Once upon a time, the world’s carmakers treated China like it was the biggest ATM on the planet. Put up with a local joint venture, maybe deal with a little IP theft (or a lot) and you get access to the world’s largest, fastest-growing car market right as the net worth of its middle- and upper-income buyers starts to explode. Chinese buyers get their cars, often for the first time, and automakers rake in the profits. Everybody wins.
But 2023 is the year where that little plan is starting to hit the skids—not on one front but two—and the automakers are split on how to deal with it.
Welcome back to this Wednesday edition of The Autopian’s morning roundup. I hope you’re feeling robust after your holiday weekend, and your customary post-holiday adjustment back to the work week. We’re discussing the China situation today, plus Volkswagen’s electric bus (remember that?) and Faraday Future’s car (also, remember that?)
I was off work last week, so you’ll have to help me get my morning news roundup sea legs back. I built a set of stairs on my deck over the holiday. They haven’t killed anyone yet. I’m feeling pretty good about myself. [Editor’s Note: There’s nothing more American than building a deck on Memorial Day. -DT].
Mercedes, Stellantis Differ On European Protection
When I say China’s becoming a problem on two fronts, I mean it almost like I would when describing a war. On one front, we have the fact that—surprise!—China’s homegrown auto brands are getting really good these days, especially with electric vehicles, and buyers there are turning to cars from the mother country instead of ones from Western or other Asian brands. The once-reliable Chinese buyer market is starting to get… a lot less reliable, suddenly.
Automakers are responding to this in different ways. Some are staying the course in China, trying to up their game. Others are trying to be more realistic; Ford is pushing cost cuts and focusing on markets where it has a competitive advantage, like delivery vans. But now it’s not implausible that some brands could exit China entirely.
That’s the first problem. The other problem is that these new Chinese brands are entering the European market themselves, and they’re rapidly gaining steam—often by undercutting their competition as the Japanese and Koreans once did. New brands like BYD are seen as a particular threat to Volkswagen, Mercedes, BMW, Stellantis and the rest on their home turf.
So then the question becomes, how protectionist does the European Union get in response? Mercedes and Stellantis differ on this approach, Bloomberg reports today.
Carlos Tavares, who heads Fiat and Peugeot maker Stellantis NV, warned Tuesday that competition will be fierce given the head start China has jumped out to in building batteries and affordable electric vehicles. During the inauguration of a battery factory in northern France, he reiterated his view that Europe’s political leaders ought to come to the aid of homegrown manufacturers that are struggling to keep pace.
“Whether the European car industry must be protected during the catch-up period, that’s a question that should be asked,” Tavares told reporters. “I think it would be reasonable to do so, at least in a degressive manner, so that we are on a real equal footing, given that the imbalance has been caused by the fact that the European regulation has been set exactly on the strongest skills of our Asian rivals.”
Tavares has said before that he favors stiffer tariffs on Chinese cars, specifically at a similar level to what the Chinese put on European imports.
Now, you may be saying “Let the market sort it out!” But remember, everybody plays this game. There are import tariffs on all sorts of goods, for one, and America has its own version of car market protectionism. There are all the zany regulations around pickup trucks and SUVs, for one, or the fact that we have 27.5% tariffs on Chinese-made cars. That’s a Trump-era policy; Biden’s kept it in place, and it’s probably what’s kept BYD from knocking on General Motors’ door. (They all ought to be sending Melania birthday cards over that policy, frankly.) Or remember how America stuck stiff tariffs on Japanese-made cars in the 1980s? They responded by just building factories here or making brands like Lexus to focus on profit margins. Nature, or capitalism, I guess, finds a way.
Any country’s auto industry is a crucial one for jobs, GDP, technological supremacy and more. They all have vested interests in keeping them healthy and making sure they aren’t decimated by foreign competitors.
Interestingly, Mercedes CEO Ola Källenius doesn’t agree with Tavares here. Maybe it’s because Mercedes is such a German car company, and Stellantis is a weird American-Italian-French-Dutch conglomerate. But Källenius told Bloomberg that, basically, it’d be stupid for Germany to provoke a full-on trade war with China:
In Europe, and especially in Germany, as it relies on exports as part of its successful business model, we should not increase protectionism. On the contrary, we should try to build on free trade. If you look at what we have done in China over the last 20 years, we’ve significantly built up our position there and took advantage of a growing market.
We also believe in investing there in the future and taking advantage of growth to come. So it’s not surprising that Chinese car companies try to make their luck on the world markets, as well. I think it’s important to carefully protect the market economy and free trade, and not to overreact.
