The AutoMobility Roadmap Newsletter

US Auto's EV Moment

Image by Mariestella - AutoMobility Advisors

May 20, 2024

In 1972, Detroit’s Big 3 automakers, General Motors, Ford, and Chrysler, had a combined total of nearly 90% of the American domestic automotive market. Up until that point, US OEMs fought for dominance in all segments of the US market, primarily equipped with massive gas guzzling V8s, enormous wheel-bases, and a preference towards straight line performance. All this changed the next year in 1973 when the member states of the OPEC cartel issued an oil embargo against the United States, resulting in lines at gas stations for fuel. The Big 3 suddenly found themselves needing to adapt to a widespread international fuel shortage, which forced them to eschew the performance muscle cars of the 60s and focus more on both fuel economy and also abide by the newly founded (1970) Environmental Protection Agency’s limits on carbon emissions from vehicles. American OEMs handled this challenge by choking the output of their performance V8s and fitting their fleets with emissions limiting equipment. This strategy famously heralded an era of malaise for domestic auto manufacturers, (remember the Mustang II?) but it also opened new opportunities. Famously, Japan’s postwar automakers took advantage of the situation by introducing compact, reliable cars to the US market. While existing domestic brand loyalty caused their market share to grow slowly, the position of Japanese cars as value-oriented products coupled with high quality allowed companies such as Toyota and Nissan to eventually become powerhouses in US auto sales – even out competing the likes of Chrysler and Ford. Presently, the US market enjoys healthy competition between Japanese, Korean, European, and domestic OEMs, but now a new player is aiming to make a power play.

In a market shift not dissimilar to the one following the 1973 oil crisis, EVs have now roared onto the center stage of the automotive world. While well established OEMs have gradually introduced new lineups of electric cars to the market, Chinese auto OEMs are seeking to make their debuts into the US EV market with flashy lineups of very inexpensive cars. Chinese companies such as BYD, Geely, and XPeng are aiming to launch their products in the United States within the next few years, sparking fears of a hostile takeover of the American EV market. Chinese OEMs are often backed by significant government subsidies and custom-tailored domestic regulations. And when paired with vertical integration of battery and chip supply chains, this combination allows for Chinese EVs to be sold at a significantly lower price than vehicles produced in traditionally capitalist market environments. For example, BYD’s Seagull model costs around $12,000 USD in China and claims to offer similar quality, range, and features as domestically produced vehicles like the Chevy Bolt EV. The Bolt EV, however, starts at $26,500 USD off the lot, over twice the price of the Seagull. Such a large price advantage has industry executives, security experts, and government officials looking for ways to mitigate the coming automotive economic shakeup, especially in a time of heightened tensions with the Chinese government.

Image by Mariestella – AutoMobility Advisors

President Biden rolled out the next step of the US’s mitigation strategies this week, slapping significant tariffs on Chinese EVs in an escalation of the almost decade-long trade war with China. The President announced that all Chinese EVs would be subject to a 100% import tariff, effectively protecting domestic OEMs from foreign made vehicles that cost half the purchase price. Other key components that are needed for vehicle manufacturing will also experience drastic tariff increases: steel and aluminum tariffs will increase from 7.5% to 25%, solar cells will double from 25% to 50%, and shipping cranes will receive a brand new 25% tariff. These new trade policies will go into effect this year, while others such as tariffs on large storage batteries, graphite, and semiconductors will be phased in across 2025 and 2026. Bipartisan calls for tariff increases were sparked by a desire to protect domestic manufacturers from “unfair” international competition, while simultaneously fulfilling foreign policy obligations as the US and China compete for dominance in global economic markets. It is too soon to say whether these measures will work or not, but without enormous subsidization from their own government, Chinese OEMs will be forced to sell at a loss in the United States. Time will tell if these tariffs will prove to be an effective deterrence against Chinese EV competition.

President Joe Biden signs the document ordering the raising of tariffs on some imports from China. Photograph: Michael Reynolds/EPA

These moves by the Biden Administration come as part of a concentrated push to encourage the domestic manufacturing of advanced technologies. Omnibus legislation such as the Inflation Reduction Act and the CHIPS Act have introduced trillions of dollars of funding for EV production, raw-material mining, battery manufacturing, and domestic semiconductor chip production. All of these incentives are designed to spur auto OEMS and their supply chain partners to produce a higher volume of higher quality and more affordable EVs, and create domestic manufacturing capability, helping to increase consumer demand both domestically and worldwide. The EV market continues to face new challenges every quarter, but perhaps it is only a matter of time before Chinese OEMs capture market share on American soil. BYD’s new plant in Mexico is one such development that’s putting the US market on notice. For now though, American EV manufacturing has been given a golden opportunity to grow in a protected and well funded environment, in turn creating a friendly market and widespread belief in the viability of the American automobile. Carpe diem!

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