Chinese EVs are a real threat to U.S. car makers

Back when there were only three channels on TV, and you had to change them by hand, some new cars arrived in America. To paraphrase a quote often misattributed to Mahatma Ghandi: First, Detroit ignored Japanese car manufacturers. Then, Detroit laughed at Japanese car manufacturers. Then, Detroit fought Japanese car manufacturers. Then, Japanese car manufacturers won.

In 1972, according to Detroit, nobody would ever want small Japanese cars, and Japan didn’t understand the U.S. car market. That year a share in Warren Buffett’s Berkshire Hathaway cost about $80.

Not so many years later, Bruce Springsteen complained that there were 57 TV channels and nothing on any of them. U.S. politicians and pundits were very, very upset over the loss of Detroit’s manufacturing jobs to Japan. Opinion shows opined that America was doomed; that Japan’s business model was superior; that Japanese companies were going to buy all the real estate in the U.S. In the film “Die Hard,” American John McClane fought German Hans Gruber in Los Angeles, sure, but at Nakatomi Plaza. The guy who had the money Gruber wanted to steal from was named Takagi.

Although centralized Japanese industrial planning hasn’t kept up with decentralized U.S. innovation on average, in the specific case of cars, Detroit hasn’t yet recovered from its mistakes of 50 years ago.

Today, everyone can have their own channel. Platforms like X and YouTube and a few others are making Andy Warhol’s prediction that everyone will be famous for fifteen minutes look good.

Detroit is ignoring Chinese electric vehicle manufacturers, and American interests are saying the same things about Chinese EVs that they used to say about Japanese cars: Nobody wants them. They’ll never sell in the U.S.

A share of Berkshire Hathaway stock is now worth about $630,000.

Although Berkshire owns a lot of stock in Apple, Buffett didn’t buy it back before the Mac was introduced. Considering his results, it’s surprising, but Buffett isn’t known for investing in innovative companies. Usually, he buys stock in well-established businesses. However, there’s at least one exception: Berkshire owns about 7% of Chinese electric vehicle maker BYD.

BYD sells over a million plug-in EVs a year, including hybrids and battery-only cars. It stopped making internal combustion engine-only vehicles in 2022. It’s expanded out of China to most of the rest of the world, including Japan.

Europe has added tariffs to BYD’s cars, to compensate for what Europe deems are subsidies from the Chinese government. BYD’s costs are low enough that it’s selling cars in Europe anyway and has announced plans to start building cars in Hungary.

BYD has said that it isn’t planning on selling cars in the U.S., citing the possibility of U.S. tariffs against Chinese car makers. Compliance with U.S. safety standards would probably add enough cost and weight to an electric car to make a BYD car less competitive in the U.S. than it would be in other markets.

However, BYD is one of the leading suppliers of electric buses to the United States. And, BYD is bringing car costs down. It’s a leader in lithium iron phosphate batteries, which don’t use metals with high or volatile prices and doesn’t have supply chain issues. It’s realistic to believe that BYD cars will be competitive in the U.S., even with tariffs, within a few years.

Who’s more likely to be right about Chinese EV manufacturers: Detroit, or Warren Buffett?