Källenius also notes, rightly, that Europe is seeing much more intense competition in the affordable “volume segment” from these new players, i.e. cheaper cars. And he says he has no intention of getting Mercedes to compete with them there. It’s not his problem. It is, however, Stellantis’ problem (Opel, Fiat and so on) so maybe that helps explain this difference of opinion here.
The point is, car companies hinged a lot of hopes and profits on China. Now the game is changing there and on their home fronts. And it has the potential to upend a lot of how the global car business works.
Elon Musk Is On China’s Good Side, For Now
Meanwhile, if you’re Elon Musk, you get “flattery and feasts” when you come back to China, as Reuters puts it. Musk was there for the first time in three years—blame the country’s COVID restrictions—and he was there to make nice with government ministers and battery supplier giant CATL. Evidently, Musk is still super popular in that country, as is Tesla, despite its own waning EV market share there and a few pricing missteps that led to actual protests this year. From this Reuters story:
He’s “a pioneer”, “Brother Ma” and some want him to be U.S. president. Billionaire Elon Musk has been showered with praise by the Chinese public during his trip to the country while also securing audiences with three government ministers.
While little is known of those conversations – the industry ministry only said Musk and its head exchanged views about the development of electric vehicles and connected cars while the commerce ministry announced he discussed Tesla’s development in China with its head – that hasn’t stopped an outpouring of enthusiasm for Musk on Chinese social media.
“He’s a global idol,” commented one user. “Elon Musk is just great, if only China could have someone like Elon Musk,” said another.
[…] But compared to lower-key welcomes for his counterparts, Musk’s visit is a hot trending topic and his popularity comes despite rising U.S.-China tensions, with keen interest shown in his comments on artificial intelligence and electric vehicles.
Even the menu for the 16-course meal at the upmarket Man Fu Yan restaurant he shared with CATL’s Zeng on Tuesday evening was effusive, photos posted on social media showed.
Aside from the social media fawning, it’s not clear what Musk wanted to talk about, though he has been seeking government approval of his troubled Full Self-Driving technology for China. (Folks, you may be better off without it.)
But one thing is clear to me: Tesla’s a little more vulnerable to the winds changing in China than other automakers. Establishing Giga Shanghai and getting it running smoothly is how Tesla really became a consistently financially stable company and that only happened in the last couple of years; it’s a huge part of how the Model Y became the world’s best-selling car recently. Tesla is also one of the few—maybe only, I’m not entirely sure—automakers that never had a local Chinese joint venture partner.
Basically, Musk has every incentive to keep his relationship with China strong and positive. Scaling back there, or advocating for tougher tariffs, isn’t an option for Tesla.
Remember This?
The American-spec 2025 Volkswagen ID.Buzz will finally be “revealed” later this week. I use that in quotes because, dear God, this thing has been around forever and somehow still isn’t on sale yet. I mean, the concept dropped way back in January 2017—approximately 500 human years ago—and after years of ongoing reveals Jason drove the Euro-spec version last fall. The rollout for this thing has been interminable. Are we sure it’s not a joint venture with Tesla?
Anyway, all I’d ask of Volkswagen is some actual news at this point. We know the specs. We know what the damn thing looks like. How much will it cost here? I wouldn’t be shocked if VW did the “pricing available closer to launch” thing that every automaker does, but come on; how much longer do we need to wait? It goes on sale in 2024, or so VW says.
Expect more on this soon; Jason will be there to drive it. One day, his grandchildren may even be able to buy one at an American dealer.
Say It With Me Now: LOL
Yes, it’s crazy to mention Volkswagen and Faraday Future in the same beat. But speaking of delays, all of you who were begging for the FF 91 can finally get one now. The limited edition FF 91 2.0 Futurist Alliance model launched this week.
Its price tag, according to Reuters? Just $309,000.
The startup also launched the regular FF 91 2.0 Futurist model and added that it was available for preorder, without revealing price details.
In addition, it launched a subscription-based mobile ecosystem product called “FF aiHypercar+”, which will offer integrated software, internet, and personalized AI algorithm services among others, the company added.
Did you actually buy a Faraday Future car? Get at us, we want to talk to you. I’m serious. No judgment here, I’m genuinely curious. Just be warned that if you’re in a position to spend north of $300,000 on this thing, lunch is probably going to be on you.
