US automakers brace for assault from China

An China-made electric vehicle will arrive at US dealers in the coming months, offering power and efficiency similar to the Tesla Model Y, the world’s best-selling EV, but for about $8,000 less.

The EX30 from Volvo Cars, the Swedish brand owned by China’s Geely, foreshadows the fierce competitive threat US carmakers could face from Chinese EV manufacturers that have surged far ahead of global rivals, especially on affordability.

The $35,000 price tag of Volvo’s compact SUV hits a sweet spot in the US market, where most buyers can’t afford most EVs. The competitive price reflects an unusual combination of Geely’s China-specific cost advantages and Volvo’s ability to skirt US tariffs on Chinese cars because it also has US manufacturing operations, according to interviews with four sources familiar with Volvo and Geely strategy and several US trade policy experts.

Chinese EV makers can undercut global competitors largely because of the nation’s domination of battery minerals mining and refining, as well as its long-standing commitment to EV development, including huge government subsidies.

In addition, Geely has slashed manufacturing costs by merging supply chains and sharing platforms and parts with Volvo and other Geely brands, according to two senior Geely managers, who spoke on condition of anonymity because they aren’t authorised to speak publicly.

Despite its aggressive price, Volvo is targeting profit margins of between 15% and 20% globally on the EX30, a third Geely source said.

China’s EV dominance will be on display this week at the nation’s premier auto show in Beijing. In the China market, the world’s biggest, dozens of domestic EV brands are fighting it out in a price war while foreign automakers have steadily lost market sharey. The intense competition has driven China’s biggest EV makers, led by BYD, to accelerate exports that to get higher prices and profits in less competitive overseas markets.

The EX30 will be among just a handful of China-made cars sold in the US, none of them from Chinese brands. Vehicles from China carry a 27.5% tariff and increasingly strident calls for higher trade barriers from US automakers and their political allies.

Volvo is eligible for tariff refunds under a law that awards them to firms with US manufacturing operations — such as Volvo’s South Carolina plant — that also export similar products, according to US trade law experts and a source familiar with Volvo’s tariff-avoidance strategy.

The US government doesn’t release details of tariff refunds to individual companies.

Asked about tariff refunds, a Volvo spokesperson said the company pays all legally required duties on cars and parts. She said Volvo, though owned by Geely, is independently operated and designs its cars in Sweden.

Geely declined to comment.

Leasing loophole

The EX30 could get even cheaper if Volvo and its dealers use an EV policy loophole enacted in the US Inflation Reduction Act of 2022, championed by President Joe Biden. The legislation reauthorised an existing $7,500 tax credit for EV buyers — but blocked the subsidy for cars with components from countries, including China, that are deemed an economic or security threat.

The US Internal Revenue Service later determined, however, that leased EVs qualify as commercial vehicles and are eligible for a similar $7,500 subsidy with no China-content restrictions.

That could bring a leased EX30’s effective price to $27,500 — a compelling offer for a five-seater electric SUV that Volvo has said will have a 440km driving range and a five-second 0-100km/h time. The EX30’s specifications closely match Tesla’s Model Y, and Volvo dealers are touting the comparison. (The Model Y has more cargo room.)

Last weekend, Tesla lowered the Model Y’s price by $2,000 in the US as part of a series of global reductions. It’s the latest of many Tesla price cuts as it faces softening demand and stiffer competition from China.

Lance Morgan, sales manager at Volvo Cars Carlsbad in California, said his dealership has already taken deposits for every 2025 EX30 it expects to be allocated.

“I think this could be quite the game-changer for the whole brand,” he said. More than half of his customers who buy available Volvo EVs initially lease them to qualify for the US tax credit and then immediately buy out the lease, he added.

‘Extinction event’

The EX30’s price and the buzz it’s generating help explain US automakers’ growing fears of having to compete with low-cost Chinese EV imports.

Industry trade group the Alliance for American Manufacturing said in February that cheap Chinese EVs could cause an “extinction-level event” for US automakers. It warned that Chinese manufacturers could also avoid US tariffs by setting up plants in Mexico, inside the North American free trade zone, then exporting vehicles to the US.

China’s BYD — which rivals Tesla for the global EV sales crown — announced plans in February for a Mexico plant. BYD offers a range of EVs for less than $30,000 in China, including an electric hatchback that sells for less than $10,000.

In Mexico City in February, BYD announced it would sell the hatchback in Latin America for about $21,000, still far below any US electric vehicle.

Some US politicians are calling for higher trade barriers. “Using taxpayer dollars to subsidise Communist China’s auto sector is an affront to American workers,” Senator Josh Hawley, a Missouri Republican said in a statement.

Volvo quality, Geely cost

When Geely bought Volvo from Ford in 2010 for $1.8bn, it struck some analysts as an odd pairing. Geely was an upstart automaker from Hangzhou known for producing lower-quality knock-offs of Western cars while Volvo had a long-standing reputation for safety and sleek Scandinavian designs.

The companies came up with a Volvo growth strategy that relied in part on lowering costs by merging supply chains, giving the combined company leverage to drive down supplier costs.

“Our stated goal was to achieve ‘quality of Volvo, cost of Geely’,” a Geely engineering manager said.

The plan worked. Since 2010 Volvo has nearly doubled its global car sales, from 373,525 to more than 708,000 last year.

Geely and Volvo have created a series of shared platforms allowing Volvo and other Geely brands to share batteries, motors, gears and electric power-management inverters — all expensive EV components that are cheaper in high volumes.

The EX30 rides on an electric-vehicle platform Geely calls SEA, for “sustainable experience architecture”, the Geely sources said. A third Geely official called it the Russian doll of vehicle platforms because it can be modified to produce an array of large and small EVs without major assembly-line changes.

One of the Geely engineering managers said 80% of the underbody components in SEA-platform vehicles are shared among Geely, Volvo and other affiliated brands including Smart, Lynk & Co, and Zeekr, which make vehicles for Chinese and European markets.

Import-export business

Shifting more of its manufacturing to China required Volvo to confront the punishing tariffs enacted by then-President Donald Trump in 2018, as part of a larger trade war, and since supported by Biden.

At the time, a Volvo lobbyist requested an exclusion for its mid-size SUVs imported from China, saying in a letter that the duties would cause economic harm to consumers and auto workers. The US Trade Representative denied Volvo’s request, as it did for a similar request from General Motors.

The lobbyist’s letter didn’t mention specific models, though Volvo imported its XC60 utility vehicle from China at the time. It switched production for the US market to Europe to avoid the tariffs.

Now Volvo has found a different way around the tariffs for the EX30, through the US duty drawback programme, which dates to 1789. The programme originally refunded companies the tariffs they paid on imported raw materials if they used them to build finished products for export. Today, it allows a much broader variety of exports to offset taxes on similar imports.

For Volvo, it means exports of its larger EX90 electric sport-utility vehicles built in South Carolina can be used to offset imports of the EX30 from China.

The drawback programme, long used by US automakers that source parts globally, has surged in popularity in the US-China trade war. Total drawback claims have more than tripled since the 2018 tariffs, from $1.3bn to almost $4bn last year, US Customs data show.

Reuters