
Although China’s aggressive expansion is being countered in the US with heavy tariffs and even stricter trade barriers against political rivals, the long-term effects of China’s lower prices cannot be ignored. Even as US lawmakers try to slow down the growth of this Asian giant, they are finding it difficult to enter the world’s most profitable car market.
Jeff Schuster, GlobalData’s Global Head of Automotive Forecasting, warns that this threat is cause for concern.
US automotive executives and politicians in Washington are sounding the alarm about the existing and potential threat to American car brands and the millions of workers employed in the industry. The American Manufacturing Alliance, a trade group supported by major manufacturers and labor unions, is calling for new trade protection measures against China to prevent an “extinction-level event.”
Michael Dunne, an automotive consultant who previously worked for General Motors Co. in Asia, emphasized the intense competition from Chinese companies, saying, “Chinese companies today are highly competitive. The question at every board meeting now is how do we outcompete them?”
Ford Motor, Tesla, and other automakers are quickly revising their EV strategies to compete with the new wave of low-cost vehicles being exported from China. Ford CEO Jim Farley praised the Seagull as being “pretty good” and warned that any automaker unable to compete with China globally could lose up to 30% of their revenue. One of Farley’s top electric vehicle executives referred to Chinese electric cars as a “massive strategic threat.”
BYD’s Atto 3, a sleek 5-seater SUV designed by a team led by former Audi and Lamborghini design director Wolfgang Egger, is even more impressive. This proud car features a Tesla-like dashboard with a large rotating touchscreen in the center that can be oriented vertically or horizontally, with the gear shifter resembling an airplane throttle.
The car also boasts a full range of safety features, including forward and rear collision warning sensors, blindspot monitoring, cross-traffic alerts, and emergency braking. And to own all these features, you only have to pay around $31,000, about half the average price of an electric car in the US.
American automakers express concerns that China is establishing a new global standard that cannot be ignored. Chinese brands have already made significant headway in key markets in regions such as Europe, Mexico, and the Middle East, and they want to continue their growth.
Export is essential for the profitability of Chinese automakers, as their domestic market cannot sustain their production levels. In the past three years, China has quickly become the world’s largest exporter of cars, producing 5.2 million cars last year, up from 1 million in 2020. Dunne explains, “Most Chinese automakers don’t make profits domestically, so they are racing overseas.”
BYD and Geely Holding Group from Zhejiang Province have won over global car buyers with their feature-rich and affordable models. Some models come equipped with advanced technologies such as self-parking capabilities. And many are priced much lower than the cars traditionally exported to those markets.
Carlos Tavares, CEO of Stellantis NV, the parent company of Chrysler, told reporters in February, “The Chinese attack could be the biggest risk that companies like Tesla and us are facing today. We have to work very, very hard to make sure that we have superior products to the Chinese.”
Western automakers are striving to generate demand for their own electric vehicle models. Recently, Ford and GM have scaled back their electric vehicle production due in part to slow demand caused by high prices, hardware and software glitches during deployment, as well as consumer concerns about unstable charging infrastructure in the US.
Schuster of GlobalData comments, “The competitive threat is here, even if we haven’t seen any Chinese vehicles yet. The question is not if, but when they will arrive.”
Ford is responding by shifting its focus from larger electric vehicles to smaller, more affordable alternatives. As a result, the production plans for a three-row electric SUV have been delayed. Instead, Ford is concentrating on the development of compact electric vehicles through a dedicated team in Irvine, California.
According to Bloomberg’s sources, this team consists of fewer than 100 people working on a new electric vehicle platform to support a compact SUV, a small electric pickup truck, and potentially a ride-hailing vehicle. The first model is expected to debut by the end of 2026, with a starting price of around $25,000 – in line with Tesla’s rumored entry-level electric car.
The sources also revealed that Ford’s compact electric vehicle will initially run on lithium iron phosphate batteries, which are about 30% cheaper than traditional lithium-ion batteries. However, the company is exploring other battery technologies to further reduce costs.
Farley emphasized that the compact electric vehicle must be profitable within a year of its market launch. This is a significant challenge for a company expected to lose $5.5 billion on electric vehicles this year.
Meanwhile, officials in Washington are exploring ways to restrict Chinese electric vehicles. Discussions have been held about increasing the already firm 27.5% tariff on vehicles made in China and sold in the US. The current tariff is already high enough to effectively ban most Chinese-manufactured electric cars, with the exception of a few models sold in the US by Volvo Cars of Sweden and its sister brand, Polestar – both owned by Geely.
President Joe Biden is even considering a ban on Chinese-connected cars due to national security concerns. Such a move could prohibit the importation of all types of cars manufactured in China, as most modern cars are equipped with modems and thus capable of collecting data.
The US Manufacturing Alliance and the United Auto Workers are both advocating for these policies. In comments sent to the Office of the US Trade Representative in January, the auto labor union called for an increase in “tariffs on automobiles and automotive parts, especially electric vehicles and related components,” from China.
While these measures are designed to prevent the export of Chinese vehicles to the US, experts warn that they could lead to “creative solutions.” In the 1980s, strict trade measures imposed by the US – including voluntary export restraints on Japanese automakers – prompted Honda Motor, Nissan Motor, and Toyota Motor to establish non-unionized plants in the US.
No Chinese brand has announced plans to build a plant in the US, but BYD is looking for a factory location in Mexico, where they can ship cars into the US duty-free under the US-Mexico-Canada Agreement (USMCA).
Mark Wakefield, Global Co-Leader of the Automotive and Industrial Practice at AlixPartners, suggests that Western companies must learn to use low-cost technologies effectively, as China has done. However, they must also remember that the Chinese have made significant progress in designing cars for global consumers.
Wakefield states, “Their vehicles are generally very attractive, and compared to many Western designs, you’ll find they’re different, they’re competitive, and they’re actually better. It’s hard to find something that’s truly ugly in their lineup.”
Source: Bloomberg