Speaker 1: In 2023, BYD produced more than three million new energy vehicles.

Speaker 2: BYD has grown into this powerhouse. You look at the monthly rankings, they're always at the top.

Speaker 3: The Americans and the Europeans produce cars that have inferior software and don't use the latest chip.

Speaker 4: GM sales are down by more than 50 percent, Ford's down by more than 60 percent, and Jeep has actually gone bankrupt in China and had to get out.

Speaker 1: President Biden slapped Chinese automakers with stiff tariffs, effectively doubling the price of a Chinese export EV. Donald Trump pledged to place a 100 percent duty on any car made in Mexico by a Chinese company.

Speaker 5: Chinese automakers are going to come here eventually, and they're going to do it regardless of if there's a tariff or not.

Speaker 1: In the world of electric vehicles, Tesla has reigned supreme. But its days as top dog may be numbered. In China, the world's largest EV market, it's been losing ground to domestic automakers as a ruthless price war has inflamed an already competitive market.

Speaker 6: If Tesla had not had price cuts of 20 to 30 percent, they probably would have actually had sales drop last year.

Speaker 1: And there's one carmaker in particular that has given Tesla a run for its money. Warren Buffett backed BYD. The Chinese automaker logged 2.4 million new car insurance registrations in 2023, making it the top brand in China with a market share of 11

Speaker 4: percent. I don't think anywhere in the history of the automobile has any company enjoyed such explosive growth in such a short period of time.

Speaker 2: BYD has grown into this powerhouse. You look at the monthly rankings.

Speaker 1: They're always at the top. In 2023, BYD produced more than three million new energy vehicles, which include plug-in hybrids and battery electrics, surpassing Tesla's production of 1.84 million cars.

Speaker 7: BYD is so much ahead of Tesla in China. It's like a. It's just it's almost ridiculous.

Speaker 1: Early on, Elon Musk was dismissive of BYD. Chinese carmakers weren't taken seriously by their rivals.

Speaker 6: It used to be that foreign brands had the majority of the market share in China. Now it's Chinese brands. And when you look at the vehicles that these Chinese OEMs and Chinese brands are putting on the market, they are some very good vehicles.

Speaker 1: Now they're a serious threat as they not only dominate the Chinese market, but have grand ambitions of expanding globally. In 2023, BYD's exports grew 334 percent to 242,765 vehicles across 70

Speaker 4: countries. About 40 percent of the EV market in China is owned by BYD, and they're just starting to export globally to places like Australia, Japan, Europe and potentially very soon the United States.

Speaker 2: CLSA has some predictions that by 2026, BYD will enter the top five automakers in the world. And this year they may reach the top 10.

Speaker 1: BYD, short for Build Your Dreams, was originally started as a battery company in 1995 by Wang Chuan-Fu in Shenzhen, China.

Speaker 4: It started out in the 90s as a manufacturer of batteries for cell phones. And for the first 10 years, low cost was their magic formula. We're going to undercut all the competition.

Speaker 1: After building a successful business, supplying customers such as Motorola and Nokia, it decided to enter the auto business. It bought Qianqianquan Automobile and launched its first internal combustion car in 2005, the F3. In 2008, it launched the F3DM, a plug-in hybrid EV.

Speaker 4: I remember driving in and riding the earliest BYD's. They were called the F3 and the F1, you know, inspired by Formula One racing, which is almost comical because their cars were these sort of mediocre commuter cars that were powered by Mitsubishi engine.

Speaker 1: In 2010, it unveiled its first fully electric vehicle, the E6.

Speaker 4: It was progress, but it wasn't perfection. Still, you know, taxis would buy the electric vehicle because they got incentives to do so. But very few private individuals had any appetite for BYD cars.

Speaker 1: The company's auto division didn't see much growth through the 2010s.

Speaker 4: Sales increased, but only gradually. Profits on those sales were mediocre. In fact, in 2018 and 2019, BYD's sales year on year were declining. Up until very recently, it was on the fence whether or not it was going to make it as a car company. However, it managed to turn things around. In 2019, I saw some of their new products called the Tangenhahn, designed by German designers, world-class designers. And the first time you see, oh, these are actually good looking cars. There's potential here.

Speaker 1: In 2022, the company stopped production of its ICE vehicles, focusing on building battery electric and plug-in hybrids.

