OPINION:
China is winning the race to dominate the electric vehicle industry.
Americans and Europeans cry about Chinese protectionism, but more is at play than trade barriers and subsidies.
Early in this century, China recognized the importance of the automotive sector — it’s a huge consumer of semiconductors and software. It concluded that catching Japanese, Korean, U.S. and German manufacturers that dominated in vehicles powered by an internal-combustion engine would be tough.
China bet on EVs with research and development of battery technology, followed by tax incentives, production and purchase subsidies, and creative regulations.
For example, China limits pollution and congestion by auctioning quotas of new license plates for conventionally powered vehicles. Green plates for EVs are increasingly prevalent.
China now produces 60% of vehicles with a plug globally. Its potential exports threaten the viability of the U.S. and German legacy auto sectors, especially as government regulations push consumers to switch from gasoline- and diesel-powered vehicles.
As for the U.S., the Department of Energy has supported the development of battery technology and offered tax credits to purchase EVs since the Obama administration.
President Biden’s Inflation Reduction Act doubled down on this approach with aggressive new subsidies to encourage battery and vehicle development and production and more tax credits for the purchase of domestically produced EVs.
Tesla has profited greatly from these programs, and Elon Musk has built a fully integrated battery and auto manufacturer from scratch.
Still, some of what Americans do is downright inept.
The Chinese government has made public EV chargers ubiquitous, whereas President Biden’s has built only seven of the 500,000 public EV chargers promised through the Inflation Reduction Act in its first two years.
Despite hefty prices and buyer subsidies, neither Ford nor GM has managed to profit from EVs.
Without qualifying for tax credits, Hyundai appears able to sell EVs here at a profit. It is also opening a new battery and EV assembly plant in Georgia.
Stellantis, which owns Chrysler, sells EVs at a profit in Europe and plans to introduce eight new models here by the end of the year, including a Fiat 500e subcompact, Dodge Charger and Ram 1500 pickup.
Unfortunately for Detroit, the reckoning is about to arrive.
New regulations from the Environmental Protection Agency effectively require that about 53% of new vehicles sold be EVs by 2032, and soon it won’t take incentives to get car buyers to abandon gasoline-powered cars.
Over the past year, prices for lithium, nickel and cobalt have fallen substantially, and Goldman Sachs is predicting a 40% drop in battery cost, which would take the price per kilowatt-hour below $100.
That’s singularity — the point at which making and selling EVs should be cheaper than making and selling their conventional counterparts.
A modest Hyundai EV could be built for less than a gasoline-powered Chevrolet, and those EVs would cost less in fuel and maintenance.
Over the next five years, modifications to lithium battery designs that may be accommodated at existing plants should substantially increase the amount of power and reduce battery charging time. That virtually eliminates range anxiety and inconvenience on long trips, which are principal barriers to EV adoption.
Still, China’s industry has advantages over Ford and GM, apart from labor costs that government money can’t buy.
China’s auto companies have dramatically streamlined the design processes and turn cycles for new vehicles by relying more on virtual testing and flexible platforms that permit vehicles to be modified for technological advances after sale.
Stellantis owes its cost advantage over GM and Ford to an innovative platform system that permits rapid transitions among conventional, hybrid and EV prototypes and to build many different vehicles on the same platform.
Hyundai clearly has something in its design process, or it could not accomplish what Toyota and others haven’t done so far.
We can’t afford to let GM and Ford fail — at least not quickly. The legacy industry is too important in maintaining a good job market, but industrial policies haven’t worked. And now Mr. Biden is slapping 100% tariffs on Chinese EVs.
We could accept the growth of Hyundai and Toyota plants in America if those prove more adept to replace the legacy U.S. industry. But we still need a better strategy, or subsidized Chinese manufacturers will win out in global markets.
Shutting out competitive imports from Japan, Korea and Europe would not foster a more efficient U.S. auto sector. Legacy manufacturers would require indefinite subsidies that the federal budget can’t bear.
It would be better to let EV manufacturing and purchase subsidies expire as planned by 2032, go ahead with Mr. Biden’s high tariffs on Chinese imports, and tax other imported vehicles containing more than perhaps 20% Chinese components. And permit tariff-free access to European, Japanese and Korean vehicles if their jurisdictions do the same for our cars.
• Peter Morici is an economist and emeritus business professor at the University of Maryland, and a national columnist.
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