Sparks have been flying at the glitzy Auto China 2018 Show in Beijing this week. But they were not the sort which will power the futuristic fleets of electric models being rolled out in a cascade of high-tech concept cars.
Instead, they appeared to fan the flames of a looming trade war between the United States and China that could bring to a screeching halt falling prices for e-vehicles.
“We are very worried because the whole business concept is based on open trade … if we don’t have that, we will have to invest in every single car line in every single country and that will be much more expensive for consumers,” Hakan Samuelsson, the CEO of Volvo Cars, which is part of Chinese auto giant Geely Group, told CNBC.
Concerns of a trade conflict have been rumbling since the US President Donald Trump threatened a series of tariffs last month on a range of products, including Chinese-made vehicles, triggering tit-for-tat warnings from Beijing.
The stand-off has intensified over the massive trade deficit with the second-largest economy in the world, which was a record $375.2 billion in 2017.
“If the United States really levies a 25% tariff, it would have a significant impact on us,” Feng Xingya, the president of Guangzhou Automobile Group, or GAC, told the media. “We are now doing studies on our price competitiveness and profit potential [after any tariff increase].”
Last year, GAC unveiled its Trumpchi brand at the Detroit Car Show in a move to crack the lucrative US market. But the specter of trade sanctions has forced the company to put the brakes on rapid expansion plans.
“Chinese companies should exercise more caution when they enter the US market and make strategies [for any risks],” Feng said.
Still, during the past 10 days, there has been renewed hope that Beijing and Washington will eventually sort out their differences and reach an agreement.
On Tuesday, the White House announced that officials from the US and China would meet for talks later this week. The decision came in response to Beijing’s pledge to liberalize foreign ownership limits in the auto sector.
This was seen as a possible olive branch to Trump, who had verbally hammered China for failing to open up the industry further to overseas competition. The move, of course, was cautiously welcomed by the major global players.
“This will have no impact on our joint ventures here [China],” Jochem Heizmann, the CEO of Volkswagen Group China, said at a media conference. “But the overreaching principle is important.
“Hopefully, liberalization will help [in producing] fair competition [by] having a level playing field,” he added.
The stakes are certainly high. China has invested heavily in an electric future for the auto industry by turning its aging factories and plants into cutting-edge manufacturing centers, fueled by big data and fledgeling AI, or artificial intelligence, technology.
In 2017, car sales hit nearly 29 million. While the market has slowed in the past few years, it is still expected to overtake the combined sales of the European Union and the US in the next decade.
Breaking those numbers down, General Motors sold over four million models in China last year, which was more than in the US. Volkswagen reported more than three million sales, roughly six times its home market in Germany.
Yet home-grown companies, such as Geely, SAIC Motor, BAIC Motor Corporation, BYD and Chery, tend to dominate the landscape.
“Competitors emerging from China must be taken seriously,” Matthias Mueller, the former CEO of Volkswagen, which is Europe’s biggest car manufacturer, told Bloomberg.
“I visited China for the first time in 1989, and the development that has happened there since then is just impressive,” he added.
Significantly, it has been the unparalleled drive into developing e-cars that illustrates the depth and breadth of Beijing’s ambitions as it battles pollution problems in major cities.
At the Auto China show, domestic companies wheeled out 124 models out of a total of about 170 in a specially designed exhibition space.
Government subsidies have seen the sales of green vehicles mushroom in the past five years with local car companies cashing in on the trend.
Naturally, foreign juggernauts, such as Volkswagen, Daimler, Toyota, Nissan and Ford, are desperate to tap in to this market.
On Tuesday, Volkswagen announced a 15 billion euro (US$18 billion) investment in electric and autonomous vehicles in China by 2022 as part of its 34 billion euro global strategy.
“This is our second home,” Herbert Diess, the company’s new CEO, told the media on the sidelines of Auto China 2018. “The market is set to be the biggest worldwide for electric cars.”
Even though Diess created a stir with his announcement, the big buzz surrounded the all-electric models from Tesla, the precocious child of Elon Musk.
The general public and local media swarmed around a blue Model X, a red Model 3 and a white Model S like manic bumblebees.
“Believe me, executives from local and global rivals were among those checking out Tesla’s stand,” one industry insider said.
For once, sparks were flying for all the right reasons.