Still lots of Monday AM QB’ing re: US tariffs on Chinese EVs. Carlos Tavares, Stellantis CEO has now also pulled the EU front and center into the fray this week with his Reuters interview with friend of Sino Auto Insights, Reuters Global Automotive Correspondent - Joe White. This after China threatened to return the favor by setting 25% tariffs on premium (high displacement) engined vehicles imported from the EU
hitting ABB (Audi, Bimmer, Benz) right where it hurts, their biggest moneymakers.
No response yet to the increased tariffs from the Biden administration which isn’t surprising. I’d said in the last newsletter that I didn’t see any significant retaliation on the US, at least not yet. China would likely wait until the US Presidency is determined before they strike with anything significant.
The most controversial part of Tavares’ interview? He states everything plainly and too bluntly. I mostly agree with his statements and many of them I’d articulated myself in past newsletters. He must be a reader!
As the CEO of a publicly traded company, I guess there is supposed to be a level of political correctness that he doesn’t ascribe to.
Summarizing his thoughts on the potential tariff war between the EU & US vs. China:
Tariffs will cause inflation.
It’s only pushing out the inevitable – a fight between China EV Inc and Foreign Legacy Inc
Restructuring is needed. Every part of the supply chain, including R&D, engineering, manufacturing, sales, marketing and after-sales service will be touched in a significant way (I read into this a bit, but this is what I believe). All Legacy Automakers, even though they’ve already shed thousands of jobs over the last few years need to get smaller still. This is anathema to the new UAW contract BTW, but Tavares seems to believe that he can work with the European autoworker’s union to right-size. See the next bullet point.
Unions will be key to any ‘offensive’ the EU and US legacy automakers can muster to combat.
The time is now.
There will be more (global) overcapacity due to the tariffs.
Let me add more color to his comments. These are my own thoughts.
Tariffs will not only cause inflation, but US & EU consumers will only be able to purchase clean energy products, both BEV & PHEV products, from mostly Legacy Automakers that would not likely be competitive in China.
And it won’t be just inflation on the end-product side, we have to include battery minerals, refining and manufacturing each adding additional costs since we have about zero capacity in ALL of the ABOVE right now.
At least not near enough to manufacture enough batteries to supply the 1.8M Teslas that were built and sold globally I 2023 let alone ANY growth YoY in 2024. That number is larger than the 1.2M units we purchased as a country in 2023.
China EV Inc is coming. Whether it’s through Mexico or by building a manufacturing presence in the US. We currently have Japanese, Korean, German and Swedish (via China) automakers building in the US. ALL of the Top 10 vehicles sold in the US in 2023 were built in North America, that’s including the 4 Japanese cars. As a matter of fact, the Top 15 cars sold in the US in 2023 were ALL built in the US.
The thought that the Chinese manufacturing wouldn’t ‘eventually’ make its way to the US is short-sighted. Why? The US is still the 2nd largest passenger vehicle market in the world. The Chinese want ‘global’ brands just like any other ambitious automotive brand and saw how much profit the foreign automakers booked in THEIR domestic market.
China EV Inc strongly believes they can accomplish the same and with the products I’ve seen and driven, I don’t doubt them. If you don’t believe me, even Elon thought they would demolish most of the legacies. And as it stands now, the US legacy automakers (based on their silence) and the Biden administration (hence the tariffs) must feel the same way.
Depending on who the new US President is and how long these 100% tariffs are in place (I don’t see them being lifted in the next few years), ‘eventually’ could be sooner than many think. I know that some Chinese EV brands are in stealth discussions with certain US states. I also know that they’re also in convo with a country that starts with an M and ends in -exico.
These tariffs only buy the US Three a small window. Can they pull in their product plans to get clean energy vehicles to market that at least stand a fighting chance to compete on features, if not price, within the next three years? That’s the ultimate question.
Slowing any kind of product transition which it sounds like some OEMs are considering / doing, is a recipe to become a single market player.
The other challenge - Jim Farley famously said that it takes 40% less labor to build an EV. Simple math means that it would take 40% less people then too, right? But not only that – if 30% of the parts that are used on ICEs are now not needed, that means the companies that supply those parts would either need to make a massive pivot or be left behind too, right?
Then we get into the logistics of moving 30-40% less parts and how the size of the factories would shrink just because they don’t have to accommodate as many parts. If there are less people making the cars, the surrounding support infrastructure, the homes, the restaurants, the bars, etc. would all be affected too, right?
This is why this week’s comments by Tavares seemed to raise so many eyebrows. He said the quiet part out loud. And he doubled down on how Stellantis wants to lean into this …now that they have a Chinese partner. But we should remember that just over a year ago, he was singing a completely different tune – one of protectionism, of course until he decided that if you can’t beat them, join them or more appropriately, have them join him with the acquisition of a 20% stake in China’s LeapMotor.
This is a fight no legacy automaker is currently prepared for. But the alternative isn’t that attractive either (referring to the tariffs) and I am not certain the politicians are really focused on doing the (long term) right thing, but more focused on this coming election cycle.
To be crystal clear, I do NOT want GM, Ford or the US operations of Stellantis to go away, but they need to get healthy, fit and faster. And that needed to happen last decade. And that takes pressure. The current pressure from the Koreans and Tesla aren’t enough to wake them from their slumber IMHO. And moving towards a clean energy product portfolio is the initial but only a qualifying step.
The legacy automakers then need to get really good at software because clean energy products are now the table stakes or in other words that’s the minimum bet. Software, features, services, connectivity and safety will ultimately decide which brands have the privilege of carting us around, no human involved, come 15 years from now. Will people want to own vehicles at that point? Many still will, sure but the lion’s share of folks that find it too mafan will gladly outsource that to Uber, Lyft, Didi, or ‘fill in the legacy automaker’ Mobility Services. That’s because most automakers that can survive the transition will try to become service providers and book their margin on these ‘services.’