Speaker 2: The majority of their cars are in the mass market, so that helps with volume. And they've also not completely shifted into pure electric vehicles at once.

Speaker 1: BYD is backed by Warren Buffett's Berkshire Hathaway and considered entering the U.S. market in 2008 when Buffett acquired 10 percent of the company.

Speaker 4: Warren Buffett himself said, I'm betting on the man. I don't understand the technology. I'm not sure about the China market. Will EVs take off or not? But this guy is one in a 10 million. So he recognized something special in Wang Chongfu, and it's with that that he gave his blessing to an investment, about a quarter billion

Speaker 6: dollars. A lot of the reason why he invested was because of the battery business, more so than the vehicle business. And that has grown dramatically along with their vehicle sales.

Speaker 1: BYD's stock is up over 1,400 percent since Buffett first invested. Berkshire Hathaway did pare down its stake in the company, selling more than 60 percent of its shares since last summer.

Speaker 4: Why would he draw down? So one is geopolitics, as he's mentioned with Taiwan. He said, I don't like TSMC because of the location. Second thing going on, Tesla ignited a price war about one year ago at the end of 2022. And that price war has been ferocious, so much so that most EV makers in China are losing money today. There's only Tesla, BYD and a couple others that are actually able to make

Speaker 1: a profit. At the core of BYD's winning strategy, price. Many of its vehicles undercut the competition.

Speaker 4: In Munich just a few months ago, they launched the Seagull price to get this $11,500. Very competitive in the segment of $35,000 and under.

Speaker 1: Its expertise in batteries, typically the most expensive part of an EV, has helped here as well.

Speaker 4: BYD designs, develop, engineers its own batteries at scale. So not only do they have the capability and the capacity for their own products, but they're also supplying batteries globally with plans to build battery plants all over the world.

Speaker 6: They are one of the top companies in the world building lithium iron phosphate batteries in particular. They cost about 30 to 40 percent less per kilowatt hour to manufacture. And LFP batteries are also extremely durable. They last a long time.

Speaker 1: As a leader in battery technology, it actually supplies batteries to other car makers like Tesla, Toyota and Kia. In 2020, it launched the Blade, a lithium iron phosphate battery that the company touted as a breakthrough in high energy density with high levels

Speaker 4: of safety. By many accounts, BYD's Blade battery is best in class globally right now. What they've done essentially is to maximize the energy density. And this is attractive to everyone in the industry.

Speaker 1: BYD is not just in the passenger car market, it makes trucks, buses and other vehicles as well. The company actually builds and sells electric buses in the U.S. at a factory in Lancaster, California.

Speaker 2: They have had a big business in the commercial fleet vehicles, including buses in the U.S., Latin America.

Speaker 1: But its passenger cars are what account for the majority of its sales. The company offers several models at a variety of price points. The Dynasty series includes the Kin, with a price starting around $14,000, two vehicles priced all the way up to the Tang on the high end, starting around $34,000.

Speaker 2: The vehicle that really put BYD on the map for the new energy segment is they had a sedan that they launched in July 2020, and this car just took

Speaker 1: off. The Ocean series appeals to younger consumers and features the Seagull, BYD's smallest car, with a starting price around $10,000, up to the Seal, a sedan that starts around $22,000.

Speaker 2: When they released the Dolphin and Seal models, one of the things that I was told was, well, we have many different colors as opposed to appeal more to young families and especially women.

Speaker 1: BYD has also introduced vehicles under luxury sub-brands Denza, Yang Wang and Feng Cheng Bao. Denza, a joint venture with Mercedes-Benz created in 2010, introduced a few EVs for the Chinese market before undergoing a restructuring in 2021. Mercedes has since reduced its share to 10 percent, but BYD has continued to develop new vehicles, starting with the D9, a luxury minivan, the N7, a direct competitor to the Tesla Model Y and the N8, a larger SUV. Yang Wang, created in 2023, targets the high end segment with a supercar, the U9, and a luxury SUV, the U8. Details of its next car, the U7, recently revealed it will have quad electric motors with a range around 500 miles. Feng Cheng Bao, also created in 2023, launched its first vehicle, the Bao 5, in November last year.

Speaker 2: Yang Wang is definitely BYD's effort to enter that really luxury segment of the market. The cars are either extremely gigantic or they're in the sports car category, which is very different from BYD's other cars.

