We’ve lost an auto race before, China’s EV climb should worry us

Tesla’s newly unveiled Roadster is a reminder that America can still produce breakthroughs that capture the world’s imagination. The car can accelerate from zero-60 in less than a second and perform feats that once belonged in science fiction.

The engineering is thrilling. Give Tesla an A for design innovation. The harder question is whether it can commercialize even the base Performance model. It includes the fan-powered suction system but none of the thrusters behind the Roadster’s headline-grabbing acceleration or airborne maneuvers. Or will Chinese manufacturers use their state-supported supply chains and generous R&D incentives to make comparable technology affordable first?

Chinese automakers are already gaining ground in Britain with vehicles that combine advanced technology and aggressive pricing. The Jaecoo 7, a Chinese-built SUV nicknamed the “Temu Range Rover,” became Britain’s best-selling new vehicle in September. Chinese brands captured nearly a quarter of the country’s new-car market that month.

American ingenuity is not the problem. The challenge is converting it into affordable products at scale, something China has become remarkably effective at doing. The next auto race will be decided by which country can excel at both.

Americans have been largely shielded from direct competition with Chinese automakers. The United States imposed a 100% Section 301 tariff on Chinese electric vehicles in 2024, effectively closing the market to them. The policy sought to prevent the heavily subsidized vehicles from undercutting domestic production.

The rationale is understandable. American companies operating in a market economy cannot compete on equal terms with a state-directed industrial system. China spent years supporting battery production and vehicle manufacturing, giving its automakers advantages that tariffs are meant to counter.

The United States needs an advanced manufacturing ecosystem that includes more than behemoths with access to capital markets and giant lines of credit. It must also include smaller, nimbler companies that take risks, develop intellectual property, and solve productions problems that larger manufacturers can then scale.

Those smaller companies need better access to capital. Federal policy now allows businesses to deduct domestic research costs immediately, leaving more capital available for engineers, prototypes, and equipment. Some states, however, have chosen not to adopt the federal rule because of concerns about near-term revenue losses. That protects state budgets but leaves businesses within their borders with less money to invest.

Policymakers should acknowledge that trade-off. Federal and state taxes can eat the seeds of innovation. I’m not arguing for no taxes, of course. But a dollar paid in tax cannot also finance an engineer’s salary or a new production line.

China has deliberately used tax policy to encourage sustained research. Its R&D super-deduction differs from the American credit, so the headline percentages cannot be compared dollar for dollar. The broader lesson is clear: countries that reward research give manufacturers more reason to invest.

Research incentives are only part of the answer. New technology will not help if American factories cannot produce it efficiently. Automakers and their suppliers need incentives to invest in robotics and advanced equipment. Smaller suppliers deserve particular attention since they often lack the capital available to their largest customers.

Companies also need dependable rules, because they cannot plan a battery plant or major factory upgrade around policies that may disappear. Government should set a clear course and let businesses decide which technologies make commercial sense.

Tesla’s new Roadster shows why that investment environment is essential. Making technology like this affordable will require advances across the automotive supply chain, including contributions from smaller manufacturers willing to take risks that larger companies may avoid.

Chinese automakers’ gains in Britain show how quickly consumers will consider a new competitor when the product delivers. American buyers will make the same judgment based on quality and value.

Protection may delay the competition, but it cannot determine the winner. America must become better at turning breakthrough ideas into products the world can afford.

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This article was published in Fortune and written by Rick Lazio.