China’s BYD, now the world’s No. 1 electric vehicle manufacturer, can produce a credible EV for the equivalent of $9,000 in materials – call it $11,000 if Western-spec safety equipment is included, Ford CEO Jim Farley said this week. That’s thousands less than Ford or other Western automakers would have to spend.

 

That would be big trouble for the Motor City Three – not to mention Tesla, the North American operations of Hyundai, Toyota, Volkswagen and other automakers serving price-sensitive mass market consumers.

 

Elon Musk and the CEOs of legacy automakers agree: EVs built at Chinese component costs inside the North American free trade zone could “demolish” incumbent automakers producing at Western cost levels.

 

A BYD executive told Japan’s Nikkei that the company is working on plans for a Mexican EV plant. The company has not formally announced a site or a timeline. But the threat of BYD and other Chinese automakers setting up shops in Mexico to get around U.S. trade barriers has been apparent to Detroit executives for some time.

 

The MC3 and Tesla have, or plan to have, their own EV factories in Mexico to reduce production costs.

 

The BYD-Mexico story highlights the turmoil that has transformed what was supposed to be a decade-long “transition” to electric vehicles into an industrial version of “Naked and Afraid.”

 

Since late 2022:

 

+ Tesla started a price war that shredded the pricing and profit strategies of legacy automakers and EV startups. Mainstream U.S. consumers will now pay $3,000 to $5,000 extra for an EV – roughly the same premium as a gas-electric hybrid – but no more, Farley told investors this week. That’s not enough to cover the extra costs of an electric vehicle’s larger battery – at least, not at Ford’s current cost levels.

 

+ The growth of EV demand slowed, stranding investments in production capacity and putting more pressure on prices.

 

+ Chinese automakers surged into global markets, rolling their excess production on to ships headed for Europe, Latin America, Africa and Southeast Asia.

 

+ Investors are no longer all in on EVs. Shares in Tesla and BYD have dropped 20% and 16% respectively this year, while shares in Toyota, a “laggard” on EV deployment, are up 23%, Morgan Stanley wrote in a note Friday. Investors are “rewarding those willing to pull back on (EV) spend, penalizing those who don’t.”

 

Now what? European and Detroit automakers are scrambling for new strategies to slash EV development and production costs, and pleading with regulators for more time and more subsidies.

 

Farley and GM Chief Executive Mary Barra told investors at a Wolfe Research conference they are open to new partnerships to spread out the burden of EV batteries and other technology.

 

Stellantis CEO Natalie Knight said the automaker will keep its eyes open for opportunities to be a “consolidator” as rivals falter in the EV race, or smaller EV technology or materials companies come up for sale.

 

The light in the storm for the MC3, Toyota and the German luxury auto brands is that their combustion vehicle businesses are hauling in cash.

 

GM this week invested $150 million to secure graphite from Canada – the better to qualify for U.S. EV subsidies. It’s a trivial sum for GM, which generated $11.7 billion in free cash flow last year.

 

But shareholders are putting pressure on legacy automakers to send more cash back to them– as Renault and Stellantis promised this week. Investors see the storm on the horizon, and want to build their own shelters.