Speaker 6: Most automakers at some point in their history try to create halo vehicles that will reflect well on the rest of the brand and create an image for the brand. And BYD is no different. It's a sign of their growing confidence to say, look, we can do what Ferrari or Lamborghini or Porsche can do just as well, if not better.

Speaker 1: Being the leading electric car maker in China, BYD has set its sights on bringing its cars to other markets.

Speaker 4: Starting around 2018, 2019, markets slowed and margins started to drop. And all Chinese automakers said, oh, if we stay still in our domestic market, we're going to drown in overcapacity and hyper competition. And we're already seeing that play out.

Speaker 1: It's already a major player in Southeast Asia, where it has 43 percent market share in EVs and is currently the top selling EV maker in Thailand, Brazil, Colombia and Israel.

Speaker 2: Thailand, they were basically nonexistent in the market a year ago. And just in the last few months, they've become the top selling car brand. And I believe they also have targets to double their sales in the Philippines and Singapore this year.

Speaker 1: Last year, the company started selling in Mexico and is looking to enter

Speaker 6: Japan. They just are launching the Dolphin in Mexico now, increasingly growing into other markets in South America where Tesla doesn't really have as much of a presence right now.

Speaker 1: BYD is building up its presence in Europe. Last year, it sold 13,000 vehicles there and now has its own massive cargo ship capable of carrying 7,000 vehicles. It recently delivered 3,000 cars to Germany in its first voyage.

Speaker 2: It's pretty in line with BYD's strategy overall to make sure they have as much as possible in-house with the ship that just gives BYD extreme control over costs.

Speaker 4: It's safe to say that their number one priority right now overseas is Europe, because in Europe, there's legislation to go electric. There's people with money to buy electric cars. There's decent charging infrastructure.

Speaker 1: The company has said it will open its first European plant in Hungary. But the Chinese automaker is facing obstacles abroad.

Speaker 2: The EU in the last couple of months has announced they're going to be investigating subsidies that went into the production of Chinese made electric vehicles.

Speaker 4: The EU commission saying, hey, we don't believe your costs. We think that you're probably dumping or oversubsidizing your products. And that's why you're so competitive here.

Speaker 1: In China, new energy vehicles have received substantial support from the government. Rhodium Group estimates that BYD received approximately $4.3 billion in state support between 2015 and 2020. But the biggest question of all, will BYD try to sell its cars in the U.S.?

Speaker 4: They're definitely preparing for the U.S. market, waiting for the right timing. U.S. and Europe promise a profitable market. They have to enter and compete and win here to thrive globally.

Speaker 1: Currently, tariffs make it expensive, with made in China EVs hit with a 25 percent tax on top of the 2.5 percent tariff imposed on imported cars.

Speaker 6: A lot of these companies and the investors in these companies, which in some cases includes various levels of government in China, there seems to be more of a tolerance for, at least for the time being, taking losses in order to

Speaker 1: grow market share. It recently announced it will build a factory in Mexico, possibly to gain a foothold in the North American market.

Speaker 4: Few people know it, but China is the number one supplier of cars to Mexico already. And the next natural step will be for them to build manufacturing plants in Mexico. They're already looking at sites, they're well advanced in their research and will ship our vehicles up through the border into the U.S., starting probably their expectations after 2025.

Speaker 8: What is the possibility of the Chinese getting closer and closer to our

Speaker 9: market? Within the next five or six years, you will see several automakers likely begin final assembly in Mexico. Why is that important? Because of NAFTA. It basically eliminates that tariff. People will say Americans won't buy Chinese. You know what? You ask somebody, do you want to pay $9,000 for an SUV or do you want to pay $19,000 or $20,000 for an SUV? No contest. And that's what we found with everybody we've talked to down here.

Speaker 1: U.S. lawmakers have warned Chinese automakers could flood the market and be a threat to domestic automakers.

Speaker 4: People in D.C. definitely have an eye on that. And you can bet that they're talking to the Mexican authorities. The risk is real for the U.S. at a time when UAW has just negotiated all time record high wages and

Speaker 1: and perks. In Australia, Chinese automakers aren't restricted by tariffs and BYD has grown considerably there. After entering the country in 2022, it now has 14 percent of the EV market. Tesla leads with a 53 percent share, but has been selling there since 2014.