The Jeep-King Of The Design World Retires
Just so you’re aware, this part of the news roundup is being written by David Tracy, not Patrick. I’m just here to mention that Mark Allen, a genuine Jeep guy and car-nut, has decided to retire from Stellantis, which — as a former employee — I will always refer to as “Chrysler.” Mark is an incredibly talented, and just genuinely cool guy who gets Jeep like few others do. He’s been responsible for the awesome Easter Jeep Safari vehicles that show up each year. I’ve had a great time hanging out with him on the off-road trails of Moab and at events like the Toledo Jeep Fest. Honestly, I’ll miss him. -DT
Your Turn
Protectionism! Who is it good for? Does it even work? Are countries, or the EU, right to protect their local auto industries?
Focusing purely on IP thefts (which does happen a lot in China) ignores the fact that the design teams in China are now filled with people poached from established western and Japanese automakers. It’s like saying Lucid stole everything from Tesla.
I remember Allen as my freshman studio instructor at CCS!
WOW that’s cool
I kind of wondered if cutting and running from every single market except North America and China was really going to work out for GM long-term, the whole point of the company’s structure was supposed to be to not have all their eggs in one basket. I mean, Stellantis isn’t run by magical wizards, if they could turn around Opel/Vauxhall, GM could have also had the desire been there, and if Chery and Great Wall can be profitable in Australia with entirely imported product lines, why couldn’t Holden?
GM wasn’t and still isn’t making vehicles in volume that most Australians want and can afford to drive. Anything that we might be interested in is typically made in North America and in RHD. Which is why GM are paying for local RHD conversion of high spec Silverado and Camaro. They are quite happy with their volume too.
Ford is about to start doing the same with the F150.
Patrick’s asks a question about China’s automotive market and all of us turn into armchair economists.
From purely an economic point of view, most would say that free trade is best, because the best “product”will actually win in the end. If tariffs, subsidies or other interventions are merely propping up an absolutely inferior product comparable to another, then ultimately the policies will fail.
Will China develop a vastly superior electric vehicle in our lifetimes? Maybe or maybe not. If US can still make vastly superior products relative to China, then it will win.
The problem is that this is all wrapped heavily in with “politics”. China has vastly different political agenda than the US or Europe. So the answer to Patrick’s question depends on your political view. How do YOU view China?
Once protectionism starts (really continues because already are doing it) then the US economy will have winners and losers like any economic policy. To answer what is “right“ is not an economic decision, but a moral and political one.
Europe having no tariffs on chinese-made cars, while China having tariffs on EU-made cars = “free trade”
LOL
I said, trade war, huh (good God, y’all)
What is it good for?
Absolutely nothing, just say it again
Trade war (whoa), huh (oh Lord)
What is it good for?
Absolutely nothing, listen to me
I used to be against protectionism. Honestly though, China doesn’t play fair. Why should we? They already make enough of our crap. Western and other Asian brands weren’t allowed to set up shop there without entering into an unfavorable joint venture (except for Tesla, for some reason). China makes it difficult to import and sell cars that aren’t manufactured there.
Although I’m generally in favor of free trade, I think that an argument can be made that keeping strategic industries, a skilled manufacturing workforce and active manufacturing capacity is in our national interest, both economically and from a logistics/preparedness perspective. Being able to buy cheap crap is a laudable goal, but how helpful is that when millions of well-paying jobs have been destroyed and inequality is at record highs? Most European and Asian countries have an industrial policy; it’s high time we looked out for ourselves. The tariffs on Chinese cars are one of the few things Trump did that I’m fine with. Couldn’t care less if they never come to the U.S. market.
Trade reciprocity has always seemed like a good idea. If China slaps a 27% tariff on EU imports, well then the EU should slap the same tariff right back on China imports. If China requires a locally owned venture partner in foreign investments, then Chinese companies should have to play by the same rules in the US, EU, UK, and whomever else wants to play.
There is no fundamental right to cheap consumer goods manufactured in countries with lax labor and environmental laws. Ironically one of the best things possible for the environment would be if the world started a trade war with China and started manufacturing their own goods at their own comparatively higher environmental standards.
1000% this. Not a funny comment, but COTD.
The difference here that favors protectionism is there is no such thing as a private company in China. Every company is a de facto arm of the state and should be treated as such. Europe needs to get with the program and slap massive tariffs on these Chinese cars. The free market approach only works when you’re dealing with countries that share your values. China most certainly does not.
I’ve said it before…
Communism does not care about your Capitalist profit margins. They will undercut until we fold. They…. don’t…. care.
China is exactly like the Republican party and abortion… they are in it for the long game, and they won’t stop until they get what they want. No one, absolutely no one, will drop a nuke ever again. The new method of war is via business and economics.
China got to where its at by cheating. Sure- Western executives are to partially blame as well. But cheat they did and as such, it would be prudent for the US and others to ban the sale of their cars here.
