• China’s leading electric car manufacturers are eyeing the U.S. market as they plan to expand sales across the world.
• The country’s biggest electric vehicle (EV) maker, BYD—Build Your Dreams—has studied how it would develop a distribution network in the U.S. in a bid to take on the likes of Elon Musk’s Tesla.
• Analysts say manufacturers will have to convince the public to both switch to EVs and buy Chinese, among a number of other hurdles, which could prove tricky for them.
• But lower-cost EVs would be good for competition, analysts claim, and could convince Americans to take a chance on a Chinese brand.

Chinese car companies could soon be moving into the U.S. electric vehicle (EV) market, promising to provide immense competition to the likes of Elon Musk‘s Tesla, as well as home-grown manufacturers branching out into the widening market.

Despite providing the potential for more affordable electric cars while the Biden administration is pushing the nation towards electrified transportation, Chinese firms are likely to face skepticism from consumers at a time when sentiments towards Beijing are politically charged.

They also face massive upfront costs to break into the market and attract customers, according to industry experts.

In January, Reuters reported, citing four sources familiar with the company’s thinking, that Chinese EV giant BYD—which stands for Build Your Dreams—was making a global push to become the country’s largest producer and had spent much of 2022 studying how to establish a distribution network in the U.S.

Zhang Wei, one of the company’s key shareholders, told the outlet that « BYD at this point is already better positioned than Tesla in the EV era, » as it sourced and made most of its components domestically in China.

However, it fell short of a public announcement, owing to rising tensions between the U.S. and China, and Biden’s incentives for domestic manufacturing, signaling that it was taking a « cautious approach. »

BYD represents a wider trend in that the Chinese EV market is already large and is eyeing outward expansion. Analysis by ING, a Dutch bank, found that EVs made up 27 percent of domestic Chinese sales in 2022, nearly doubling the number sold in 2021. BYD alone outstripped the sales of Tesla last year by more than 500,000 units.

« What happens in China will not stay in China, » Bill Russo, CEO of advisory firm Automobility, told Insider. His analysis of the market suggests a few strong contenders with established supply chains, such as Geely and Xpeng, were already emerging, and would likely look to the international market next. It could very well be that other Chinese manufacturers are doing the same as BYD.

« I’m in a sense delighted at the prospect of more electric cars, » Marc Geller, a spokesperson for the Electric Vehicle Association, told Newsweek. « The problem at the moment is lack of product. My understanding is there are tremendous waiting lists for, example, the Ford vehicles. »

While U.S. EV sales increased 65 percent year-on-year in 2022, according to CleanTechnica, a green energy research outfit—of which Tesla models took the top two spots, followed by Ford’s electric Mustang—they still comprised just 5.7 percent of domestic car sales.

As the Biden administration has already pushed the U.S. towards EVs through measures in the Inflation Reduction Act, and several states have brought in mandates for phasing out gas cars, supply presents a growing challenge, compounded by the limited supply of raw materials needed for EV batteries.

« The truth is, the legacy auto makers need a kick in the pants to move forward more rapidly, » Geller said. « They’ve all got electric cars in the market, but their production numbers are pretty small, certainly compared to Tesla. »

Newsweek reached out to Ford, Tesla and BYD for comment via email on Thursday.

Chinese manufacturers, which appear to be increasing their production at greater speed, could fill that gap. And there is precedent for foreign car manufacturers breaking into the U.S. market: Japanese car makers such as Toyota and Honda gained a foothold in the 1960s and 70s, while South Korean manufacturers such as Hyundai and Kia made inroads in the successive decades.

Brian Maas, president of the California New Car Dealers Association, said those companies « entered the market slowly, they got consumers to understand and believe in the product, and they’ve done very well since. »

However, whereas those foreign manufacturers were competing in the traditional gas car market, Maas said Chinese EV manufacturers have to not only convince consumers to buy their car, but to buy into EVs in the first place.

« To enter the mass market at the lower prices, » he told Newsweek, « you also have to convince consumers, in addition to buying your cheaper vehicle, to change their driving behavior and figure out how to charge it… that’s going to take a while. »

An issue raised with EVs generally is that of infrastructure. While single-family households are typically able to charge at home, there is limited resources for multi-family dwellings such as apartment blocks.

Geller mentioned that Chinese manufacturers, such as Great Wall Motor and SAIC, had already broken into the European market, adding: « Americans are going to be no slower to be willing to purchase Chinese cars than the English, or Norwegians, or Irish. »

Maas noted that the other foreign manufacturers that entered the U.S. market previously began with affordable cars before working their way up to luxury models once they had brand approval—suggesting this is a well-trod path into America.

« They tend to start with low-cost cars and move up the ladder, » Geller agreed. « I don’t know if, when you’re introducing an electric car, you start at the low end or not; certainly, there’s a hunger in the market for lower-priced electric cars. »

Affordability of EVs has been a key issue to their expansion. Maas estimated in January that the average EV cost $66,000. « Average retail prices, including electric vehicles, are abnormally high right now, so the thought of a producer from China—or frankly anywhere—who can come into the market and offer competitive vehicle at lower prices, it’s a good opportunity to explore that, » he said.

