What we get wrong about the supposed threat of Chinese EVs

How the Western narrative on electric vehicles (EVs) has changed in just a few years. Not long ago, it was all excitement (with a bit of expected conservative backlash). The green transition was full steam ahead, electrification was going to solve the emissions problem, and battery-powered vehicles were going to slide right into the slot once held by their internal-combustion counterparts. But we hear much less of that today.

Earlier this year, the story of hope was replaced by one of stagnation. EV sales growth began to plummet, in part because of persistently high prices and a charging network that still isn’t where it needs to be — at least in North America. Then the specter of China took over the discourse. Chinese brands were supposedly preparing to flood Western markets with more affordable EVs — as if that would be a bad thing, at least from the point of cutting emissions — and that required tariffs to protect Western automakers.

More recently, the threat has been amplified even further. US officials have gone from warning about the economic risk of EVs made by Chinese brands capturing market share to targeting the tech in the cars themselves, namely Chinese infotainment systems and how they collect data like all new cars these days. Now those need to be banned too — another measure to try to keep out even the few vehicles that might have been imported despite the high North American tariffs.

All this news doesn’t bode well for the EV transition being touted just a couple years ago. Those measures are clearly targeted at protecting US automakers rather than trying to accelerate the replacement of internal combustion vehicles by electric alternatives. But while they may place a wall around the North American market for now (and to a lesser degree in Europe) it doesn’t bode well for those automakers’ global ambitions if they can’t keep up with new competition — something that has historical precedent with the rise of Korean and Japanese automakers in the 1970s and 1980s.

Given how the framing of EVs has changed, I found a recent interview by Ford CEO Jim Farley on the Everything Electric show fascinating because he didn’t echo those perspectives at all. Farley gave important insight into the specific reasons he believes US automakers are behind Chinese EV brands on making affordable, mass-market options, and said he even imported a Xiaomi SU7 to the United States and doesn’t want to give it up because it’s a great car.

I want to break down Farley’s insights into three key points.

1. Why China is leading

If you’ve been following the EV industry closely, this likely won’t be news to you. The common narrative we hear is that China leading because it stole a ton of proprietary intellectual property (IP) from Western companies, but that’s not exactly true. As Farley describes, China made a decision over a decade ago to commit to EVs, then put significant investment into growing the industry and establishing the necessary supply chains. In the West, that can be framed as nefarious — an effort to deny Western companies access to raw materials and market share — even though that’s not how the story would be told if the reverse happened.

Chinese automaker BYD and battery maker CATL, which are leading companies in their industries, did not spring out of nowhere. They’ve been working to perfect their products over that entire time, improving production methods and — especially on the CATL side — experimenting with different battery chemistries, such that their batteries are typically more affordable, can be recharged many more times, and have a lower fire risk than those typically used in US electric vehicles. The trade off is that they don’t hold as much energy, so the range is shorter.

Ford has a partnership with CATL so the automaker can manufacture its batteries in the United States and use them in its vehicles. General Motors may be on the verge of a similar deal. I’ve also heard that European automakers don’t want their own governments to cut off their relationships to Chinese competitors because they hope to do joint ventures to do exactly what Chinese companies were once accused of doing in reverse — learning their processes and getting ahold of their IP.

2. Why US automakers are behind

That gets us to the second point. Farley specifically noted how the Detroit 3 automakers — General Motors, Ford, and Chrysler (now owned by Stellantis) — didn’t have a plan for the arrival of Japanese and Korean cars, and got their lunches eaten by companies like Toyota and Honda. They’re trying to a plan for the coming threat from Chinese competitors, but it remains to be seen whether they can really keep up.

On that front, Farley says that US automakers made a serious mistake: When they invested in EVs, they assumed the conditions of the first couple years of the pandemic would persist, namely that prices would stay high and consumers would put up with them. But they found that after things stabilized, most US consumers weren’t willing to pay a premium for EVs. Yet, the models they’d developed were following the Tesla model, with massive batteries and trying to be a direct replacement for internal combustion equivalents.

Farley says that put US automakers four years behind the curve because they weren’t properly experimenting with different vehicle designs and battery chemistries. In another two years, there will be a wave of new models at lower price points and to fill different niches, or so he claims. I think this is the biggest point of skepticism I had: whether the companies can really get their acts together to adapt to a new automotive dynamic. Given their track records, there’s ample reason to believe they won’t be able to properly follow through.

3. What EVs might mean for future design

There was one final observation Farley made that stood out to me though. For the past several decades, there’s been a clear trend in automotive design: at every redesign, vehicles get bigger and heavier, and by extension make the roads less safe. The pedestrian safety crisis in the United States is in large part attributable to poor road design and how large vehicles have become. But Farley’s comments suggested the economics of EVs may change that — something I found intriguing and want to learn more about.

His argument goes like this: With internal combustion vehicles, the “natural law” was that the bigger the car you make, the more money you’ll make from it. But with EVs, that gets turned on its head. The larger the EV, the bigger the battery is needed to power it, and the more battery is needed just to move that bigger battery. EVs tend to be heavier than their internal combustion equivalents because of their batteries. Since the battery is also the most expensive part of the vehicle, the economics don’t work out so great (unless you’re charging a premium price). Instead, Farley suggests smaller, mass-market EVs may also turn out to be the more profitable approach.

Again, I think there’s reason to be skeptical. Chinese EV makers are churning out plenty of massive vehicles alongside their smaller, more affordable ones to fill every market segment and if you look at lists of upcoming North American EVs, most of them are big SUVs. But I can’t deny the idea that there might be an economic incentive to reduce vehicle size struck me as a point I hope does turn out to be true. That’s not because I care about the bottom lines of automakers, but because smaller vehicles require less energy to move around and they also present less of a safety risk to other road users.

Is the current approach working?

The big caveat to put on all of this is that Farley is the chief executive of a major company, and we have plenty past experience to tell us everything that comes out of one of their mouths shouldn’t necessarily be trusted. But at the same time, his more positive tone on Chinese competition compared to lawmakers struck me as an important contrast as we debate the right approach to trade and transport policy moving forward.

Should Chinese automakers be banned from Western markets, or should they be welcomed as long as they build factories here, maybe even in joint partnerships with local brands as China has required on its end for years? I think the latter approach makes more sense, and the United States and Canada risk letting Mexico seize the entirety of that opportunity because their Sinophobia is so all-consuming. Conservative politicians are already starting to call for Mexico to be ejected from the continental trade pact over the issue of Chinese cars.

Electric vehicles are far from a silver bullet for transport decarbonization, let alone addressing the long list of other issues that plague transport systems dominated by personal automobiles. But given how fast we need to cut our emissions, they will be part of any realistic path forward. Maybe one of those path is to have US and Canadian workers in domestic factories churning out cars with Chinese labels on them — just as they do with Japanese and Korean brands today. It might even give local automakers the kick they need to offer some more affordable models.