In December 2025, Ford announced a $19.5 billion write-down on its electric vehicle investments—one of the largest charges in corporate history. Ford killed the F-150 Lightning, the electric truck its executives not too long ago compared to the Model T. Days later, General Motors disclosed a $6 billion charge of its own. Just last week, Stellantis, the owner of the Jeep, Chrysler, and Dodge brands, announced its own colossal hit, taking a $26.5 billion write-down on its EV investments. In total, that is 50 billion dollars gone.

How did we get here? The easy answer—that American consumers simply never wanted electric vehicles—is a lazy one. The harder truth is that Detroit’s retreat from EVs is the result of a spectacular cascade of failures: by automakers who never took the transition seriously, dealers who actively undermined it, and a political environment that turned the simple act of buying an electric car into a toxic political statement.

This matters because America is now falling behind in what may be the most consequential industrial transformation since the automobile itself. Batteries that power electric vehicles are the same ones America needs to power next-generation products like drones, humanoid robots, and AI data centers. These technologies are crucial to our national security.

Batteries are only part of the story. EVs also rely on high-efficiency motors built with rare-earth permanent magnets, the same materials that are essential to communications systems, consumer electronics, missile guidance, jet engines, and satellites. Today, China controls roughly 70 percent of rare earth mining and over 90 percent of processing capacity. Without a thriving domestic EV industry creating sustained demand, America lacks the economic incentive to build the processing facilities, magnet factories, and supply chains needed to reduce that dependence.

America needs to be good at manufacturing EVs because we need to be good at building the batteries and high-efficiency motors that power them. In the future, these technologies will power everything that matters.

A New Species of Car

When Tesla’s sales started to take off, legacy automakers initially dismissed it as a niche phenomenon. Silicon Valley making cars? Please. By the time the automakers recognized the threat, Detroit was years behind—and the gap proved far wider than anyone there wanted to admit.

That’s when they hit the panic button. Detroit’s first mistake was to dramatically underestimate the time required to produce quality electric vehicles. An EV isn’t a gas car with the engine swapped out. The software alone—battery-management systems, charging protocols, over-the-air updates—requires capabilities that Ford and GM had never developed. They scrambled to hire outside talent, building massive new software teams numbering in the thousands. But throwing engineers at the problem didn’t speed execution. It created chaos. Without the vertical integration that Tesla had built from scratch, coordinating with dozens of suppliers became a nightmare of misaligned incentives and incompatible systems.

And the cars themselves? The Tesla Model Y was a new species of car, with its software updates and self-driving features, that felt like nothing that came before. Soon, the Model Y became one of the best-selling cars in the world.

Ford’s Mustang Mach-E and GM’s various offerings were, for the most part, electric versions of gas cars—but more expensive. They offered the EV drivetrain without the EV sizzle and software finesse.

Sales of Detroit’s hastily developed EVs never took off. Without full-scale manufacturing, costs remained stubbornly high. Ford lost more than $20,000 on every F-150 Lightning. The more EVs that Ford and GM sold, the more money they lost.

Dealer Disincentives

There is also an awkward truth Detroit executives will only whisper: Many dealers actively sabotaged EV sales.

Car dealerships make most of their money on parts and service. EVs need far less maintenance—no oil changes, no transmission repairs, no exhaust systems. For a dealer, every EV sold represents years of lost service income. Is it any surprise that when customers walked in curious about electric vehicles, salespeople amplified every concern? Range anxiety got talked up. Cold-weather performance became a deal-breaker. Charging difficulties were presented as insurmountable obstacles.

Tesla, by selling directly to consumers, never faced this problem. When you walked into a Tesla store, you were talking to someone whose job was to sell you a Tesla. When you walked into a Ford dealership asking about the Lightning, you might have been talking to someone whose livelihood depended on selling you a gasoline version of the F-150 instead.

As Charlie Munger liked to say: “Show me the incentive and I’ll show you the outcome.”

Charging Nightmares

For anyone not driving a Tesla, America’s public charging infrastructure has been a frustrating mess. A 2025 study found that nearly one-third of charging attempts fail. The gap between “available” and “functional” has been a constant source of range anxiety and buyer reluctance.

The problems were manifold. Different networks used different payment systems. Chargers from different manufacturers couldn’t be updated to work with newer vehicles. And until recently, non-Tesla EVs used a different plug entirely, meaning Tesla’s excellent Supercharger network—the one charging infrastructure that actually worked reliably—was off-limits to most of the market.

This wasn’t an issue in Europe or China, where standardized connectors meant every charger worked with every car. American EVs were balkanized from the start. The industry has now largely adopted Tesla’s North American Charging Standard (NACS) connector, but the damage has been done. Years of “Will this charger work with my car?” uncertainty left countless potential buyers on the sidelines.

Our Sputnik 2 Moment

The conventional wisdom will be that “the market spoke” and Americans rejected EVs. This is too convenient. What American consumers soured on was a poorly executed transition: overpriced vehicles that weren’t compelling enough to justify the premium, sold by dealers with no incentive to sell them, dependent on a charging network that didn’t work, and marketed inadequately in an environment that had become politically toxic.

China’s dominance in EVs and batteries is our Sputnik 2 moment. That nation’s massive vertical integration—making its own batteries, semiconductors, and software—gives it a cost advantage that Detroit, today, cannot match. Ford CEO Jim Farley recognizes the danger, calling Chinese automakers “an existential threat.” He is not wrong.

Beyond Cars

The stakes extend far beyond the auto industry. The same rare earths that power EV motors also power the guidance systems in our missiles and the motors in our military drones. Every EV battery plant that does not get built in America is a strategic vulnerability.

Chinese EVs are now pouring into markets in Europe, Latin America, and Southeast Asia. Canada just announced a policy to open the door to Chinese EV imports, too. Chinese cars are not yet on American roads, blocked by tariffs. But the industrial capacity is being built elsewhere, and if the U.S. opens the market, American automakers may find themselves hopelessly outclassed.

Sadly, there is a risk of an American capitulation. Stellantis is relying on Leapmotor, a Chinese EV maker, to produce its electric vehicles for Europe and other markets. Ford is pursuing a partnership with China’s Geely in Europe. Last week, reports that Ford may form a joint venture with BYD or another Chinese company in the U.S.

The EV transition has not failed. It is winning—just not here and not by Detroit. There are no shortcuts. Building a world-class EV and battery industry requires that America commit to 10 years of uninterrupted, intense effort. We should also pool resources and investments with our allies—Japan, Korea, and Europe—to achieve the innovations, manufacturing scale, and lower costs that can match China.

The question now is whether America will watch from the sidelines as the rest of the world moves on—or finally get serious about joining the race.

• • •

What do you think about future of electric vehicles and battery supply chains in America? Are we hopelessly behind or is there still a path to a triumphant comeback?

Read the complete opinion piece here at The Free Press

This 8-year-old Chinese maker of robot vacuums drew massive crowds jostling to lay eyes on its 1,876-horsepower supercar.

Dreame has never manufactured an automobile. Yet there it was at CES 2026, presenting the Kosmera Nebula 1, a supercar promising a 0-60 mph time under two seconds.

Vanishing Western Automakers

CES has always been global, with attendees showing up from over 150 different countries. But 2026 felt like the Chinese Electronics Show. Nine hundred Chinese firms exhibited at this year’s show. Not ninety. Nine hundred.

I got behind the wheel of products from seven Chinese car brands: Dreame, Geely, Great Wall, Lynk & Co, Wey, Xiaomi, and Zeekr.

The competition? Hyundai focused on robotics and industrial automation, but showed no cars. BMW offered test drives of its Neue Klasse via the iX3. Sony Honda Mobility showed the Afeela (again).

That was it. I did not see exhibits for GM, Ford, Stellantis, Rivian, Mercedes-Benz, Volkswagen, Renault, Toyota, Honda, Nissan, or Subaru. Beyond Chinese brands, the automaker bench was nearly empty.

The Chinese lineup: product, pricing, and swagger. Here are the highlights:

Most Impressive: Xiaomi YU7

The smartphone giant continues to impress. The YU7’ s interior is a masterclass in clean, quality design, anchored by a stunning coast-to-coast heads-up display. Starting at under $40,000 in China with a European launch planned for this year, it represents the kind of tech-forward thinking that once defined American and Japanese automakers.

Some might argue about whether Xiaomi is a real car company. The market is already voting. Xiaomi (means “Rice Millet” in Chinese) went from zero to 500,000 sales in under 20 months. Twenty months.

Most Audacious: Zeekr 9X

Starting at $65,000 this SUV takes direct aim at Range Rover. The exterior is unabashedly gaudy and ostentatious—a deliberate statement for Chinese buyers. Inside, a gorgeous cabin with unmistakable Volvo DNA ( not surprising, since Zeekr is mostly designed and developed in Sweden). 

Most Unexpected: Great Wall Motors

The “Jeep of China” is not typically associated with cutting-edge technology. Great Wall Motor (GMW) used CES to show both its mainstream brand and upscale Wey line and signal that it intends to compete across segments and in advanced technologies.

Biggest Statement: Geely Auto Group

Geely occupied the largest automotive space at CES, consolidating Geely, Zeekr, and Lynk & Co under one giant stand. If you want the cleanest “China vs. the West” contrast, go straight to pricing. The Geely M9 SUV, starting at just $28,000 in China, underscored the irresistible sticker prices Chinese manufacturers bring to global markets: a big, family-sized, three-row-friendly proposition at a price that makes Western OEM cost structures look like a lame Dad joke.

You want EVs? Chinese have that. PHEVs? Chinese have that, too. Good old-fashioned gasoline-powered engines? Of course!

I also had an opportunity to drive Zeekr and Lynk & Co products at the Las Vegas Motor Speedway, 20 minutes north of the city center.

One professional race car driver who rode is the passenger seat summed up his own impressions: “Chinese cars are the best in software and the digital cockpit. Driving performance standards are not yet world-class, but do younger drivers really care about handling tight corners?”

Perception Becomes Reality

The absence of brands like Ford, GM, Stellantis, Toyota, Honda, Mercedes-Benz, and Volkswagen from the world’s premier technology showcase sends an unmistakable message: legacy automakers either have nothing new to show or they don’t get the direction of the industry. Maybe both.

When China dominates the mobility conversation at CES, the story sinks in: China is where the software is. China is where the AI is. China is getting bolder.

China will export close to eight million vehicles this year. It seems inevitable that we’ll see Chinese cars on American roads well before 2030.

Geely says a decision will be taken “within two to three” years. The owner of Volvo, Lotus and Polestar brands won’t come alone. “Where’s the best place for us to set up manufacturing in America?” an executive at another Chinese automaker asked me.

CES is where technology leaders signal what’s coming in the next decade, not how to protect the last one. With Detroit absent, the audience draws its own conclusions.

In 2026, China threw down the gauntlet.

Detroit did not even show up to contest territory in its own backyard.

Walking the floor at CES this week, my mind traveled to rare earth magnets. These magic metal products put so many advanced tech products into motion – from humanoid robots to drones to electric cars. Performance magnets turn electricity into motion at the wheel of electric vehicles and they transform motion into electricity inside wind turbines.

Then my mind jumped to the reality that China has a chokehold on rare earth metals, accounting for 90% of global neodymium magnet production. I wrote about this crisis last June: America cannot build a single guided missile without permission from Beijing. That’s not hyperbole. It’s the stark reality of our dependence on Chinese rare earth magnets.

When China retaliated against U.S. tariffs in April by announcing export restrictions on seven rare earth elements, magnet exports halved within weeks. Ford shut down Explorer production. German automakers warned of lines coming to a standstill.

Then came October. China tightened the screws further, announcing that any foreign company wanting to export magnets containing more than 0.1% of Chinese-sourced rare earths would need a license.

America and its Western allies cannot afford to be held hostage.