Devin Gladden, federal affairs manager at the American Automobile Association (AAA), noted that consumers were « looking for as many options as possible to fit their lifestyles, needs, and budgetary constraints. »

Cheaper Chinese EVs entering the U.S. market will likely place domestic manufacturers under competitive pressure, which could drive prices down across the board. But whether they will seek to undercut U.S. producers is disputed.

« If Chinese-made EVs are safe, well-designed, and cheaper than American made EVs, the move will likely be positive for the U.S., » Gladden told Newsweek. « The move would also likely put pressure on American auto manufacturers to compete for market share, contributing to better EV options for American consumers. »

Geller said there was a « presumption » that Chinese manufacturers will look to undercut domestic producers, which will not become clear until there are cars introduced, but noted that whether low- or high-cost, they would nonetheless create competition.

If they were to do so, he suggested they may find a market for shorter-range EVs. « The cost of the electric car is the battery, effectively, and if people come to understand that 150 miles serve their needs if it’s a commuter car, and they have power at home for the car, my sense is that would be a very smart way to come in under the market, » Geller said.

But Chinese manufacturers face several practical hurdles to enter the U.S., as well as a fraught geopolitical climate. A recent one is the Inflation Reduction Act’s rule that only EVs that are finally assembled domestically can qualify for a $7,500 tax credit, posing a cost advantage for buying American.

« A lot of the international name plate manufacturers are already announcing plans to build battery plants and EV production plants domestically in the United States—which I think was the goal of the Biden administration, » Maas said. « For the Chinese vehicle manufacturers, they’d have to beat the price of a domestically assembled EV with the rebate in order to be competitive. »

Another concern is the sheer logistical scale and upfront cost of breaking into a new market. If Chinese manufacturers are not willing to invest in their own outlets, they have to convince car dealers to finance franchises.

« Dealers, by and large, are pretty savvy businesspeople, and they’ll ask poignant questions about whether or not they think the investment is worth it, » Maas said, adding that international firms, like Honda and Hyundai, have succeeded in the past.

« With the exception of Tesla—which has proven that it can manufacture and retail its own vehicles successfully—most other EV start-ups, or frankly any auto maker start-up, typically uses a franchise dealer network, » he remarked. « We’re kind of waiting to see what BYD and the other Chinese manufacturers end up doing in that regard. »

There is also, of course, the elephant in the room. China is currently in a trade dispute with the U.S., and political ties are at a low ebb over issues like Taiwan—which China considers part of its territory—and the shooting down of a spy balloon in February after passing over continental U.S., which American officials are confident came from China. The Chinese government maintains it was a wayward weather balloon.

Then there is Tesla boss Musk himself, who would find his interests placed in direct competition with Chinese companies. It has long been noted that Musk—whose self-professed championing of free speech led him to purchase Twitter—refrains from criticism of China. Earlier this month, Steve Bannon accused Musk of being owned by the Chinese Communist Party. Whatever Musk’s relationship with China may be, the nation’s pursuit of EV dominance will almost certainly put them on a collision course.

« The world is quite volatile at the moment, » Geller commented. « It might not be the greatest time to introduce certain products to the U.S. market, but it seems to me consumer demand is somewhat elastic; if the cars seem to be good, and the price is much lower, then you know the way capitalism works. »

Alongside the detection of spy balloons, the U.S. government recently told staff to remove TikTok from official devices over national security concerns. « Literally anything from China with software or chips is a data-tracking risk, » Rebecca Grant, a national security analyst at IRIS Research, told Newsweek.

On this backdrop, it is unclear « how welcoming the political environment will be to Chinese-owned manufacturers, » Maas said.

Both he and Geller noted that Americans would be hard-pressed not to find Chinese-manufactured goods in their own home, but Maas said it was culturally different when it came to driving a car with a Chinese name plate.

« Especially in a place like California, vehicles are an important transportation tool, but also a statement about who you are—and the kind of vehicle you drive is an extension of the kind of personality that you’re trying to project to the world, » he said. « So whether Californians or folks across the country are willing to say, ‘yeah, I’m happy to drive a Chinese vehicle’, I think that’s a real open question. Chinese manufacturers have to decide: are they going to be able to break through that and succeed? »

While for Geller it is « just a question of time, » Maas noted that Volvo is Chinese-owned, by Geely, but said most consumers still see it as a Swedish brand—suggesting any hesitancy may be more to do with the perception of a car’s origins than the reality of it.

However, he added: « For some consumers, price can trump all that, and if a vehicle is 10, 20, 30 percent cheaper, and I can find it at a dealer near my house, then maybe I’d take a flyer on it because I just don’t want to spend the kind of money that competitors are asking for. »