Investing in start-up electric vehicle (EV) makers such as Rivian (RIVN 3.59%) and Lucid (LCID 1.32%) is certainly not for the faint of heart. You're essentially investing in a company that relies on limited vehicle models and is burning through cash rapidly, as each vehicle currently rolls off the production line selling for a loss. To make things more frightening, recent data from Japan emphasizes the threat Chinese EVs have on the rest of the world.

Calm before the storm

There's a storm brewing overseas, but it has nothing to do with the weather. Rather, a massive wave of advanced, highly affordable Chinese electric vehicles are preparing to hit the streets around the globe.

While the government did highly subsidize the Chinese EV industry, the automakers themselves have to be applauded for seeing a target and reaching it with ruthless speed. Seemingly overnight, Chinese EV makers took over their home market and sent foreign automakers back to the drawing board.

Investors of young EV start-ups, such as Rivian and Lucid, should be terrified of some recent numbers from Japan. In a groundbreaking victory, Chinese juggernaut EV maker BYD (BYDDY -0.09%) officially outsold Japanese carmaker Toyota with EVs in the latter's homeland during 2024.

This is probably a bigger deal than many realize. In fact, BYD only launched its first EV in Japan in early 2023, quickly gaining ground on the competition thanks to a price tag starting around $30,000 for its Atto 3 vehicle. Toyota, which historically dominates sales in Japan, was thwarted by BYD in only the latter's first full-year of sales.

Further, it's likely to get more difficult for Toyota, as BYD has introduced several high-selling models, including the Dolphin, which starts at roughly $19,000 – a price that automakers outside of China simply can't compete with currently.

Yet another example of the ruthless speed BYD expanded in Japan was the launch of its Seal model in June, which eyeballs Tesla's Model 3 market, and was the best-selling imported EV in Japan by the end of the summer. BYD is also turning up the intensity as it plans to launch a new smart midsize electric SUV, the Sealion 07, in 2025.

Don't panic yet

Some investors might be new to the notion that Chinese EVs are far ahead of the curve, but the U.S. government is well aware and slapped a staggering 100% tariff on Chinese EVs to help protect domestic automakers on U.S. turf. Those tariffs won't last forever, though, and eventually U.S. EVs will have to compete with China's wave of affordable vehicles on merit and price.

This also ups the ante on both Rivian and Lucid's upcoming vehicles, as they both need to expand their vehicle lineups, boost sales figures, build scale, and send revenues quickly higher. Lucid recently began production of its new electric SUV, the Gravity, but Rivian won't have reinforcements coming until 2026 when it plans to launch the R2, R3, and R3X.

For investors, this is just another development to keep track of because there's a storm brewing overseas, and eventually young U.S. EV automakers are going to have to weather the storm head on.