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China Takes the Lead in the EV Race
China has now taken the top position in the electric vehicle (EV) race. To some, this may come as a surprise, but for many, it was only a matter of time. This video serves as a wake-up call to both Tesla and U.S. trade policy as a whole.
The U.S. Auto Industry Faces a New Era of Protectionism
The U.S. auto industry is on the brink of a new era of protectionism. Former President Donald Trump has confirmed that auto tariffs on global car imports are coming. It’s not even April 2nd, yet tariffs have already been imposed. Vehicles entering the U.S. will now face a 25% import tax, which will significantly drive up prices. At a minimum, the cost of a new car will rise by $4,000, while EV prices could increase by as much as $12,200. Without a doubt, this will push car ownership out of reach for many American households.
Tariffs May Bring Jobs Back, But At What Cost?
While these tariffs may bring some auto manufacturing jobs back to the U.S., they introduce a major problem: companies like GM and Ford will have little incentive to improve their vehicles. Without competition, there’s no real push to innovate or build better models. Legacy automakers are already struggling—Ford, for example, is projecting an earnings drop of at least $2 billion. The company has burned through over $10 billion annually since 2021, and with the tariff war escalating, things are getting worse. By 2025, Ford expects earnings to fall to as low as $7 billion. In February alone, U.S. auto sales declined by 8.9%, and this downturn has nothing to do with Chinese competition. Remember, Chinese cars and EVs face a 120% tariff when attempting to enter the U.S. market.
The U.S. Auto Market Is Already in Decline
The reality is that America is already a highly protected auto market. U.S. passenger vehicle sales dropped 4.4% year over year last month—an ominous sign of weakening consumer purchasing power and a shrinking market. At this point, the smarter move would be to open up the market and allow free trade to drive competition. This would enable U.S. consumers to buy more affordable cars while forcing domestic automakers to lower prices. Instead, by imposing tariffs, the U.S. government is doing the exact opposite. The Trump administration appears to view this issue in just one dimension.
Why Are American Cars Made in Canada?
Consider this: why are American cars manufactured in Canada? If they’re truly “American,” shouldn’t those jobs be based in the U.S.? The former president believes so and has vowed to bring those jobs back. However, his approach forces American consumers to essentially fund this relocation effort. The downside? The entire auto industry risks stagnation as prices soar, potentially leading to declining sales and profits.
China's BYD Overtakes Tesla
Meanwhile, China has just sent a strong wake-up call to U.S. automakers. BYD, the Chinese EV giant, has officially surpassed Tesla in revenue. In 2024, BYD’s sales grew by 29%, reaching $17 billion, while Tesla’s revenue stagnated at $98 billion. As a result, investors are flocking to BYD stock, boosting its share price by nearly 50%, while Tesla's stock remains down over 30%.
Tesla vs. BYD: A Tale of Two EV Makers
This is a tale of two EV makers: one thriving in an open market, the other struggling under U.S. protectionist policies. Since 2018, Tesla’s revenue has consistently been higher than BYD’s, but BYD’s steady growth in the past two years tells a different story. Even while being blocked from the world’s biggest consumer market—the U.S.—BYD continues to expand. If tariffs were lifted, its sales would likely skyrocket, eating into Tesla’s market share. Yet, even without U.S. consumers, BYD is proving that the global market is large enough to sustain its growth.
The U.S. Auto Industry Is Falling Behind
The U.S. auto industry is lagging behind in both technology and pricing power. A prime example of this is Tesla’s performance in China. Despite manufacturing cars in the country, Tesla cannot keep up with the competition. The company reported a sharp 49% drop in sales in China last month, following an 11% decline in January. This isn’t a one-time issue—it’s an ongoing trend. China is the world’s largest car market, so if Tesla were truly an innovation leader, its numbers would reflect that success. But as the saying goes, “Show me the money”—everything else is just spin and narrative.
This is the danger of complacency. On top of that, Elon Musk is increasingly distracted, focusing on unrelated battles like cutting federal jobs rather than addressing Tesla’s growing challenges.
Why China Is Winning the EV Race
Elon Musk is increasingly distracted, spending more time trying to influence government policies than focusing on Tesla’s global competitiveness. When we compare Tesla to BYD in the Chinese market, the price differences immediately reveal why Tesla is struggling.
