This happens so fast – so fast that you probably don't notice. Over the past few months, the big three American automakers — Ford, General Motors and Stellantis Group (the oddly named company that owns Dodge, Chrysler and Jeep) have been in trouble.
This idea may sound a bit silly to me. Despite the prolonged strike of auto workers, Ford, General Motors and Stellantis all made billions of dollars in profits last year, and all three companies are set to grow in 2024. But recently, the Big Three have found themselves lagging behind and have failed to meet their EV sales targets, while a new wave of cheap foreign EVs has popped up and is poised to flood the global market.
About a decade ago, the United States** came to the aid of the big three automakers and vowed not to do it again. However, the federal ** will soon have to help the Big Three again, as well as other components of the American auto market. And, this time you need to do it the right way, so you can't do it three.
The biggest threat to the Big Three comes from a new group of Chinese automakers, notably BYD, which specializes in plug-in hybrids and battery electric vehicles. The company's growth is staggering: it sold 3 million electric vehicles last year, surpassing all its competitors, and it currently has enough capacity in China to produce 4 million cars a year. But that's not enough: it's setting up factories in Brazil, Thailand, Hungary and Uzbekistan, and may add Indonesia and Mexico to the list of production locations in the near future. The flood of electric cars is coming.
BYD beat all cars from the West with a very good value for money. Earlier this month, BYD unveiled a plug-in hybrid with a decent all-electric range that retails for just over $1$10,000 (7.)980,000 yuan). How did BYD do this? Like other Chinese manufacturers, it has also benefited from lower domestic labor costs, but this only partially explains the success. In fact, BYD — and Chinese automakers like Geely, which owns the Volvo and Polaris brands — are very good at building cars. They have taken advantage of China's dominance in the battery industry to automate production lines and turn themselves into unstoppable behemoths.
Chinese automakers, especially BYD, represent a new thing in the world. They mark the near-completion of China's decades-long accumulation of economic complexity: the country used to make toys and clothes, then electronics and batteries, and now cars and airplanes. What's more, BYD and other Chinese automakers are becoming de facto global car companies, capable of making electric vehicles that compete directly with gasoline-powered vehicles in terms of cost.
On the face of it, this is a good thing. If we want to meet global climate goals, we need more electric vehicles, and they need to be cheaper. But this poses some pressing and thorny problems for U.S. policymakers. BYD announced that it would push the ** price of 7After the 980,000 yuan plug-in hybrid car, it posted on Weibo, a Chinese social media platform, that "this will make (gasoline) car manufacturers tremble." "The problem is that many gasoline car manufacturers are in the United States.
Ford and General Motors had ambitious plans for an electric vehicle transition three years ago. But it didn't take long for them to run into difficulties. Last year, Ford lost more than 6$40,000. Since last October, Ford has postponed the start of construction of one of its new electric vehicle battery plants. And General Motors has had problems launching its new Ultium battery platform, which is widely believed to be the foundation for all of its future electric vehicles. Ford and General Motors have had a bit of success with electric vehicles — Ford's Mustang Mach-e and GM's Chevrolet Bolt are selling okay, but they're not on par with Tesla or Hyundai, and the two automakers have factories in "sunbelt" states that aren't very union-friendly.
Ford's chief executive, Jim Farley, recently revealed that the company has a secret R&D team working on a cheap, affordable electric car that could compete with Tesla and BYD. But producing and profitably producing electric vehicles requires organizational skills, and like all other skills, developing that capability takes time, effort, and money. Even if Ford and General Motors now come up with innovative designs, they will still lag behind their competitors in executing those designs flawlessly.
Another looming problem for Ford and General Motors is that their balance sheets, while ostensibly sound, mask a structural weakness. While the two companies have generally performed well in recent years, the vast majority of their billion-dollar profits come from selling relatively small numbers of vehicles to a small group of people. Specifically, Ford and General Motors rely heavily on the sale of pickups, SUVs, and crossovers to affluent North Americans.
