Various European & American institutions have been documenting the new China threat to their automotive industries and national economies. Their main complaint has been that Chinese EVs are growing globally because of huge state subsidies. While this is largely true, it is also very simplistic.

If capital was the only factor for success, the debt ridden legacy OEMs that have received many state bailouts over the years would have growing not decreasing market share. Apple with no shortage of dollars closed its electric self driving car project after spending over $4 billion without commercial success. Like Elon Musk said, ‘Prototypes are easy, production is hell’. Clearly, money only is not the key.

The Chinese are starting to commoditize vehicle production just like they have done with so many electronics and equipment. China is estimated to have a production capacity of over 40 million vehicles yet their local market is at 25 million vehicles, anyone wants to guess where this excess capacity is ending up at? In 2023 China overtook Japan and Germany as the largest vehicle exporter globally. Legacy brand power is being challenged by speedy affordable innovation.

To stem the rising tide of Chinese EVs, the US has quadrapled tarrifs on them to make them unattractive to buyers. This is largely a political move in a US election year, with Trump even threatening a total ban on Chinese EVs if he wins. Let us analyze how this could well be the death spell not for the Chinese but for American firms.

With such rapid innovation and over production at home, Chinese EVs are shifting focus to foreign markets like East Asia, Australia, India, Russia, South America & Africa where they sell at a premium compared to their highly competitive local market. The European & American OEMs being protected by their goverments will find it difficult to breath outside their own markets, mind you many of them relied heavily on the China markets which is fast collapsing on them.

The likes of GM, VW & Mercedes used to get over 35% of their vehicle sales and about 40% of their profit in China. Now they have been losing market share annually in double figures because they dont have EVs that can match the quality and price that the Chinese brands are putting in the market.

Will US tarrifs aid or cripple the US auto manufacturers? Will the EU follow suit? How will China respond now that it has promised a firm response?Activate to view larger image,