Tesla’s Pricing Problem in China
BYD’s budget sedan, the Dolphin, is priced at just $14,400, while Tesla’s Model 3 costs over $32,000—more than double the price. The same pattern holds for premium sedans: the BYD Han is priced at $34,000, whereas Tesla’s Model S costs over $100,000. This kind of pricing disparity is what U.S. consumers are missing out on. Imagine taking out an auto loan with a 7% interest rate and essentially mortgaging your future to afford just one car.
China’s Culture of Innovation Puts Tesla at a Disadvantage
Thanks to China’s culture of hyper-innovation, Tesla faces mounting pressure, especially in China. Unlike the U.S., Beijing does not block foreign EVs from entering the market. Tesla is welcomed in China because its presence forces local automakers to stay competitive. This is why BYD, Li Auto, and Great Wall Motors are innovating at an unprecedented pace, ultimately benefiting consumers.
BYD’s Latest Model Undercuts Tesla
Just days ago, BYD launched the Qin L, a direct competitor to Tesla’s Model 3, with a price tag of under $17,700. While it’s currently available only in China, BYD will undoubtedly adapt it for markets in Latin America and Southeast Asia, where affordable EVs are in high demand. This is why Trump’s auto tariffs make little sense—they insulate U.S. automakers in a bubble, hurting American consumers while removing the need for domestic companies to innovate.
Government Protection Distorts the Market
Normally, when an automaker underperforms, its stock price takes a hit, and executives see their compensation shrink. However, in the U.S., the government is shielding companies like Tesla from reality. Even the U.S. Commerce Secretary has been talking up Tesla’s stock, despite the company’s struggles. Why is the U.S. government promoting Tesla’s shares? What happened to the principles of a free market?
Even Tesla Knows It Needs Competition
Tesla itself understands that competition is essential for survival. Just a week ago, the company launched a free trial of its Full Self-Driving (FSD) software in China to challenge BYD’s advanced "God Eye" system, powered by DeepRoute. While Tesla’s FSD is more responsive than many Chinese technologies, it still lags behind BYD’s system in cost and driver assistance features. The only way for Tesla to truly improve is to compete head-on in China.
Trump’s Tariffs Create a Dilemma for Tesla
However, Trump’s auto tariffs complicate matters. Tesla manufactures vehicles at its Gigafactory in Shanghai, with some production exported to the U.S. market. With the 25% tariff now in place, Tesla will face higher costs when selling its own cars in America. This creates a major dilemma: should Tesla relocate more production to the U.S. or continue operations in China?
Tesla’s U.S. Expansion Strategy
It appears that Musk has made his decision. Tesla plans to double its U.S. production within the next two years, citing support for President Trump’s policies. This move gives Tesla an advantage in the American market, where it faces no real Chinese competition. However, the bigger question is whether there will be enough consumer demand to sustain these increased production levels.
Higher Prices for U.S. Consumers
Attitude of US Adults Towards Tariff Policies, Feb 2025 (% of respondents)
Compared to Ford and GM, Tesla remains ahead in domestic competition, but this is bad news for U.S. consumers. Without foreign competitors to force price reductions, Tesla will be free to charge higher prices. At the same time, rising aluminum prices—already at record highs—will further drive up production costs. Building a Tesla Model S requires nearly half a ton of aluminum, and with a 25% tariff on imported aluminum, those costs will likely be passed down to American buyers.
Tesla’s Global Battle for Market Share
Tesla’s challenge isn’t just in the U.S.; it must also fight for global market share. Competing with BYD means expanding production in China, where the supply chain and ecosystem enable lower costs. This reality is already playing out in Europe, where Tesla’s sales have plummeted. Over the past two months, Tesla’s European deliveries dropped from 37,000 to just 19,000—a massive 40% decline—while overall EV sales in Europe rose by 28%. Consumers are still buying EVs, but they are choosing brands other than Tesla.
Is Elon Musk Tesla’s Biggest Risk?
Musk himself is becoming a liability. His increasing involvement in politics and public feuds with European officials are starting to backfire. The key question now is whether Tesla can maintain its global position. While the company is likely to dominate the U.S. market in the short term, its ability to compete globally is becoming more uncertain.
The Future of Tesla and U.S. Automakers
Can Tesla survive in the long run? It will undoubtedly maintain a stronghold in the U.S., but its global competitiveness is in jeopardy. And what about Trump’s tariffs—are they helping or hurting American automakers? Let me know your thoughts in the comments.
Disclaimer: I want to make it clear that I am not a financial advisor, and nothing I say is intended to be a recommendation to buy or sell any financial instrument. Additionally, it's important to remember that there are no guarantees or certainties in trading or investing, and you should never invest money that you can't afford to lose.
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