New American Player

A few points of light are beginning to shine through. Earlier this week, I noticed that a company called Evolution Metals & Technologies Corp. began trading on Nasdaq under the ticker symbol EMAT.

Their ambition is to become a U.S.-based rare earth magnet manufacturing champion and break China’s dominance in high-performance magnets.

What caught my attention was not simply their ambitious vision. It’s that, according to the company’s materials, EMAT has been producing and selling rare earth magnets for 18 years, with existing manufacturing operations in South Korea and customer relationships that include major global OEM brands.

EMAT says it plans to replicate and scale those proven magnet plants in the United States over the next couple of years, targeting 55,000 tons per year of high-performance magnet capacity.

How Did We Get Here?

In 1985, the U.S. controlled 60% of rare earth production. We had the mines, the processing, and the magnet manufacturing. Then we gave it all away.

As I wrote previously, the most devastating blow wasn’t Chinese industrial espionage; it was American corporate short-sightedness. In 1995, General Motors sold Magnaquench, which supplied 85% of rare earth magnets for American guided missiles, for $56 million – the cost of a single F-35. The buyers? Chinese state-linked companies. By 2004, the last U.S. facility was shuttered and the machine tools shipped to China.

Today, China controls about 90% of rare earth metal making and magnet manufacturing and 99% of heavy rare earth supply (the dysprosium and terbium needed for high-performance magnets).

U.S. Wakes Up

Since 2020, The U.S. Department of Defense has committed $439 million since 2020 to rebuild domestic supply chains. MP Materials reopened Mountain Pass and got a $400 million DoD investment last July. But even with all that money, they’re targeting just 1,000 tonnes annually. And they can only produce low-grade magnets because they do not have a domestic source of heavy rare earths.

EM&T’s edge is feedstock. Their primary source? E-scrap. Instead of mining rare earth ore, EM&T recycles existing magnets from end-of-life electronics. They get paid a processing fee to take the e-scrap, recover the rare earths and turn them into new magnets.

Bottom Line

I’ve been watching China outmaneuver the West in supply chains for two decades. The pattern is always the same: we recognize the threat years after China has locked up the strategic advantage.

Can EM&T deliver? They appear to have the track record, the engineering team, and a differentiated feedstock strategy. Scaling from 660 tons per year in South Korea to 55,000 tons in the U.S. is a formidable undertaking, but they are the only company outside China with more than a decade of commercial magnet production experience.

We cannot keep outsourcing critical supply chains to a country that has explicitly told us it’s ready and willing to cut us off.

Look for more American magnet “points of light” like EM&T and MP Materials to emerge in the coming years – the sooner the better.

The wake-up call nobody wanted to hear just arrived: China is on track to export up to 8 million vehicles in 2025, and your favorite Western brand is helping them do it.

The Numbers Don’t Lie

Last month, China reported exports of 666,000 cars. At this pace, the Middle Kingdom will ship nearly 8 million vehicles in 2025, shattering last year’s record. And remember, in 2020, China exported just one million cars. That’s an eightfold increase in five years!

China didn’t just become the world’s largest car exporter by accident. They convinced global automakers – virtually the entire industry – to do something that was once unthinkable: export vehicles manufactured by Chinese joint ventures to global markets, splitting profits 50/50 with their Chinese partners.

This was a catastrophic strategic error that will haunt the global automotive industry for decades.

How We Got Here: The Devil’s Bargain

When I first arrived in China in the 1990s, the deal was simple and brutal. Want access to the world’s largest automotive market? You’ll partner 50/50 with a Chinese company in a joint venture. You’ll surrender half your profits. You’ll transfer your technology. Take it or leave it.

And everyone took it. GM, Ford, VW, BMW, Mercedes, Toyota, Honda, Nissan, Peugeot, Citroën, Hyundai, Kia – virtually every major global automaker lined up to sign these agreements. By the 2000s, joint ventures with Chinese partners controlled approximately 90% of China’s passenger car market.

The critical question some of us asked back then: Would these joint ventures ever export FROM China?

I discussed this with automotive executives throughout the 2010s. The consensus was crystal clear: Absolutely not! Over breakfast in Beijing one morning about ten years ago, I put the question directly to a senior VW executive:

“Would VW ever allow models built at its joint ventures to be exported from China?”

“Not possible,” he answered immediately. “Exporting from the joint venture would be suicidal. We would never, ever go there.”

Western OEMs would not risk becoming dependent on Chinese partners for global production. They would never voluntarily give up 50% of their profits in markets outside China. They’d build dedicated plants in Mexico, Thailand, Eastern Europe – anywhere but China – for their export needs.

That consensus held… until it didn’t.

Fast-forward to 2020: The Turning Point

VW and other global automakers were zealous about not exporting from their Chinese joint ventures for a very long time. That ended in 2020.

Tesla’s Shanghai Gigafactory ramped up production in early 2020 and flipped the Chinese market almost overnight, pulling domestic buyers into EVs and away from the internal-combustion models that joint ventures were built to produce.

Then COVID-19 hit, leaving joint-venture factories with massive overcapacity just as the market was pivoting sharply toward electrics.

By the end of 2020, global OEMs were staring at idle plants, excess inventory, and urgent revenue pressure. And with China building cheaper than anyone else, exporting from the joint ventures stopped being a mortal sin. It became a panicked short-term move to relieve financial stress.

The Staggering Scale of This Shift

Today, global automakers are exporting record numbers of vehicles from China – millions of them. Here are the stats that should keep every Western automotive executive awake at night:

General Motors: ~ 312,000 vehicles exported from China in 2024 – up 65% in two years. Chevrolets and Buicks sold in Mexico, South America, and Southeast Asia, all sharing 50% of profits with Chinese partners.

Ford: Over 170,000 vehicles exported, up 60% year-over-year. Equator Sport, Mondeo – all “Made in China,” all splitting profits. That Lincoln Nautilus in your driveway? Made at the Changan-Ford plant in Hangzhou.

BMW: ~ 110,000 units exported, with China as the global hub for electric MINI.

Hyundai: Exported 118,000 vehicles in the first half of 2025 alone.

Renault: More than 100,000 Dacia Spring models have shipped from its Dongfeng JV factory in Wuhan to Europe since 2023.

Other global automakers are capitulating, too. In September, VW started exporting Magotan and Sagitar models from its FAW-VW joint venture in Changchun. Mazda is working with Chinese partner Changan to develop products for export including the CX-6e and the EZ 60.

Western brands are paying Chinese companies to manufacture their vehicles, giving away half the revenue, and creating a dependency that cannot be easily undone.

Mexico: The Canary in the Coal Mine

Want to see the future? Look at Mexico.

MG Motor – owned by SAIC – sold over 60,000 vehicles in Mexico in 2024, becoming the best-selling Chinese brand. But SAIC is also building Chevrolets for GM and exporting them to Mexico.

SAIC splits Chevrolet revenue 50/50 with GM. SAIC keeps 100% of MG revenue – using some of the same platforms.

Of the top 5 Chevy models sold in Mexico, four of them are built in China by GM’s JV partners. Without SAIC, GM’s market share in Mexico instantly evaporates. But SAIC can thrive with or without GM.

That’s not a partnership. That’s a dependency. And dependencies become vulnerabilities.

Brand Erosion Nobody Wants to Discuss

Consumers aren’t stupid. They’re increasingly aware that their “Chevrolet” is built by a Chinese company in a Chinese factory. They see MG vehicles – which often share platforms, technology, and suppliers with Chevrolet models – but cost significantly less.

How long before consumers ask: Why am I paying a premium for a Western badge on what is essentially a Chinese car?

As brand value diminishes, the leverage shifts entirely to Chinese manufacturers. They’ll eventually conclude they no longer need Western partners. Why split revenue when you can keep it all?

The Endgame: Brands Without Factories

In the not-too-distant future, global OEMs risk becoming what they once feared most: brand and distribution companies that don’t actually make anything.

Chinese JV partners control manufacturing and they dominate the supply chains.

What happens when Chinese OEMs decide they’d rather just acquire the Western brand outright? We’ve already seen it with Volvo (Geely) and MG (SAIC). Which brand is next: Opel, Fiat, Maserati – Jeep?

The pattern is clear: First, you partner with them. Then, you depend on them. Finally, they acquire you – or simply replace you.

Not Just About China’s EV Dominance

The narrative you’ve been sold is that China wins EVs while legacy automakers retain their advantage in traditional vehicles. That narrative is dead wrong.

78% of the 6.4 million vehicles China exported in 2024 were conventional internal combustion engine vehicles.

China is dominating BOTH. They’re exporting 5 million gas-powered vehicles annually while simultaneously building the world’s largest EV industry.

Why? Because China has massive overcapacity in traditional automotive manufacturing – the result of years spent building factories for foreign JV partners while the market has pivoted to EVs. Rather than let factories sit idle, Chinese manufacturers are exporting their own gasoline-powered vehicles at aggressive prices to Russia, Mexico, the Middle East, South America, and Southeast Asia.

They’re using that revenue to fund their EV ambitions while Western automakers struggle to make EVs profitable.

Western OEMs aren’t just losing the EV race. They’re losing everything.

The Hard Truth

Global automakers made a choice. Faced with overcapacity and short-term pressure, they chose expediency over strategy. They chose quarterly results over long-term independence. They chose cost savings over control.

Nobody forced them to export from China. Nobody forced them to give Chinese partners 50% of global profits.

These choices have consequences.

Chinese OEMs now have the manufacturing scale, the technology, the cost structure, and increasingly the brand recognition to compete anywhere in the world.

And Western OEMs handed them the blueprint.

What Happens Next?

It’s going to be very difficult for global automakers to escape this trap.

Building new manufacturing capacity outside China takes 3-5 years and billions in capital investment. Automakers are simultaneously trying to fund EV transitions, develop autonomous technology, and navigate trade wars.

Instead, look for the joint ventures to continue. The exports will grow. The dependency will deepen.

And one day – maybe five years from now, maybe ten – we’ll look back at this moment and recognize it for what it was: The moment when global automakers, in pursuit of short-term efficiency, surrendered long-term strategic advantage to China.

The question is whether any Western automaker will remain truly independent, or whether they’ll all eventually become brand managers for vehicles manufactured and controlled by Chinese companies.

Based on current trajectories, the only real thing to watch is which Western automaker surrenders first.

Michael Dunne founded two companies in Asia and later led global corporations in China and Indonesia. He speaks Chinese and Thai and has decades of on-the-ground experience in Asia. His insights on global automotive trends have appeared in major publications, including Fortune, The Wall Street Journal, The New York Times, and the Financial Times.

Dunne Insights LLC — a boutique consultancy advising investors, automakers, government agencies, and technology companies — helps clients identify opportunities, anticipate risks, and navigate the fast-changing mobility landscape. Visit dunneinsights.com to learn more.

What’s your take? Are Western automakers in trouble, or is my point of view too alarmist? Share your thoughts in the comments.

If China’s goal is total domination of the global auto industry, the master plan might look something like this:

1. Scale Up: Build enough capacity to supply more than half of the world’s annual demand for vehicles.

2. Flood In: Launch a frenzied push of exports into markets worldwide and, with aggressive pricing, take large chunks of market share.

3. Starve Out: Restrict competitors access to key material and manufacturing inputs, thereby limiting their ability to build competitive products.

For maximum impact, you would take these actions at hyper speed, crunching a decade of effort into the space of just a few years. This is precisely what the PRC has been doing since 2021.

Just look at the numbers.

China today has enough annual capacity - 50 million – to supply 55% of global demand for vehicles. By comparison, the world’s next largest automotive manufacturing nation, America, builds just 10 million cars a year.

This extreme overcapacity has ignited brutal price wars at home, causing profits to vanish. This is forcing Chinese automakers to face an ultimatum: export or die.

The Flood In

No one wants to die, of course, including China’s 107 car companies. So, China this year will export a world-record seven million vehicles to more than 100 countries worldwide, up from just one million in 2020. Chinese cars are pouring at a breathtaking pace into virtually every nation in every time zone – except the United States and Canada. Never in hundred years has the auto industry witnessed such explosive growth in exports from a single country.

