China Is The Largest Exporter Of Vehicles, Threatening American Jobs

Electric vehicles have recently made China the world’s largest vehicle exporter. The country’s low-cost manufacturing, investment in battery production, and control over raw materials, expedited its dominance years before experts predicted. But for America’s car makers, China’s accomplishment is a sign of serious trouble ahead.

Since the 1970s, China sought entry into the global automotive industry but found the barriers too high. The incumbent manufacturers spent a century refining the engineering and quality of their gas-powered vehicles. They locked up their discoveries with patents and close relationships with suppliers. Parts companies clustered in assembly areas like Detroit, while developing symbiotic relationships with manufacturers. These barriers, combined with the billions necessary to attempt entry into the automotive industry, encouraged China to find a new path to manufacture vehicles. Electric vehicles became the solution.

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Electric vehicles are easier to produce than gas-powered vehicles. Their lack of complex parts, like gas-powered engines, means they are cheaper to manufacture and require less engineering experience. And their most important part comes from chemistry – the battery. Recognizing this, China invested billions to gain control over the mines that contain the raw materials necessary to make them. Today, China-based Contemporary Amperex Technology Co., Limited (CATL) is the world’s largest maker of electric vehicle batteries, with almost 50% market share.

In addition to locking up the battery market, China perfected low-cost production thanks to its low labor costs. Today, Chinese companies sell EVs for as low as $11,999, making it impossible for foreign companies to compete. So, what does China’s success foretell for incumbent automakers like GM?

Flashback to the 1960s. GM was the largest and most powerful company in the world. It was so powerful that some members of Congress considered it a monopoly and attempted to break it up into smaller units. But today, some financial analysts feel that GM lacks the cash to survive the electric vehicle race due to the costly transition from selling profitable gas-powered vehicles to less profitable, and even unprofitable, electric vehicles. Given China’s current dominance in EVs, combined with its low-cost products, GM will need to find a way to compete. If GM can’t compete, one respected Wall Street analyst explained, on the condition of anonymity, that a merger with another automaker is one likely scenario. Another scenario might be “lights out” for the automaker.

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While some dismiss GM’s potential failure as an example of technological evolution, its demise should worry everyone. During the 2008/09 financial crisis, the U.S. government labeled the company as “too big to fail” and bailed it out after an organized bankruptcy. The company temporarily earned the nickname “Government Motors” but rebounded and paid back its debts. Today, in the U.S. alone, over 709,000 jobs are supported by General Motors. This figure, calculated by Oxford Economics, includes GM’s direct employees, as well as franchise dealership employees, and employees of suppliers that support GM-only activities. It also includes hundreds of thousands of union employees who staff GM’s assembly plants. Fifteen years after the government labeled GM as too big to fail, some fear the company still is, and its shuttering would be a devastating blow to the U.S. economy.

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But what about Tesla generating new jobs to counter GM’s loss? For comparison, Tesla employs 128,000 people worldwide, none of which are unionized. I was not able to obtain a U.S.-only number from Tesla’s Public Relations department, but suffice to say, it’s much less than 709,000 U.S. employees of GM. The simple reality is: EVs require fewer jobs for production, distribution, maintenance, and repair.

Today, GM, Ford, Chrysler, Toyota, and even BMW manufacturer millions of gas-powered vehicles in the U.S.; which supports millions of jobs that might be eliminated or reduced in the move towards electrification. While it’s too early to predict the winning and losing companies of the EV race, we can be certain that gone are the days of America’s global dominance. And while the U.S. will remain a major player in the automotive industry, the potential loss of its manufacturing base will impact the economy.