Technically it’s not cheating if you make up your own rules.
China and it’s automakers can take a aerial fornication.
Block sales in US market…
I think free trade agreements should only exist between countries with comparable average incomes/cost of living, and tariffs between countries without comparable average incomes/cost of living.
Like NAFTA was good with Canada, bad with Mexico, as after that all the auto makers moved their plants to Mexico. Now EV batteries made in Mexico will count for the tax credit so of course they’re looking to build battery plants in Mexico.
With a capitalistic society, the cheapest solution wins, if it’s cheaper to build cars in Mexico or China or Vietnam, and there’s zero import penalty, manufacturers would be stupid not to do that.
Adding tariffs to offset the difference in income is just good foreign and domestic policy. And once a country’s cost of living approaches ours and it costs them about the same to build something, we can reduce the tariffs.
This not only benefits domestic manufacturers, it keeps lower income countries from being exploited for their lower wages and decreased regulations.
Unfortunately greedy politicians gonna greed, and if Johnny Ford says he needs to build cars in Mexico to break even, well I guess that’s what we need to do, for America.
You may be discounting the facts that China’s Government minions have their tentacles in every industry & financially back the those big industries.
…and comparable environmental protection/labour rights/human rights laws.
Trade is complicated. We obviously buy stuff from other countries and they buy our stuff. Being self contained isn’t good since there’s only so much to go around in a country. The USSR tried that and couldn’t make it work. The US tried it early in its history and couldn’t make it work. Protectionism is okay if a country risks an entire industry disappearing. At least prevent that industry from withering entirely if it makes sense to do so. Whether it does or not is beyond my ken.
Oh, the VW Bus is something I want. A larger vehicle would be great. But I’m not willing to give up a 40 mpg car for a 20 mpg van/crossover. Even if the efficiency is horrendous for an EV since it’s a brick, charging it on nuclear or hydro power is definitely way less carbon intensive than anything else that size.
American Industry gave away our goods to offshore manufacturing interests years ago.
We basically screwed ourselves, while the Stock Market profited.
When we go to Military Combat war with China in the near future, we’ll be truly f#cked due to some of our materiel coming from the Red Menace.
Who cares about global trade? Let’s pull all our friends together EU, the free countries in Asia, Africa and South America. Ice out the communist and crooks and and divvy up that pie. What was reliant on China goes to the poor free countries and they grow. Who are they going to make money from selling crap, Russia? A post oil world can look different than one that relies on it.
Absolutely everybody should have seen the China situation coming. They’re a manufacturing superpower with a penchant for undercutting the competition, and the conditions for selling cars in their country made it basically impossible not to simultaneously teach local corporations how to design and build automobiles. This has been China’s obvious strategy from the beginning, and if Western automakers are somehow managing to get blindsided by it just now, that is frankly their own damn fault.
I would like to see the Chinese companies have to do what Japan and Korea did, which is build plants in Europe and possibly the US and use local labor under the relative locations wage and Environmental regulations to be able to sell in that area. Just seems fair.
Many of them figured this out in the 1980s (I recommend reading 1000 Days in Shanghai: The Volkswagen Story – The First Chinese-German Car Factory by Martin Posth). It’s not like it was ever a secret. Don’t get on the tiger if you’re not sure you want to go where it is taking you.
The important thing with the teaching is that China actually learns from it.
Toyota taught GM everything at NUMMI, yet GM learned absolutely NOTHING
While it wasn’t electrified at all, the Microbus concept dates back to 2001. Any longer for the retro van look and it was going to start entering levels of like, “mid-engined Corvette” rumor territory.
Protectionism is tricky. You want to protect local jobs while simultaneously engaging in global trade. You don’t want your market flooded with cheap imports, but you don’t want your companies cut off from lucrative export markets. China is particularly difficult because they are involved in everything. Very few countries want to risk a trade war that could hurt their companies’ supply chains (and competitiveness in emerging markets), but they also don’t want to allow Chinese products to take over.
This is further exacerbated by the ability of companies to move the majority of their operations elsewhere if they need to. You don’t want to protect jobs only to have the whole company head elsewhere, so you have to strike a balance.
I’m glad I’m not in the position to walk that tightrope. Even if you do make all the right decisions, you can get blamed if something goes wrong due to unrelated circumstances.
When the country competing is a communist dictatorship with near slave labor conditions and civil rights violations in spades, it seems like protectionism makes sense. too many sheeple look past this situations and just buy the cheapest thing they can find.
Remember when Apple got fined in China for their abysmal working conditions?