Clearly, there’s more than natural market forces at work here.

Last week, I was back in the UK, visiting Chinese dealerships where MGs, BYDs and Chery Jaecoos are flying out of showrooms. BYD sales in September topped 11,000 cars, up 880% over the same month in 2024.

The UK is now BYD’s largest market outside of China.

Over lunch in London with Peter Fleet, former CEO of Ford China, I learned that BYD and other Chinese brands plan to be market leaders by 2030. “The Chinese accounted for 13% of new car sales in September,” Fleet said, “and I have that number going to 30% within two years.”

Western automotive leaders seem stunned and confused, like deer in headlights. The rapid Chinese advancement, says Ford CEO Jim Farley, is “the most humbling thing I have ever seen.”

The Starve Out

Farley and his peers in the West know that they need to deliver ultra-competitive products or they will soon be out of business. Unfortunately, they risk never getting out of the blocks. China last week announced limits on exports of key automotive manufacturing materials from rare earth magnets to battery materials.

Without these inputs, factories in Europe and the US will come to a standstill, as happened to Ford earlier this year.

Rare earth magnets are the most extreme example of China’s tight grip on pivotal inputs. Every car has hundreds of magnets. Magnets are particularly crucial in EVs because magnets shift electricity into motion at the wheel. No magnets, no motion.

The implied risks go far beyond the automotive industry. America’s F-35 fighter jet contains almost 900 pounds of rare earth metals.

China’s Dominance in Rare Earths

Refining and Processing: 90%

Manufacturing: 93%

That’s not the worst part. China is also restricting access to the machinery to make those crucial inputs. They [China] want to pull everybody else down with them,” Treasury secretary Scott Bessent said this week. “Maybe there is some Leninist business model where hurting your customers is a good idea.”

Source: FT. October 14 2025.

China’s fierce escalation did to come out of nowhere. In August, China’s top trade negotiator, Li Chenggang, warned Americans that he was ready to play hard ball. “He was pretty unhinged and very aggressive,” said one US official present at the meetings, stating that “the US would face a hellfire if things did not go his way.”

Maybe Bessent is right. Maybe China is following a Leninist playbook. Look at China’s undefeated record using overwhelming scale and predatory pricing power to take over industries from solar panels to ship-building to drones.

The pain for Western automakers is real. As a group, they are selling eight million fewer vehicles in China than they did five years ago. Eight million. Now they are under siege at home, especially in Europe. German automakers this year will produce the fewest number of vehicles (outside of the 2008 financial crisis and Covid shock) since 2000.

Volkswagen, Mercedes and Bosch - perennial blue chip corporations – are closing plants and laying off tens of thousands of workers.

What Now?

China’s playbook is clear, and it’s working: Scale up. Flood in. Starve out.

What’s less clear is how the rest of the world will respond. The auto industry, long built on global supply chains, now finds itself at the mercy of a single nation’s industrial policy. This is no longer just an automaker’s problem. It is a question of economic security, industrial survival, and strategic independence.

The real test now is whether companies and governments can work together to build new and reliable supply chains and secure access to the materials that power the modern world.

If the world does not act collectively, it could soon wake up to find the entire mobility industry — and the technologies that flow from it — running on China’s terms.

What do you think? Can the West – Europe, Japan, Korea, Australia, America – move quickly enough to build a truly independent automotive ecosystem, or is the gap already too wide to close?

In the good old days, automakers chose speed or scale to separate themselves from the pack. General Motors and Volkswagen dominated the market with their size. Honda and Mazda beat you with agility. Never had the industry faced a competitor that was both George Foreman and Sugar Ray Leonard.

Never, that is, until now.

China brings both.

Standing in the giant halls of IAA Mobility 2025 in Munich last week, it hit me: this match may be over before it even begins.

Speed Meets Scale

A total of 14 Chinese automakers showed up in Munich — more than the number of European brands. Most of these names are unfamiliar in Europe: Leapmotor, Changan, Dongfeng. But don’t be fooled.

Chinese carmakers have already captured 10 percent of the market in both the UK and Spain. Across Europe, they now hold nearly 6 percent of the total market, and in EVs, their share approaches 10 percent.

And they are doing it not just with EVs, but also with plug-in hybrids and gasoline models.

What makes the Chinese advance so formidable is the combination of speed and scale.

Relentless Speed

Rapid development: Legacy automakers often take three to five years to develop a new model. Chinese brands can do it in as little as 18 months, using massive dedicated workforces, parallel development processes, and advanced software modeling.

Startup culture: They run more like Silicon Valley firms than traditional OEMs: lean, flat, and agile. Bureaucracy is stripped away. They hustle, improvise, and pivot quickly when markets shift.

Flexibility: When a model flops, it’s quickly trimmed or recalibrated. BYD entered Mexico with only EVs, then quickly shifted to a mix of EVs and PHEVs when the market signaled demand.

Direct access: Meetings can happen at a moment’s notice. I was able to sit down with a top executive at NIO on a Sunday — no assistants, no layers of handlers, no waiting weeks for a slot. That kind of responsiveness is unthinkable at a legacy OEM.

Massive scale

Chinese vehicle exports are flooding into Europe and over 100 other countries. In July alone, they hit 750,000 units — an annual run rate of nine million. That’s up from just one million in 2020.

• Changan builds three million cars a year — more than Fiat, Renault, and Peugeot.

• BYD has vaulted to global EV leadership and will begin producing the Surf in Hungary next quarter. The company runs its own shipping fleet of eight ocean-going vessels, capable of moving over 1 million vehicles annually.

• CATL, the battery juggernaut, is planning factories in Spain, Hungary, and Germany by 2026.

• And Chery is already producing EVs in Spain under the revived Ebro badge.

Monster Momentum

China’s rise is not just about exporting cars; it’s about building ecosystems. At the show, Chinese booths included not just automakers but also suppliers like CATL, Horizon Robotics, and Huawei, embedding themselves across the industrial chain.

China sent 116 exhibitors to Munich this year — the largest foreign presence by far. Even with tariffs in place, Chinese automakers doubled their share of the European market over the past year. BYD’s European boss Stella Li was clear: “We are in Europe to stay.”

RJ Scaringe, Rivian’s founder, cut through the noise:

“The part that everyone needs to take note of is that these are technically very advanced vehicles. With the exception of Tesla and Rivian, they are more advanced than most Western vehicle manufacturers.”

That’s the heart of the matter. The Chinese are not just fast and cheap. They are fast, cheap, and technologically sophisticated.

Mounting Pressures

European carmakers did not roll over. BMW, Mercedes, and Volkswagen came with fresh EVs boasting long ranges, fast charging, and digital cockpits. They are investing tens of billions to claw back lost ground.

But the battle looks uphill.

• The Germans have shed 50,000 jobs in the past year.

• Volkswagen’s CEO conceded U.S. tariffs are costing billions each year.

Even with European tariffs in place, Chinese models often remain cheaper while offering longer ranges, faster charging, and sophisticated software. Meanwhile, Chinese brands are opening R&D centers in Munich, building experience stores across Europe, and partnering with local players to look and feel European.

The Bottom Line

The Chinese march into Europe with monster speed and monster scale. They are George Foreman and Sugar Ray Leonard rolled into one.

Europe is fighting hard. But in Munich last week, the sense was unmistakable: Chinese automakers bring both the lightning right jab and the devastating left hook.

VinFast, Vietnam's EV champion, is taking its home market by storm, upending perennial market leaders.

Just two years ago, Japanese and Korean brands dominated the Vietnamese car market, accounting for nine of the ten best-selling cars in Vietnam. VinFast's only model in the running was the Fadil, a modest city car modeled after of a ten-year old Opel.

Blink twice and everything has changed. Through the first six months of 2025, VinFast has the three best-selling cars and now accounts for almost 30% of the new car market.

Best-selling Vehicles 1H 2025

1. VinFast VF3: 23,083

2. VinFast VF5: 21,812 (+232%)

3. VinFast VF6: 8,552 (+257%)

4. Mitsubishi Xpander 6,591 (flat)

5. Ford Ranger 6,231 (flat)

Source: Global Data

At its current pace, VinFast could deliver 200,000 vehicles this year, double the number in 2024.

What is going on?

Just as we saw in China, the shift to EVs and home brands came slowly – then all at once. According a recent report by Ilaria Mazzocco of the Center for Strategic and Internal Studies (CSIS), EVs are on track to exceed 50% of new car sales in Vietnam this year, up from just 3% in 2022.

In its early years, VinFast struggled to impress customers. Efforts to enter and compete in America went nowhere after a series of brutal test drive reviews.

VinFast did not buckle. When I visited VinFast headquarters last year, top executives were quick to acknowledge the issues and promised they were moving fast to fix them.

Policies Help Shape Outcomes

Vietnam, home to 101 million people, has announced a couple of pro-EV polices with teeth. First, Hanoi mandated that some urban areas of the capital must run on electric or clean energy vehicles by July, 2026. Second, EVs are exempt from a national 12% registration tax.

V-Green, an independent company founded by VinFast Chairman Pham Nhat Vuong, is building Vietnam’s equivalent to the Tesla nationwide Supercharger network. It has already installed 150,000 charging portals nationwide. V-Green benefits from government subsidies for electricity that flows to charging stations.

Overseas Markets

VinFast is now exporting vehicles to neighboring markets, including Indonesia, the Philippines and Laos. The $20,000 VF3 city car is getting the most traction.

Transplants are part of the VinFast master plan, too. Last year, VinFast broke ground on a $200 million plant in Indonesia. This week, VinFast also opened a new manufacturing plant in India.

Financial Work to Do

One remaining hurdle - and it’s a tall one – is financial. VinFast lost almost $720 million in the first quarter of 2025, more than Lucid and Rivian over the same period. Every automotive startup is beset by massive financial losses until they reach escape velocity, which is in the range of 300,000 cars a year.

A Nation’s Pride

Will VinFast clear that bar? Time will tell. But as I have written earlier, you don’t want to bet against Vietnamese perseverance and tenacity. Just ask France (1954), America (1968) and China (1979).

To be sure, VinFast enjoys tacit backing of Vietnamese leaders, provided the company continues making progress. Short-term losses are tolerable if they lead to eventual national triumph.

But VinFast’s new momentum is really a result of consumer preference for good-looking, technologically-advanced electric vehicles at the right price, backed by an ubiquitous charging infrastructure.

The Next Arena

Vietnam won’t unseat China as the global EV powerhouse. But in the fight for non-Chinese markets, especially in Asia, VinFast is fast becoming a serious contender. Japan and Korea should be watching closely. The next battleground isn’t Detroit or Wolfsburg. It’s Jakarta, Manila, and Bangkok.

You’ve probably heard of BYD.

A middling player in the auto industry just a few years ago, the Chinese electric vehicle manufacturer BYD surpassed Tesla last year to become the world’s top-selling E.V. brand and is expected to pull with the world’s biggest carmakers, Toyota and Volkswagen, by 2030.

Yet most Americans have never even seen a BYD and probably won’t anytime soon.

BYD, which stands for “Build Your Dreams,” is essentially banned from American roads by tariffs, imposed to protect U.S. automakers, that double the price of imported Chinese plug-ins.

Erecting tariff walls may buy the domestic auto industry some time, but it ultimately won't insulate American manufacturers from BYD or the bigger threat that it represents.

Read the complete NYT piece here:

Why Americans Can’t Buy The World’s Best Electric Car

What if car dealers in San Diego, Phoenix, and San Antonio begin importing “lightly-used” Chinese vehicles from Mexico and delivering them to American buyers. (In China itself, EV companies are already selling “zero-mileage second hand cars” to get around regulations intended to end price wars.)

Today, America imposes a 147.5 percent duty on new electric cars imported from China, according to data from the U.S. Department of Commerce, a formidable wall that has slammed the doors shut on direct imports from the PRC.

