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Why China is a Growing Threat to the US Auto Industry

China has emerged as a major threat to the US auto industry. Through massive government support and rapid innovation, Chinese automakers are taking market share across the globe, even without direct sales in America. This represents a seismic shift that could redefine the auto landscape in the years ahead.

China Races Ahead in Global Auto Exports

In 2023, China exported over 5 million vehicles, surpassing Japan to become the world’s top auto exporting nation. This caps a meteoric rise from 6th place in 2020.

Leading the charge are government-backed automakers like SAIC, Dongfeng, and electric vehicle powerhouse BYD. Their export volumes have grown as US auto exports have declined 25% from their peak in 2016. America now ranks 6th globally, falling behind China, Japan, Germany, South Korea and Mexico.

“My number one competitor is the Chinese carmakers,” said Stellantis CEO Carlos Tavares. “This is going to be a big fight.”

BYD Dominates the EV Market

BYD exemplifies the rapid success of Chinese automakers. With backing from Beijing, it surpassed Tesla as the top EV seller worldwide in 2022.

BYD has cracked the code on affordable EVs, enabled by vast government support. For example, its tiny Seagull EV starts around $11,400 – less than $15,000 even including America’s 25% tariff on Chinese autos.

“How are we going to cut the price of EVs in half?” asked Kristin Dziczek of the Chicago Federal Reserve Bank. “China’s already done it.”

BYD earned about $1,500 in profit per Seagull sold, proving its efficient production capabilities. Overseas sales now account for 10% of BYD’s volume, doubling in 2022 and expected to rise further.

Rapid Growth Extends Beyond China

Initially focused on their booming domestic market, Chinese automakers are now expanding globally. They’ve captured significant market share in Europe, Mexico and developing markets.

Chinese brands accounted for 8% of Europe’s EV sales in 2022, estimated to hit 15% by 2025. Their EVs undercut local models on price by around 20%, compelling the EU to boost subsidies.

In Mexico, Chinese brands leapt from 0% to 20% market share in just six years. As this footprint grows, Chinese vehicles could soon reach US shores.

“Mexico is the second-largest market for China-made vehicles outside Russia,” said Dziczek.

Lessons From Japan and Korea

So far, Chinese automakers have not broken into the US auto market with sales under their own brands. But their global momentum suggests it’s only a matter of time.

When Toyota, Honda and Hyundai first entered America, they started with affordable, mainstream vehicles. Over decades, they gradually moved upmarket in quality, safety and prestige. This patient approach provides a blueprint for aspiring Chinese brands.

“The Japanese carmakers came to the US in the ’70s,” noted Tavares. “They needed 50 years to reach the top of the market. I don’t see why this would not happen with the Chinese.”

Keeping Pace With China’s Efficiency

Beyond sheer sales volumes, the capabilities of Chinese automakers pose a competitive threat to the struggling US auto industry. Their breakneck launch cadence and mastery of efficient EV production are world-leading.

“These new energy vehicle brands have become dominant,” said AlixPartners‘ Mark Wakefield. “They were 26% [market share] a few years ago, up to more than 50% in 2022.”

Fueled by government support, Chinese companies can develop models faster and build EVs profitably on a mass scale – something that continues to challenge Detroit automakers like GM and Ford.

To compete, the US auto industry must accelerate its EV progress and boost productivity. Partnerships with Chinese firms could help gain insights into their efficient processes.

Impact on American Jobs

As Chinese brands grow globally, the US auto industry faces renewed pressure to keep jobs on American soil. Offshoring production risks undermining the industry’s massive contribution to domestic employment.

Some automakers already import certain China-made models into the US, including GM’s Buick Envision and the upcoming Lincoln Nautilus. But a full-scale Chinese onslaught could displace thousands of auto workers.

Strong policy measures are needed to incentivize US production and ensure Chinese imports don’t dominate the world’s second-largest car market. America’s auto legacy deserves protection through this challenging transition.

Outlook for an Evolving US auto Industry

The rise of China’s auto industry promises to reshape the global competitive landscape. For the US auto industry to maintain leadership, it must redouble efforts to electrify, innovate and boost productivity.

Detroit can also forge strategic partnerships with Chinese firms to share best practices. But sound policymaking will be crucial to prevent domestic jobs from shifting overseas.

With smart strategy, the US auto industry can thrive in this new era of Chinese competition. America remains a manufacturing powerhouse, and its auto legacy runs deep. By leaning on its strengths, it can navigate the future with confidence.

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