In other words, if Americans' interest in trucks and SUVs wanes, Ford and General Motors will be in real trouble. This presents them with a strategic dilemma. In the coming years, these companies will have to bridge from one business model to another: they must use the solid revenues from the sale of trucks and SUVs to subsidize the growing electric car business and learn how to make the latter profitable. If they can overcome this hurdle quickly, they will survive. But if the profits from SUVs collapse before they are ready for the EV business, they will fall into the abyss and die.
That's why the flood of cheap electric cars from China poses such a problem: it could be swept away before Ford and General Motors build bridges. Even a wave of competitive EVs from Sunbelt automakers, such as Kia's three-row EV9 SUV, could eat into Ford and General Motors' SUV margins before they're ready.
Perhaps the Big Three should be destroyed; After all, they were the ones who got us hooked on SUVs in the first place and then fell behind in the EV race. But letting them die is not a viable political option for Biden**. One of Biden's goals in office is to demonstrate that the goal of decarbonization is not only feasible for the U.S. economy, but also to revive the Rust Belt's crumbling communities that rely on fossil fuels. Biden has also sought and has won the support of the United Auto Workers, a union that has just signed a generous new contract with the Big Three that it needs to thrive in the future. In other words, Biden has a reason to help the Big Three, even without considering the grim realities of the campaign: more people work in Michigan's traditional auto industry than in any other state, and for Biden to succeed in winning re-election, he basically needs to win Michigan in November. (Recall that Trump in 2016 ended with just under 1.)The 10,000-vote margin won over Michigan. Biden can't let the possibility of China hitting the Midwest auto economy again arise. So what should he do?
The good news is that Congress has done some work for him. You may have heard of the Inflation Reduction Act, which includes generous subsidies for domestic electric vehicle production. Can it help the Big Three? Yes, and will, but this bill alone will not be enough to insulate these companies from the threat posed by China's electric vehicles. Chinese automaker Geely is preparing to start with 3$50,000** sells the Volvo EX30 SUV in the U.S. This seems to include Trump's 25% tariffs, and the car's price-performance ratio is fully competitive with what American automakers can do today, even if the latter factor in the Inflation Reduction Act (IRA) subsidies.
Subsidies alone may not be enough; Biden will need to introduce new ** restrictions. But here things get complicated. While the case for protecting the U.S. auto market from China's electric vehicle onslaught is obvious and politically necessary, it is also extremely tricky. In the short term, U.S. automakers — even homegrown EV makers like Tesla and Rivian — will need protection from the onslaught of cheap cars. But in the long run, Biden must be careful not to isolate the U.S. auto market from the rest of the world and turn the U.S. into a backward land full of expensive and fuel-guzzling models. Chinese automakers represent the first real competition in decades for the global auto industry, and American companies must confront some of these threats, to their own benefit. This meant that they had to feel the chill of the knife holder on their necks and were forced to stand up to face the challenge.
This can be achieved in a number of ways. One is to suggest to U.S. companies that any import restrictions on Chinese cars in the coming years will not necessarily be permanent. This may encourage American companies to learn as much as they can from their new Chinese rivals, overcome their arrogance, and recognize that Chinese companies now know more about the ins and outs of EV manufacturing than their American counterparts. This means, especially for Republican lawmakers, that climate-friendly technologies represent the future of global industry. Mr. Trump is threatening to repeal the Inflation Reduction Act if elected, even though it is full of policies designed to help the United States compete with China's electric vehicles. There is no faster way to destroy the global position of the United States.
What the United States wants to do is really difficult. We want to preserve the economic geography and institutions of the old fossil fuel economy, while adapting them to the new zero-carbon world. The irony is that everyone involved — Democrats, Republicans, big car companies — is jealous that China has achieved a goal that arguably once hippies and environmentalists once made: to make electric cars popular and cheap. But if China can do it, so can we. It takes courage and sincere effort. We should assume that Ford and General Motors will compete with BYD and Geely for decades to come, and we should be hungry for this battle.