Speaker 10: The Chinese car companies are the most competitive car companies in the world. I think they will have significant success outside of China, depending on what kind of tariffs or trade barriers are established. Frankly, if they're not trade barriers established, they will pretty much demolish most other car companies in the world. They're extremely good.

Speaker 1: But with China becoming such an automotive powerhouse, it may be hard to keep its ambitions at bay.

Speaker 6: Chinese automakers have learned very quickly how to produce really appealing vehicles. They're more affordable and they're arguably, in many respects, better vehicles. The rest of the industry has reason to be scared.

Speaker 4: China today has capacity to deliver half of the world's demand for vehicles, half. And given their strength and their low cost and their increased designs and improved quality, you start to wonder, like, what is going to stop this

Speaker 1: juggernaut? Just four decades ago, private car ownership was unheard of in

Speaker 11: China. For most people in a country where private cars still don't exist, the journey to work is still by flying pigeon bicycle.

Speaker 1: And there was almost no auto industry in the country, but now it is the largest auto market in the world by far. Some of the biggest beneficiaries of this meteoric rise were foreign automakers, including American ones. They made piles of money. But the good times have come to an end and their future in the country is seriously threatened.

Speaker 4: Detroit is under pressure in China and that for the same reasons they're losing in China, they could very easily lose globally.

Speaker 1: Lured by the promise of access to a burgeoning market of, at the time, more than one billion people, global automakers agreed to strict trade rules and taught inexperienced Chinese partners a lot about making cars. For a long time, it was worth it. Foreign companies enjoyed prestige and popularity. But Chinese firms caught up fast to the point that foreign firms are now being pushed out. The new market isn't quite like the state owned industry one might imagine. Many top firms are privately owned. There are fewer restrictions. It's highly competitive. New models can come to market in a fraction of the time it takes automakers elsewhere in the world and always at lower prices. Increasingly, Chinese consumers prefer to buy Chinese brands and the CEOs who run these companies have close and direct relationships with their

Speaker 12: customers. It's unlikely that once you've been dethroned, that you'll regain any power in the market.

Speaker 1: Despite the daunting circumstances, some say foreign firms, including American ones, need to double down.

Speaker 13: If you don't compete in China, then what are you going to do when China shows up in your backyard? How do you know how to compete with them? You haven't even tried.

Speaker 1: China's automotive industry dates back to the early 1980s. Two Chinese automakers formed joint ventures with foreign manufacturers. One with an American firm, another with a German one. The industry was tiny at the time. The first vehicle, the Volkswagen Santana, sold 1,700 units and dominated the market. The only vehicle buyers were government institutions and the

Speaker 14: like. Concept of a family car or a private car. It wasn't. Nobody was even allowed to buy cars.

Speaker 1: But reforms in the 80s and 90s opened the floodgates and created the 21st century auto market recognizable today. In 1994, one of China's top planning commissions issued the Policy for the Automotive Industry, also known as the 1994 Auto Policy. This rule allowed foreign automakers to take up to a 50 percent share in a joint venture with any Chinese auto manufacturer. Foreign firms could start no more than two joint ventures for any single type of vehicle. Later rules favored foreign automakers capable of producing cars that met global quality standards from locally sourced parts. General Motors, the biggest automaker in the world at the time, entered China in 1997, partnering with Shanghai Automotive Industry Corporation. As China's economy liberalized and grew, so did auto sales.

Speaker 3: Demand pretty much tripled the 1990s. And around 2000, 2001, China finished its negotiations to enter the WTO and that gave more security and reliability, predictability to foreign automakers. And China really took off.

Speaker 1: Sales grew tenfold in less than 10 years, and China became the world's largest car market that year. At its height from 2014 to 2018, General Motors made two billion dollars a year from its China operations and joint ventures. In 2017, the company sold four million cars in the country, about half a million more than it sold in North America. The Buick brand especially saw incredible success in China. About 80 percent of Buick's global sales were in the country, five times as many as in America.

Speaker 4: GM used to be the poster child for an awesome U.S.-China relationship. At one point, the CEO from GM China told me, here in China, we're making more money than God. Things are great. Chinese people love our Buicks. We're bringing Cadillac soon. And it looked like there was going to be a forever annuity for the big three GM, Ford and Jeep in China.

