On the surface, it should be a triumphant moment for the Big Three, the triumvirate of traditional American automakers made up of Ford, General Motors, and Stellantis.
They survived the pandemic and inflationary surge of the early 2020s, and they settled their labor issues with the United Auto Workers. They even had a pretty good 2023, financially. Even as interest rates reached multi-decade highs, which should normally discourage big-ticket car and truck purchases, Ford and General Motors booked $4 billion and $12 billion in profit, respectively — slightly below 2022’s levels but more than might have been reasonably expected. Stellantis, which owns the Jeep and Dodge brands, posted a record profit.
Consumers and businesses are still buying millions of full-size pickups, SUVs, and vans each year. If interest rates start to fall this summer, and the economy holds out, then 2024 could be even bigger. Yet the companies are clearly increasingly worried. And they have good reason to be. They are entering a critical period: a time when they must make the EV transition, or die trying.
For the past decade, Detroit has supported itself partly off profits earned from selling SUVs, crossovers, and pickup trucks to North Americans. It essentially delegated the market for small cars and trucks to foreign automakers operating in the United States, like Toyota and Honda. You haven’t even been able to buy a Ford-badged sedan or hatchback in the United States since the pandemic, as the automaker has winnowed its car offerings here down to the Mustang.
That model worked in the post-Great Recession period when gasoline was generally cheap and the global auto market was stable and growing. But now those profits are coming under threat. The primary driver of that threat is the rise of Chinese automakers, who are chomping away at the Big Three’s shrinking market share in China and around the world.
In the coming weeks, more and more attention will be paid to this important shift. The Biden administration is reportedly so alarmed at the ability of Chinese-made cars to enter American markets that it is considering hiking tariffs on EVs and other clean-energy products further.
Here are three important aspects of this story to understand:
1. The EV transition is suddenly struggling in Detroit
Each of the Big Three finds itself in a slightly different position in the EV transition than it expected to be — and while none of them is quite as weak as it may look at first, no automaker is doing particularly well.
Ford, for instance, seems to have nailed it with the Mustang Mach E, a family-friendly crossover that has outsold any individual electric model from Kia or Hyundai. But it has struggled to convince truck buyers to try out its all-electric F-150 Lightning, and it has slowed its EV investment plans. The company lost $64,731 on each electric car it sold last year — $4.7 billion on EVs overall — meaning that its electric division only survives because of its ample profits from selling gas-burning SUVs and trucks.
General Motors sells the Chevrolet Bolt, the country’s best-selling EV that isn’t a Tesla. But it has struggled to roll out its new Ultium battery platform, which it hopes will be the basis of all its new electric cars. It recalled the Chevrolet Blazer EV after test units literally left reviewers stranded by the side of the road.
Stellantis — the trans-Atlantic fusion of the Fiat, Dodge, Jeep, and Peugeot brands — is arguably in the best shape of the three, although you could argue that it barely counts as a member of the Big Three anymore. (It is headquartered in the Netherlands.) It turned a profit on its electric cars last year, but almost all of that came from European brands that aren’t offered here. Its American business remains slower and more pickup-dependent.
2. Chinese cars are cheaper ...
Since the pandemic, China’s position in the global auto market has completely changed. Last year, the country exported more cars than it imported for the first time ever. Although most of its auto exports are gas-burning vehicles — it has filled a gap in the Russian car market left behind by western automakers’ post-Ukraine withdrawal — electric cars make up a larger and larger share of its production.
The star of China’s EV market is BYD, which passed Tesla last year as the world’s No. 1 producer of electric cars. By leveraging China’s domination of the battery industry and facility with electronics manufacturing, BYD can sell EVs for under $12,000.
While BYD hasn’t started to sell cars in the United States yet, it is getting closer to the market. On Tuesday, the head of BYD’s operations in Mexico told Nikkei that the company is exploring opening a new factory in that country.
That could get BYD’s cars into the U.S. under the umbrella of the U.S.-Mexico-Canada trade agreement. Then, even if the federal government found a way to block the domestic sale of BYD cars, the company could still cut into U.S. automakers’ market share in Mexico and potentially Canada, which are both major markets for American manufacturers.
Even without North American factories, Chinese EVs have started to dribble into the United States. Volvo’s small new electric SUV, the XC30, is manufactured in China and will debut at $34,950 this year. That’s roughly the same price GM hopes to achieve with its American-made Chevrolet Equinox EV, a similarly sized SUV, which is due to go on sale later this year.
That Volvo is able to achieve price parity with General Motors is itself a testament to the Chinese sector’s advantage, as the price factors in the U.S.’s 25% tariff on car imports from China.
3. ... in part because they’re priced to move
What’s tricky is that while China is objectively better than the rest of the world at building electric cars, its companies are also helped by a slowdown in its domestic economy.
China is suffering a multi-year economic slowdown due to the slow deterioration of its real estate and construction sectors. The slower domestic economy means that these products are cheaper. More than 70% of China’s exports have fallen in cost over the past year, according to Nikkei Asia, a phenomenon that economists describe as “exporting deflation.” In part because President Xi Jinping has been so reluctant to adopt policies that would increase domestic consumption, the country’s most sure-fire method of generating economic growth has been to export more products abroad.
Many of those products — such as EVs, solar panels, and batteries — are essential to global decarbonization. As the historian Adam Tooze has written, clean energy is now the primary driver of economic growth in China. As Chinese companies search for foreign markets to sell their climate-friendly products, they are driving prices down for those products globally. That could potentially undercut other automakers’ ability to find a path to making profitable EVs.
This is the difficulty of thinking through this issue: The Big Three have made legitimate missteps, Chinese firms have a legitimate advantage over American and European firms, and Chinese firms can enjoy lower costs due to problems in the Chinese economy. How do you sort through those factors? Whatever path you choose, one message emerges: The Big Three can only be protected from the EV revolution for so long. One way or another — whether by the law of the land or the law of the markets — it’ll come for them.
Charging half steam ahead. EIA