They will need to incorporate food, grocery & parcel delivery, along with micromobility to widen their install bases but the signature services that will be the moneymakers? eVTOL & robotaxi. No humans involved. Straight butter baby. Manufacturing the vehicle will be commoditized since the margins will be compressed since less people will want to own. That’s not to say there will be that many less cars on the road. It’s just a good portion of the ones on the road won’t be owned by an individual anymore.
I created this slide to illustrate the phases of mobility evolution and where certain countries are.
Finally, there are certain analysts out there are trying to cause a stir by postulating about China building 100% of the world’s vehicles – complete nonsense, but whatever it takes to get clicks I guess.
GET LOW(ER)
According to friend of Sino Auto Insights, Steve Levine, who writes The Electric one of the must read newsletters (although the sub is a bit expensive) TBH, a quick excerpt from this week’s:
Today, CATL is still advertising the cells at about $56 per kilowatt hour—and it’s become the going rate in China for large lithium-iron-phosphate batteries used in buildings, according to multiple firms that track battery prices, compared with $95/kWh outside China; an electric vehicle battery using LFP would be roughly $10/kWh more. And China’s most efficient battery manufacturers are making a profit on the price, with average costs of $45/kWh, according to InfoLink Group, a Taiwan-based renewable energy research firm.
If that wasn’t enough, Steve made a correction today stating that they were fat on that $56/kWh cost estimate and that it’s actually as low as $47/kWh!
This means, in the famous words of Kevin Williams, ‘We’re cooked’ since there isn’t any real way for us to launch production in enough volume to get us down to that $45 level. Remember, most analysts believe that in order for EVs to be profitable, we need to get to $100/kWh. Well folks, it seems to me there are people out there making money by selling EVs. Just not the foreign legacies.
Polestar is trading at $.84 a share giving it a market cap of <$400M. It’s effectively lost 40% of its value since May 1st. On top of that or perhaps partly because of it – the tariffs come at a challenging time for Polestar who’s only current vehicle – the Polestar 2, is shipped from China to the US.
They also plan to ship the Polestar 4 from China before they build the flagship Polestar 3 in 2025. But by then it could be too late. Remember that Polestar is a Geely affiliated brand. It’s publicly traded but shares platforms with other Geely vehicles.
INTERVIEWED/QUOTED
WSJ: Had a nice chat with Sha Hua for this piece on Xiaomi and how they succeeded where Apple said No Mas. It’s an interesting article that outlines how Xiaomi is very different from even your atypical China EV startup. It’s brand is strong in China and Lei Jun is the ultimate showman. They’ve booked a solid 100K orders for their first offering the SU7 that is aimed directly at the Model 3 …among others.
THIS IS CHINA.
Whenever I hear or experience something that could likely never happen anywhere else, I’ll pop it here.
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I was staying with my friend for a few days in Beijing on my last trip. He and his son came home late one evening and his son had to use the bathroom, the same one I was using – no issues there. Until he comes out and I head in to brush my teeth. I notice that the toilet is clogged. No worries, where’s the plunger?
My friend lives in an old diplomatic compound that’s supposed to have 24 hour service for emergencies and he’s relied on the 物业to remedy situations like this, but normally during working hours, we were headed towards 11:30pm local time.
He tried contacting them – crickets. He proceeds to order a plunger using a local Chinese app to have it delivered to his apartment. He actually purchased two plungers since buying one didn’t meet the free delivery threshold. The plungers arrived about 25 minutes later or at around midnight for a total cost of ¥52 or about $8.
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This weekly newsletter is a collection of articles we feel best reflect the happenings of the week or important trends that have effects on the global automotive and mobility sectors. We also provide a point of view that we hope educates and sparks debate.
The Sino Auto Insights team
Sino Auto Insights is a Beijing, China-based market research and advisory firm that specializes in assisting companies analyze, strategize, and develop products and services that will shape the future of mobility and transportation.
Members of our team have experience working in Detroit, Silicon Valley as well in China across multiple sectors and functions as entrepreneurs as well as working at larger companies like Apple, Google, Amazon, GM and FCA, and many others.
A good resource for keeping monthly tabs on cell pricing is the Intercalation substack. Their last report showed LFPs @ $51/kWh. https://intercalationstation.substack.com/p/battery-component-price-report-april
Just some context. Farley was referring to car ASSEMBLY labor falling by 40% in the event of the EV shift. This was overwhelmingly because of shifting ICE powertrain manufacture off the OEM (Ford, BMW, etc.) books... but it would be replaced by SUPPLIER (e.g. LG, CATL) labor at the battery plants. See the BCG report "Shifting Gears in Auto Manufacturing," which saw virtually ZERO change in TOTAL labor, between OEM and supplier combined. Think about it: in a modern car plant most of the labor is in the final trim lines (headlights, dashboards, seats, etc.), virtually none of which is impacted by the EV transition. If one needs further evidence that we can't really conclude much about total employment, look at Tesla, which integrates some battery production as well as car production: Tesla made 1,850,000 cars in 2023 with 140,000 workers, more or less. In 2023 Toyota made about 10 million cars with about 400,000 employees. Tesla made 13 EV cars per head, Toyota 25 mostly ICE cars. Yes, a lot of the difference is due to lower vertical integration at Toyota, but my broader point is we have no clear data yet that the overall industry would lose employment due to the EV transition. People tend to say "Hey an electric motor has only one moving part!" and conclude that means minimal labor... but hey, silicon chips have NO moving parts and yet chip fabs require lots of expensive labor. Details matter, people!