Speaker 1: But that didn't go as planned. A quick look at the market share of international auto manufacturers in China illustrates how rapidly things have changed. GM sales in China have fallen from that high watermark consistently since 2017. In 2023, they fell to 2.1 million, lower than their U.S. sales for the first time since 2009. Equity income from the country, GM's metric for how much it earns in its second largest market, fell 34 percent in 2023 to $446 million. It fell 54 percent during the fourth quarter alone.

Speaker 4: Things have been downhill and accelerating downhill so much so that GM sales are down by more than 50 percent, Ford's down by more than 60 percent and Jeep has actually gone bankrupt in China and had to get out. So in the last five, six years, we've seen just a disastrous outcome for the Detroit three.

Speaker 14: It's very abrupt, it's very sudden, but I think it shows the maturity basically of these Chinese competitors.

Speaker 1: So here is how it happened. First, Chinese cars improved by a lot.

Speaker 3: When Chinese firms first started exporting and they started too soon, as the Koreans did 30 years earlier, they didn't have the requisite quality. They failed miserably in many crash tests, particularly in Europe. And the Internet was full of pictures of Chinese cars crumpling like tinfoil. Five, 10 years later, they have extremely good results in crash tests and you don't hear a word about it.

Speaker 1: A lot of that improvement was thanks to what Chinese automakers learned from foreign partners.

Speaker 12: The whole point of the joint ventures was to bring them up to speed, to make sure that Chang'an, that FAW, that Shanghai all could come up to a point where they could compete with basically their partners and everybody else. If they hadn't seen that coming, that's on them.

Speaker 1: But Bill Russo, a former Chrysler executive who now runs a consulting firm in Shanghai, sees it somewhat differently. Cross-border investments made by Chinese investors and some non-Chinese ones were perhaps even more important than joint ventures in creating globally competitive brands. Nanjing Automotive Group bought the legendary British brand MG in 2005 and began making cars in 2007. Geely bought Volvo cars from Ford in 2010 for $1.8 billion and then spun out the Polestar Performance line as a standalone EV brand. Geely also bought British sports car maker Lotus in 2017. American investor Warren Buffett took a stake in BYD, although he has since reduced it. Some leading brands are privately owned and didn't grow out of joint ventures. Government support, of course, played a crucial role. The country knew it needed some kind of edge on incumbents. It bet big on EVs, spending an estimated 200 billion yuan, which comes out to about 27 billion American dollars. BYD received over $3.6 billion in direct subsidies between 2018 and 2022, most of it in that last year. Partly, this was to combat China's intolerable air quality problems. Decades of industrial development had left cities like Beijing with some of the worst air pollution in the world. But the decision was also economic.

Speaker 3: The Chinese felt that they had a hard time competing with the Western and especially Japanese companies with internal combustion engines because that would be hard to catch up. So they decided they would leapfrog and go into electric vehicles. This is an area in which nobody was proficient.

Speaker 1: In 2008, at the height of the financial crisis, the Chinese government made massive investments in transportation worth about 586 billion dollars, including investments in a nationwide high-speed railway system, airports and, critically, highways. The following year came tax cuts on smaller cars and incentives on vehicle sales in rural areas. A new policy outlined eight goals for the next two years. The plan? Grow car production and sales and fund research on EVs, plug-ins, hybrids and fuel cell vehicles. Those investments have given China a considerable leg up. A lot of the supplier base, including critical materials, is local.

Speaker 3: Chinese firms are really leading the world in battery development and battery production. And there's a tendency in the U.S., again, to think that this is all a matter of subsidies or cheap labor or lousy environmental controls. And all those things have some role to play and particularly played a role in the past. But it underestimates the degree to which Chinese dominance is based on technical capacity.

Speaker 1: Strengths go beyond batteries and motors. Chinese firms have become quite strong in software and infotainment systems, a benefit of the country's rise in the mobile phone and electronics industries.

Speaker 3: Volkswagen, for example, had big problems with software trying to hold together its EVs, and they've looked at China to help solve that. And I think that's a really important part of the story that you don't

Speaker 1: hear much about. Recent entrance with backgrounds in the technology industry include Li Auto, Xpeng, NIO, Xiaomi, Huawei, Baidu, Tencent and Alibaba.

Speaker 3: A little bit like Tesla. They're new. They don't have the burden of history. They don't have old factories to or not so many old factories to reconfigure. And they have a very fast pace of development.

