The western world is readying itself for a Chinese onslaught in an industry it has historically dominated: cars. The rapidly maturing Chinese car industry makes competitive EVs across the full spectrum, from tiny city cars to envelope-pushing supercars. Left unchecked, Chinese cars could pose an existential threat to western automakers—so says Tesla CEO Elon Musk.
"The Chinese car companies are the most competitive car companies in the world," Musk said in Tesla's Q4 earnings call on Wednesday, as transcribed by The Motley Fool. "So, I think they will have significant success outside of China depending on what kind of tariffs or trade barriers are established. Frankly, I think if there are not trade barriers established, they will pretty much demolish most other companies in the world. So, they're extremely good."
Musk's concern follows a quarter where Tesla lost the crown for most EV sales volume to Chinese brand BYD, which Investor's Business Daily reports achieves higher profit margins. While Tesla still managed a new yearly sales record, it did so by slashing prices, which has concerned investors about Tesla's profitability—and potentially failing demand.
Tesla's lineup is aging, and new products are either overdue with no ETA or underdelivering on promises. Musk suggested during the aforementioned earnings call that Tesla could introduce a vehicle on a next-gen platform in the second half of 2025, but he still couched this estimate as "optimistic." This EV is believed to be Musk's long-promised cheaper model, which Musk hinted could arrive in 2021. It's worth noting that Tesla has not sustained production of a car costing less than $40,000.
Increased competition from western legacy automakers is also pressuring Tesla, though it's clearly China that has Musk the most concerned. Both China and the United States have accelerated their EV industries with heavy subsidization, but China has a key advantage the U.S. does not: battery supply. According to Reuters, a letter sent by U.S. senators to the Department of Energy indicates China produces 70 percent of lithium-ion batteries globally, and controls upwards of 60 percent of battery mineral supply. China also pioneered the cheaper, more durable LFP battery that's now being adopted by western makes.
The U.S. is trying to catch up with a rapid buildout of battery factories and lithium refinement facilities, but it'll be years before those all come online. In the interim, there'll still be headwinds for Chinese automakers seeking a foothold Stateside.
Chinese cars are perceived poorly by U.S. consumers, who see them as unsafe and of lower quality. Measures such as the Chicken Tax also directly shelter the heart of the U.S. car market, light trucks, under which many pickups and SUVs fall. Still, Chinese-made cars are making inroads to the U.S. under brands such as Buick, Lincoln, and Polestar. It seems openly Chinese branding is the hurdle, not so much the cars themselves.
Of course, Musk's enthusiasm for protection by the U.S. federal government is ironic (if not hypocritical) given his open contempt for it. Musk has blamed nonexistent regulation for Tesla's failure to deliver Full Self-Driving, and publicly raged at the Securities and Exchange Commission after being fined $20 million. Even so, Musk has been happy to accept $4.9 billion in government subsidies for his various ventures, according to The Los Angeles Times.
It seems the hand that feeds is also the hand that protects, not to mention the one to bite off. But with Starlink's and SpaceX's importance to the U.S. military, it's hard to see Musk and the Fed's strained relationship ending any time soon.
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