Investing.com - Japanese automakers challenged Detroit during the 1970s and 1980s with cheap subcompact, and compact, cars before making the move to marketing mid-size and luxury vehicles. Could the Chinese be planning to use the same strategy to conquer the electric vehicles niche in the U.S.?
That scenario looks increasingly possible.
Locally-branded models that are cheaper and have a dramatically shorter range than those offered by foreign automakers such as Tesla Motors Inc (NASDAQ:TSLA) and Nissan Motor Co., Ltd. (T:7201) now dominate the Chinese market, where Beijing provides more than double the subsidy the U.S. does to purchase so called "EVs."
These subsidies are central to Beijing's policy to gain global leadership in cleaner energy driving.
China has spent billions of dollars on subsidies to help companies including billionaire Warren Buffett's pet project BYD (OTC: BYDDF) and BAIC Motor Corp Ltd (HK:1958) with the goal of large-scale manufacturing of the "plug-in" vehicles for global markets, according to analysts.
EV sales are revving up the enthusiasm of urban drivers, taxi fleets, and government agencies, analysts said.
Last year, sales of battery electric and plug-in hybrids increased 60% in China to 402,000 vehicles, according to industry reports. By 2020, China plans 5 million plug-in cars on its streets, analysts indiate.
The domestic EVs are sold on price, primarily, analysts said, as they lack the luxury of the Tesla brand.
A two-door battery electric Chery eQ cost around 60,000 yuan, or $8,655, after subsidies in Shanghai.
Without subsidies, the eQ would cost an additional 100,000 yuan, according to industry reports.
General Motors Company (NYSE:GM) at the Detroit Auto Show showed off its latest Bolt EV, which costs nearly $30,000 even after a $7,500 U.S. federal tax credit. GM is planning to build the electric vehicle in the U.S., as part of its $1 billion new investment, in response to President-elect Donald Trump's industrial policy of "Buy American, Hire American." This policy poses the biggest challenge presently to China's EV expansion dreams.
But there may be market openings. Tesla is reportedly planning to develop recharging stations for its cars which will charge owners a fee for the convenience of not having to look around for a "free" recharging stall at a suburban shopping mall or urban parking lot, according to industry reports.