The Chevy Impala was the bestselling car in the U.S. in the 1960s…
It had a sleek design. But it was also fast and loud enough to appeal to drivers who wanted big power.
Depending on the year, the car came with different powerful engine options. One was an in-line 6 cylinder. Another was a powerful 6.7-liter V-8 that kicked out 425 horsepower.
The Impala was a true muscle car.
And in 1965, Chevy sold more than 1 million Impalas. It was the first car to break a million units sold in a year in the U.S.
Back then, America’s love affair with gas-guzzling automobiles was at its peak.
Then in 1973, the Arab oil embargo stole the Impala’s glory…
Oil supplies from the Middle East came to a virtual standstill. The price of crude oil shot up 300%. And gas prices at the pump soared by more than 35%.
Across the U.S., gas stations often ran out of fuel. Cars waited in long lines at the few stations that did have gas.
Then, in 1979, oil markets suffered another shock in the wake of the Iranian Revolution. Oil prices saw another big spike. And in the U.S., panicked consumers once again started lining up at gas stations.
Suddenly, muscle cars that gave just 14 miles to the gallon didn’t seem as appealing. As the 1980s rolled in, a new breed of vehicles captured American consumers’ hearts and minds…
This was the era of smaller, more affordable, but well-built Japanese cars. And they nearly doubled the gas mileage of American muscle cars.
The Honda Accord was the big winner. It was the first foreign car to become the bestselling model in the country.
It didn’t take long for Japanese car brands to overtake U.S. brands in America’s auto market.
But now, a new major player in the auto industry has emerged…
I’m talking about China.
Chinese automakers sold more than 8 million electric vehicles (“EVs”) in the country last year. That makes China’s market almost 6 times bigger than the U.S. EV market.
By now, you’ve likely heard of a company called BYD. It’s China’s largest EV manufacturer.
But you probably haven’t heard of a company called Contemporary Amperex Technology (also known as just “CATL”). It’s the world’s largest EV battery maker. And it’s also a Chinese company.
You probably haven’t heard of China-based Ningbo Zhaobao Magnet, either. But it’s the world’s third-largest manufacturer of permanent magnets used in EV motors.
And China is the world’s largest producer and refiner of the “rare earth” materials used to make those magnets.
Now, EV batteries are mostly made from lithium, of which China itself is the world’s third-largest miner. And China happens to be the world’s largest lithium refiner. It has a roughly 60% market share.
Beyond these, China is either the world’s largest or one of the largest manufacturers of other things that go into making EVs…
That means everything from brakes to suspensions, glass windows, LED screens, headlights, taillights, and electrical wire harnesses.
When you have massive EV manufacturers and parts suppliers in one huge market, it unleashes economies of scale that are difficult to match anywhere else.
This is a big reason why Tesla (TSLA) can sell its entry level Model 3 for $5,000 less in China than it does in the U.S.
That’s also why BYD has a Model 3 competitor that sells for about $25,000 in China.
And that’s why Chinese EV exports grew 64% year over year to more than 1.5 million units in 2023.
This doesn’t mean that China’s EV brands will automatically dominate the global EV industry the way Japanese brands did in recent decades…
The key markets of the U.S. and Europe have already imposed steep tariffs on Chinese EV exports. They want to protect their domestic brands. And that’s not a surprise.
It’s also uncertain whether companies like BYD will be successful or even allowed to open their own factories to sell EVs to American and European consumers.
But the global auto industry today is different from when Honda first launched the Accord in the U.S…
Today, North America and Europe account for less than half of the global auto market. These regions are now in the minority.
Emerging Markets now account for most global auto sales. That includes countries in the Asia-Pacific region, South America, the Middle East, and Africa.
By introducing affordable, well-built EVs to these markets, Chinese brands are poised for big growth… without even setting foot in the U.S.
And even if you don’t like their vehicles… it’s worth paying attention to Chinese EV companies.
Good investing,
Vic Lederman
