Elon Musk urges global action against Chinese EV takeover threat. Elon Musk is predicting that Chinese car companies will literally demolish Legacy auto.
By Lauran King
He’s predicting that most Legacy car companies stand no chance unless the rest of the world, outside of China, basically puts protectionism on their market and charges huge taxes on Chinese-made vehicles.
Sam Evans is sharing his views on the new challenges of the automotive industry.
Elon Musk, in 2010, when asked about BYD, said, “Look at their cars. They’re not very good.” He said something along the lines of “they’re kind of rubbish.”
To be fair, I don’t think anyone at BYD disagrees with him. BYD’s vehicles were rubbish in 2010. Do you see any BYDs being talked about from 2010 that are actually good? Do you see anyone saying, “Remember in 2010, there were so many good vehicles BYD was making?” No, actually, BYD was irrelevant on the world scale in 2010.
So, that quote has been talked about by the media, CNBC, CBS News, all these different media publications are saying Elon Musk didn’t have any idea what he’s talking about, but he was 100% correct. And now he’s also equally, I believe, 100% correct.
He has many times over the past 2 years recognized how good Chinese electric cars are today, how affordable they are. He said many positive comments about Chinese EV makers and about Chinese workers, about Chinese factories, about their ability, about their dedication.
And that’s why he knows more about this industry. He also knows more about the car industry in China. What car companies are capable of doing because Tesla has the biggest car factory in China, the Gigafactory in Shanghai. That’s where Tesla’s profits come from. If you took away Tesla’s factory in China, its profits would be 80% less than what they are today. Tesla relies on China.
But here’s the thing, there’s a lot more to this story than what you’re being told. In fact, the media is not telling the true story about China’s success or lack of success, more to the point, outside of the Chinese car market. The Chinese electric car market is going ballistic.
EVs in China are now at around 30%, so three out of every 10 cars sold in China right now are electric, fully electric. And when you consider the fact that 28.7 million cars were sold in China last year, that’s a lot of electric cars.
Now, Chinese EV companies are all making a lot. Only one of them makes a profit, and that’s BYD. So Chinese car manufacturers are going, “You know what?
Let’s send our EVs to Europe, let’s send them to other countries, let’s send them to Brazil, to Central America, to all these different places around the world, to the Caribbean, Australia, Thailand, Southeast Asia. Sell them there at higher prices where we can then make a profit to offset our massive losses in China.”
I mean, literally, thousands of car dealerships in China have gone bankrupt. Legacy automakers have already declared bankruptcy in China, several of them over the past 12 months. The Chinese car market is cutthroat. So Chinese car manufacturers are saying, “Well, let’s sell our cars outside of China.”
During Tesla’s quarterly earnings call on Wednesday, Musk said that it was incredible how quickly and efficiently China’s EV industry has been moving and progressing and that it would demolish other automakers if some barriers were not put in place at the trade level to prevent these Chinese automakers from beginning to dominate car markets in places like Europe and North America.
Well, our observation is generally that the Chinese car companies are the most competitive car companies in the world, he said.
Now, I don’t actually agree with Elon Musk personally. I do and I don’t, and I’ll get to the reason why in just a moment. The Chinese EV success story is causing a lot of fear, a lot of fear in Europe, a lot of fear in North America, a lot of fear, in fact, a lot of fear in every area where they have an automotive industry. Now, in countries where there’s no automotive industry, they don’t care.
They just want the best vehicle they can get for the money. And that’s why EVs from China are doing so well in places like Thailand and places such as Australia as well.
Now, Thailand does have its own automotive industry, but it’s really more of a contract manufacturer. It doesn’t have its own brands that it sells in Thailand. And in Southeast Asia, China’s EVs are doing incredibly well.
Now, these are places where European car manufacturers, to be honest, don’t really care too much. American car manufacturers don’t really care too much about Southeast Asia or Australia, New Zealand, etc. They’ll sell cars there, yeah, sure, but it’s not really their focus. It’s not where they’re making big profits.
China’s EV success story, though, has led to some people saying there will be dumping problems for the world, where markets across the globe are seeing an influx of Chinese cars hit the streets at a lower price than what could be produced domestically.
