One of the biggest problems for automakers in transitioning to electric vehicles is that traditional cars generally cost even less. This is important for everyday car buyers trying to make ends meet.
In China, however, electric vehicles are actually more affordable than gasoline-guzzling ones. And increasingly, Chinese electric vehicles are exported to markets around the world and sold at prices that are difficult to match.
That worries automaker leaders outside China. This week, Stellantis CEO Carlos Tavares compared China’s emergence in the auto industry to the arrival of Japanese automakers in the United States in the 1970s, followed by South Korean rivals three decades later.
Now it’s China’s turn to make its mark, he suggested, and that poses a threat to existing automakers like Stellantis, whose brands include Dodge, Chrysler, Jeep, Ram and Maserati.
“The Chinese offensive is perhaps the biggest risk that companies like us and Tesla are facing right now,” Tavares said. “We have to work very, very hard to make sure we offer consumers better deals than those in China.”
The most feared Chinese automaker is probably BYD, backed by Warren Buffett’s Berkshire Hathaway, which recently overtook Tesla in global EV sales.
“No one can match BYD on price. Period,” Michael Dunne, CEO of Asia-focused automotive consultancy Dunne Insights, recently said Financial Times. “Boards of directors in America, Europe, Korea and Japan are in shock.”
BYD keeps costs low in part because it owns the entire supply chain of its electric vehicle batteries, from raw materials to finished battery packs. The battery represents about 40% of the price of a new electric vehicle.
Tackling Chinese EVs
Today, Chinese electric vehicles aren’t flooding American streets thanks to protectionist measures: a 25% tariff on Chinese-made cars on top of a regular 2.5% tariff on imported cars. But American lawmakers fear that Chinese automakers will use factories in Mexico to avoid such tariffs, taking advantage of the North American Free Trade Agreement.
“So do we want Chinese automakers to take a significant share of the U.S. market in the next 20 years or the next 10 years? I do not know. That’s the question,” Tavares said. “So how do we prevent this from happening beyond all the protectionist decisions, which are out of my reach? Well, making our consumers happy.”
Tavares said that while Stellantis will launch 18 new electric vehicles this year, eight in North America, “the work won’t be done” until EV prices catch up to those of traditional cars.
In Europe, where automakers are less protected from Chinese competition, Stellantis is taking orders for the new electric Citroen e-C3. It’s priced appropriately to take on budget models from Chinese rivals like Great Wall Motor. The e-C3 retails for 23,000 euros ($25,100) and has a range of 320 kilometers (199 miles). It will arrive in showrooms in the second quarter. An entry-level version scheduled for 2025 will be sold for 19,990 euros.
Avoid a “race to the bottom”
Both models will be sold at a profit, Tavares noted. Last month, he warned of the dangers of getting caught up in a damaging price war.
“If you cut prices while ignoring the reality of costs, there will be a bloodbath. I’m trying to avoid a race to the bottom,” she said. “I know a company that brutally cut prices and its profitability brutally collapsed.”
He didn’t say which company he was referring to, but his comments came shortly after Tesla cut prices of its Model Y across Europe and both the Model Y and Model 3 in China.
Read more: Ford CEO, who has worried about EV dominance in China for years, says ‘the world has changed’ and would work with rivals on cheaper battery
Tesla, in a call with investors last month, warned of “significantly lower” sales growth this year after a disappointing fourth quarter. CEO Elon Musk said his electric vehicle maker is “between two big waves of growth.” Hoping to compete better against both Chinese rivals and cheaper gas-powered cars, Tesla plans to start producing an entry-level electric vehicle starting at $25,000 next year.
Musk is also warily eyeing BYD and other Chinese automakers.
“If trade barriers aren’t established,” he told investors last month, “they will basically demolish most other automakers in the world. They are extremely good.