Chinese automakers want to sell electric cars across America

Inexpensive electric cars from China have quickly gained a toehold in Europe — and could be taking over American driveways next.

Why it matters: The Biden administration is incentivizing rapid electric vehicle (EV) adoption, while also trying to reduce U.S. dependence on Chinese EV supply chains.

• Yet experts say there's no way to meet the administration's proposed vehicle emissions standards without low-priced EVs that everyday Americans can afford.
• With today's U.S. EV prices averaging close to $55,000, there's a big opening at the bottom of the U.S. market for budget-priced cars from Chinese brands like BYD, Xpeng Motors and Li Auto.

What they're saying: John Bozzella, CEO of the Alliance for Automotive Innovation — a Washington, D.C.-based automotive industry trade group — sees inherent tension between the Biden administration's goals of promoting EV adoption while also reducing U.S. reliance on Chinese supply chains.

• The U.S. doesn't have enough domestic minerals and components to meet the proposed quick ramp-up in EV sales, Bozzella argued in a recent blog post, which would mean continued reliance on China.
• But if the U.S. moves too slowly on electrification, it could also leave open the market to Chinese imports as consumers seek entry-level options, he wrote.
• "This is our Goldilocks problem," Bozzella wrote. "Too fast: advantage China. Too slow: advantage China."

The other side: A Biden administration official says its policies, including tax breaks for consumers and manufacturers, aren't intended to shut China out of the market but rather to help make domestic EVs more cost-competitive with Chinese cars.

Catch up fast: Just a few years ago, China-made cars were poorly designed with inferior quality. But today, the Chinese auto industry makes desirable, technologically advanced models at affordable prices.

• China's EV industry has soared in recent years thanks to government incentives, cutthroat competition and receptive consumers.
• China is now the world's largest electric vehicle market, accounting for 60% of global electric car sales, led by homegrown brands such as BYD and Geely, as well as U.S.-based Tesla.

But as their domestic market has become increasingly saturated, Chinese EV giants are looking abroad to boost sales.

• In Europe — where a 2035 ban on gas-powered vehicles looms — Chinese imports are on track to hit 20% of EV sales by 2025, with models like Great Wall Motor's new budget EV called the Ora Funky Cat.
• It's a different story in the U.S., where China-built cars face bigger hurdles: a hefty 27.5% tariff imposed during the Trump administration, and tax credits that incentivize U.S.-built EVs enacted under President Biden.

Yes, but: Chinese automakers are not giving up.

• William Li, CEO of Chinese EV company Nio, recently told the Financial Times that the U.S. should offer Chinese EVs equal access to the American market, arguing that carmakers shouldn't be victims of U.S.-China political tensions.
• Nio, which recently hired a U.S. lobbyist, hasn't exported any cars to the U.S. yet — and is grappling with its share of domestic problems after a $3 billion bailout by Chinese authorities in 2020.
• Li's plea was likely a "trial balloon" — a way of "softening the market" and "setting the table" for eventual U.S. sales, Tu Le, founder of management consulting firm Sino Auto Insights, tells Axios.

Reality check: Despite the hurdles, Le said the U.S. market is too big for Chinese automakers to ignore.

• "Once the first domino falls, more will fall," he tells Axios.
• In fact, some China-built cars are already for sale in the U.S. under Western brands, including the Buick Envision, Polestar 2 and soon, the Lincoln Nautilus.
• And China's BYD is already the largest manufacturer of electric buses in North America.

The intrigue: The EV situation is one more wrinkle in the increasingly complex U.S.-China relationship.

• U.S. Trade Representative Katherine Tai said last month that she sympathized with European concerns about surging EV imports from China, but she stopped short of encouraging officials there to take action against those imports or committing the U.S. to taking similar steps, Politico reported.
• "It's a very tricky situation for policymakers," said Ilaria Mazzocco, a senior fellow at the Center for Strategic and International Studies. "You're trying to protect your industries, but there still are some rules like [those of the World Trade Organization] that shape global trade."

Meanwhile: Japanese, Korean and Western automakers are busy trying to make up for lost ground in China.

• Volkswagen is investing in Chinese automotive startup Xpeng, and will partner with it to build electric cars featuring VW's branding but Xpeng's software and autonomous driving tech, the company announced Wednesday.
• And Nissan is investing as much as $663 million in a new Renault EV unit — a move freeing up Nissan to focus on navigating the "increasingly grim outlook for foreign automakers," as Reuters put it.

What's next: Chinese automakers will likely follow the same script as Japanese and Korean brands decades ago: Use imports to exploit a void in the U.S. market, learn quickly and then go deeper with factories on American soil.