But used car imports from Mexico are subject to only a 25 percent tax.

American dealers buying from Mexico will have plenty of choices. China now exports more cars to Mexico than any other market in the world. Mexican consumers are already driving hundreds of thousands of BYDs, Chireys (Chery’s brand name in Mexico), Zeekrs, Aions, and SAIC-MGs.

A few weeks back, I crossed the border from San Diego to Tijuana and walked less than a mile to a BYD dealership. There, I test drove several new products, including the U.S.$45,000 Shark pickup truck and the $20,000 Mini Dolphin. BYD plans to sell 80,000 cars in Mexico this year, up from nothing in 2020.

While behind the wheel, I asked a BYD sales consultant named Luna about consumer perceptions. “Not a lot of Mexican customers are familiar with the BYD brand,” she told me. “But they get excited when they see the quality they can get at these prices. BYD’s infotainment is the best in the industry — way ahead of GM, Ford, and Toyota.”

Veteran executives from the Mexican industry told me that BYD and other Chinese cars are hurting legacy automakers. Stellantis and GM are losing market share at a rapid clip. Profits are falling fast, too.

In the last week of May, BYD cut prices on most of its models sold in China, including slashing the Dolphin Mini sticker to under $8,000. We can expect similar price drops in Mexico in the coming months.

Dealers in Mexico told me that they are barely breaking even on the sales of new Chinese cars. But they do not want to miss out on securing the franchise for the “next Toyota,” so they are even willing to lose money in the short term. “I think dealers in Texas would be disappointed not to have these vehicles in their own showrooms, too,” one said.

It is hard to imagine Chinese cars not finding their way up into Texas, Arizona, California, and beyond. American car buyers would be dazzled by the surprisingly high levels of quality and the advanced technology.

Detroit would be in a panic.

Politicians in DC would be livid. They would, no doubt, move to quickly stop the action at the border. But once the genie is out from there bottle, can she be put back in?

Originally published in ChinaFile on June 16, 2025. Reposted with permission.

As a follow-up to my recent newsletter on the strategic importance of magnets, the rare earth elements needed to produce them, and China’s dominant role in their supply, it’s clear that ensuring secure and reliable sourcing is now a strategic imperative for the West.

I’m excited to announce the launch of Realign 2025, the first in a new series of private summits hosted by Dunne Insights. These gatherings are designed to bring together leaders from government, industry, and capital for candid, off-the-record conversations about the future of advanced manufacturing, critical materials, and national competitiveness.

Our first summit will take place October 14–17, 2025 at the Fairmont Mayakoba in Mexico. This will be a small, confidential gathering focused on building practical strategies for industrial resilience and supply chain leadership. We’ve already confirmed several major voices from government and C-level executives from across the automotive and strategic manufacturing sectors. A full list of speakers will be announced soon.

If you’re interested in attending, speaking, or exploring sponsorship opportunities, please contact me directly.

Best regards,

Michael Dunne

A New Kind of Sputnik Moment

We’re living through a new Sputnik moment, but this time, there’s no single rocket launch to jolt us awake. Instead, it’s been a slow, steady shift over decades. The U.S. and its allies have gradually handed over control of critical materials, manufacturing, and innovation to China. This erosion now threatens not only supply chain stability but our national security, economic sovereignty, manufacturing capability, and our ability to lead in the technologies that define the future.

Consider what we've surrendered. China now processes more than 90 percent of the world’s rare earths, dominates lithium-ion battery production, and has become the global hub for semiconductors, solar panels, and advanced manufacturing tools. Nowhere is this clearer than in the auto industry. Once the pride of American manufacturing, it now runs on Chinese batteries, electronics, and raw materials. Meanwhile, China has become the largest car exporter in the world and leads outright in EV production. When one country controls the materials that power defense systems, renewable energy, and AI infrastructure, those supply chains are not just vulnerable. They become geopolitical weapons.

Unlike the 1957 Sputnik wake-up call, this moment comes without clear direction, only a growing sense that we’ve drifted too far. The. The question is not only what went wrong but also what we do next. How do we bring back the manufacturing capacity we spent decades offshoring? How do we rebuild our innovation base and deepen our talent pool? The window is still open, but it is closing fast. Every day we wait, the transition gets harder, and the price of inaction grows.

Realign 2025 exists to meet this moment with urgency, strategy, and clarity. This summit represents a call to action for leaders who understand that the next few years will determine whether democratic nations maintain their technological and economic leadership or cede it permanently. At Realign 2025, we gather to chart a course toward solutions that can restore the industrial foundations upon which our prosperity and security depend.

About the Summit

Realign 2025 is the first in a series of closed-door summits we’re creating that is aimed at rewiring global supply chains and eliminating strategic dependencies on China. Taking place October 14–17 at the Fairmont Mayakoba in Mexico’s Riviera Maya, this event will convene approximately 60 senior leaders from across:

• Automotive and industrial manufacturing

• Battery, materials, and technology sectors

• Venture capital and private equity

• U.S. and allied government agencies

• Universities and research institutions

This summit brings together the world’s sharpest minds to design a resilient, secure, and globally competitive future, anchored on:

• Speed of execution

• Removing policy roadblocks

• Cultivating engineering and manufacturing talent

• Mobilizing capital

• Scaling China-free advanced manufacturing and refining capacity

Closed doors with friends, no press. Where real conversations about rebuilding happen.

Much less well-known: America cannot build a single guided missile without permission from Beijing. That is not a hyperbole. It’s the stark reality of America’s dependence on Chinese rare earth magnets, the hidden components that power everything from F-35 fighter jets to wind turbines to Tesla Model 3s.

Until a few weeks ago, China’s overwhelming dominance of the magnet sector went mostly unnoticed. China supplied, and the West happily bought. But in May, China sent shockwaves through America’s defense industry and the automotive business when it abruptly blocked magnet exports.

Among their many uses, the auto industry needs rare earth magnets for alternators, sensors, motors, fuel pumps, transmission systems, entertainment systems, vehicle electronics, and exhaust systems. A typical EV uses between two and five kilograms of rare earth magnets.

Ford was forced to shut down production for a week. German automakers warned of production lines coming to a standstill. "The whole car industry is in full panic," said Frank Eckard, CEO of German magnet maker, Magnosphere earlier this month. "They are willing to pay any price."

The message was abrupt and unmistakable: China holds the supply chain equivalent of nuclear weapons. Without magnets, American and European cars do not get built.

America led the world

In the 1980s, America utterly dominated the rare earth industry. Molycorp’s Mountain Pass mine in California supplied most of the world’s rare earths, while General Motors’ Magnequench subsidiary pioneered permanent magnet manufacturing. The United States controlled both the raw materials and the cutting-edge technology.

China began flooding global markets with cheaper rare earths, subsidized by state investment and environmental externalization. American companies, focused on quarterly returns rather than strategic capabilities, found it easier to source from China than to compete.

The global production shift tells the story in stark numbers:

In 1985, the U.S. controlled 60% of rare earth production and China just 30%. By 2024, China had achieved near-monopolistic control over the entire supply chain, from mining to processing to finished magnet manufacturing. China now controls 90% of global neodymium magnet production while the U.S. produces a paltry 0.3%.

The Magnequench Betrayal

The most devastating blow came not from Chinese industrial espionage but from American corporate short-sightedness. In 1995, General Motors sold Magnequench for $56 million to what appeared to be Sextant Group, led by Archibald Cox Jr. In reality, Sextant was a front for two Chinese state-linked companies with ties to Deng Xiaoping’s family.

Pentagon officials advised against the sale, recognizing that Magnequench supplied 85% of the rare earth magnets used in American guided missiles and smart bombs. They were overruled by the U.S. State Department, which was eager to better relations with China. Mr. Cox promised workers that production would remain in the U.S. for at least a decade. Instead, he began shutting down American plants within three years.

By 2004, the last U.S. Magnequench facility closed, with 450 workers fired and machine tools shipped to China. America’s defense industrial base had been hollowed out for $56 million: the cost of a single F-35 fighter jet.

China simultaneously targeted other critical nodes in the supply chain. When Molycorp’s Mountain Pass mine faced environmental challenges and regulatory pressure, Chinese competitors exploited the opportunity. The facility closed in 2002, ending American rare earth production entirely.

Giant Gap

Today, the United States is at least 10-15 years behind China in state-of-the-art permanent magnet manufacturing at scale. The numbers are staggering: China produces 300,000 tonnes of NdFeB magnets annually, while U.S. capacity is projected to reach barely 6,000 tonnes by 2027, less than 2% of Chinese output.

The capability gap extends beyond raw production volumes. China controls 90% of global rare earth processing, the complex separation chemistry required to transform mined ore into magnet-grade materials. Even when the U.S. mines rare earths, the concentrate often goes to China for processing because America lacks the technical infrastructure.

This dependency creates cascading vulnerabilities. The U.S. Navy’s entire fleet relies on Chinese magnets. American automotive manufacturers operate on “hand-to-mouth” inventory systems, vulnerable to supply disruptions. Ford CEO Jim Farley described the current situation in plain words: “It’s day to day… We have had to shut down factories.”

China’s Economic Weapon

China’s April 2025 export restrictions demonstrated how Beijing can weaponize rare earth dominance. The new rules require individual export licenses for seven critical rare earth elements, including samarium, dysprosium, and terbium, materials essential for high-performance military applications.

The impact was immediate and severe. Chinese rare earth magnet exports halved from April to May 2025. German automakers, the largest importers, saw shipments reduced by 50%. American defense contractors faced potential production shutdowns for weapons systems.

Faced with economic coercion, the United States agreed to relax export restrictions on jet engines, ethane, and nuclear equipment in exchange for resumed Chinese magnet shipments under a licensing system. Beijing retained restrictions on military-grade magnets and imposed six-month licensing caps to maintain leverage.

The symbolism was unmistakable: America traded advanced aerospace technology for access to processed earth elements. The negotiation revealed how China had transformed commoditized materials into strategic weapons.

The Long Road Back

American companies are finally awakening to the strategic threat, but rebuilding will take decades. MP Materials has reopened Mountain Pass mining and built a magnet facility in Fort Worth, targeting 1,000 tonnes annually by 2025. USA Rare Earth plans a 5,000-tonne facility in Oklahoma. Ucore Rare Metals is constructing processing capabilities in Louisiana.

The Department of Defense has committed $439 million since 2020 to rebuild domestic supply chains, aiming for complete “mine-to-magnet” capability by 2027. The goal might meet defense requirements, the DOD needs roughly 1,200 tonnes annually, but commercial and industrial demands will remain import-dependent for years.

The feedstock challenge remains daunting. While some projects like MP Materials achieve vertical integration from mine to magnet, most facilities still depend on imported concentrates during ramp-up phases. Heavy rare earth separation, critical for high-performance defense applications, has zero current U.S. capacity outside laboratory scale.

A new company named Evolution Metals and Technologies is addressing the feedstock issue by focusing on creating a U.S.-based supply chain for processing rare earths and recycling lithium-ion batteries.

Leverage Play

American rebuilding efforts face constant threats of Chinese price manipulation. When Molycorp attempted to revive Mountain Pass in 2010, China flooded markets with below-cost materials, driving the company into bankruptcy by 2015. Beijing demonstrated that it will sacrifice short-term profits to maintain long-term strategic control.

The geopolitical implications compound over time. As America’s technological edge in aerospace and defense depends increasingly on Chinese-controlled materials, Beijing gains influence over U.S. military capabilities. Every advanced weapons system becomes a hostage to Chinese supply chain decisions.

China’s strategy represents economic warfare through industrial policy: using state resources to control critical supply chains and leveraging that control for political and economic concessions. The rare earth magnet industry exemplifies how authoritarian capitalism can systematically undermine democratic market economies.

