Motor Mouth: The Chinese (EVs) are coming

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So, the big — nay, huge — news this week is the Chinese balloon that flew over North America. Now, by all accounts, it’s not the first such “weather” zeppelin that’s invaded our airspace, the Pentagon recently releasing information that four such high-tech, high-altitude gas-filled orbs have crossed our borders — undetected, no less — in recent years, though this one is, of course, the first one the United States Air Force has shot down.

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And that was just this week. Last week, an American four-star general, Mike Minihan, predicted that the U.S. and China could well be involved in a full-scale armed conflict by 2025: “I hope I am wrong. My gut tells me we will fight in 2025.” The Pentagon quickly downplayed the prediction, though, it must be noted, Minihan was neither labelled a crackpot nor pilloried in the press. As The Economist says, this former battle of words is quickly turning into “a contest between two irreconcilable powers,” Xi Jinping’s sabre-rattling now seen as seriously militaristic — as opposed to merely political. As if inflation isn’t enough to keep us up at night, now we have to start worrying about Armageddon again.

Military conflicts? Live fire? Freaking spy balloons? What has this, you’re asking, got to do with cars?

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Well, maybe everything, actually, because in any reductive — please read that as “very reductive” — sense, the most successful “invasion” of America has been one of the automobile. More specifically, Japan Inc.’s decimation of the once-mighty American auto industry. Tokyo tried taking on the U.S. militarily, as China seems now to be contemplating, funnily enough, for many of the same reasons, namely local expansionism, and a resistance to growing American “influence” in a region they view as theirs. History tells us, of course, that Japan’s militarily ambitions failed miserably. Fast-forward 40 years, though, and what the Imperial Navy could not achieve, Toyota most certainly did.

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Trivialize this (again extremely simplistic) reduction of global geopolitics all you want, but the one lesson I’ve learned after 35 years as an automotive analyst is that, among the many hegemonies America has lost over the years, the humbling of its automotive industry — both economically and geopolitically — stands tallest. What was an 85.3-per-cent market share for the Detroit Three as recently as 1960 is now just 42.5 per cent. General Motors’ share has fallen even more. It then owned almost half of North America’s entire car market, but now stands at below 17 per cent. Hell, one of them — Stellantis, née Chrysler — isn’t even American any more. What was once the pride of the nation is now commonly, even amongst jingoistic Republicans, ridiculed as second-rate. And all because what Japan could not accomplish with guns, it did with cars.

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I think a Chinese invasion of the North American auto market — more specifically the North American EV segment — could have the same dramatic result. They’re already conquering Europe. Possibly because it’s an easier conquest, more likely as a beachhead for the final frontier. Either way, largely unnoticed here is that the E.U. is being flooded with cheap Chinese EVs.

One analyst, Matthias Schmidt, told Automotive News that about 200,000 Chinese-manufactured vehicles will be sold in Europe this year, of which about 90,000 would be full electrics; and a further 40,000 plug-in hybrids. In the first half of last year, Chinese brands had 3.8 per cent of the EV market; in the second half, that grew to 5.2 per cent. By 2025, PwC estimates that Europe will import some 800,000 Chinese battery-powered vehicles — 330,000 by Western automakers manufacturing EVs in China, the rest by domestic brands like SAIC, XPeng, and Nio. That last automaker is already planning to send its patented battery-swapping stations abroad. According to AN, those 800,000 imports will be enough to “turn Europe to a net importer of cars,” a marked change from the 1.7 million vehicles it exported as recently as 2015.

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In fact, thanks to robust EV sales, China just recently passed Germany to become the world’s second-largest exporter of automobiles. China’s Association of Automobile Manufacturers, meanwhile, says that the 3.11 million vehicles the country sold abroad last year was an increase of 54 per cent over the year before. That ranks behind only the 3.82 million vehicles Japan exported (in 2021). The South China Morning Post also says the country is “on course to overtake Japan as the world’s top car exporter,” citing another report, this one by Citic Securities research, that China’s car exports might hit 5.5 million units by 2030, 2.5 million of which would be EVs.

Among the many hegemonies America has lost over the years, the humbling of its automotive industry — both economically and geopolitically — stands tallest

North America, of course, has not yet been invaded by Chinese EVs. Or, at least, not by Chinese-built and -branded electric vehicles (there are, of course, some Chinese exports of Western-branded EVs, like Geely-owned Polestar). That’s not to say that American automakers and politicians aren’t worried about Chinese EVs flooding the market. Indeed, one of the last acts of the U.S. Democratic Party before losing their congressional majority was to put billions — nay, hundreds of billions — of dollars behind President Biden’s Inflation Reduction Act (IRA), trying to fend off just such an electric-vehicle invasion before it can gather steam.

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Indeed, while the first Democratic attempt at promoting EVs — the poorly crafted and ultimately rejected Build Back Better plan — was simply pro-union, the IRA is pure we-can’t-keep-up-with-China protectionism. Yes, officially it’s being promoted as an environmental bill, but any sentient human being who’s read all its 730 pages understands it as exactly what it is: an emphatic middle-finger salute to China’s manufacturing imperialism, electric vehicles front and centre. It rewards automakers that build their EV batteries with up to US$9,000 per vehicle (the amount GMC’s King Kong-like Hummer EV may be eligible for). It also penalizes customers (as in, it does not offer them the much-ballyhooed US$7,500 consumer subsidy) if the EV they purchase — and the battery that powers it — is not built in North America. European and South Korean automakers may cry foul — and they are vociferously — but the real target, let no one misunderstand, is China.

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Like the protectionist tactics various governments tried during the Japanese invasion, even that might not be enough. For one thing, while American automakers are almost religious in their devotion to high-priced electric vehicles — such as the ridiculously expensive GMC Hummer and various high-priced pickups — Chinese automakers specialize in the cheap and cheerful runabouts currently being ignored by domestic EV manufacturers. Worse yet, even if they tried, it’s not certain that, even with President Biden’s generous subsidies, domestic automakers can build “affordable” EVs. Elon Musk has been promising a “30,000-dollar” Tesla for so long it’s become a running gag, and I’ll believe General Motors can build a battery-powered Equinox that retails for US$30,000 (without subsidies) when I drive it.

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Meanwhile, Reuters recently reported that Chinese automakers “can build an electric vehicle for 10,000 euros less than European automakers.” That is, at today’s rates, some US$10,725. That might not be enough to let imports compete with Detroit’s high-end EVs (which could benefit from the maximum of those aforementioned subsidies) but it could be enough for them to take over the entry-level EV segment, which, because of their smaller batteries, are not as heavily subsidized. In other words, the same tactics — cheap and cheerful Toyota Corollas — that made Japan’s automotive invasion so successful 50 years ago could well be replicated if America continues to ignore the entry-level market, as it did when the Impala and Bel Air reigned supreme.

In the end, if China’s latest shenanigans — the surveillance, the computer hacking, and even all the sabre-rattling directed at Taiwan — really is about “containing” U.S. interests, Xi Jinping doesn’t need guns or balloons. He just needs to flood North American with high-quality, well-built, affordable EVs. Japan has already proved that’s the best way to poke the American juggernaut.