The United States is poised to lose billions in exports and thousands of jobs over the next decade as auto exports to China decrease.
In September 2017, Xin Guobin, China’s vice minister of industry and information technology, said regulators would prepare a timeline to ban the sale of fossil fuel-only vehicles. In March, Hainan province became the first to announce 2030 as the deadline to cease production and sale of such vehicles. If China’s remaining provinces follow Hainan’s lead by matching the timeline, the sale of fossil fuel-only vehicles will end in approximately a decade.
China is the world’s largest auto market, with sales topping 28 million vehicles in 2018 — that compares with 17 million in the United States. In 2017, China began limiting the sale of fossil fuel vehicles when it banned 553 models from the marketplace. Some of the models were from powerhouses General Motors and Mercedes-Benz. Also, several cities limit the sale of fossil fuel vehicles by conducting a yearly license plate lottery, and only a limited number can be obtained. Additionally, the government has required automakers to meet electric vehicle production quotas of approximately 3 to 4 percent in 2019. The China Association of Automobile Manufacturers is projecting 1.6 million EV sales in 2019. The improvements in economies of scale and reduction in cost within China should allow for most EVs to be profitable before 2030, ensuring their longevity.
An example of this changing marketplace: In April, Fiat Chrysler Automobiles agreed to pay Tesla hundreds of millions of dollars to avoid European auto emissions fines, effectively paying for Tesla’s acquisition of Maxwell Technologies, valued at $218 million. China has introduced similar emissions requirements that are likely to create similar revenue streams for EV makers.
If domestic automakers in the United States are unable to develop compelling EVs that can compete with the Chinese, they are likely to lose market share, and the results would be a decrease in automotive exports as well as job losses.
Legacy automakers face an existential challenge as they lose their competitive advantage in the production of internal combustion engines and find themselves at a competitive disadvantage because they lack expertise in the new technology.
Additionally, new low-cost fossil fuel imports from India and China will likely pose as large a threat to U.S. automakers in the coming decade as the Japanese imports did in the 1980s.
Overcoming the conversion of changing technologies, loss of competitiveness and increased foreign competition will be the greatest challenge U.S. automakers have faced in their 115-year history. Given that some U.S. automakers filed for bankruptcy under a regular market environment, it is possible that some of the domestic automakers will not survive this transition.
It is not all doom and gloom, though, as the transition to new automobile technologies offers the companies that are able to take advantage an opportunity to obtain double-digit market share. Federal and state governments should provide the necessary assistance during the transition to guarantee leadership in the new technology and ensure exports, jobs and positive balances of trade.