Now, is this factually true?
Actually, it’s not. This is more propaganda and fear talking here than reality. But it has led to some governments putting some protectionist-style tariffs and regulations in place to avoid a flood of Chinese cars. And it’s also led to a probe by the European Commission into companies such as BYD and Chinese government-owned SAIC Motors.
Tesla, well, they know how the operation works. They know how the Chinese car industry works. In fact, Tesla was the first foreign automaker to own its own factory in China. It built it, it owned it.
It’s the only one that’s ever done this. Every other automaker, every other foreign automaker that operates in China, and there are many of them, own only have joint venture partnerships, where an existing car company in China makes the cars for them, and they own 50% of the venture. But they don’t really do the majority of the work. Tesla, on the other hand, does it all themselves.
Now, the thing is, statistically, so far, Chinese EVs have not been a global success. In China, they have been. Tesla vehicles made in China have been a huge global success. But BYD, statistically speaking, has not. In fact, their global sales ambitions have been a complete failure.
This is not being recognized by the media. It’s only being recognized by, I don’t know, no one other than me, for some weird reason. I don’t understand it. BYD has been selling cars now for well over 18 months in Germany, well over 2 and a half years in many countries in Europe, and their sales figures are absolutely minuscule. I mean, they are almost non-existent. BYD is completely irrelevant in Europe.
It’s talked about, BYD shows their cars at car shows, they’ve brought in different models this year, but so far, there has been very little traction. The reason for this is that China’s EV manufacturers, including NIO, Xpeng, and approximately 10 other brands sold in Europe, are all being sold at relatively high prices through local dealerships who put on their own markups. This means they’re actually nowhere near as price-competitive as what Stellantis, for example, is claiming.
Now, the CEO of Stellantis, Carlos Tavares, makes some really bold claims. He said the automotive industry has to fight in the future and Chinese are the main contenders. Now, I believe he’s trying to mislead you. In China, he would be right, to be fair. One in three cars made worldwide is made in China.”
He said, “My number one competitor is the Chinese car makers. This is going to be a big fight. There is no other way for a global carmaker like Stellantis that is operating all over the world than to go head-on with the Chinese car makers. There is no other way.”
Last quarter, Tesla did lose its crown for being the world’s largest seller of electric vehicles to China-based BYD. But the perception here by most punters and by the media is that BYD has suddenly become a global car brand. The reality is it has not. It is trying to become one, but it is not yet really a global car brand.
Is this true? Am I saying this because I’m exaggerating?
Well, no, I’m not at all. 94% of all BYD cars sold in 2023 were sold in China. 94%. Now, to be fair, if 94% of all Teslas sold in 2023 were all sold in the United States, would we really be calling Tesla some global success story? I don’t think so. Let’s be fair.
Can BYD become a global success story? Absolutely, they can be. But currently, the prices of their cars outside of China in most markets, not Australia where they’re good and Thailand where they’re good, but most markets are not particularly affordable.
They are, in fact, almost double the price of what they cost in China. Now, unless something drastic changes and Chinese automakers change their strategy because BYD is not the only one selling for much higher prices outside of China than they do in China, then the reality is China’s EVs won’t really be that much of a success story.
This could change; it’s very possible Chinese automakers will begin lowering their prices significantly in 2024. Now, this would be good for consumers, this would be good news for consumers. Would it be good news for the automotive legacy car manufacturers? Would it be good news for Volkswagen, for Toyota? Would it be good news even for Tesla in terms of sales? Probably not. The thing is, it just hasn’t happened yet, and we can’t say for sure that it will. Now, I think it probably will, but realistically, we have hit an interesting point here.
In China, car manufacturers are doing incredibly well. Local car manufacturers are stealing sales away from legacy automakers. They are taking sales from Mazda, Mitsubishi, who are now dead in China, Jeep, who are now dead in China. They’re taking sales away from all Japanese automakers in China.
That’s what they’ve done so far. In terms of their sales outside of China, so far not much has happened yet. It could. We’ll wait and see. What are your thoughts? Do you think that Tesla could be under threat from BYD in places outside of China?
Do you think the Chinese auto market will actually dominate the world unless big protectionist measures are taken?
