24/7 Wall St. Insights

• The quality of Chinese electric vehicles could threaten Tesla Inc. (NASDAQ: TSLA) and other American automakers.
• For now, tariffs keep them out of the U.S. market.
• Also: Dividend legends to hold forever.

Chinese electric vehicles (EVs) could threaten Tesla Inc. (NASDAQ: TSLA) sales in the United States and badly damage the EV plans of Ford Motor Co. (NYSE: F) and General Motors Co. (NYSE: GM). For now, 100% tariffs keep them out of the American market, which is important because many carry price tags well under $20,000. Another question is whether Chinese EVs are built at quality levels that would match U.S. car buyer expectations.

Chinese car companies might be able to enter the U.S. market because they produce vehicles in Mexico. For now, no decision has been made about whether they could be sold in the United States because of the 1994 North American Free Trade Agreement (NAFTA). It created a trade zone among Mexico, Canada, and the United States. It keeps tariffs among the nations low but does not eliminate them.

How Good Are Chinese EVs?

MotorTrend, the car publication, went to China to test several EVs. The primary reason was to see how these vehicles would perform if sold in the United States. In some cases, they were compared to similar vehicles made in or assembled in America.

While some cars, SUVs, and light trucks MotorTrend tested are not designed or built well enough for the United States, many could sell in America with minor modifications. Another conclusion was that several had direct rival models in the United States, so there would be a battle for market share.

In some cases, the Chinese EV was better than anything sold in the United States. One example was the iCar 03. The MotorTrend editors wrote:

Unanimously the favorite vehicle our editors drove in China, the plucky little 03 electric off-roader from iCar is the first vehicle from Chery’s new subbrand. About the same size as a Ford Bronco Sport, the iCar 03 blends Bronco, Suzuki Jimny, and Land Rover Defender styling cues into a delightfully well-packaged SUV.

Ford and Land Rover are major brands with substantial U.S. sales. Other tests showed that Chinese cars could rival some Tesla products.

Tariffs could keep Chinese vehicles out of the United States indefinitely. However, if those tariffs ever drop, several vehicles sold in America will have trouble protecting their market shares.

Are Electric Cars Really Better for the Environment?

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