The Coming China Automotive Godzilla – A threat or Opportunity for Dealers? The Answer is Yes

The Coming China Automotive Godzilla – A threat or Opportunity for Dealers? The Answer is Yes

A modern-day automotive Godzilla, the likes of which we have not seen before, is how China expert Michael Dunne described China’s automotive juggernaut last week in a presentation at the Canadian Automobile Dealers Association Summit. 

Chinese automakers “could be the single biggest disruptor this decade” in the auto industry, Dunne said. 

The question is whether Chinese automakers are a threat or an opportunity to the U.S. and Canadian auto markets. For Western automakers, the answer might be “Yes.”

And dealers in Canada and the U.S. may soon grapple with whether to sell vehicles built by Chinese legacy automakers as opportunities will likely become available in the next two to three years. 

The Chinese Godzilla

A few short years ago, China exported just over one million vehicles to the rest of the world. 

In 2023, China surpassed Japan as the world’s top global exporter, sending 5.2 million vehicles to 120 countries. (Automobility, a China-based consulting firm, pegs China’s automotive exports in 2023 to be at 4.9 million).

In total, Chinese automakers produced 30 million vehicles in 2023 — more than one in three cars on the planet. They have another 10 million in excess capacity, meaning China could build 50% of the earth’s vehicles annually. A recent slowdown in China’s domestic automotive market is driving the global expansion.

Electric vehicles are where China is making its mark globally. The country will build more than 10 million EVs this year. In 2023, Chinese-built EVs accounted for 8% of all EVs sold in Europe, with that potentially growing to 15% in 2025. 

Chinese automaker BYD (Build Your Dreams) surpassed Tesla in 2023 as the world’s biggest EV producer. 

China’s EV explosion onto the world stage was partly fueled by an 11-year aggressive subsidy strategy to drive domestic EV sales that ended in 2022. However, numerous subsidies still exist at the local level in China. Consulting firm AlixPartners estimates China spent $57 billion between 2016 and 2022 on growing hybrid and EV sales. Furthermore, Chinese automakers and suppliers have access to cheaper capital, are not under as much pressure to drive profitability and benefit from being in a country where the government dictates much of the business strategy. 


Stricter CO2 mandates will begin in 2025 for new vehicles sold in the European Union and culminate in 2035, when all new cars need to emit zero emissions. 

The problem is that European automakers cannot make EVs as inexpensively as Chinese automakers can. 

Europe was caught with its proverbial pants down last year as Chinese EV imports jumped by more than 360% since 2021. 

In October, the European Union launched an investigation into Chinese automakers for possibly keeping prices artificially low via state subsidies. Investigators from the European Commission visited China in January, inspecting Chinese automakers for evidence the country is not playing fair. 

The investigation could take up to 13 months. Dunne — with his tongue firmly planted in his cheek — tells the audience he doubts the EU will find evidence of illegal subsidies.

Even without evidence, the EU may impose harsher tariffs to protect its automakers. 

Although there is a 10% tariff on imported Chinese vehicles, many of the EVs are being sold for as much as 20% less than comparable European models. The lower prices are working as Chinese automakers are capturing market share, and customers are buying their vehicles. 

The North American Market

For now, China has “ignored” the U.S. and Canada. Chinese vehicles have yet to hit those markets except for the few exported Teslas, Chevrolets, Buicks, Dodges, and Geely-owned Volvos and Polestars.

Read more about the history of China’s attempted forays into the U.S. market: GAC Motor in the U.S.? History and Timing Not on Chinese Automaker’s Side.

The U.S. is “protected” via the 27.5% tariff on vehicles built in China and sold in the U.S. implemented by the Trump administration in 2018 (as part of the 25% tariff on Chinese cars added to the 2.5% import tariff). 

President Biden’s Inflation Reduction Act further bolstered the defense against a possible Chinese automotive invasion by prohibiting electric vehicles built in China or with battery components processed or sourced in China from being eligible for a $7,500 tax credit. The legislation was designed to attract consumers to purchase EVs from American legacy automakers while incentivizing the automakers to build out a manufacturing and supply base in the U.S.

The Mexican Backdoor?

But China is making inroads into North America, becoming the number one vehicle exporter to Mexico last year, and now accounts for nearly 10% of Mexico’s auto sales. Additionally, Nikkei reported this week that BYD’s Mexico chief has said the EV automaker will build a plant in Mexico, which could provide a backdoor for it to start selling cars in the U.S. BYD is one of several Chinese automakers reportedly considering building plants there. 

