China is a growing threat to the US auto industry

China has jumped from 6th place to the top seed since 2020, with a large number of entries from not only long-established government-affiliated companies such as SAIC and Dongfeng, but also emerging companies such as BYD and Nio. This comes amid a decline in U.S. auto exports by companies such as General. The auto industry has cut back on international operations. According to the U.S. Bureau of Economic Analysis, U.S. auto exports in 2022, the latest available data, were down 25% from their 2016 peak.

According to global consulting firm AlixPartners, the United States, which was the world’s fourth-largest car exporter before 2020, was ranked sixth in the world last year, followed by Mexico in fifth, South Korea in fourth, and third-largest in car exports. It fell short of Germany, which ranked second.

“My biggest competition is the Chinese automakers,” Carlos Tavares, CEO of Chrysler’s parent company Stellantis, said during a virtual media roundtable on Friday. “This is going to be a big battle. For a global automaker like Stellantis, which operates all over the world, there is no choice but to go head-to-head with Chinese automakers. There is no other way. ”

The threat extends beyond export volumes. Chinese automakers have set new standards in vehicle production and pricing. They are releasing new models in record time, and many EVs are being produced efficiently and profitably, an implication for global automakers including GM and Ford Motor Co. in the US. are doing.

Auto experts point to BYD as a prime example of the rise of Chinese automakers. With support from the Beijing government, the company surpassed Tesla last year to become the world’s biggest EV seller.

Tesla CEO Elon Musk said the company operates a large factory in China, but the Chinese automaker is his biggest competitor based in Texas. .

“Many people think that the top 10 car companies will be Tesla, followed by nine Chinese car companies. I think they’re right,” Musk said. New York Times Deal Book Conference in November.

According to The Economist, Rhodium Group estimates that BYD received about $4.3 billion in state aid between 2015 and 2020. The Chinese government also offers subsidies to encourage buyers of electric cars.

BYD has cracked the code for low-cost EVs that seemingly cross borders. The company’s BYD Seagull is a small EV that starts at about $11,400, which would significantly undercut the U.S. EV price at less than $15,000, even after taking into account the U.S.’s 27.5% tariff on Chinese products. vehicle.

“This is a car that scares me,” Kristin Dziczek, an auto policy adviser at the Federal Reserve Bank of Chicago’s Detroit branch, said at the organization’s Automotive Insights Symposium last week. “How can we cut the price of EVs in half? China is already doing it.”

Mathew Vachaparampil, CEO of car teardown and consulting firm Caresoft Global, estimates BYD earns $1,500 in profit for each Seagull sold. In the worst case scenario, the company will break even, he said.

And the company is increasing vehicle shipments outside China. Bernstein said overseas markets accounted for about 10% of BYD’s more than 3 million units sold last year, and that share has doubled since the beginning of the year.

“BYD has an unparalleled cost structure and product innovation capabilities that stem from its high degree of vertical integration, which allows the company to “This will enable growth in the ongoing EV race in China and abroad.” . “Despite increased pricing pressure in China, we expect to support 29% as we focus on overseas and premium segments.” [compound annual growth rate] Revenues are expected until 2025. ”

With support from local and federal governments, Chinese automakers’ growth began in their home country, taking share from forced joint ventures between non-domestic automakers and Chinese companies.

For example, GM’s share of the Chinese market, including joint ventures, plummeted from about 15% in 2015 to 8.6% at the end of last year’s third quarter.

“What is happening inside China? [new energy vehicle] “Brands have become dominant, at 26%,” Mark Wakefield, global co-leader of AlixPartners’ automotive and industrial practice, said at the Chicago Fed’s Automotive Conference. [market share] A few years ago, it was expected to reach more than 50% by 2022 and two-thirds by the end of the decade. ”

And that growth is not limited to Japan. Wakefield said Chinese companies are starting to expand into countries such as Mexico and Europe.

As of September last year, Chinese companies accounted for 8% of all electric vehicle sales in Europe, and their share could rise to 15% by 2025, according to the European Union. The EU believes that Chinese EVs are undercutting local models by about 20% on the European market.

The influx of Chinese EVs has prompted the European Union to step up government support for the industry.

In Mexico, Chinese-made vehicles with internal combustion engines have increased from 0% to 20% of the country’s light car sales over the past six years, said Mr. Zicek of the Chicago Fed.

“Mexico is the second largest market for Chinese cars after Russia,” he said. “They’ll be coming to the coast of Mexico in the not-too-distant future.”

Chinese car companies have said for decades that they would start selling cars in the United States under their own brands, but nothing has been successful.

That doesn’t mean China isn’t competing in the U.S. market. Apart from major supply chain relationships, there are also several car brands owned by Chinese companies with operations in the US, including Lotus, Volvo (including the Polestar spin-off), and niche EV maker Karma.

U.S. companies such as GM and Ford already plan to manufacture some vehicles in China and import and sell them in the U.S. GM imports the Buick Envision from China to the U.S., while Ford last year , a crossover from China, announced that it will import the upcoming Lincoln Nautilus.

But for now, American drivers cannot easily buy Dongfeng, BYD and other Chinese-made vehicles in the United States.

Potential regulatory hurdles and protectionist actions aside, some believe Chinese automakers could be as successful in expanding into the U.S. market as Japan’s Toyota Motor Corp. and South Korea’s Hyundai Motor Co. .

These automakers entered the U.S. market with affordable and easily available vehicles, then increased their offerings to improve quality and safety, and eventually expanded into high-end models.

“Japanese automakers came to the U.S. in the ’70s,” said Stellantis’ Tavares. “Among the competitors we know well, it took them 50 years to get to the top of the market. We see no reason why this can’t happen with the Chinese.”

– CNBC michael bloom Contributed to this article.