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China's highflying EV industry is going global. Why that has Tesla and other carmakers worried

Stephanie Yang, Los Angeles Times on

Published in Business News

One area in which Chinese automakers handily beat Western competitors is on price, thanks to government subsidies that supported the industry's initial rise as well as cheap access to critical minerals and components such as lithium-ion batteries, which account for about a third of the overall cost of production.

"It always had these ingredients waiting around," said Cory Combs, an associate director for Chinese energy policy at the consulting firm Trivium China. "It was kind of a magic moment for these things to come together."

That enabled the success of BYD, which started producing lithium-ion batteries in 1996 and making cars in 2005.

In March, BYD cut the price of its cheapest EV model in China to less than $10,000. According to Kelley Blue Book, the average EV retail price is $55,343 in the U.S., compared with $48,247 across all vehicles.

While pricing wars have forced Chinese automakers to slash profit margins at home, they can charge more in overseas markets, further incentivizing exports as domestic growth has slowed. According to research firm Gavekal Dragonomics, demand in China has cooled due to the removal of tax breaks and an increase in the use of public transportation post-pandemic.

"There is a ton of pressure, especially if you are a smaller player, to find a market that is less competitive," Combs said. "And every market is less competitive than China's."

 

Though 27.5% tariffs have in effect locked Chinese EVs out of the U.S. market, the fear that the cheaper models could eventually undermine American automakers has started to spread.

The Alliance of American Manufacturing warned in a February report that allowing Chinese EVs into the country would be an "extinction-level event" for the U.S. auto industry. The group also cited the risks of Chinese auto companies building facilities across the border in Mexico that could circumvent tariffs.

After a trip to China in April, Treasury Secretary Janet L. Yellen expressed concerns about government-funded overcapacity in Chinese manufacturing of electric vehicles, batteries and solar panels. She noted that other advanced and emerging markets shared those worries, and compared the oversupply to a flood of low-cost Chinese steel hitting the global economy more than a decade ago.

"When the global market is flooded by artificially cheap Chinese products, the viability of American and other foreign firms is put into question," Yellen said.

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