"US Cars Will Become Extinct"... China Floods Market with Electric Cars at Half Tesla's Half Price [Global Focus]

"Forget Tesla. The real competitor in the electric vehicle market is the Chinese brands leading with low prices." (Jim Farley, CEO of Ford Motor Company) "Chinese electric vehicle companies are breaking down competitors without trade barriers." (Elon Musk, CEO of Tesla)

Chinese electric vehicle companies, facing sluggish domestic demand, are turning their eyes overseas, casting a tense atmosphere over the global electric vehicle market. With concerns about slowing demand already mounting, if Chinese electric vehicle brands like BYD and Xiaomi, which emphasize low prices, launch a full-scale global offensive, a more intense 'bloody competition' will be inevitable. There are also clear government-level moves in various countries to curb the encroachment of Chinese electric vehicles. Following the European Union (EU), which has initiated subsidy investigations, the United States has decided to pursue punitive tariffs targeting Chinese electric vehicles.

Expanding Global Offensive of 'Low-Cost' Chinese Electric Vehicles

According to Bloomberg on the 5th, the number of electric vehicles exported by China worldwide last year was 1.55 million, a 64% increase compared to the previous year. Most exports were to Asia and Europe. The market share of Chinese vehicles such as BYD and NIO in Europe expanded from 1.1% in 2020 to 5.6% in the first half of 2023. Another survey showed that the market share of Chinese electric vehicles soared from 0.5% in 2019 to 8.2% in the first half of 2023.

This is the result of the influx of low-priced Chinese vehicles during the recent years when European authorities have been driving the transition to electric vehicles. In the United States, Chinese vehicles have not yet penetrated the market, but it is widely regarded as a matter of time. BYD, a Chinese electric vehicle company that recently surpassed Tesla to become the world's top electric vehicle seller, is openly targeting the U.S. market by planning to establish a manufacturing plant in Mexico.

BYD is a representative Chinese electric vehicle brand accelerating its global market penetration. After starting operations at a plant in Uzbekistan earlier this year, it plans to establish production bases in Brazil, Hungary, and other locations. Michael Shu, BYD's European representative, stated at last month's Geneva Motor Show that a second European production base after Hungary is necessary.

The company previously attracted global attention by unveiling the electric vehicle 'Dolphin' at a relatively low price of $13,900. This is about one-third the price of Tesla's lower-priced Model 3. The recent report by the Alliance for Automotive Manufacturing (AAM) expressed concern that "if extremely cheap Chinese cars enter the U.S. market, the American automotive industry will become extinct." Not stopping there, BYD recently introduced a high-end electric vehicle worth 1.68 million yuan (approximately 310 million KRW), capable of competing with supercar brands like Ferrari and Lamborghini.

BYD's compact electric car Dolphin
[Image source=Reuters Yonhap News]

BYD is not the only Chinese brand launching a global offensive. Xiaomi officially entered the market by unveiling its first electric sedan, the 'SU7,' at the 'Mobile World Congress (MWC) 2024' held in Barcelona, Spain, at the end of last month. Lei Jun, Chairman of Xiaomi, said at the new car launch event, "We will leap to become the world's fifth-largest car company within the next 15 to 20 years." NIO is expanding its global market by selling electric vehicles in Norway and Europe. Li Auto, which has maintained a domestic market-first strategy, recently announced it will start global deliveries within the year after establishing local sales networks in the Middle East and Central Asia.

Bloomberg reported, "Now, affordable Chinese electric vehicles will flood overseas markets," calling it "terrible news for global electric vehicle brands." The Wall Street Journal (WSJ) stated, "Chinese brands, once lagging behind, are now evoking envy and fear in the global automotive industry," adding, "China is accelerating its pace in the electric vehicle competition."

Demand Slowdown Adds to Concerns... Heightened Vigilance Worldwide

These Chinese brands' offensives are particularly notable amid growing global concerns about slowing electric vehicle demand. Not only Tesla but also electric vehicle startups like Rivian and Lucid, once seen as Tesla challengers, have recently released uniformly disappointing performance forecasts.

Earlier, major global companies such as Mercedes-Benz and General Motors (GM) reduced or canceled some of their electric vehicle investment plans. Apple's decision to abandon its electric vehicle development plan, which it had been working on for years, was also influenced by these market outlooks. Major foreign media reported that even in China, the largest market, electric vehicle sales are declining and inventories are piling up. For global electric vehicle companies already facing growth slowdown concerns, this is truly a case of adding insult to injury.

Bloomberg reported, "The reason Chinese electric vehicle companies, which experienced explosive growth for years supported by government subsidies, are turning their eyes overseas is due to the domestic market facing growth limits," adding, "Although concerns about growth slowdown persist in the global electric vehicle market, Chinese companies show confidence that competing with low-cost advantages is feasible." The media cited the supply chain superiority, including batteries, and the resulting cost competitiveness as the greatest strengths of Chinese electric vehicles.

Axios diagnosed, "China, which once produced crude vehicles, is now creating attractive and cost-effective electric vehicles based on government support, cheap batteries, and labor," adding, "China, currently in an overproduction state, is targeting Europe, and the next target will be the United States."

The warnings from CEO Farley that the real competitor is the low-cost Chinese brands, CEO Musk that China is breaking down competitors without trade barriers, and CEO Carlos Tavares of Stellantis that China's offensive poses an existential threat have been pouring in recently in this context. WSJ analyzed, citing industry executives, that Chinese automakers' development speed is about 30% faster than that of existing companies.

Major countries, fearing that their domestic automotive industries might be shaken by China's low-cost offensive, are also taking measures. Europe, where Chinese electric vehicles have rapidly penetrated, began investigating subsidies for mass-market electric vehicles last fall. Politico recently reported, citing sources, that the United Kingdom is also considering such subsidy investigations.

In the U.S. Congress, a bill was recently introduced to significantly increase tariffs on Chinese vehicles. The bill aims to raise tariffs on Chinese automobiles from the current 27.5% to 125%, regardless of the production location. Even if the vehicles are produced in countries with free trade agreements (FTA) with the U.S., such as Mexico, if the manufacturer is a Chinese company, tariffs must be paid. Separately, the White House has also launched an investigation into whether imports of Chinese vehicles pose national security risks.