Conclusion: Time for Action

America stands at a crossroads reminiscent of World War II, when the nation rapidly transformed civilian industry to meet existential threats.

Each month of delay allows China to consolidate its advantages further, making future competition more expensive and difficult.

The rare earth magnet industry reveals a fundamental question about America’s economic future: Can democratic market economies compete against authoritarian state capitalism in industries requiring massive, long-term investment and political will?

American policymakers must choose between accepting permanent strategic dependence on adversaries or committing the resources necessary for genuine supply chain independence.

America, this is not a rehearsal.

Imports from China shot up to 485,302 units in 2024 – almost one-third of all new car sales.

You see advertisements for Chinese cars as soon as you step off the plane. And you see new dealerships for Chinese carmakers popping up across the capital city.

The speed of change is breathtaking.

What makes this story doubly dramatic, however, is the role that General Motors played in accelerating China’s drive into Mexico.

America’s General Motors? Yes, that GM.

Here’s the background: In 2020, GM executives in China found themselves under enormous pressure. Sales of the Chevy brand in China were in a free fall, down 63% from their peak. GM and its joint venture partner SAIC were suddenly saddled with massive excess capacity - and red ink.

Chinese executives at SAIC quickly came up with a solution. “Why don’t we export Chevys to Mexico!” This would be a dramatic change. The SAIC-GM 50-50 joint venture – since its inception in 1997 – was always designed to produce in China for the China market only.

To allay concerns, Chinese executives painted a pretty picture. SAIC would handle the hard work of manufacturing. All GM needed to do was tack on the Chevy brand, put the cars on boats and have Chevy dealers in Mexico deliver the cars.

Made-in-China Chevy sales started fast and rocketed higher each year, reaching 146,000 in 2024. That was a massive 71% of all Chevys delivered in Mexico last year.

The money guys at GM saw the deal as an elegant solution - almost genius. “We are making incredible profits exporting from our China JV to Mexico,” an exuberant GM executive recently told me.

Come on, GM people! By now, you must understand that the Chinese business person never does something for nothing. The deal instantly handed half the revenues and half the profits of every Chevy export to SAIC.

More importantly, the arrangement gifted SAIC direct access to a key new overseas market. SAIC understood that as Mexican customers discovered that they were buying a Chinese product with a Chevy badge, they would become more open to trying other Chinese cars.

So, can you guess what was the best-selling Chinese car brand in Mexico for the past three years? That’s right: MG. And who owns the MG brand? It’s SAIC, GM’s China partner.

MG, which offers 11 different models, sold 61,000 vehicles in Mexico last year. Number two BYD delivered 42,000 and expects to sell 80,000 this year.

An executive from a tech supplier in Mexico predicts doom around the corner. “That China Chevy deal,” he told me, “put GM in Mexico on a rapid path to becoming totally irrelevant.”

There are now 21 Chinese brands with more than 300 different models on offer in Mexico. Will they ever go back?

“It’s too late. The Chinese are already here with good products and incredible prices,” said every Chinese brand dealer when I asked whether U.S. pressure could force Mexico to turn the Chinese away.

Of course, President Trump could wake up tomorrow and demand that Mexico match America’s 100% tariffs on Chinese car imports. Who knows?

But, for now at least, the action continues to go China’s way. Ford and Stellantis just adopted GM’s playbook: China partner builds, Detroit badges and Mexico buys.

Detroit continues to plant the seeds of its own destruction. The Chinese are smiling at their good fortune - and the naivety of their American partners.

Or is it something darker: Detroit selling out Detroit?

What is less well known is that China embraces tariffs in a big way, too. And China’s love affair with tariffs – quiet, almost clandestine – has been going on for decades.

A tall, imposing brick wall of taxes on imports, blended with targeted industrial investments, have played a pivotal role in China’s rise as a manufacturing powerhouse.

How powerful? In 2024 alone, China ran a one trillion dollar trade surplus with the world.

One trillion dollars.

China’s car market offers a dramatic illustration of what tariffs can do.

• Of the 25 million vehicles sold in China last year, 24.2 million – a staggering 97% – were manufactured inside the country. Imports were a mere rounding error.

• China also exported 6 million vehicles in 2024 – almost 10 times more than it imported.

How did we get here? Well, we need to go back 35 years, to the beginning.

When I started my first company in Beijing in 1990, China was an automotive weakling. Annual production was less than 500,000 cars; thin wood shavings compared to more than 13.5 million that Japan produced.

To gain industrial traction, regulators in Beijing slammed the door shut on imports. They set tariffs at 100%. They also strictly limited the number of import licenses granted each year. It was a double layer of protection – non-tariff barriers on top of tariffs.

Price of Market Access

China’s message to global automakers was crystal clear. If you want to sell cars in China, you will need to manufacture them inside China. And to secure an approval to manufacture inside China you must first marry up with a Chinese partner. And, by the way, the Chinese partner will own no less than 50% of the joint venture.

Dear Reader: You might be wondering what right-minded global automaker CEO would go along with terms that so heavily favored the home team, China.

As it turns out, practically every one of them.

Over the next three decades, Japanese, American, German, French and Korean automakers invested tens of billions of dollars to form manufacturing joint ventures in China. By 2000, China was building one million cars a year. By 2010, that number exploded to 16 million.

In 2024, China produced 31 million vehicles, three times more than the United States. The tariff and non-tariff barrier regime never relaxed. During that 35- year sprint to automotive manufacturing supremacy, China never permitted car imports to exceed 6% of the total market.

Kettle Black

These days, we hear Chinese leaders loudly criticize American tariffs, calling them “arbitrary and destructive.” Chinese Foreign Minister Wang Yi earlier this week said that American tariffs were “meeting good with evil”.

Don’t be fooled by Wang’s words. The reality is that China has managed an elaborate system of tariff and non-tariff barriers for decades. Last year, America imported 7.8 million vehicles – almost half of the total market. In China, imports limped in at a measly 3 percent.

As a concession when joining the WTO in 2001, China did agree to partially reduce tariffs on car imports. But China kept the non-tariff barriers, like quotas on import licenses, in place. The double-barrel approach is effective. Today, a Tesla Model S that starts at $74,000 in America will cost a Chinese consumer no less than $96,000 after tariffs and fees.

Tremblingly Obey

As Mark Twain liked to say: “History does not repeat itself but it sure does rhyme.” Look at history and you discover that protectionism has been China’s instinctive go-to playbook for centuries.

The Great Wall did not get there by accident.

In 1793, Qing Dynasty Emperor Qianlong wrote a bordering on letter to England’s King George in a tone that bordered on disdainful: “Our celestial empire possesses all things in prolific abundance and lacks no products within its borders. Therefore, there is no need to import the manufactures of outside barbarians.”

Emperor Qianlong further warned British traders against efforts to ship products into the China market: “Tremblingly obey and show no negligence!”

Imperial Britain, alas, did not listen. China’s cloistered kingdom was shattered in 1842 when British warships sailed up the Yangtze River – triumphant in the first Opium War.

Over the next 100 years foreign companies, people and products flooded in, overwhelming China. The Qing Dynasty fell in 1911, French, British, American and German concessions were established in several coastal cities. Later on, Japanese forces invaded, conquering large swathes of the country.

Every Chinese citizen from an early age learns to call this period “China’s one hundred years of humiliation.”

Tables Turned

Now, it feels like payback time. China has become an industrial machine the likes of which the world has never seen before. It has the scale, the supply chains, the speed – and the tariff walls – to crush most other countries.

One year ago Elon Musk put the new realities into plain words: Chinese automakers “will pretty much demolish” most competitors without some trade barriers.

There is no doubt that tariffs – combined with massive investments in manufacturing – played a decisive role in China’s breathtaking industrial ascendancy.

Donald Trump looks at China’s results and says: Why not America, too?

Chinese automakers would secure direct access to a market of 449 million that offers vast potential for growth and profits. And salvation from brutal price wars in their home market.

But Europe – like a conflicted bride at the altar – is having second thoughts.

Last year, the EU announced special tariffs on EVs imported from China that ranged from 8% to 38%. Now, there is talk of restrictions on Chinese autonomous hardware and software, similar to those adopted last month by America.

Such rebuffs are bewildering to the Chinese – and more than a little annoying.

Look at all the valuable gifts we can bring to Europe, China says.

• You need affordable cars? We have that. The average price of a new car in Europe today is $49,000. The average cost of a Chinese car exported in 2024: $18,000.

• You need EVs to meet your ambitious climate mandates? We have enough capacity to supply all of Europe’s EV demand - right now.

• You need battery plants? You bet $15 billion on the Northvolt startup and that failed! Our battery leaders BYD, CATL and AESC are already on the ground in Europe and ready to ramp up production.

So, c’mon, says the People’s Republic, why the cold feet?

For European leaders and automakers: mixed feelings. China, in fact, does solve many immediate problems. What keeps them up at night are the long-term risks. What if the marriage goes sideways in five years?

Night Sweats

Privately, European automakers tell me they sense real danger – existential danger.

Volkswagen last year delivered 1 million fewer cars in Europe than it did in 2019, according to a report this week in the Financial Times. Sales in China are collapsing. At home, VW is closing plants in Germany for the first time in modern history.

EU political leaders are growing more wary, too. “We turned to Russia to solve our energy problems and we know how that turned out,” an EU Cabinet member recently confided to me. “We don’t want to make the same mistake with China.”

An impatient China, meanwhile, is starting to move from diplomacy to strong persuasion with a threat of coercion.

Last week China appointed Lu Shaye as its special rep for European affairs, one of China’s leading wolf warrior diplomats. “The Lu Shaye appointment signals a hardening of Beijing’s stance after clashes with the EU over trade and the Ukraine war,” says Peter Humphrey, a China veteran 50 years of PRC experience (including 30 months behind bars).

What might a tougher China stance look like?

China Leverage

• Ownership. China already enjoys enormous clout in Europe. The PRC owns or controls some of Europe’s most iconic brands.

Geely acquired Volvo in 2010 and Lotus in 2017. Geely also runs a JV with Mercedes to make Smart brand cars in China that are exported globally.

SAIC owns MG, a brand it acquired in 2005.

Geely and Beijing Auto Industry Corporation together hold 19% of shares at Mercedes-Benz.

With the largest stake in Mercedes, China exerts significant sway over Europe’s most prestigious automaker. In recent months, Mercedes CEO, Ola Kaellenius, has lobbied the EU leadership hard to drop tariffs on Chinese imports.

“We need more free trade, not additional barriers.” he told German reporters in Stuttgart.

Mr Kaellenius is understandably worried about retaliatory tariff action. Mercedes sold 683,000 vehicles in China last year, almost twice as many as in the United States.

• Exports. Made-in-China cars accounted for 20% of Europe’s EV market in 2024. That number is bound to climb higher. The MG brand alone delivered 240,000 cars across Europe and the UK last year.

Made-in-China Vehicle Exports to Europe*

2020: 263,000

2022: 530,000

2024: 737,000 (e)

*Includes Chinese & global carmakers; gasoline, PHEV & BEV powertrains.

• Lobby Power. Chinese leverage runs deep into the global manufacturing operations of European automakers.

In a remarkable twist, BMW, Mercedes, Tesla and VW’s Spanish subsidiary SEAT recently joined Chinese automakers in filing suits against the EU. The lawsuits are designed to strip Brussels of its rights to impose tariffs on imports from China.

European automakers are joining the fight because they build tens of thousands of EVs in China and export them back to Europe.

SEAT imports an all-electric CUPRA brand from China to help meet Europe’s stringent emissions regulations. “If CUPRA is at risk, then SEAT is at risk,” says SEAT CEO Wayne Griffiths.

Clearly, China has Europe coming and going.

Turnabout Is Fair Play

Europe is racing to preserve automotive independence where it still can. It’s 7-10 years behind when it comes to EVs and batteries. What to do?

Europe’s first best option to take a page from China’s own tariff and industrial playbook: Since the 1980s, China mandated 50-50 manufacturing joint ventures for every European automaker entering the PRC.

