Team Biden Wants You In A Chinese EV

A made-in-China electric vehicle will arrive at U.S. dealers this summer offering power and efficiency similar to the Tesla Model Y, with sticker price of about $8,000 less. The $35,000 window sticker of Volvo’s compact SUV (the EX30)–a five-seater electric SUV that will have a 275-mile driving range and a five-second 0-60 mile-per-hour time–will provide a more affordable electric vehicle to U.S. markets. Volvo is the Swedish luxury brand owned by China’s Geely. The competitive price reflects a combination of China’s cost advantages and Volvo’s ability to skirt U.S. tariffs on Chinese cars because it also has U.S. manufacturing operations. Chinese EV makers can undercut global competitors largely because of the nation’s domination of battery minerals’ mining and refining, as well as its decades-long commitment to EV development, including heavy government subsidies. In addition, Geely has cut manufacturing costs by merging supply chains and sharing platforms and parts with Volvo and other Geely brands. Despite its lower price, Volvo is expecting profit margins on the EX30 of between 15 percent and 20 percent globally.

The EX30 is one of only a handful of China-made cars sold in the United States, none of them from Chinese brands. Vehicles from China currently face a 27.5 percent tariff. Volvo, however, is eligible for tariff refunds under a law that awards them to firms with U.S. manufacturing operations — such as Volvo’s South Carolina plant — that also export similar products. According to a Volvo spokesperson, the company pays all legally required duties on cars and parts, and although owned by Geely, it is independently operated and designs its cars in Sweden.

The EX30 could get even cheaper if Volvo and its dealers use an EV-policy loophole regarding leased vehicles enacted in the Inflation Reduction Act of 2022. The legislation reauthorized an existing $7,500 tax credit for EV buyers — but blocked the subsidy for cars with components from countries, including China, that are deemed an economic or security threat. The U.S. Internal Revenue Service determined, however, that leased electric vehicles qualify as commercial vehicles and are eligible for a similar $7,500 subsidy with no China-content restrictions. That could bring a leased EX30’s effective price to $27,500. The EX30’s specifications closely match Tesla’s Model Y, and Volvo dealers are touting the comparison. The major difference is that Tesla’s Model Y has more cargo room.

According to a sales manager at Volvo Cars Carlsbad in California, the dealership has already taken deposits for every 2025 EX30 it expects to be allocated. More than half of the dealership’s customers who buy currently available Volvo electric vehicles initially lease them to qualify for the U.S. tax credit — then immediately buy out the lease, a loophole that apparently the Biden administration has missed.

U.S. Competition from China

The EX30’s low price and entrance into the U.S. auto market point out the competition that U.S. automakers will face from low-cost Chinese EV imports, particularly if they can avoid tariffs. Chinese manufacturers could also avoid U.S. tariffs by setting up plants in Mexico, inside the North American free trade zone, then exporting vehicles to the United States. China’s BYD, which recently outsold Tesla for global EV sales, announced plans for a Mexico plant earlier this year.

In China’s auto market, the world’s largest, dozens of domestic EV brands are experiencing a price war while foreign automakers have steadily lost market share. The intense competition has driven China’s biggest EV makers, led by BYD to accelerate exporting electric vehicles that can capture higher prices and profits in less competitive overseas markets. BYD, China’s largest automaker, for example, offers an array of electric vehicles for less than $30,000 in China, including an electric hatchback that sells for less than $10,000. BYD is planning to sell the same hatchback in Latin America for about $21,000, still far below any U.S. electric vehicle. As a result, cheap Chinese electric vehicles could cause an “extinction-level event” for U.S. automakers.

Tesla Lowers Prices

Recently, Tesla lowered the Model Y’s price by $2,000 in the United States as part of a series of global reductions. In an effort to increase sales, Tesla has cut prices on three models (X, Y, and S) this month. Tesla is cutting prices as it faces softening demand and stiffer competition from China’s EV makers.

Tesla had plans for a cheaper car, called the Model 2. It was expected to cost around $25,000 — roughly 26 percent less than the Model 3 — and be more attractive in potential new markets like India. But Musk pivoted from the Model 2 approach to robotaxis, and he has indicated that the Cybercab would be introduced in August.  Due to first-quarter profits falling 55 percent, to $1.1 billion, on an annualized basis, and revenue falling 9 percent, to $21.3 billion, Musk has promised to focus on “more affordable models.” The “new models” would be introduced by early 2025 using its current platforms and production lines. Recently, the company announced it would lay off more than 10 percent of its work force as sales slow and competition, especially from Chinese rivals, erodes market share.

Conclusion

Geely’s Volvo is making an entrance into U.S. auto markets this summer at substantially lower prices than U.S. car manufacturers can afford to meet due to China’s dominance of the battery supply chain, Volvo’s operational efficiencies and its ability to avoid U.S. tariffs by having a U.S. plant in South Carolina. Geely and Volvo have created a series of shared platforms allowing Volvo and other Geely brands to share batteries, motors, gears and electric power-management inverters – all high-cost EV components that are cheaper in high volumes. The sticker price for Volvo’s EX30 electric SUV of $35,000 can be lowered by leasing the car through a loophole in the U.S. law allowing it a $7,500 tax subsidy despite it being built in China with Chinese components.

Chinese automakers’ operational efficiencies, government support, and innovations have propelled the country to the forefront of the EV industry, as has the country’s aggressive stakes in the minerals production and processing supply chain worldwide.  President Biden or his successors may need to salvage the U.S. auto industry in the future as cheap Chinese electric vehicles, which Biden’s policies are promoting and even subsidizing, could become an “extinction-level event” for U.S. automakers.

*This article was adapted from content originally published by the Institute for Energy Research.