Jim Farley, CEO of Ford Motor Company, knew things weren’t going well before he boarded his flight back to Michigan. His fact-finding team, which visited China last May, uncovered the following facts. the cold, hard truth.
that “Chinese EV manufacturers are leveraging their cheap supply base to undercut price competition, offer seamless digital features, and expand aggressively into overseas markets.”
According to Farley, “This is an existential threat.”
While American, German, and Japanese automakers focused their electric vehicle (EV) competition on Tesla, Chinese electric vehicle manufacturers such as Xiaomi and BYD were busy changing the market landscape. Cheap prices, high-tech interiors, and rapid vehicle updates have helped Chinese-made EVs gain the upper hand in just a few years.
Farley’s EV products have higher prices but lower performance. For example, the Ford Mustang Mach-E has a range of 320 miles and costs between $39,995 and $58,995. By comparison, the BYD Sea Lion 07 has 379 miles and is priced between $26,700 and $33,200.
American consumers generally have no idea what happened. High tariffs have kept Chinese EVs out of the US so far. Even under the veil of protectionism, the American public is none the wiser.
Some Chinese EV models are sold in parts of Europe, South America, and Australia. In Mexico, Chinese-made vehicles, both EVs and internal combustion engine vehicles, currently account for about 20% of sales.
BYD’s cheapest EV, the Seagull, has a starting price of $10,000. It has a rotating touch screen and a range of over 300 miles. It is currently sold in China and Latin America. BYD plans to start selling it in Europe starting next year for about $20,000.
made in china
In business, you can compete on price or quality. Consumers typically have to choose one or the other. It may be cheap or it may be good quality. There may also be options that offer the best quality for the price and can be considered good value.
American corporate executives and politicians thought it was great when low-skill manufacturing jobs were moved to China decades ago. This boosted bottom lines and masked the money supply inflation caused by Washington’s soaring deficits. People who lack critical thinking and imagination even called this a ‘win-win.’
The win for American consumers was that they could buy their products cheaply. Light the reindeer antlers And other things you should have earrings made in China at low prices every day. The victory for American politicians is that they can buy votes by spending money taxpayers don’t have on things they don’t need.
There was still inflation in prices for services that could not be moved overseas. For example, college tuition and health insurance costs have risen dramatically. But for years, low prices for imported consumer goods from China have prevented the CPI from spiraling out of control.
Meanwhile, Rust Belt workers lost their manufacturing jobs and became addicted to fentanyl. Likewise, small town stores on Main Street USA closed as Walmart and Costco moved in to sell Chinese goods. But no one really cared. Because on balance, trade with China benefited coastal elites and the professional services economy.
The obvious public and private advantages of a Made in China world have been good for stock prices, the economy, and Washington. Or was it?
Better, faster, cheaper
In reality, the first half of the China story may not have been as great as advertised. But the second half of the story would be a complete disaster for some of America’s biggest companies.
Things change. Some people develop. Others fall behind. Plus, things rarely go as expected.
While these offshoring experiments were underway, Chinese companies further strengthened their capabilities. After figuring out how to mass-produce plastic spatulas and sprinkler heads, industry leaders turned their attention to advanced technology.
As America’s offshore outsourcing shifts to high-tech, China has retooled its skills. We have also developed infrastructure and supply chains to support the production of advanced technology products.
Chinese engineers, on the other hand, did not invent any new technology. They learned how to produce it and make it better, faster, and cheaper. When it comes to EVs, Chinese automakers have figured out how to outperform their foreign competitors in terms of price and quality.
“Imitation is the sincerest form of flattery that mediocrity can offer to greatness.” Observed Oscar Wilde.
For decades, Chinese manufacturers have been imitating their American pioneers. Chinese products had an imitation look and feel. Many people still do. But as the dominance of Chinese electric vehicles surges, imitators are becoming imitators.
Farley is looking to contract with the same low-cost component suppliers that Chinese EV manufacturers currently buy from. He’s focusing on small EVs because the heavy batteries needed for large pickup trucks are too expensive and tires wear out quickly.
This was a costly lesson. The F-150 Lightning pickup didn’t have the great EV scores Farley had hoped for. Ford is expected to lose about $5 billion from its EV segment in 2024, or half of its projected operating profit.
“Executing according to Chinese standards will be the most important priority.” Farley said. That means that if you buy a Ford EV in a few years, what you’ll really be getting is a more expensive imitation of the BYD EV.
China is winning the electric vehicle war
Elon Musk and Tesla showed the world that EVs are giant smartphones on wheels. There is no engine. Drive power is provided by a charged battery. The ingenuity comes from using the battery and regenerative braking to charge the battery while driving.
As a result, the development of electric vehicles has changed the automobile manufacturing environment. Traditional automakers with decades of experience don’t have the same edge in the EV market.
Chinese smartphone companies like Xiaomi have discovered that they have something their foreign competitors don’t. A developed supply chain suitable for low-cost production of the components and materials required for EV manufacturing.
Beijing has seized the opportunity to surpass global auto companies in the electric vehicle market. Huge government subsidies were provided to electric vehicle manufacturers and consumers. Likewise, massive investments in car charging stations have made EVs accessible to the average user.
At the same time, existing costs for American and European automakers are limiting their ability to compete. Volkswagen is currently at war with Germany. labor union People resisting the company’s proposed plant closure.
“Economy recession [for Volkswagen] It comes amid a difficult economic environment for car manufacturers and an influx of new competitors from Europe, as Volkswagen struggles to survive the transition to electric vehicles.”
In the United States last fall, after a labor strike against the United Auto Workers, Detroit’s top three automakers. trapped Large wage increases and increased retirement contributions and other benefits. This deal might be good for workers. But this would make it nearly impossible for American automakers to compete with Chinese companies.
In early 2023, Farley and Ford CFO John Lawler traveled to China and visited Changan Automobile. After taking the EV for a spin around the test track in Changan, Lawler said: “These people are way ahead of us.”
Musk recently visited China “Most competitive” Car manufacturers of the world.
Clearly, China is winning the EV war. Should we care?
American consumers have little interest in owning an EV. Actually, just 6.8% Electric vehicles accounted for new sales in May 2024. Perhaps if you could buy new Made in China EVs for $10,000 each, that would change.
Of course, Washington’s protectionism will not allow this.
[Editor’s note: Have you ever heard of Henry Ford’s dream city of the South? Chances are you haven’t. That’s why I’ve recently published an important special report called, “Utility Payment Wealth – Profit from Henry Ford’s Dream City Business Model.” If discovering how this little-known aspect of American history can make you rich is of interest to you, then I encourage you to pick up a copy. It will cost you less than a penny.]
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minnesota gordon
for economic prism
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