Europe should invoke the same terms for both car and battery manufacturing. “If you want to access to the lucrative European market, invest in manufacturing here and give 50% ownership to a European firm.” The 51-49 Stellantis-Leapmotor JV, formed last May, serves as a working template.

Europe should also make technology transfer agreements a requisite part of any Chinese investments. Chinese automakers might not like it. But they will get it.

There is a Chinese expression that describes joint ventures: Sleeping in the same bed, dreaming different dreams. China wants market access. And Europe thirsts for EV and battery technology. Each side will scratch and claw to achieve their separate objectives.

Europe, of course, does have another option: It could decide to turn around and walk back up the aisle, leaving China stranded at the altar.

But hell hath no fury like a suitor shunned.

Michael Dunne • February 11, 2025

www.dunneinsights.com

• • •

A Special Note

I am very pleased to share here a link to an important new strategic paper prepared for automotive executives and political leaders in Europe.

Europe EV & Battery Industry: Revolutionary Change - Or Extinction

Here’s an opening excerpt:

It is the quarterfinals of the 2026 World Cup. Team Europe is down 3-0 at halftime, stunned by an opponent – China – that is bigger, faster, stronger and more skilled. Inside the locker room, silence. The coaching staff huddles in the corner, shaken by the one-sided play in the first half.

To forge a comeback, Team Europe's coach understands that he must make dramatic changes. He must take risks. He must do things differently. Otherwise, it's curtains, the end of the tourney run. And possibly the end of an era for Europe.

To continue reading: Link

Prepared for the European Initiative for Energy Security (EIES)

February, 2025.

Not a lot of people talk about it, but Warren Buffett has been aggressively shedding his BYD holdings.

Since late 2022, Buffett’s Berkshire Hathaway has reduced its ownership in BYD by more than half. Those sales are shares it had owned since its prescient investment way back in 2008.

Berkshire now owns less than 5% of BYD.

Now here’s the strange part: Warren has been selling shares at a time when BYD is hitting full stride - growing faster than any other automaker in the history of cars.

BYD deliveries are up 10x since 2020, from 400,000 to more than 4 million per year.

What makes this high-velocity industrial sprint even more stunning is that BYD sales actually fell for three consecutive years between 2018 and 2020.

Now, suddenly, BYD is bigger than Ford, Honda or Nissan.

Investors not named Warren Buffett are entranced. BYD is now worth $105 billion. That makes BYD the third most valuable automaker in the world after Tesla and Toyota.

Okay, perhaps Warren is just taking profits, being smart.

Or maybe, just maybe, the Oracle of Omaha senses something that everyone else is missing. What might that something look like?

Reader: “Wait a sec, Dunne. Before we go deeper on Buffett, first remind us how BYD got so good so fast.”

Dunne: “Oh, right, of course. Let’s do that.”

The reality is that competitors today genuinely respect - and fear - BYD.

After a visit to BYD headquarters in 2023, Toyota’s EV head, Takero Kato, came back to Japan and announced: “We’re in trouble!”

Ford CEO Jim Farley recently called BYD products “an existential threat” to Ford’s business.

Here is why:

1. Vertical Integration: Building 80% of its parts in-house lets BYD produce vehicles at 25% lower cost than established automakers in the West.

2. Blade Battery. BYD has designed arguably the world’s safest and most efficient battery. The Blade lithium-ion phosphate battery is so good that rival Tesla sourced the Blade for some of its Model Y production in Berlin.

3. Product Range: BYD offers the full spectrum of cars and SUVs, powered by battery-electric or plug-in hybrid propulsion systems. Prices start at $9,700 for the Seagull and run up to $223,000 for the Yangwang U9 supercar.

4. Design. Under the leadership of Audi-trained Wolfgang Egger, BYD’s 600-plus team of designers are creating very fresh, good-looking cars, like the BYD Seal.

   

5. R&D/Patents. BYD has 110,000 engineers on staff, the most of any auto company in the world. By the end of 2024, the BYD team had filed an astonishing 29,000 global patents.

6. Confidence. BYD is not staying home. The company exported 400,000 cars in 2024, including 40,000 to Mexico. This year the target is 800,000. To speed delivery, BYD recently launched the Shenzhen, the world largest car carrier ship and BYD’s 4th roll-on, roll-off ship since 2024.

So much winning.

BYD appears to have turned into a legitimate global powerhouse. So, what could be causing Warren Buffett to unload shares?

A closer look reveals some potential cracks:

1. Uneven Quality. According to the JD Power China 2024 IQS study, the BYD Seal and the BYD Song Plus finished at or near the bottom in quality rankings. Manufacturing execs in the industry tell me it is next to impossible to increase output 10x in four years and not have quality issues.

2. Labor Standards. Authorities in Brazil temporarily shut down BYD operations at the end of December. A total of 163 of those workers at a construction company hired by BYD were found to be working in what Brazilian authorities said were "slavery-like conditions." BYD is learning that accepted labor practices at home in China may not translate overseas.

3. Trade Fireworks. With recent 100% tariffs on Chinese cars imported into the U.S. and Canada, and a flat ban on Chinese software and hardware in connected cars, North America has delivered a giant 'Not Welcome Here' message to BYD and every other Chinese maker. Europe, too, has lifted tariffs on BYD imports. BYD sold fewer than 3,000 cars in Germany last year. Brazil and Mexico are looking to beef up tariff and non-tariff protections after being inundated with cars from China in recent years.

4. Over Dealering. When I talk to BYD dealers in places like Brazil, Thailand and Indonesia, there are two recurring themes. They love the BYD products. They are much less happy about BYD’s tendency to promise a market area to one dealer only to give new outlets to other dealers in the same area a few months later. When that happens, profits slide to zero in a hurry. “The honeymoon was short and it’s already over. There’s no money” is how one dealer in San Paulo, Brazil put it.

5. Complex Brand Portfolio. BYD is building four core brands at the same time, which can be expensive and distracting: BYD, Denza, Fangchengbao and Yangwang.

6. Supply Chain Financing. Bloomberg reported this week that BYD debt may be larger than it appears. “However it’s structured, it’s clearly a form of hidden debt.” [BYD] is using sleight of hand to present these liabilities as part of working capital, says Nigel Stevenson of GMT Research in Hong Kong. BYD took an average of 275 days to pay suppliers in 2023.

All of these issues, of course, may be manageable. BYD has enough employees - nearly 1 million in total - to power through these growing pains.

But there is one more danger lurking in the horizon. And it’s a big one.

The US and China are engaged in an intense battle for supremacy over next generation technologies. BYD, fairly or not, is seen as the tip of the CCP spear when it comes to EVs and batteries.

Warren Buffet, more than anyone, would understand this risk.

In 2023, Buffett sold every last one of his shares in TSMC, the world’s largest and most profitable chip maker, headquartered in Taiwan.

When asked about the thinking behind the move, Buffett was succinct: “I don’t like its location.”

Warren might know a thing or two.

One humid June morning a few years back, I found myself standing at the entrance of a massive car assembly plant on the outskirts of Zibo, a sooty industrial city about a three-hour train ride south of Beijing.

The five million residents of Zibo had no prior history in making cars. But Mr Zhang, the 40-something CEO of National Gold Motors, was hell-bent on changing that.

Zhang, wearing a Calvin Klein shirt, blue jeans and Converse high tops, welcomed me at one end of the plant:

What do you think? “Ni kan zenmo yang?”

First thing I noticed was that the plant was huge. There was enough capacity, I learned later, to build 150,000 cars a year. Long rows of world-class Kuka robots, imported from Germany, stood idle and silent. Like shiny, disciplined soldiers.

Over in one corner, a few engineers fussed with a prototype that faintly resembled a Citroen Picasso.

Most of all, I noticed the quiet. There were no more than 10 workers in the plant. This operation was still very far away from production.

“Impressive.” I answered. “Very impressive.” Then I ventured my own question: “How many cars do you plan to sell next year.”

Zhang turned his head a bit and gave a wry smile, like he was dealing with a junior staffer who did not get the memo. Instead of answering, he delivered another question: “What EV technologies can you get us from America?”

“EV technologies from America?” I repeated with what must have been a very puzzled look on my face.

Zhang, who had been hired in from Zhejiang, that southern cradle place of China’s boldest entrepreneurs, then turned to one of his lieutenants.

“Explain things to our guest.”

His R&D chief stepped forward. “You see, sales don’t matter right now. What matters is that we tell the municipal government, the Mayor, that we are sourcing advanced technology from America. Then he will instruct the state bank here to give us another big loan.”

“What kind of advanced technology?”

“Oh, the kind really doesn't matter. Anything. What matters is getting the money from the bank. That’s how we got the first $1 billion to build this plant and buy the Kukas.”

The first billion?

I took a short ride in the Picasso-like prototype. During the test drive on factory grounds, a panel affixed to the roof flew off. I asked the driver to slow down. Clearly, the car needed work before it would be ready for production.

“How can I be helpful,” I asked CEO Zhang as I stepped out of the car.

“You’re from California, right? There must be a lot of good EV tech there. Tell us a couple of technologies we can source there.”

My mind raced. I still had no idea what they wanted. Then it occurred to me: Neither did they. The technology did not matter.

What mattered was that my visit would give the Mayor enough confidence to instruct the bank to make the deliver the next tranche of loans.

Later that night, CEO Zhang and his team took me to dinner. Our chauffeured van pulled up to the front steps of…City Hall. You guessed it: Dinner was catered at the Mayor’s office. Sitting at the top of the table was the Mayor of Zibo himself.

During our three-hour dinner, sprinkled with shots of Maotai, there was exactly zero conversation about technology. “An American guy from California who knows cars was here and he knows a lot about EV technology” was going to be enough to get the bank loan approved.

The State Capitalism Playbook

Across China, you can find scores of startups like National Gold. They are run by street smart, hard working people. Some, like NIO, Xpeng and Li Auto, are much more advanced than others. But they all follow a standard playbook for operating in the arena called state capitalism.

1. Secure a manufacturing license, with help from a government sponsor.

2. Get a billion-dollar loan. Build a plant. Buy some Kukas.

3. Get another billion. Build a second plant. Whenever possible, build plants in a few different provinces. That’s good risk diversification.

In the West, we (usually) try to spec the plant to market demand. In the PRC, you secure the hard-to-get license and build the plant. The bigger the better. Then you hustle like crazy to sell your cars. Sell them to anyone. Anywhere.

Result: China today has enough capacity to supply half of annual global demand for cars - some 40 million a year. Chinese consumers buy about 25 million, leaving 15 million units of extra capacity.

Now, if all that excess capacity stayed at home, inside China, no one would give a hoot. But it’s not staying home.

Chinese automakers are on a global offensive, exporting cars and trucks – to more than 100 markets worldwide. China will ship 6 million vehicles in 2024, cementing its position at the world’s No. 1 exporter.

Western automakers are feeling the pain. In recent weeks, VW and Nissan both announced plant closures and layoffs of thousands of workers. GM took a $5 billion charge as it restructures its China business.

Leaders in the West are beginning to shout accusations of unfair play, even going to far as to utter the “O” word.

The “O” Word

Overcapacity is a clunky, boring word that suddenly has the power to make lots of people angry.

West: You can’t just recklessly build a bunch of car plants and flood the zone like that. You are weaponizing overcapacity!

China: We’re supposed to hold back because you’re lazy, slow and stupid? You’re just pissed because we are winning!

There are truths on both sides.

There is no question that China ramps up capacity and subsidies in targeted industries - solar, ship-building, steel – and demolishes global competitors with impossible-to-match pricing. At the same time, the West has been complacent – too comfortable and slow to innovate.

Overcapacity and subsidies are big, complex topics distracting us from a much simpler reality: We are experiencing a high-speed collision of two distinctly different economic systems.

In this corner, market capitalism. In that corner, state capitalism. The two heavyweights, locked in a clench at center ring, do not like each other.