Speaker 1: These companies view the car as a technology platform for the distribution of services and the continual collection of service revenue rather than a thing that is simply sold once and then forgotten. The concept of the car as a rolling smartphone or computer is already normal in China. China's younger buyer base prefers the highly connected products Chinese firms are selling.

Speaker 3: They now are often saying that the Americans and the Europeans produce cars that have inferior software and don't use the latest chip and are not as much on the cutting edge.

Speaker 1: The image many non-Chinese may have of the Chinese economy is one where the central government controls these large state owned enterprises. That's partly true, but there's a lot of nuance. Three of China's major automakers are controlled by the central government in Beijing, but most of them are owned by provincial or municipal governments. A few are completely private.

Speaker 3: It's not all operating perfectly according to market principles, but if you look at the number of producers, the number of models, it is by far the most competitive market in the world.

Speaker 14: You know, they probably will surprise a lot of people, especially given this year's bloodbath of pricing pressure, economic headwind, trying to push these vehicles out into the marketplace at lower prices, sacrificing profitability for volume. And so the foreign automakers, they have to look at this and they have the balance. Do I want market share or do I want profitability?

Speaker 1: The bloodbath Lei Xing is speaking of is the price war Tesla started in 2023. It began in China, but for years, an incredibly cutthroat environment has dramatically accelerated the pace of vehicle development in the country compared to other parts of the world. Normally, a car company might refresh or update a vehicle every two to three years and then make a significant generational change every five or six. In China, a refresh can happen within 12 months and the company will sell it at a lower price than the outgoing model.

Speaker 14: And this is where kind of the foreign automakers, because of that

Speaker 1: legacy, they can't keep up. In addition, Elon Musk is not the only CEO who talks to customers on social media. Chinese CEOs do, too, through China's major platforms such as Weibo and TikTok. They also solicit comment through the apps customers use to interact with and maintain their cars. This creates tight feedback loops. Michael Dunn, who for decades has been studying the auto industry in China and its neighbors, says politics are also to blame.

Speaker 4: We look back at 2017. It was a year in which GM and South Korea signed this agreement to supply South Korea with anti-missile defense facilities, important ones. China didn't like that. And since then, we've seen the sales and market share of both the Detroit 3 and the Korean automakers just nosedive. No one made an announcement and said, hey, you guys are in trouble. You're going to be shoved out of the market. But it's pretty clear that 2017 was a time in which the tide turned and the usefulness of the Detroit 3 just sort of began to fade as far as the Chinese were concerned.

Speaker 1: At the same time, a lot of the rules the Chinese government once had in place, like requiring joint ventures, have since been rolled back or removed entirely.

Speaker 14: The Chinese themselves learned they grew strong enough, so there's no more production needed. Let's just have people compete. Let's have the market open up.

Speaker 4: I don't want to sound overly dramatic. I just want to be realistic when I say that within the next five years, Ford, GM, Hyundai, Kia, Nissan, more likely than not, will be out of

Speaker 1: China. Some automakers, such as Volkswagen, the first foreign firm in the country, are trying to retrench and stay in the game. They're working with local firms and trying to move faster from decision to execution. Tesla might be in better shape than its Detroit rivals, at least for now. It was the first foreign automaker to be able to set up shop in China without a joint venture, thanks to the liberalization of trade policies. Just over one out of every two Teslas sold in the world is made in China. But even leaders face daunting odds.

Speaker 4: In my 27 years of living and working in China, what I've seen is a consistent pattern. That is, China invites in world-class companies, learns as quickly as they can the secret superpowers of those companies, and then gradually and almost methodically sees them to the exit door. And so Tesla one day will also meet this fate.

Speaker 1: You can bank on it. Russo, the former Chrysler executive, hopes U.S. firms will not back out of the country and instead invest more in local design, development and production.

Speaker 13: My fear is most of the global automakers have delayed the investment in EV because they don't see Americans embracing the electric vehicle.

Speaker 1: He thinks foreign firms can still compete in the market and maybe even chalk up some wins.

Speaker 13: Stay in the game in the next three to five years. Don't give up. Right. Invest and find some way to introduce those products, maybe even build them in China. If you can't find scale in the United States and then you at least have the hedge on the possibility of competing with China as they

Speaker 8: go. China has become the world's largest auto

Speaker 9: exporter. Nine thousand two hundred dollars equivalent U.S.

