The Reality of Inexpensive Chinese Electric Cars

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QuickTakes:

• The Chinese EV market is growing
• Why China can make more affordable electric cars
• U.S. barriers to entry for Chinese electric cars

Car buyers in the United States looking for options in the electric vehicle (EV) marketplace might consider manufacturers outside of the U.S. to find a vehicle that suits their needs and budget. Some may even consider Chinese electric cars because they may have heard about their affordability in other countries. Unfortunately, the likelihood of inexpensive Chinese EVs being available to U.S. consumers anytime soon may be slim to none.

While Chinese automakers may be able to churn out more affordable EVs than their competitors, the process to acquire them in the U.S. comes with numerous potential challenges. Barriers to entry that Chinese automotive companies face when trying to sell EVs stateside are likely to prevent most domestic car buyers from getting their hands on these vehicles.

The Chinese EV Market Is Growing

Thanks to continued state subsidies and financial incentives, China's EV market has boomed over the past four years. China moved from sixth to first in global automotive exports, according to research from financial consulting firm AlixPartners. In the same study, the consulting firm found that Chinese automotive brands will outsell foreign brands in China for the first time in decades. Out of all auto sales in China, 65% are predicted to be Chinese brands by 2030.

Among these Chinese auto purchases is a high volume of EVs. The International Energy Agency, an international energy forum based in France, found around 60% of EV sales worldwide took place in China, which exceeds the country's 2025 goal for EV sales. Boosted interest in both Chinese brands and EVs has driven Chinese automakers to build even more affordable electric cars to meet demand.

Why China Can Make More Affordable Electric Cars

Automotive research firm JATO showed that Chinese EVs averaged around $31,000 in 2022, compared to U.S. and European EVs, which averaged around $63,000 and $55,000 respectively at the same point in time.

China's ability to make affordable EVs is in part due to their access to the material required to make batteries. As other countries work to secure battery material supply lines, China already has control over large percentages of the extraction and refinement of essential materials such as cobalt and lithium.

The Institute for Energy Research (IER) is a nonprofit, Washington, D.C.-based, energy research firm. It reported that China currently has control of about 32% of the world's lithium mining and about 44% of the world's cobalt mining — with an expected increase to around 50% in the next two years. Meanwhile, the U.S. is only responsible for 0.42% of the world's cobalt mining, according to a 2023 U.S. Geological Survey, and produces less than 2% of the world's lithium, based on estimates from the IER. Without direct access to these essential EV materials, the U.S. is reliant on foreign suppliers, which increases the cost of domestically manufactured EVs.

U.S. Barriers to Entry for Chinese Electric Cars

Even though Chinese manufacturers make the most affordable electric car on the market, that doesn't necessarily mean car buyers in the U.S. will be able to easily get into the driver's seat of a Chinese EV in the near future.

Political tension and policies between the U.S. and China could make entering the U.S. car market a challenge for Chinese electric cars. For Chinese automakers, one of the most significant hurdles to entering the U.S. market is the current 25% tariff imposed upon them in addition to the existing 2.5% import tariff. Chinese manufacturers would ultimately need to raise their prices for U.S. consumers, dulling their competitive edge.

Chinese automakers must also compete with current EV incentives offered by both the federal and state governments. Incentives from the Inflation Reduction Act alone offer U.S. car buyers a $7,500 tax credit on EVs built in the states. Factoring in additional state incentives could lead to even more savings on U.S.-made competitors. Even if Chinese automakers can produce a slightly lower-priced EV, some of these incentives may make them less attractive to domestic buyers after import tariffs.