The West pushes off and yells to the referee: “Disqualify him. He’s juiced! China steps forward: “I’m strong and quick. And you’re fat.”

Suddenly, An Export Powerhouse

People in there West naturally wonder: How does China make the spectacular jump from exporting 1 million cars in 2020 to 6 million just four years later? How is that even possible?

Chinese carmakers like BYD, Chery, Geely and Xpeng have made stunning improvements in the past five years. These companies, led by ambitious and hard-working people, offer tremendous products at affordable prices.

But if BYD were headquartered in India or Brazil or Indonesia, the company would be an industrial pipsqueak. The secret superpower is China itself and its state capitalist system.

There’s China. And Then There’s Everyone Else

China as a manufacturing base for cars is simply impossible to match in scale, supply chains, materials, regulatory speed and intensity of competition. State subsidies in all shapes and sizes - measurable and dark – also play a crucial, if impossible-to-measure, role.

China’s rise as an automotive superpower is not an anomaly—it’s a case study in the power of state capitalism, a system that marries ambition with strategy, and brute scale with surgical precision.

The West can gripe about subsidies, overcapacity, and unfair competition, but the reality is clear: China is playing a different game, and it’s playing to win. Where do your solar panels come from, again?

A Decisive Moment for the West

The collision of economic systems is a battle for the future. And right now, one side is moving faster, thinking bigger, and building smarter.

Western leaders and businesses must wake up – right now. Innovation, agility, and investment in the next generation of technologies are the arsenal to be built. Fast.

The question isn’t whether China is dominant in manufacturing EVs today; the question is whether the rest of the world will be content watching from the sidelines - or will dig deep right now to find the will – and the way - to compete.

Michael Dunne

December 10, 2024

• • •

Special Note to Readers:

My good friend, Ken Wilcox, has written a tremendous new book: The China Business Conundrum. It’s a refreshingly genuine account of the joys and trials of building a joint venture bank in China. Before his tour in China, Ken was the Chairman and CEO of Silicon Valley Bank during its golden years. I highly recommend that you buy a copy today - you will learn a lot from a smart professional who gets China.

Available on Amazon. The China Business Conundrum

America and Canada look at the situation and wonder: What exactly is going on with our neighbor to the south, our trusted partner in the USMCA?

Now imagine for a moment that you have been appointed to be the independent judge and jury.

Do you find Mexico:

A. Guilty - Mexico is secretly building ties with China.

B. Innocent - Mexico was blindsided.

or

C. It’s Messy – Mexico was an unwitting accomplice.

Before delivering a verdict you say you need more facts.

Here’s how the events have unfolded:

Back in 2020, Mexico decided to open the door wider to imports from China. A decree dropped import tariffs on cars from 20% to 0%. The idea was to give some Mexican car buyers access to low-cost EVs.

Pretty soon a small stream of affordable cars from companies like Chery, Great Wall and MG arrived on Mexican shores.

No harm, no foul.

But then, the numbers began to jump. Today, a tsunami of Chinese cars and trucks is pouring into Mexico – and flying out of showrooms.

The P.R.C. will ship close to 500,000 vehicles to Mexico this year. China has blown past the United States to become Mexico’s number one supplier of cars.

One of every three new cars sold in Mexico this year will be built in China. That’s up from just 4% in 2020.

Mexico’s leaders appear to be frozen in stunned disbelief.

“I just don’t think Mexico was prepared for China’s scale and speed,” Travis Bembenek, Publisher of the Mexico News Daily, told me last week.

Mr. Bembenek, a resident in Mexico for more than 20 years, knows his adopted country well. He is probably right.

And yet, the Mexican government seems strangely slow to counter the flood of Chinese imports. In fact, Chinese market momentum seems to be getting stronger by the month.

BYD – Big, Bold Plans

Take Berkshire Hathaway-invested BYD, for example. China’s number one automaker just entered Mexico in 2023.

The company is on track to sell 50,000 cars there this year. And BYD de Mexico CEO Jorge Vallejo says the company plans to double that to 100,000 in 2025.

That’s not all. Vallejo says that BYD will soon announce the location of a new BYD plant with capacity to build 150,000 cars a year.

One veteran Mexican car dealer who just started selling BYDs told me he was ecstatic. “I’ve never sold so many cars in a quarter!”

BYD’s numbers look even more stunning when compared with industry giants like Toyota. It took the world’s largest automaker 22 years before it achieved 100,000 sales in Mexico in a single year.

BYD plans to get there in just 36 months. As my teenage daughter, Aurelia, likes to say: Wait, what?

Mexico’s Own Export Machine

At the same time that Mexico is spending billions on cars imported from China, the country is also exporting a record number of vehicles to the United States.

In 2023, Mexico shipped a record 2.2 million cars to America. It is a lucrative business for Mexico that also employs tens of thousands.

Mexico is also home to a strong and vibrant parts industry.

It is natural to wonder: Why would Mexico import so many cars from China when the country is working hard to build its own export-oriented industry?

That does not make sense.

Trade Sweats

China’s surge south of the border has given American leaders those middle-of-the night sweats. Mexico is the canary in the coal mine.

Earlier this year, the Biden Administration imposed 100% tariffs on Chinese imports. And President-elect Trump has said that he will absolutely block any efforts to bring Chinese cars into America via Mexico.

In October, the Department of Commerce added new regulations to ban cars with Chinese hardware or software from being sold in America.

Trump’s Declaration

American politicians and industrial leaders are beginning to complain out loud that Mexico may be a less than totally reliable partner.

On November 7th, just two days after the election, President-elect Trump made clear his displeasure:

“I’m going to inform her [President Sheinbaum] on day one that if they do not stop this onslaught of criminals and drugs coming into our country, I am going to immediately impose a 25% tariff on everything they send to the United States of America.”

Trump is not alone in his fury. Last week Doug Ford, the Premier of Ontario, Canada, recommended potentially removing Mexico from the USMCA.

Ford said Mexico should “at the very least” match U.S. and Canadian tariffs on Chinese imports, or “they shouldn’t have a seat at the table or enjoy access to the largest economy in the world.”

When Four Is a Crowd

Tensions are building. America and Canada are not happy. China is quietly delighted. Mexico is under pressure to act.

Look for Mexico to increase tariffs on Chinese cars. Soon. Car exports to America are simply too crucial to the Mexican economy.

The 0% decree elapsed in September, so now Chinese car face an import duty of 20%. That is hardly enough to stop the flow.

“Mexico will match the [100%] tariffs of the US and Canada,” Jorge Guajardo, former Mexican ambassador to China and now a Partner at the DGA Group in Washington D.C., “precisely because Mexico wants to protect its own industry, its own supplier base. There is a strong auto parts lobby in Mexico pushing for higher tariffs right now.”

That Happened, Now What?

Mexico opened the door. Chinese automakers flew in. America and Canada got nervous: Is Mexico complicit or naive, they wondered?

The USMCA is definitely entering new territory. Much remains up in the air.

• What happens, for example, if Leapmotor International, the 51/49 JV between Stellantis and Leapmotor, starts building cars in Mexico?

• How will states like California react when some of the nearly one million Chinese cars now running on Mexican roads find their way north across the border? (I already see an occasional China-built car with Mexican plates rolling on San Diego highways).

Things can get complicated in a hurry.

Amidst all the uncertainty, one thing is clear: China successfully poked the USMCA. It won’t be the last time.

That’s the verdict.

Michael Dunne / michael@dunneinsights.com

November 19 2024

• • •

Special Notes:

1. Chinese and Global Brand Mix. The estimated 485,000 exports from China to Mexico this year include products from more than 15 Chinese brands plus made-in-China vehicles from Ford, GM and VW China joint ventures.

2. Powertrain Mix: Between 75-80% of vehicle exports from China to Mexico this year are gasoline-powered (ICE) vehicles. PHEVs (like the BYD Shark pickup truck) and BEVs account for the balance.

3. Chinese Automaker Factories. Today, JAC Motors is the only Chinese automaker with an assembly operation in Mexico. What to watch: Will BYD build a plant in Mexico as promised – or not?

Officials in Beijing may deny it. But – make no mistake – China has launched a global car blitzkrieg.

China will export a stunning 6 million cars to more than one hundred countries this year, cementing its position as the world’s No. 1 exporter.

The average price of those made-in-China cars: $19,000. That’s less than half the average price of a new car in America and Europe.

Consumers in every time zone are leaving their Chevys, VWs and Hondas in favor of new models from Chery, MG, Changan and BYD.

Dramatic Changes

The sudden flood of Chinese cars is upending decades of stable market shares and profits.

Take Thailand for example. A friend – and veteran car dealer based in Bangkok – gets frequent quotes from Chinese automakers these days.

“One guy in China – and he sounded very confident – said he can deliver a Territory replica for just $8,000,” recounted my friend. “Look, I sell the real Ford Territory here starting at $32,000. Can you imagine?”

His words gave me a flashback to the 1990s and 2000s when I was building our first company in Bangkok. Thailand was then known as “Japan’s backyard.” And for good reason. Japanese brands utterly dominated the market, year in and year out, taking more than 90% of the market.

No more.

In the first half of 2024, BYD’s market share jumped to 5%. Every Japanese brand, including Toyota, saw sales drop. Honda was forced to close a plant. And Suzuki is exiting the Kingdom.

Brazilian Boom

Thailand is just one example. Another is Brazil, the world’s 6th largest car market. Chinese automakers sent 175,000 cars there in the first half, a 450 percent increase over the same period in 2023.

You read that right – 450 percent. How to explain the sensational growth?

“The governments of China and Brazil are getting closer,” an executive from a leading dealer group in Sao Paulo told me this week, hinting at China’s geopolitical charm offensive. “Aggressive pricing and good products are part of it, too.”

Chinese gains means fresh pain for existing automakers. Count Chevy, Jeep and Fiat among the walking wounded. As a group, they lost more than 125,000 Brazilian customers to Chinese brands in the first half in 2024.

Source: CAAM, Dunne Insights.

Who Are These Guys?

By now the industry recognizes BYD as China’s leading automaker. The company recently raised its full year sales forecast to 4 million, just a few small steps behind Ford.

But BYD is not China’s top exporter. At least, not yet. Instead, its three largest car exporters are Chinese state enterprises.

China’s Top 5 Exporters - 2024

1. Chery: 1.25 million

2. SAIC: 1.1 million

3. Changan: 620,000

4. Geely: 500,000

5. BYD: 500,000

Note: Forecast based on data from CAAM, CPCA, Company Reports.

Sticker Shock & Specter

While Chinese automakers steal chunks of market share, Japanese, European and American competitor appear to have no response. They are confused and overwhelmed by the speed and strength of the Chinese offensive.

The prices of the Chinese exports in particular shock them. Who can compete with $19,000?

China’s frightening car prices are a product of a powerful national arsenal that may be impossible to duplicate.

China has unmatched scale, speed, supply chains and every variety of subsidies. Ships, too. BYD and SAIC have their own Roll-on/Roll-off vessels to transport cars across oceans.

Elon Musk understands China’s decisive manufacturing advantages. It is no coincidence that his Shanghai gigafactory presently accounts for half of Tesla’s total global production.

So here’s the question of the year: If China can jump from 1 million exports in 2020 to 6 million in 2024, what is to stop China from shipping 12 million annually by 2028?

And what is to stop China’s mighty car blitzkrieg from shattering 100 years of Western car dominance?

This is the new and unsettling specter that ruins the sleep of automotive leaders outside of the People’s Republic of China.

• • •

Michael Dunne

September 18 2024

www.dunneinsights.com

Future historians will look back at 2024 as a moment in time when a massive earthquake shook the global auto industry. They will call that earthquake China.

Never before have we seen the scale – China produces 30 million vehicles a year. That’s twice as many as North America builds.

Never before have we witnessed this much capacity - 48 million units - enough to supply half of global demand.

