Chinese EV Entry Could Trigger 'Extinction-Level Event' For US Auto Industry, Report Warns

The Alliance for American Manufacturing (AAM) in a report last week warned against allowing Chinese EV makers into the American marketplace terming it a possible “extinction-level event” for the U.S. auto sector.

What Happened: While tariffs have kept Chinese automakers from U.S. roads thus far, the lobby group flagged concerns about Chinese firms’ investment in plants in the neighboring country of Mexico allowing these players easier access to the U.S. market.

Chinese EVs and parts are subsidized to be extremely cheap as compared to U.S. EVs and will threaten the domestic EV-making industry, the AAM said. “The commercial backdoor left open to Chinese auto imports should be shut before it causes mass plant closures and job losses in the United States,” the report warned.

Measures Recommended: The group called upon the government to raise tariffs further for made-in-China vehicles, a policy to prevent the entry of Chinese EV makers into the U.S. via neighboring states like Mexico, and the further implementation of the Uyghur Forced Labor Prevention Act to keep goods produced in Xinjiang out of the U.S. market.

Why It Matters: Legacy automakers too have been flagging concerns about lower-cost EVs from China taking over the U.S. market eventually.

During a panel discussion on disruptive technology earlier this month in Detroit, Ford’s EV unit’s Chief Operating Officer Marin Gjaja termed Chinese EV makers a “colossal strategic threat,” and said that China will eventually get around the heavy tariffs of 25% imposed by the U.S. on EV imports by buying factory space in Mexico.

"We look at that (Chinese EVs) and say, ‘That's coming here eventually, so we'd better get fit now and better get going on EVs or we don't have a future as a company,'” Gjaja said.

Even Tesla CEO Elon Musk in January said if not for trade barriers Chinese EV makers “will pretty much demolish most other car companies in the world."

The fears have escalated since reports of Chinese EV giant BYD Co Ltd eyeing a factory in Mexico. In the last quarter of 2023, BYD took over Tesla in battery electric vehicle (BEV) sales by selling 526,000 BEVs, surpassing Tesla’s global delivery count of 485,000. However, unlike Tesla which sells only BEVs, BYD also makes hybrids.

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Image created using artificial intelligence with MidJourney.