Chinese auto imports and EVs are a hot topic, especially in Washington, where a bipartisan effort has been made by both key Republican senators and the Democratic sitting President Joe Biden to heavily tax Chinese-made cars and/or look into the national security risks of its connected car tech.
A nightmare scenario for American lawmakers and politicians revolves around the idea of Chinese automakers like BYD (BYDDY) potentially taking advantage of USMCA laws to make cars in Mexico, which can skirt the 25% tariff on Chinese cars implemented during the Trump Administration – a situation that Senators Josh Hawley (R-Mo.) and Marco Rubio (R-Fla.) have targeted in their proposed legislation.
However, a key auto industry executive revealed that Chinese auto brands have a mysterious and "cost-effective" way to enter new markets that other established automakers like Toyota, Mercedes-Benz and BMW already make use of.
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What is Contract Manufacturing?
Valmet Automotive CEO Pasi Rannus spoke with Automotive News recently and revealed that Chinese automakers have the ability to make use of companies like his to enter the U.S. market.
Valmet Automotive is one of a few companies known to do something called "contract manufacturing," where automakers who do not have the capacity, budget or allotted resources to develop and manufacture a specific car, enlists companies like Valmet to do the heavy lifting for them.
Third parties like Valmet can be contracted by automakers of all types to do as little as handle assembly, or be responsible for all of the time consuming and expensive aspects of getting a car to market, such as the design, engineering, or manufacturing of a new model.
A variety of automakers around the world, both big and small utilize this method for some of its popular vehicles. Currently, Valmet Automotive makes the four-door version of the Mercedes-AMG GT and the Mercedes-Benz A-Class at its facility in Finland. Previously, the Finnish firm made vehicles like the Porsche Boxster and Cayman sports cars, the Saab 900, and the Fisker Karma.
Additionally, vehicles like the Toyota GR Supra, BMW Z4, the Mercedes G-Class (a.k.a. "G-Wagon") and the Fisker Ocean EV are currently made by Valmet's largest competitor – Austrian based contact manufacturer Magna Steyr.
In his interview with Automotive News, Valmet Auto CEO Rannus said that they are in talks with Chinese automakers about possibly assembling their models under contract. The CEO pointed out that by using his facilities, new automakers could utilize a "cost-effective" way to enter new markets like Europe and the U.S.
"They are definitely coming," Rannus told AN. "You need to be aware of that. I think the first wave of Chinese automakers utilizing contract manufacturers will take place in Europe. I think the U.S. could be pretty close in the next wave, but it is a bit more protected with the [Inflation Reduction Act]."
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Rannus said that the whole assembly work for EVs is less complex than a "normal combustion vehicle," and through former experience, it can work with any manufacturer, big or small. The CEO also mentioned that through its former partnership with Fisker, Valmet was "one of the pioneers" of electrification, but noted that working with startups requires a different strategy than established automakers – as each and every automaker needs different levels of support from the contract manufacturer.
"Startups varies quite a bit. What is the strategy of the startup? What is their business model? Some of them may be focusing only on the plan and marketing and the so-called asset-light approach to production. Then they will, of course, require more support in all of the fields of manufacturing, including supply chain management," explained Rannus.
"It also requires flexibility from the contract manufacturer. It's a different way of working, let's put it that way, than with established automakers. With startups, some of their processes may not be mature. So that requires flexibility, to be able to support them, and patience to get them to understand what the automotive business is all about."
The CEO did not disclose which specific Chinese auto manufacturers have been in talks with Valmet. However, he also said that the North American market is "not in the focus" of his company's contract manufacturing purview, but mentioned that it is "keeping its eyes open" to new opportunities.
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