Although competition between China and the United States in the high-tech sector is intensifying, with the wave of intelligent driving sweeping the globe and China leading the world in AI-driven electric vehicle (EV) technology, a recent market perspective suggests that technological cooperation between the two nations in the EV sector may accelerate.

Wall Street giant morgan stanley recently released a report expressing strong optimism about Sino-U.S. collaboration in the EV sector. The institution stated that the relationship between the Chinese and U.S. automotive industries may have passed its lowest point. Despite ongoing national competition, Washington and Beijing are expected to explore areas of cooperation around EV technology.

Morgan Stanley's report highlighted that EVs serve as the physical interface for AI brains. As the automotive industry rapidly evolves from unconnected metal boxes on wheels to AI-powered agents, the global automotive market structure, supply chain composition, and regulatory environment are undergoing profound changes.

Morgan Stanley thinks it is premature to assert that the Chinese and U.S. EV markets will completely decouple because their discussions with Western automakers indicate that cooperation with Chinese automakers is necessary. There is a consensus that a path to cooperation exists while safeguarding national security interests, and this significant collaboration may soon begin.

Based on expectations of technological cooperation between Chinese and U.S. EV companies, Morgan Stanley is particularly bullish on the performance and stock prospects of U.S. EV companies with exposure to the Chinese market. For example, the firm is optimistic about Tesla, primarily due to its unique advantages in intelligent driving. 

Once Tesla completes compliance-based collaborations with Chinese tech companies on cloud-based training data storage and domestic intelligent driving mapping databases, the full version of Tesla FSD entering the Chinese market could enhance Tesla's competitiveness against cheaper Chinese models with intelligent driving capabilities, thereby boosting demand in China.

Morgan Stanley's optimism about Mobileye Global (MBLY.US) is based on its long-standing exposure to the Chinese autonomous driving market. The firm also remains bullish on Lear Corporation (LEA.US), Ford, General Motors, and Ferrari, citing increasingly optimistic revenue prospects due to their deep collaborations with Chinese automakers in intelligent driving, EV manufacturing, and supply chains.

BYD's "God's Eye" Levels the Playing Field in Intelligent Driving

Chinese automaker BYD made a significant move in February with the launch of its "God's Eye" advanced intelligent driving system. This development has intensified competition for Tesla and the U.S. Big Three automakers—Ford, General Motors, and Stellantis—in the intelligent driving sector, particularly in the Chinese market. Morgan Stanley noted that China may have already won the race in affordable EVs, thanks to its AI-driven intelligent driving technology and the world's most efficient EV manufacturing chain.

Compared to Tesla's Enhanced Autopilot (EAP), which is less capable in China than in North America and comes with a price tag exceeding 200,000 yuan for the Tesla Model series, BYD has effectively shattered the notion that intelligent driving equals high prices. Tesla's EAP system lacks a competitive edge in terms of cost performance when compared to the intelligent driving systems of Chinese EV startups like NIO, XPeng, and Li Auto.

BYD's recent announcement that its "God's Eye" system will be standard on all models priced above 100,000 yuan, and even on its 70,000 yuan Seagull model, marks a significant shift toward making intelligent driving accessible to all.

This move, particularly the inclusion of intelligent driving in its most affordable models, has been described by Morgan Stanley as a super nuclear bomb for the Chinese market and a challenge for Tesla, which is striving to introduce its Full Self-Driving (FSD) system in China.

Morgan Stanley Optimistic About U.S.-China EV Collaboration

Morgan Stanley's analyst team noted that generative AI is widening the technological gap between traditional automakers and EV startups, serving as a key catalyst for transforming the global automotive industry's structure and business models.

In their report, Morgan Stanley highlighted that during the recent Q4 earnings calls, the U.S. Big Three automakers (General Motors, Ford, and Stellantis) discussed little about AI-based intelligent driving vehicles, indicating slower progress in this area. The report also suggested that BYD's Eye of the Gods technology could be a DeepSeek moment for the global autonomous driving industry.

Given that Chinese EV companies are the absolute leaders in low-cost EV manufacturing and intelligent driving, Morgan Stanley believes that U.S. automakers like General Motors, Ford, and Stellantis may collaborate with Chinese EV leaders to build factories or adopt Chinese intelligent driving systems. Such partnerships could help these traditional U.S. automakers capture more market share in China's vast EV market.

While short-term U.S. EV sales are negatively impacted by Trump-era policies and tariffs, Morgan Stanley views this as a temporary pause before a significant rise in EV adoption between 2027 and 2030. EVs are the physical interface for AI brains. In our view, AI is driving autonomous vehicles forward at full speed, accelerating EV commercialization. The notion that the U.S. will remain a stronghold for internal combustion engines is fundamentally flawed. Achieving vehicle affordability—targeting a price below $20,000, a range over 300 miles, fast charging, advanced ADAS, and an Audi-level experience—will likely come from EVs, not traditional vehicles.

Morgan Stanley concluded that U.S. EV adoption will inevitably involve Chinese elements. Despite expected cycles of interest conflicts and protectionist measures, the ultimate push for EV adoption in the U.S. will likely come through partnerships with Chinese battery and EV manufacturers. Tesla is expected to play a key role in localizing Chinese BEV manufacturing technology in the U.S. Meanwhile, U.S. automakers could provide Chinese companies with access to Western markets and help manage stranded assets in China, while Chinese automakers could support U.S. automakers in implementing more efficient EV strategies.