Mexico represents a possible loophole for Chinese automakers to enter the U.S. As regulations currently stand (mainly within the United States-Mexico-Canada Trade Agreement from 2020), China could start shipping cars from Mexico into the U.S. with little financial pain. 

Dunne, CEO of Dunne Insights LLC, a consulting firm and host of the Chinese-focused podcast Driving with Dunne, told attendees at the Canadian dealer summit that “D.C. officials are acutely aware” of the potential back door entry into the U.S. via Mexico. 

News reports last month indicate the Biden administration is discussing adding new restrictions to make it harder for Chinese automakers to leverage Mexico as a potential entry point. 

Bloomberg reported this week that Chinese suppliers, already in Mexico, exported $1.1 billion in automotive parts to the U.S. last year based on data from INA, Mexico’s national auto-parts association. 

At least 18 of the 33 Chinese auto suppliers in Mexico currently ship parts to the U.S. according to the INA. 

Bloomberg also reported Elon Musk is recruiting Chinese suppliers to Mexico to build a supply base for his planned Tesla factory in Nuevo Leon, mirroring the setup at his plant in Shanghai.  

Canada has yet to implement any barriers to Chinese imports, meaning a more direct Chinese play north of the border is inevitable unless the government acts soon. The concern, though, extends beyond manufacturing plants and imported vehicles. Canadian parts makers believe the rise of Chinese suppliers in Mexico threatens their businesses. 

Fear the Chinese?

Why the fear of Chinese EVs gaining a foothold in North America? 

The concern in Canada is the same as in Europe — car manufacturers are not capable of hitting the government’s aggressive ZEV (zero-emission vehicles) regulations outlined in December mandating all SUVs, crossovers, passenger cars, and light trucks be 0% by 2035, thus creating an opportunity for Chinese automakers to swoop in with lower-cost EVs in the next few years. 

National Security Concerns

For the U.S., the concerns are rooted mainly in national security and business fears. 

Allowing Chinese automakers to gain significant market share in the U.S. would arguably give the Chinese government access to private and personal data on millions of Americans. 

The security concern is real. During a dinner at the recent National Automobile Dealers Association Convention in Las Vegas, a professor from an Ivy League university asked me how the U.S. could allow Chinese vehicles in, arguing they represented a significant national security threat.

Last month, U.S. Commerce Secretary Gina Raimondo said during a recent Atlantic Council fireside chat, “A sophisticated EV, and then an autonomous vehicle, is filled with thousands of semiconductors and sensors. It collects a huge amount of information about the driver, the location of the vehicle, the surroundings of the vehicle. Do we want all that data going to Beijing?”

Business Concerns

Add to the national security fears, the business concerns are no less daunting. Last week, Marin Gjaja, COO of Ford’s Model e (its EV division), said on a panel in Detroit that Chinese vehicles are a “colossal strategic threat.” 

Lower-priced Chinese EVs are coming. Currently, U.S., Korean, or European automakers cannot compete with the Chinese on price, which means “They are ahead of us in this technology. We look at that and say, ‘That’s coming here eventually, so we’d better get fit now and better get going on EVs or we don’t have a future as a company,” Marin said.

During last week’s earnings call, Ford CEO and President Jim Farley revealed that Ford set up a skunkworks team two years ago to create a low-cost EV platform. “All of our EV teams are ruthlessly focused on cost and efficiency in our EV products because the ultimate competition is going to be the affordable Tesla and the Chinese OEMs,” Farley told analysts on the call. 

Tesla’s Elon Musk also sees Chinese automakers as a threat. “The Chinese car companies are the most competitive car companies in the world. So, I think they will have significant success outside of China depending on what kind of tariffs or trade barriers are established,” Musk told analysts on the company’s January 24 earnings call. “Frankly, I think, if there are not trade barriers established, they will pretty much demolish most other companies in the world. They’re extremely good.”

Chinese as Partners

Here resides the quandary. Despite the competitive fears that Chinese automakers could flood the North American market with EVs as they are in Europe, several Western automakers believe meeting their countries’ carbon-neutralizing mandates via EV sales will only be possible by partnering at some level with Chinese companies — whether they be battery firms, other suppliers, or even with startup EV manufacturers. 

The Chinese have a decade-long head start on EV battery technology. And China controls as much as 95% of the global production and supply of rare earth minerals necessary for EV manufacturing. It will take decades for the U.S. to build out a mining and rare earth mineral supply chain to be competitive with the Chinese. 

