Chinese EV firms will 'demolish' rivals without trade barriers, says Tesla CEO Musk

San Francisco: Tesla CEO Elon Musk said on Wednesday Chinese automakers will "demolish" global rivals without trade barriers, underscoring the heat the U.S. electric vehicle market leader faces from the likes of BYD, who are racing to expand worldwide.

Musk's comments come after Warren Buffett-backed BYD - with its cheaper models and a more varied lineup -overtook Tesla as the world's top-selling EV company last quarter, despite Tesla's deep price cuts through 2023.

Chinese car companies were the "most competitive" and "will have significant success outside of China, depending on what kind of tariffs or trade barriers are established," Musk said on a post-earnings call with analysts on Wednesday.

"If there are no trade barriers established, they will pretty much demolish most other car companies in the world," he said. "They're extremely good."

Musk has reason to be concerned.

He sparked a price war last year to woo consumers hit with high borrowing costs, in turn squeezing Tesla's margins and worrying investors. On Wednesday, Musk warned Tesla was reaching "the natural limit of cost down" with its existing lineup.

Tesla plans to start producing a cheaper, mass market compact crossover codenamed "Redwood" mid-2025 to compete with inexpensive rivals, Reuters reported on Tuesday. Musk on Wednesday confirmed that Tesla expects to start production of its next-generation EV at its Texas factory in the second half of 2025.

But Chinese EV makers, adept at keeping costs in check with a stable supply chain, are moving fast. With rising competition and excess capacity in China, many are now working on rapidly expanding their foreign footprint.

"The completeness and resilience of China's multi-decade state-directed battery materials processing infrastructure build out is biting hard," said Ross Gregory, a partner at Melbourne-based consultant New Electric Partners.

China's SAIC Motor, for instance, has been placing orders for more vehicle vessels in its fleet to counter shipping costs as it looks to boost sales overseas.

Still, brand awareness of Chinese car companies in the United States is extremely low and their reliability, durability and safety is middling, so they have a long way to go to win US market share, said Spencer Imel, a partner at consumer insights firm Lansgton.

"They enjoy high demand in China with innovation such as in-car technology and battery swapping," Imel said. "That, we believe, will be an important ingredient and a differentiator in their future growth overseas."

Musk's comments also come as the US presidential election picks up pace. President Joe Biden has said China was determined to dominate the EV market and that he "won't let that happen".

Former President Donald Trump, who is the frontrunner for the Republican nomination for president this year, has signaled that he would double down on stronger tariffs if elected, calling for a universal 10% tariff on all imports into the US and revoking China's most-favored-nation trading status.

Musk on Wednesday said there was "no obvious opportunity" to partner with Chinese rivals but Tesla was open to giving them access to its charging network and licensing other technologies such as self-driving.

Europe has also taken a protectionist stance towards Chinese EV makers. Last year, the European Commission launched an investigation into whether to impose punitive tariffs to protect EU producers against cheaper Chinese EV imports it says are benefiting from state subsidies.

More than tariffs, the U.S. and Europe need policies that will give their automakers the time to build a diversified supply chain, said New Electric's Gregory.