Tech: U.S. EV Makers Face Challenge in China, China Economics and Trade Bulletin, USCC, Jan. 31, 2023.
Prepared by the research staff of the U.S.-China Economic and Security Review Commission (USCC.gov)
CONTEXT:
Incubated by investment restrictions, tariffs, subsidies, and state-supported supply chains, electric vehicle (EV) manufacturing in China has flourished. Coupled with consumer subsidies, these policies helped make China the largest EV market globally, accounting for more than half of EV unit sales in 2022.
Growing demand for green vehicles has made China an attractive market for U.S. automakers, but a 15–25 percent tariff on imported vehicles and—until 2018—a foreign ownership cap of 50 percent have limited U.S. manufacturers’ market access.
Now, China is scaling back support by repealing EV subsidies and investment restrictions. This follows a pattern seen in other sectors: the Chinese government protects domestic firms with market restrictions then removes restrictions when its firms are competitive, making it hard for U.S. entrants to gain market share.
U.S. EV producers struggle to maintain market share amid changing Chinese policy. GM operates in China through a joint venture with a state-owned enterprise (SOE). The company, SAIC-GM-Wuling (SGMW), is the second-largest EV manufacturer in China. Tesla, the third largest, opened its Shanghai Gigafactory in 2019 and has produced more than 1.32 million Chinese-made vehicles. Despite the popularity of U.S. manufacturers, they are steadily losing market share to Chinese-owned firms like EV giant BYD, which has benefited tremendously from state support. In 2021, BYD controlled 18 percent of the Chinese EV market, SGMW controlled 14 percent, and Tesla controlled 10 percent. By 2022, BYD’s share expanded to over 30 percent; SGMW’s share sat just above 8 percent and Tesla’s share just below.
Despite actions to open the market, U.S. EV producers face an uncertain future in China due to declining demand and increasing competition. Car sales are expected to fall as government EV subsidies expire and consumer spending declines in anticipation of an economic slowdown. While Tesla China increased its total EV sales by 37 percent in 2022, December production was down 44 percent from November and 21 percent from the year prior. This reduction was owed in part to a temporary shutdown of the Shanghai factory in late December to reduce output in response to weakening demand. In addition, foreign firms face strong competition from better positioned domestic firms. SGMW’s Wuling Hongguang MINI was China’s best-selling EV in 2021, followed by Tesla’s Model Y. By November 2022, BYD’s Song Plus took the number one spot and is expected to be the top-selling EV of 2022. The challenges facing U.S. EV makers in China are not unique to the auto industry. U.S. firms in China often compete on an unlevel playing field created through a mix of tariffs, market access restrictions, and investment requirements that favor Chinese domestic producers.