Speaker 5: dollars. Chinese automakers are going to come here eventually and they're going to do it regardless of if there's a tariff or not.

Speaker 1: Forty years ago or so, the Chinese auto industry barely existed. Today, the country makes enough cars to supply half the world.

Speaker 4: I call it the great Godzilla. The world has never seen an auto industry of this size scale. This is a giant machine just getting ramped up.

Speaker 1: And it has its eyes on the United States, which, thanks to China's rise, is now the second largest car market on the planet. There are no Chinese car brands for sale in the U.S. at the moment, although a few other ones like Volvo, Polestar and Lotus are Chinese owned. But insiders say it's only a matter of time. The country has been ramping up exports to offload over capacity. Surveys indicate a large share of shoppers, especially younger ones, would be happy to buy a Chinese car despite concerns over privacy, etc. But not everyone shares the enthusiasm. President Biden slapped Chinese automakers with stiff tariffs, effectively doubling the price of a Chinese export EV, which can otherwise be at least as cheap as $11,500. Within the auto industry, opinions vary, but many say tariffs might not be that effective in the long run and may do more harm than good. So what are the alternatives? We asked some industry insiders to find out.

Speaker 12: For the Detroit 3, for Toyota, for Hyundai to compete well against these Chinese brands, it's going to take something more than simply raising the tariff from 25 percent to 100 percent. I'm not exaggerating when I say what China, that the challenge that China is

Speaker 4: presenting the world, including the United States, is unprecedented. You know, in the case of the Japanese and Koreans, when they came into the United States, we were able to persuade, maybe coerce a little bit, hey, if you want to sell here, you have to build your transplant here. But they could own it. And they were our allies. They were our allies. And they were our allies. And ultimately, they were more dependent on us than we were on them. They were more. In China's case, we don't have that kind of leverage with

Speaker 1: them. China has the capacity to make half the world's cars, four times as many as the U.S. typically makes. Annual demand within the country is about 25 million units. That leaves 15 million cars for export, nearly as many as the U.S. can sell in a good year. China sent five million cars to over 100 countries in 2023, making it one of the largest exporters in the world.

Speaker 4: You see Chinese cars now in virtually every market except for the United States and Canada. And because there's so much capacity at home and the market at home has a price war, the Chinese automakers themselves are super motivated to get out and push their products into Europe, the United States.

Speaker 1: A mix of favorable policies and a booming economy got them to where they are today. China welcomed foreign automakers into the country beginning in the 1980s and especially after some policy changes in the following decade. Rules were simple. Foreign firms could sell cars in the country as long as they partnered with a local Chinese automaker. Chinese firms also made some cross-border investments. Chinese automaker Zhili bought Volvo cars from Ford, for example. And finally, many companies are government owned and even private firms receive generous subsidies. EV maker BYD received $3.7 billion between 2018 and 2022, for example.

Speaker 4: In state capitalism, the objective is we're going to build a world powerhouse auto industry. To get there, we need great companies. But by the way, at the local, provincial and federal level, we'll also offer all kinds of help. So the Western automaker look at that and say, how in the world do we compete?

Speaker 1: But Chinese companies have also built strong products.

Speaker 12: When they came to the Detroit Auto Show 15 years ago, their cars were not competitive. You could see the quality issues with those vehicles as you sat in them, as you played around with them. Now, the cars are much higher quality. They are very competitive once they hit the ground.

Speaker 13: And they pay attention to all the configuration of every seat in the car, not just the driver's cockpit. That's what I think obsoletes the traditionally designed in style vehicle.

Speaker 1: Bill Russo, a former Chrysler executive, says the Chinese have been extremely successful in developing new business models based around software and services. Many recent entrants have backgrounds in technology, electronics and mobile devices markets.

Speaker 13: When the iPhone came, the Nokia products went away quickly. That's what's happening in China now in the car business.

