Beijing Vs. Detroit: Chinese EV Innovation Speed Could Smash Tariff Barriers And Invade US Auto Sector

China's EV makers are beating their western counterparts in the race to release new car models.

This unprecedented demonstration of production speed is yet another worrying sign for U.S. automakers, who continue to fear the day Chinese EV brands start flooding the American market.

In the last quarter of 2023, the industry witnessed the first time a Chinese EV company (or any company for that matter) surpassed Tesla TSLA as the largest seller of battery-only vehicles. BYD Company ADR BYDDY, the Shenzhen-based electric carmaker, sold a record-breaking 526,000 vehicles, against 484,507 for Tesla.

While Tesla still sold more electric cars that year than any other company, the quarterly triumph by a Chinese company was seen by some as an omen of good times ahead for Chinese EV makers and their low-priced vehicles.

U.S. Car Executives Are Worried: U.S. auto industry leaders recently expressed concerns over China’s growing influence in the global EV market. On a recent earnings call, Tesla CEO Elon Musk said that if not for trade restrictions, Chinese automakers could "demolish" their global counterparts.

"Chinese car companies are the most competitive car companies in the world," said Musk.

Chinese carmakers, however, face a 25% tariff in the U.S. market, a measure set forth by form President Donald Trump and maintained by the Biden administration. The restriction has so far warded off Chinese EV makers from flooding the U.S. market, as they have in other high-income territories.

Former Ford Motor Co F CEO Mark Fields last week called for an outright temporary ban on Chinese cars in order to protect the U.S. industry.

BYD registers virtually no sales in the U.S., which makes its landmark win on global deliveries over Tesla even more significant, as the U.S. is still the largest market for electric vehicles after China.

The industry was rattled after it came to light that BYD was eyeing a factory plan in Mexico. Executive Vice President Stella Li later said that her company views Tesla as a partner more than a competitor, and that the company’s Mexico plans are not related to any intentions to enter the U.S. market.

Also read: 3 European Auto Giants Consider Joining Forces To Tackle The Might Of Tesla And Chinese EV Rivals

Late last month, Ford EV unit COO Marin Gjaja deemed Chinese EV makers a "colossal strategic threat" to U.S. EV makers, while a report from the Alliance for American Manufacturing referred to a potential market penetration by Chinese companies into the U.S. as an "extinction-level event."

Other major Chinese EV makers have already expressed explicit plans to enter the U.S. In November last year, Nikkei reported that Nio Inc – ADR NIO is planning to sell its first luxury EV in the U.S. by 2025.

The Government Pushes Back: The Biden administration is supporting a shift to electric vehicles as part of its economic and environmental agenda. It recently pledged an investment of $150 million to upgrade 4,500 EV charging stations nationwide.

President Joe Biden is also aiming his administration's efforts to hamper Chinese success in the U.S. more directly. Last week, he referred to Chinese EVs as a national security threat, saying that the country "is determined to dominate the future of the auto market, including by using unfair practices."

"China’s policies could flood our market with its vehicles, posing risks to our national security," he said, while also vowing to take non-specific actions to protect the domestic auto industry and its workers.

The Commerce Department has launched a probe into the possible threat stemming from technology inside Chinese EVs, yet the Biden administration made it clear that the measure was part of a broader strategy to fend off economic pressure on the industry.

Energy Secretary Jennifer Granholm is expecting the EV industry to make up 50% of car sales by 2030.

Chinese EV Manufacturers Beat Others In Speed: In spite of efforts to keep Chinese vehicles at arm's length, efficiency is surfacing as the latest threat from the Asian country.

According to a new report from The Wall Street Journal, Chinese EV companies are about 30% faster in developing and releasing a new car model than legacy Japanese, European and American carmakers.

The advantage stems from reducing lead times across various stages, from design to production.

Many of the giants in the Chinese EV industry are newly formed companies that don't carry the weight of processes and bureaucracy that slows down legacy carmakers across the Pacific and in Europe.

Xiaomi Unsponsored ADR XIACY, a company that achieved rapid growth in the consumer tech sector by utilizing similar practices, has also unveiled an EV model for the Chinese market, which is already in production.

Some companies, like NIO, exploit a strategy called "minimum viable product," by which they release EVs to market as soon as possible, and continue to perfect them in the coming months and years. The cars carry more electronics that they initially need to reach the market, which are engaged in later times via over-the-air updates sent by the company.

Standardization has helped companies like Xpeng Inc – ADR XPEV release models sooner, by using the same operating system, driver-assistance software and battery pack design across every car. 

Li Auto Inc LI, another Chinese EV maker, is also riding the wave of sales growth, and last week beat market expectations with a Q4 revenue of $5.8 billion.

Now read: How Chinese EV Traders Are Beating Global Barriers With A Stealthy Tactic To Conquer New Markets

Image created using artificial intelligence with Midjourney.