Never before have we encountered such cost advantages: China makes cars at 25% to 30% lower cost than any other country.

Never before has the production of batteries – the ascendant energy for powertrains - been so highly concentrated in one nation. China accounts for 76% of global EV battery production.

Juicing? China does that bigger, too. China’s subsidies are 4-5 times higher than those in the West. They include low-interest loans, free land, discounts on energy to power plants, cash back to consumers, and much more.

Then there is “China speed.” It’s real. Chinese automakers develop new cars in half the time of traditional automakers in the West.

Never before has America or its allies faced up to a bigger, faster, stronger competitor.

This summer, board members outside of China are sweating in stunned disbelief as they fully take in this new reality.

They watch in horror as their market shares and profits in the China market collapse. GM, which for decades counted on China as a profit machine, will lose several hundred million dollars there this year. Hyundai is closing plants.

Even mighty Porsche saw its China sales tank 33% in the first half of 2024.

The shock and aftershocks are not limited to China’s own market. Global auto executives watch in anguish as Chinese automakers, led by BYD, Chery, SAIC and Geely, take growing chunks of markets in every time zone: Mexico, Israel, Brazil, Thailand, Spain, Australia and the UK.

They’re not selling solely EVs: they’ve taken share in multiple segments and powertrains.

China will ship 6 million cars to 120 global markets this year. That will be almost two million more than second-place Japan, for 30 years the world’s preeminent exporter of automobiles.

As Elon Musk warned earlier this year: “If there are no trade barriers, they [the Chinese] will pretty much demolish most other companies in the world.”

Automotive executives not named Musk wonder: How did the Chinese get so good, so fast?

Leadership teams at global automakers, suppliers and tech companies are turning to my company for recommendations … at a pace I’ve never before seen.

“We now understand the urgency,” they say. “What options do we have?”

• • •

As global automakers face the realities of China’s powerhouse auto industry, four themes are apparent:

1. This Is War

Legacy automotive executives must realize they are engaged in a war. It is cutthroat – and it will not go away any time soon.

Chinese automakers face massive overcapacity and brutal price competition at home, which has driven their profits to zero. Now, they are hunting for easier marsupials in global markets.

Walking through a Hyundai showroom a few weeks ago, a senior Chinese automotive executive pointed to one model and then another. “We are going to kill this one first, then that one,” he said with conviction.

2. High-Quality Intelligence is Crucial.

In wartime, everyone knows that intelligence can be the difference between victory and defeat. Legacy automakers find themselves blindsided by China’s power today because – for too long – they ignored China growing capabilities.

Outsiders have a lot to learn. How do the Chinese produce such low-cost cars? What are China’s weaknesses? How are they able to move with such breathtaking speed? How strong is their innovation?

During a recent visit to China, Ford CEO Jim Farley seemed delighted to learn about extended range electric vehicles (EREVs).

"EREVs drive like EVs … so you get an EV, and you have 700 miles of range. You don't have range anxiety for a long trip.”

EREVs have been on the road in China for a few years. The technology should not have been news in 2024 to the CEO of Ford Motor Company or any global automaker.

3. Batteries and Costs - They Win, For Awhile

In The Art of War, Sun Tzu warns his generals to absolutely avoid areas where the enemy enjoys a decisive advantage. In 2024 – and for the next decade – China will maintain overwhelming supremacy in two key areas: batteries and low manufacturing costs.

In a conversation this week with Vincent Pluvinage, CEO of OneD Battery Sciences, I learned the capex requirements to build and operate the same factory can be three times as high in America as in China.

Northvolt, Europe’s most promising battery startup, is now battling for survival. BMW cancelled a $2 billion contract, citing missed delivery targets. Earlier this week Northvolt closed Cuberg, the prized American R&D startup it acquired in 2021.

Battery innovation, production and supply chains will remain centered in the People’s Republic of China to serve China’s massive EV market. Closing the battery and cost gaps will be impossible in the near term.

4. Punching Back – Software

There is one powerful weapon available for a counter-attack: Software.

Features and functions powered by software will separate the automotive winners from losers in the future.

Tesla is the proof of concept here. The Tesla Model Y was the world’s best-selling car last year.

Tesla wins because it offers the best end-to-end experience for Tesla owners. The Tesla App is magic. Over-the-air updates are like Christmas gifts under the tree every few weeks. Tesla’s navigation and entertainment features are so intuitive you don’t even notice them.

A New Playbook

It is no secret that legacy automakers have struggled with software, losing billions.

Last week, I rode with my high-school buddy in his beautiful $57,000 Ford Explorer. I asked him how he liked it. “I absolutely love everything about this vehicle – except for that thing,” he said, pointing at the center stack screen. “Sometimes I can’t get Bluetooth to sync up. Other times the screen just goes blank,” he shrugged.

Ford is not alone. Volkswagen sank billions of dollars into CARIAD, an internal software-development team. It was a complete bust; VW had to take a share in EV startup Rivian for its software. Toyota, Honda and Hyundai have their own software trials and tribulations.

Chinese EV startups like NIO, Xpeng and Xiaomi now produce world-class features and functions powered by advanced software. Several CEOs of China’s best automotive companies frequently test drive Tesla products, learn the latest innovations and work hard to match them.

Global automakers would be smart to do more of that. Ditch the pride.

Tapping smart software engineers from outside works, too. I’ve seen several companies make dramatic improvements by partnering with boutique-software specialists.

China On Top … But The Game Ain’t Over

The earthquake called China has transformed the global automotive arena.

Today, China enjoys a massive lead in manufacturing cars: capacity, speed, scale, batteries, supply chains, subsidies, technology and ambition.

But the automotive game never stops changing. Software is now the new king of differentiation. Customers are looking for simpler and more accurate navigation. Safer cars. Fresh entertainment features. Better autonomous driving.

Bottom line: Software is the powerful counterpunch legacy automakers need – and need to get right – to live another day.

Michael Dunne, CEO, Dunne Insights

michael@dunneinsights.com

August 24, 2024

The visiting team is still on the field, running around as fast as it can, trying to forge a comeback.

For decades, they thought they were playing on a familiar field. But time is up, the game is over. China - the home team – is the winner.

Spectators have just watched a sudden and catastrophic collapse of global automakers in China.

How did it happen?

• • •

For most of this century, foreign brands totally dominated China’s car market. Every year, they sold millions of cars and earned billions in profits.

Chinese consumers swarmed into Buick, Volkswagen, BMW and Toyota showrooms nationwide, happy to pay cash for the prestige of owning a brand that wasn’t Chinese.

“China is our forever profit machine,” my colleagues at GM liked to humble-brag a decade ago, back when I ran GM’s Indonesia operations. “We can bank on an easy $2 billion dividend every year.”

Now, suddenly, that golden era is over.

Sales and profits in the People’s Republic are vanishing. And boards in Detroit, Wolfsburg and Tokyo are stunned by the speed and intensity of the changes.

Panic in Detroit - And Everywhere Else

Ford has lost more than $5 billion in China since 2020. Sales are down 70% from their peak. “We’ve never seen competition like this before,” says CEO Jim Farley.

GM is hurting, too. The former poster child for sunny US-China relations, GM has lost more than $200 million so far this year alone. That marks the first time in two decades that GM’s China operations have printed red ink.

Mary Barra says the situation in China is “unsustainable.”

Stellantis already knows the bitter taste of capitulation. Jeep was forced to beat an ignominious retreat from the China market in 2023 after its joint venture went bankrupt.

Detroit is not alone. Almost every non-Chinese brand – German, Korean, Japanese and French – is feeling shell-shocked as they watch their market shares disappear.

Plummeting China Sales

GM

2017: 4.1 million

2024: 1.8 million (f)

Hyundai / Kia

2016: 1.2 million

2024: 220,000 (f)

Volkswagen

2017: 4 million

2024: 2.5 million (f)

China’s No. 1 carmaker, BYD, on the other hand, has seen sales skyrocket.

BYD

2017: 420,000

2024: 3.6 million (f)

Electric Take-Off

Driving China’s ascendancy is a massive and abrupt shift to electric vehicles. The EV share of total car sales will jump to almost 50% this year, up from just 6% in 2020.

Think about that. China has sprinted from 1 million to more than 10 million annual EV deliveries in just four short years. (I already see you dealership folks scratching your heads in amazement.)

Global automakers were caught flat-footed on EVs, lulled into complacency by years of winning at selling gasoline-powered vehicles.

Chinese automakers, in contrast, seized on the shift to electrics. This year, eighteen of the twenty best-selling EVs are Chinese brands. The other two are Teslas.

Advanced Technology

It is no secret that global automakers are finding it impossible to match Chinese competitors on costs. BYD builds cars 25-30% more cheaply than what global automakers can manage, thanks to extreme vertical integration, breathtaking speed and generous subsidies from the city, provincial and national government agencies.

But this is not just a low-cost, EV story. Chinese automakers now equip their cars with some of the world’s most advanced autonomous and digital cockpit features. Keep an eye on tech giants like Xiaomi and Huawei, which infuse their new cars with world-class software.

China’s strength is alarming even to mighty Toyota. In a 2023 interview with the Toyota Times, EV Chief Takero Kato recalled his shock during a business trip to China.

“For the first time, I came face-to-face with the competitiveness of the Chinese. Laying eyes on equipment that I had never seen in Japan and their state-of-the art manufacturing, I was struck by a sense of crisis. We’re in trouble!”

Chinese automakers tell me privately that they carry a deep respect for Elon Musk and Tesla. They tend to shrug with indifference at most of the world’s other car companies.

Nationalism

When it comes to cars, Chinese brands are suddenly the new cool. Global brands, once so aspirational, are now so yesterday.

Nationalism is the invisible but potent force behind the shift.

One day at our Beijing office in the late 1990s, I asked my ace staffer, what he thought about China’s joint venture arrangements with foreign companies.

“It’s okay for now,” he said, “until we can kick your asses out of here.”

Chairman Mao never cared much for foreigners, either. The first line of the first chapter of the Selected Works of Mao Tse-Tung reads: “Who are our enemies? Who are our friends? This is a question of first importance for the revolution.”

If Mao were around today, he would no doubt smile at China’s triumphant moment in the race for automotive supremacy. As do many of China’s 1.3 billion citizens.

China Rules

We are stepping into a new era where Chinese automakers dominate their home market. Many will say that this outcome was inevitable. But no one saw it coming this fast.

BYD became China’s best-selling brand last year, knocking VW from its top ranking for the first time in 38 years. Chinese brands as a group are devouring market share at the expense of the once-mighty foreign makes.

If You Can’t Beat Them…

Global automakers will try to stick around, of course. Stellantis has invested $1.7 billion to take a minority position in Leapmotor, a promising EV startup.

CEO Carlos Tavares understands that China is still the most efficient place on the planet to build cars. His vision is to have Leapmotor build EVs for export. Those vehicles would carry one of the Stellantis’ nameplates - Fiat or Citroen or Jeep. VW has made a similar investment into Xpeng, another young Chinese EV company.

If you can’t beat them, try a new role … as junior partner.

Other global companies are working hard to shake free from the shackles of their cumbersome joint venture commitments. Word on the street is that Toyota hopes to create wholly-owned operations similar to the one Tesla operates in Shanghai. But Toyota’s own JV partners, FAW and GAC, have objections to the move.

What is the Japanese phrase for “frustrated sigh”?

Others – GM, Ford, Hyundai – are re-purposing their idle Chinese plants to manufacture vehicles for export. Get this: Four of the five best-selling Chevies in Mexico are built in China by GM and its Chinese partner, SAIC. As a 50% shareholder in the JV, SAIC collects half the profits on all those cars.

The reality is that China as a growth and profit paradise for global automakers has disappeared. It will never return.

Most of them will be shown the door within the next five years. Some will find the exits even sooner.

• • •

Michael Dunne, August, 2024

Dunne Insights LLC

www.dunneinsights.com