Could cheaper Chinese EVs make their way into the US auto market?

Imagine driving a new electric vehicle (EV) but spending only $10,000 on your new ride. This is a reality in China. In the United States, however, Americans spend an average of over $53,000 on buying an EV — more than double where the median asking price stands for Chinese consumers.

It is possible these cheaper vehicles may become available to U.S. drivers in the future, but several issues stand in the way before that can happen. For starters, the rivalry between Washington and Beijing has put the industry in a challenging position.

“To look at the situation with the U.S. and China, their relations are at their worst and 50 years,” said Michael Dunne, CEO of ZoZo Go, which delivers investment advisory services to auto-tech industry companies in the U.S. and China. “Should the U.S. become over-reliant on Chinese with [EV] batteries, it’d be so simple for the Chinese to say, ‘Sorry, we don’t have enough supply for you.'”

In 2023, as part of an effort to combat this problem, the White House introduced additional rules to keep China out of the American EV market. This included an Internal Revenue Service block on all foreign-made electric vehicles from receiving tax breaks granted to the industry under the Inflation Reduction Act.

American car companies are also now prevented from accessing these incentives if they use materials or parts from China.

That move was in addition to a 2018 Trump administration imposed tariff of more than 27% on cars made in China — a policy that has continued under President Joe Biden. The current administration has even considered raising the tariffs already in place.

However, tensions between the U.S. and China pose additional geopolitical challenges for the Biden administration’s push to electrify, with Beijing controlling 90% of the EV supply chain, according to a Morgan Stanley report. That has translated to China being responsible for over half of global EV sales and nearly two-thirds of the world’s EV production in 2023.

There’s a difference between people’s allegiances to their country and what they buy at the store. One thing that’s absolutely universal is people buy affordability.

CEO Bill Russo, Automobility

“What happens in China will not stay in China,” said Bill Russo, CEO of advisory firm Automobility. “If you have that kind of supply chain, that kind of position on the chess board, then why wouldn’t you take that internationally? There’s a difference between people’s allegiances to their country and what they buy at the store. One thing that’s absolutely universal is people buy affordability.”

Beijing has propped up its electric vehicle industry with numerous state subsidies, totaling around $130 billion since 2016. As a result, Chinese consumers have their choice of 235 different EVs, including some of world’s cheapest electric models. Out of the 51 options available to Americans, the least expensive costs more than twice its Chinese counterpart.

“The Chinese have been very aggressive in motivating the purchase of electric vehicles, which represent a much higher percentage of new vehicle sales in China than they do in the United States,” said John Quelch, a former associate in research at Harvard’s Fairbank Center for Chinese Studies and fellow of the Harvard China Fund.

On top of tax and trade policies, safety regulations are another issue keeping these cars away from the U.S.

Most Chinese vehicles have not been engineered to comply with American safety standards, adapting to which can be an expensive process. An industry study found that differing auto safety regulations in the U.S. and European Union (EU) force automakers to spend over $2 billion annually.

Even if Chinese car manufacturers could overcome these costs, there remain numerous expenses associated with building a retail network accessible to Americans, although, this could be the first domino to fall.

According to the Financial Times, three major Chinese EV companies are planning to spend billions on new factories in Mexico. The news has reportedly worried U.S. officials that this could open a backdoor for Chinese EVs into the American auto market.

China has a bigger manufacturing scale than all other countries. And they’re using that scale to make these batteries not just in China, but they’re making them in Germany and in Mexico, and now exporting those electric vehicles around the world with sites on the American market, and they think they’re gonna win.

President Joe Biden

“China has a bigger manufacturing scale than all other countries,” Biden said. “And they’re using that scale to make these batteries not just in China, but they’re making them in Germany and in Mexico, and now exporting those electric vehicles around the world with sites on the American market, and they think they’re gonna win.”

Executives with Ford Motor Company have expressed similar concerns regarding China, saying the U.S. is still “not quite yet ready” to compete with Beijing when it comes to electric vehicles.

“[China] developed very quickly, and they developed them in large scale. And now they’re exporting them,” said Bill Ford, executive chairman of Ford. “They’re not here but they’ll come here we think, at some point, we need to be ready.”

In Europe, where tariffs on Chinese-made EVs are much lower, car markers are expected to collectively lose more than $7 billion in profit by 2030 due to China’s growth in the market.

“I can announce today that the commission is launching an anti-subsidy investigation into electric vehicles coming from China,” European Commission President Ursula von der Leyen told EU lawmakers in September. “Global markets are now flooded with cheaper Chinese electric cars. And their prices kept artificially low by huge state subsidies. This is distorting our market.”

While getting more electric vehicles on American roadways is a major goal of the current administration, it is clear that tapping into China’s robust and affordable supply would be a complicated process.