In a recent post, I talked about the EV market in the US, the challenges it has been facing and how this could affect the price of silver (EV and Silver Market).
In this post, I want to talk about the EV market and the potential of Chinese EVs being sold in the United States.
To begin, I want to give some background about Chinese EV automakers. Currently, China is the World’s largest exporter of EVs. And this is really for one reason: China sells inexpensive EVs. For example, Chinese Automaker BYD (build your dreams) currently has small EVs starting around $10,000. BYD has become more and more popular passing Tesla as the largest EV maker in the world.
While we know the United States needs cheap EVs and the Biden admin wants them, this raises the question what’s stopping these inexpensive EVs from hitting the US market?
There are several things.
First, in 2018 President Trump established a hefty tariff of around 25% for any Chinese EVs being imported. With all the laws and rules President Biden repealed, it’s interesting he didn’t try and repeal this import tax.
Second, is that many Chinese EVs don’t meet the strict regulatory requirements held by the US. Years ago, quality was considered a big issue with Chinese EVs. Elon Musk once laughed at the notion Chinese EVs could dominate the US market. However, today he has come out and said Chinese EVs would dominate the US car market if allowed in.
The third reason that Chinese EVs are not allowed in the US has to do with brand loyalty. The US car market is considered tough to penetrate and get market share. Many might dispute this though as car prices have gone up so much the last few years and it’s reasonable to assume consumers might want to have a more inexpensive car.
Despite the hurdles above for China EVs coming into the US, it looks more likely than not that Chinese EVs will be headed to the US at some time. As this is occurring, many American automakers are rushing to build cheaper EV models. Some American automakers have lost billions in the EV market primarily because their vehicles were too expensive.
How Will China begin to sell EVs in the US?
The most likely possibility is that Chinese EVs will set up manufacturing plants in Mexico. This would allow them to avoid the hefty tariffs and also qualify for the $7500 EV tax credit. It was reported by the financial times that Chinese EV makers MG and BYD were looking for places to build manufacturing plants in Mexico.
While this is occurring, American automakers and other automakers around the world have taken notice of just how dominant China EVs are. There are simply no American company producing an EV priced comparable to what Chinese EV companies produces.
One other factor is that China appears to be the dominant player in car batteries. Around 40% of an EV cost is estimated to be from the battery. BYD controls the entire supply chain for their batteries, from getting the raw materials to the final product. This gives them enormous costs advantages over the US.
It’s important for China to keep growing their EV market share. They have already been gaining market share in Western Europe, increasing EV shares up to 8%. Europe has friendlier regulations and is easier of a market to penetrate than the US market. Still, it’s obvious they are wanting to get in the US. The economy of China has many issues, and the population is shrinking too. In order for these companies to grow, they must expand their operations.
With all this said, many feel this situation is ironic and American carmakers are getting what they deserve(Nearshoring to Mexico). Since the 90’s many jobs in auto plants have been shipped to Mexico and Canada because of the cheap labor. Now the pendulum has swung back to bite these companies, as lower price EVs could bankrupt some American car companies.
At the end of the day though, it really comes down to demand. Will Americans want to buy a Chinese Car?
I tend to say no as most Americans associate Chinese products as low quality (Why we need more people in trade jobs- read here). A car is something that needs to be higher quality. Still, if enough people buy them and word of mouth spreads how reliable they are, it could change the auto market in the US permanently.
