Trump’s electric car ‘bloodbath’ is here already, courtesy of China-owned Volvo
The “bloodbath” Donald Trump warned about in mid-March has arrived on US shores sooner than expected. When he created a media-fed controversy by using that word to describe the impacts on US automakers if Biden were to be re-elected, Trump was referring to plans by Chinese car companies to flood the American car market with cheap, high-quality SUVs by exploiting loopholes in tariff laws utilizing plants built in Mexico as the jumping-off point.
At least one such plant, by Chinese auto company BYD, is in the planning stages, meaning the flood is set to begin within the next few years. But Reuters reported recently that Swedish-based, but Chinese-owned carmaker Volvo (a subsidiary of China’s Geely) is about to beat the competition as soon as this summer with the introduction of a small battery electric SUV, the EX30, in the US.
The EX30 will directly compete with the Tesla Model Y in terms of performance and features, but at a price tag of $35,000, $8,000 less than the Model Y’s current cost. Reuters writes that, “[t]he competitive price reflects an unusual combination of Geely’s China-specific cost advantages and Volvo’s ability to skirt US tariffs on Chinese cars because it also has US manufacturing operations.” Even better, Volvo says that, even at that market-undercutting price, it expects to realize a 15-20 per cent profit margin on the EX30, meaning it has room to cut the price further should Tesla or other companies find ways to meet its initial price tag.
Making the economics even more appealing to both consumers and Volvo/Geely is a recent Biden interpretation of a provision in the 2022 Inflation Reduction Act (IRA) that provides buyers with a $7,500 federal subsidy if they initially lease the vehicle. Many buyers will later purchase the car outright by paying off the lease early without loss of any portion of the subsidy. The Biden Treasury Department created this situation with an interpretation that classifies leased EVs to be “commercial vehicles” regardless of class or configuration, a leap of logic that is truly breathtaking even in this administration.
One can only wonder if management at Tesla and legacy US carmakers like Ford and GM read that particular fine print as they loyally lobbied for the passage of the IRA in cooperation with the Biden administration in their eager pursuit of federal rents. As things are turning out, they may well have been signing their companies’ financial death warrants.
Under current US law, cars manufactured in China and imported directly into the US face a tariff of 27.5 per cent. Volvo qualifies for tariff refunds because it has US-based operations from which it also sells similar cars. Other Chinese car companies – like BYD – will be able to bypass US tariffs by building manufacturing plants in Mexico or Canada, utilizing a loophole in the US/Mexico/Canada Trade Agreement (USMCA). The USMCA was a Trump-era renegotiation of the former NAFTA agreement.
Volvo and Geely have been able to achieve the lower costs for the EX30 by utilizing a shared platform which allows Volvo cars to utilize the same batteries, motors, inverters, gears and other high-cost equipment used by Geely in its own manufacturing. It remains to be seen whether BYD and other Chinese car companies will be able to realize even lower costs by manufacturing cars in Mexican plants. The competition in that realm could become fierce in the coming years.
One thing is certain, though: US carmakers, manufacturing EVs in US plants, paying US labour rates, and utilizing enough US-made parts to fully qualify for IRA subsidies will not be price-competitive with either class of Chinese EVs.
This is the “bloodbath” Trump was talking about, and it has arrived far sooner than even Trump expected.
David Blackmon had a 40 year career in the US energy industry, the last 23 years of which were spent in the public policy arena, managing regulatory and legislative issues for various companies. He continues to write and podcast on energy matters