The challenge is for Western automakers to find ways around the IRA to leverage Chinese resources and technology to build lower-cost EVs without ceding the market to Chinese automakers. 

Several announcements over the last year show U.S. and European automakers have already begun partnering with various Chinese entities. 

  • Ford is licensing technology from China-based Contemporary Amperex Technology Co., Limited (CATL), a leader in lower-cost lithium-ion batteries it is implementing in a controversial battery plant it is building outside Marshall, MI. Ford wants access to the lower-cost LFP battery technology CATL has. 
  • In October, Stellantis invested $1.6 billion for a 21% stake in Zhejiang Leapmotor Technologies, a Chinese EV startup. Stellantis is forming a Dutch-based joint venture with Leapmotor, of which the European automaker will control 51%. Stellantis gets access to Leapmotor’s technology, while Leapmotor gets access to Stellantis’s manufacturing prowess and cash — along with access to markets outside of China. 
  • In October, Volkswagen invested $700 million for a 5% stake in Chinese EV automaker Xpeng. The Volkswagen Group, which has been in China since 1984, is one of the top two automakers in China by brand sales. A 15% drop in sales in 2022 allowed BYD to surpass it as the top-selling brand in China last year. VW rebounded, though, with a 31.2% increase in year-over-year growth through November last year.
  • Media reports earlier this month suggest Tesla is looking to follow Ford’s lead and build a battery plant in the U.S. leveraging CATL’s technology. CATL is already one of Tesla’s top battery suppliers. 

The Dealer Question

At the AUTOVATE conference in Scottsdale in December 2022, Dunne argued that hefty tariffs might not be enough to keep determined Chinese automakers out of the U.S. or Canadian markets. They must develop a significant presence in those markets to ascend to true global powerhouse status. And dealerships are a vital part of their strategy.

Chinese automakers are employing a hybrid model — similar to their strategy in their home market — to sell cars in foreign markets. For the most part, manufacturers such as BYD, Great Wall Motor, Xpeng, and SAIC, are partnering with traditional dealers in Europe, Japan, Mexico, and other countries for sales and distribution. 

BYD plans to partner with as many as 100 dealerships in Japan this year. And it is doing the same in the United Kingdom. As of the end of the year, the automaker had partnered with ten conventional dealer groups in Mexico.  

Within the next two to three years, a few Chinese automakers will likely attempt entry into Canada and the U.S. 

Due to the lower entry barriers, the Canadian market may be the first of the two to see vehicles from Chinese car companies. But entry into the U.S. will be close behind. 

The question for dealers will be whether or not to partner with the Chinese. 

I’ve recently posed that question to executives of some of the public dealer groups. Only one responded negatively, citing national security concerns. Others were noncommittal. 

Five years ago, during an American International Automobile Dealers Association Washington D.C. Fly-In conference, keynote speaker Newt Gingrich, in promoting his book Trump vs. China, argued the country would be the U.S. biggest threat in coming years. 

Following his speech, I polled the five dealers at my table, asking them whether they would sell Chinese vehicles provided customers wanted them and were profitable. Each responded, “Yes.” 

We’ve seen this play out with the Japanese and the Koreans. Dealers do not want to miss out on the next Toyota, Honda, Hyundai, or Kia — today all attractive brands for dealers. 

Which Chinese brands have the most chance of success in North America? Dunne points to at least five brands dealers should watch. 

BYD (Build Your Dreams)

  • Founded by Wang Chuanfu in 1995 to supply batteries to Motorola. 
  • Started building gasoline cars in 2003.
  • Displayed a poorly designed and built vehicle at the Guangzhou auto show in 2007, resulting in ridicule by U.S. automaker executives. 
  • Warren Buffett acquired a 9.9% stake in BYD for $232 million in 2008 after Wang said the company would export vehicles to the U.S. in 2010 (which has yet to happen). BYD is building electric buses for the U.S. in a California plant. 
  • In 2016, BYD hired Audi designer Wolfgang Egger, who redesigned BYD’s vehicles to be bolder, a move that saved the company. BYD also developed a way to build batteries with cheaper metals and chemicals. 
  • BYD became China’s leading automaker in 2023, surpassing Volkswagen (which regained the top spot in January this year). The decision to build hybrid vehicles in 2011 helped BYD’s explosive growth in China, as the hybrid market has taken off in the last couple of years.
  • BYD also overtook Tesla to become the global leader in fully electric sales.
  • Based on recent SEC filings, Buffett began reducing his stake in BYD in 2022 to less than 8% of the company. 
  • Buffett also owns Berkshire Automotive, which is comprised of approximately 80 dealerships in the U.S., giving BYD a potential ready-made dealer partner if (when) it decides to enter the U.S.