Speaker 1: American consumers are also receptive to Chinese cars. Nearly half of respondents in a recent survey said they are familiar with Chinese vehicle brands, and 76 percent under the age of 40 said they would consider buying a Chinese car. Consideration then declined significantly among older consumers. Grappling with this new reality, tariffs have become a popular political tool, especially with former President Trump beginning in 2018. Auto executives at the time, famously Tesla CEO Elon Musk, decried what they considered an imbalance between U.S. and Chinese trade rules. Lately, it is the Biden administration who is focused on tariffs. First and foremost, EVs. Tariffs on them will increase from 25 percent to 100 percent in 2024. The administration says China's extensive subsidies and non-market practices have led to substantial risks of overcapacity. Chinese EV exports grew 70 percent from 2022 to 2023. They're also raising tariffs on an array of materials used in carmaking. Lithium ion batteries, graphite, magnets, steel, aluminum and semiconductors. China controls more than 80 percent of certain segments of the EV battery supply chain, the administration said. That leaves U.S. supply chains vulnerable and risks national security and clean energy goals. Some politicians are pushing for even harder restrictions. The industry's response is mixed. Labor leaders are in support for obvious reasons. So is the Alliance for Automotive Innovation, the auto industry's major trade association. Tesla CEO Elon Musk criticized the tariffs, but even he had said earlier in 2024 that without trade barriers, most Western automakers would be demolished by Chinese competition. They can sell EVs cheaper than the cheapest fuel-burning cars and, according to some, are way ahead of competition in software and tech. But Russo is skeptical of tariffs. The Trump-era trade war may have been a missile aimed at Beijing, but it landed squarely on Detroit, he once wrote. Two things happened. First, the trade war drove up the costs of a lot of parts American automakers sourced from China or elsewhere. GM and Ford both reported that the Trump tariffs in 2018 saddled them each with an additional $1 billion in steel and aluminum costs. Secondly, it likely accelerated the globalization of Chinese companies looking to circumvent trade rules by making investments beyond their own

Speaker 13: borders. They're building factories in Mexico. They're building factories all over the world, Africa, Middle East, Eastern Europe, Western Europe, Southeast Asia. There's never been a bigger effort by China to de-Chinaize its supply chain than right now.

Speaker 1: If elected, Donald Trump pledged to place a 100 percent duty on any car made in Mexico by a Chinese company. Policy analysts say doing so would violate the terms of the very agreement Trump made with Mexico. It might also cause further friction with the country, which in 2023 became the U.S.'s largest trading partner. In any event, executives like Russo argue that these measures are delaying the inevitable. American firms need to face up to the fact that Chinese companies have extremely competitive and attractive products and American consumers want them.

Speaker 13: If you can make aspirational products affordable with configurations that surprise and delight the users of that platform, that's a universal value proposition. And sorry, Americans buy Chinese stuff and have been for decades have been enjoying the benefits of that in terms of affordability forever. If you shut that off, all you're going to do is make it more

Speaker 4: expensive. There are alternatives. Take a page from what China did 30 years ago when it was just starting out and they said, hey, you want to come into our market, the United States? Welcome. But by the way, in order to sell here, you have to manufacture here. You have to build plants here. And when you manufacture here, you have to form a joint venture with an American company that will own half of the business. Oh, OK. And by the way, we'd like you to export from America, too, so that we get extra benefits of you being here.

Speaker 13: We can do the same. That's called flipping the script. The problem isn't that we have to keep them out. The problem is we should let them in to give ourselves the benefits of the DNA that they've been able to create. And then but do it under a guided process, do it with policies. And right now, nobody's writing those policies. Nobody's writing policies that allow some of the benefits of globalization and scale and product configurations and technologies to flow back to the Western world. And that's going to really weaken the it's not going to help the industry. It's going to weaken the industry if we if we don't allow that

Speaker 1: to happen. And even though there are no Chinese branded cars for sale in the U.S. yet, more than 100 Chinese owned automotive companies have a presence in the United States already. They are concentrated in Detroit and Silicon Valley, and there are Chinese auto suppliers scattered across 30 U.S.

Speaker 4: states. But you'd never know it because we don't see Chinese cars on American roads. So it doesn't occur. No, no, what? That can't possibly be true. But it is. They're here. They're getting ready for the time when it's right to enter and sell their cars to Americans. And that's going to weaken the industry if we don't allow that to happen. And even though there are no Chinese branded cars for sale in the U.S. yet, more than 100 Chinese owned automotive companies have a presence in the United States already. And even though there are no Chinese branded cars for sale in the U.S. yet, more than 100 Chinese owned automotive companies have a presence in the United States already. And even though there are no Chinese branded cars for sale in the U.S. yet,