Tesla (TSLA) stock dropped in early trade on Monday on the potential of a new threat to its auto business.
Over the weekend, the Financial Times reported Ford (F) held talks with Chinese device and automaker Xiaomi (XIACY) about forming a joint venture to manufacture electric vehicles (EVs) in the US. The FT said four separate sources collaborated on the story.
This isn’t the first time Ford has reportedly been talking to a Chinese EV maker about a potential tie-up. Earlier this year, the Wall Street Journal claimed Ford was talking to EV giant BYD about a battery collaboration in the US.
Tesla stock dropped nearly 3% in early trade.
Ford’s top communications spokesperson posted on X.com that the FT “story is completely false. There is no truth to it.”
Xiaomi also added its statement on X.com: “This report about a joint venture with Ford Motor Company is completely false. Xiaomi does not sell its products and services in the United States and is not negotiating with any companies to do so.”
Nonetheless, the threat to Tesla’s EV business, and even to legacy automakers like General Motors (GM), for cheaply made and well-designed EVs could be a major problem.
Ford CEO Jim Farley has spoken positively about his experience with Chinese EVs, in particular Xiaomi’s SU7 sedan, which the company imported into the US for testing.
The strong-selling and well-reviewed SU7 is a popular model in China, selling more units there than the Tesla Model 3, with Xiaomi struggling to meet demand. Its latest offering, the YU7, reportedly amassed over 100,000 preorders since orders opened up in early January.
Importing or building Chinese EVs in the US would be a potential nonstarter for some US regulators and members of Congress. However, President Trump was open to the idea of Chinese companies building cars in the US.
“If they [Chinese] want to come in and build a plant and hire you and hire your friends and your neighbors, that’s great, I love that,” Trump said at an event hosted by the Detroit Economic Club in mid-January. “Let China come in. Let Japan come in.”
Trump’s comments came around the time the Canadian government signed a landmark trade deal with the Chinese government, allowing the import of 49,000 Chinese EVs into Canada, among other things.
In addition to operations in Mexico, gaining access to Canada would give Chinese automakers another foothold in North America, with the large US market clearly in sight.
Former President Joe Biden instituted a 100% tariff on all Chinese vehicles coming to the US, and further restrictions on Chinese technology are another barrier for entry.
Politics and trade aside, Ford striking a deal with Xiaomi to make cheaper EVs makes sense for the US automaker since it no longer has any entry-level models like the Ford Escape, which was discontinued after the 2025 model year.
Ford’s smaller and cheaper EVs, built on its Universal EV platform, are slated to arrive sometime in 2027.
“I think anytime a new technology, software-defined vehicles or electrification, both of those are separate, but they’re connected. When they rip through a new industry like auto, you got to understand that in the first couple innings, it’s going to keep changing,” Farley said in an interview with Yahoo Finance from the Detroit Auto Show about the challenges Ford faced with EVs.
Hence, a tie-up with Xiaomi may make sense for Ford, though it could come at a cost.
“Automakers are simultaneously trying to fund EV transitions, develop autonomous technology, and navigate trade wars. Instead, look for the [Chinese] joint ventures to continue. The exports will grow. The dependency will deepen,” auto analyst and China expert Michael Dunne wrote late last year.
Dunne is forthright about the challenges faced by global automakers. He believes they sacrificed long-term strategic advantage to China in the pursuit of short-term efficiency by giving Chinese firms 50% of their joint-venture ownership and Western technical know-how to build better cars, just to gain a foothold on the continent.
With China’s outright dominance in production scale, cost efficiencies, and even tech, Dunne wonders if a tipping point has already been reached and if the joint ventures are just a taste of the future.
“The question is whether any Western automaker will remain truly independent,” he said, “or whether they’ll all eventually become brand managers for vehicles manufactured and controlled by Chinese companies.”
Pras Subramanian is Lead Auto Reporter for Yahoo Finance. You can follow him on X and on Instagram.
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