  • Founder Eric Li (also known as Li Shufu) began making refrigerator parts, building that small company into Zhejiang Geely Holding Group, a business empire focusing on four areas: passenger cars, commercial vehicles, mobility services, and technology. 
  • Dunne describes him as “colorful and mercurial” and the “brand acquisition king.”
  • The group sold nearly 2.8 million vehicles in 2023. 
  • Since 2010, when he acquired Volvo from Ford for $1.8 billion, Li has added six other auto brands:
  1. Zeekr
  2. Smart
  3. Lynk & Co
  4. Geely
  5. Lotus
  6. Polestar is already in the U.S. and sold nearly 55,000 vehicles in 2023. But its future is uncertain as Volvo recently announced it was handing its stake in the EV brand to Geely. 

SAIC (Shanghai Automotive Industry Corporation)

  • SAIC is a state-owned auto manufacturer founded in 1955, but its roots date back to World War II. 
  • The company is known for its joint ventures with Volkswagen and General Motors. 
  • In 2007, SAIC acquired Nanjing Auto to get its hands on the famed British MG brand. After rebuilding the brand, the automaker is in the process of relaunching it globally. Its MG ZS was Spain’s best-selling car in December last year. 

Great Wall Motor

  • Founded in 1984, the automaker formed a joint venture with BMW in 2019 to produce a fully-electric MINI Cooper slated for global markets this year. 
  • GWM is China’s top-selling pickup and SUV manufacturer, with sales of 1.23 million last year. 
  • Sadly, GWM is renaming its Ora Funky Cat EV to Ora 03. 
  • GWM is a dark horse to make a dent in the U.S. market if it even makes a play here, but it has a global presence in Europe, Brazil, India, and Australia.

Li Auto

  • Li Xiang, Li Auto’s founder, started a review website for computers and gadgets before launching Autohome, an automotive news website. After taking it public in 2013, Li began Li Auto. 
  • The automaker has focused on building hybrid SUVs. Li Auto sales jumped 182% in 2023 to more than 376,000 vehicles. 
  • Another dark horse for North America (and likely not anytime soon), but a brand dealers should pay attention because of its ambitious and successful founder.  

Other brands that Dunne has dubbed “The Tech Bros” that bear watching are:

  1. xPeng has been in the news lately with its recent $700 million investment from Volkswagen. The company also is focused on an autonomous play. 
  2. NIO might be the most innovative of the bunch, with an AI assistant on the dash and a focus on battery swaps. Its foray into the European market is a major global test. Also, look for a pivot to a dealer model sometime this year. 
  3. Xiaomi is quietly the second-largest phone manufacturer in the world but is moving into EVs this year.
  4. Huawei, controversial in the U.S., is focused on providing software to numerous automakers to build vehicles around. In November, it confirmed it is partnering with four Chinese automakers to develop new car brands, including a joint venture with Changan Automobile. Huawei likely will not enter the U.S. due to the American government prohibiting it from accessing technology built by U.S. suppliers.

Buyer Beware

For dealers looking to do business with Chinese automakers, caution is advised. 

It seems inevitable that vehicles from Chinese legacy automakers will be on American and Canadian streets before the end of the decade. But so many questions need to be answered before that happens. The Chinese have attempted to enter the U.S. before but have yet to be successful. And dealers have been burned. Chery or GAC ring a bell?

The U.S. has an election this year. Both Biden and Trump, the “presumed” nominees, appear willing to play hardball with the Chinese to keep them from flooding American shores with less expensive EVs. 

And already, whispers from Biden’s White House indicate he may delay some of the stringent deadlines to curb emissions to give U.S. manufacturers breathing room to get their technology and strategies lined up with consumer demand. 

The Chinese EV market is also a big question mark, as a recent and current slowdown in EV sales threatens smaller automakers’ survival. The increased competition, leading to intense price cuts, also poses a threat to the profitability and planned growth of larger players. 

Despite numerous automotive experts pointing to vastly improved quality for Chinese-made vehicles, long-term reliability questions, along with whether those vehicles can meet the stringent safety requirements of the U.S. market, remain. 

Finally, dealers looking to partner with Chinese automakers to sell their vehicles here should push hard to learn their financial commitment, understand that the Chinese are tenacious negotiators, and realize that the negotiations never end, despite what agreements may have been signed. 

Pick the right partner, negotiate wisely, and twenty years from now, you might have the next Toyota.

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