Feb 14, 2024 - Business

Why the U.S. auto industry is freaking out about China's electric cars

Illustration of China's flag with lightning bolts replacing the four small stars.

Illustration: Shoshana Gordon/Axios

American automakers increasingly view Chinese electric cars as an existential threat, despite the fact that Chinese-branded cars aren't even for sale in the U.S. yet.

Why it matters: For big legacy automakers like Ford and General Motors, budget-priced Chinese cars represent another Tesla-like seismic disruption.

The big picture: The entire industry is worried about the magnitude of what Stellantis CEO Carlos Tavares calls "the China offensive."

  • Companies that can't match China's low-cost electric vehicles (EVs) "are going to be in an existential problem," Tavares told Bloomberg.
  • Even the indomitable Tesla CEO Elon Musk is concerned, warning that without trade barriers, Chinese automakers will "demolish" global rivals.

Catch up fast: China is the world's largest and fastest-growing automobile market.

  • Chinese cars have long been poorly made. But thanks largely to government support — plus access to cheaper batteries and labor — the country now makes attractive, affordable models, like the sub-$11,000 Seagull EV from BYD, the world's top seller of EVs and plug-in hybrids.

Yes, but: Chinese automakers built too many factories, forcing them to look to foreign markets like Europe for continued growth.

  • The U.S. could be next, where there's a big opening for budget-priced EVs, despite stiff Trump-era tariffs on Chinese cars.

Driving the news: Ford, GM and others see the writing on the wall, and are reassessing their strategies and cutting budgets to stay competitive.

  • Even Tesla is scrambling to keep pace with low-cost Chinese manufacturers by slashing prices and working to develop a cheaper EV by 2025.

Zoom in: Ford is forecasting continued heavy losses in its EV division — one analyst figures it will lose a whopping $55,000 on every EV it sells this year.

  • The company is cutting $2 billion in spending and de-emphasizing electric SUVs in favor of smaller, more affordable EVs.
  • Ford CEO Jim Farley also recently disclosed a secret project to create a flexible, low-cost EV platform.
  • "All of our EV teams are ruthlessly focused on cost and efficiency in our EV products because the ultimate competition is going to be the affordable Tesla and the Chinese [automakers]," Farley told analysts during a recent call.

Meanwhile: After boasting for years that it's "all-in on EVs," GM now plans to launch plug-in hybrid vehicles in North America to meet emissions targets while fully-electric sales slowly ramp up.

  • "I don't discount any competitor," GM CEO Mary Barra said of China on a recent call with analysts.
  • "We need to make sure we have beautifully designed vehicles that have the right features, the right safety and the right customer experience. And we have to do it at a competitive cost base."
  • Like Ford, GM is undergoing a $2 billion cost-cutting effort.

The intrigue: Legacy automakers' belt-tightening will also affect their traditional gas vehicles.

  • Instead of full redesigns, gasoline models will likely get less ambitious (and cheaper) "facelifts" — a new grille, headlights or fender design, for example.
  • Lineups will be simplified, with fewer options and more standard equipment in a range of "good, better, best" trims.
  • GM says it will save $200 million this year by eliminating more than 100 selectable options. Ford's decision to cut a little-used automated parallel park feature, meanwhile, will save it $10 million, per COO Kumar Galhotra.

What to watch: Chinese cars are already being exported to Mexico, and BYD, Chery and at least one other Chinese carmaker are scouting plants there, the Financial Times reported — meaning Mexico could become a backdoor for selling Chinese cars in the U.S.

The bottom line: Detroit has seen this movie before with Japanese and Korean rivals, which filled a need for affordable, efficient cars — and consumers eventually embraced them.

  • The China offensive has yet to arrive, but the mere threat is whipping American automakers into a frenzy.
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