I was in South Texas last month visiting my family and one thing I noticed, besides the ever-increasing quality of HEB grocery stores, was the preponderance of Chinese cars. Having grown up so close to the border with Mexico, I was used to seeing SEATs and fun Volkswagens we didn’t get in America, but I’d never seen a Changan. Let alone a bunch of them.
Mexico is highly dependent on the United States and Canada for its economy and it makes sense that the government there has been supportive of investment from China as it tries to diversify its trade partners. At the same time, China clearly wants to use Mexico as a way to gain a foothold in North America. Well, sometimes you gotta dance with those who bring ya, and Mexico seems to have chosen Team America.
This move will have a big impact on the affordability of electric cars in America, which is becoming an issue as an oversupply of expensive electric cars is causing a price crash.
It’s a recall-heavy week here at The Morning Dump and it sounds like Honda will be the next player, thanks to an issue with emergency braking.
And, finally, semiconductors! Everyone loves talking about semiconductors!
Mexico: Friendship With China Ended, America Is My Friend Again
I’ve written a lot about the fear that some in the West have about Chinese automakers expanding in Mexico. Industry groups and analysts have gone so far as to say that cheap Chinese cars could ‘demolish’ the U.S. car industry and are warning of an existential threat from Mexican-built Chinese cars.
In spite of these fears, Mexican economic development officers have been reportedly taking meetings with companies like BYD to introduce Chinese production to Mexico. This has been seen as a potential Trojan Horse situation as cars built in Mexico don’t necessarily face the same tariffs as cars built abroad.
While business from China could be a boon for Mexico’s car industry, the Mexican government has been persuaded to give these automakers the cold shoulder according to a report from Reuters this morning:
Mexico’s federal government, under pressure from the U.S., is keeping Chinese automakers at arm’s length by refusing to offer such incentives as low-cost public land or tax cuts for investment in EV production, three Mexican officials familiar with the matter said.
This is a big deal as basically no new car plants get built anywhere without massive government subsidies. The fact that Mexico feels like it’s necessary to make it clear it will not give the usual incentives to Chinese automakers shows how well the pressure and rhetoric around Chinese cars is working.
Also from the report:
The sources attributed the move to U.S. government pressure, specifically from the Office of the United States Trade Representative (USTR), to keep Chinese automakers out of the free trade zone established under the North American Free Trade Agreement.
A USTR official’s response to Reuters did not address the reported pressure, but the official said the United States-Mexico-Canada Agreement (USMCA) was not meant to “provide a back door to China and others who may be seeking to access our market without paying … tariffs.”
The USMCA is the key here. NAFTA had its own shortcomings which, in theory, were going to be corrected by the USMCA. But the USMCA created the possibility of a back door into the United States for cheap Chinese cars.
We’re just about two years away from the USMCA getting a 16-year extension and all parties have to agree to it. This trade pact is extremely important for Mexico so if the choice is between a new BYD plant or Canada/Washington screwing with it, well… it’s not that hard of a choice.
This isn’t to say that BYD and others might not eventually make it into Mexico and, certainly, companies can build without subsidies, but between the EU and this, China is learning a tough lesson about market access.
The Average EV Discount In Q1 Was $6,000 Before Incentives
There was a growing realization last year that electric cars were too damn expensive, at least the ones not made in China were. Inevitably, this means that new electric cars are being massively marked down in the United States.
This is true for more affordable EVs like the Tesla Model Y and many of the more expensive ones (not like that a Model Y is cheap).
From Cox Automotive via Automotive News:
“Incentives are a sign of weakness. It’s a product that doesn’t go,” said Howard Drake, dealer principal of Casa Automotive Group, which sells Buick, Cadillac, GMC and Subaru vehicles in Sherman Oaks, Calif. Many EV incentives are a reaction to price cutting by Tesla, he said.
“Whether it’s a retailer, whether it’s a manufacturer — all of us in this EV space are going to do a whole bunch of stuff we don’t want to do, mainly as a reaction to Tesla,” Drake said.
Yikes!
Honda Under Investigation For Emergency Braking System Just Braking For No Reason
While I have my concerns about self-driving, features like emergency braking systems and pedestrian detection are currently the best-case scenario. Our conception of driving assists is that they should drive for us, whereas the better goal would probably be to make it impossible for us to crash a car.
But, uh, what if the emergency braking is causing the crash?
There’s a NHTSA investigation into Honda’s forward collision avoidance system and it doesn’t sound great:
On February 21, 2022, the Office of Defects Investigation (ODI) opened Preliminary Evaluation (PE22003) to assess reports of inadvertent activation of the Collision Mitigation Braking System (CMBS), an automatic emergency braking (AEB) system, in model year 2017-2019 Honda CR-V and 2018-2019 Honda Accord vehicles. The reports allege that activation of the AEB system occurs while driving with no apparent obstruction in the vehicle’s forward path, resulting in sudden vehicle deceleration.
Honda indicated that they were aware of a total of 1,991 reports that may relate to the alleged defect. Honda provided analysis of the alleged defect and alleges that some customers possibly had an inadequate understanding of the CMBS and its limitations. However, many consumer complaints allege that Honda dealerships were unable to reproduce the condition or state that they were informed that this is considered normal CMBS operation.
It’s possible this is just a human misunderstanding, but if there’s an actual issue with the cars then this could result in a big recall.
We Survived the Taiwan Earthquake, But Still Need Taiwan For Chips
Semiconductors are in everything and they aren’t easy to make. In fact, one company, Taiwan Semiconductor Manufacturing Co (TSMC), accounts for more than half of the global market share (by revenue) of chips.
There’s no truly safe place to make anything, as there are few places on the globe not prone to some sort of weather disaster or earthquake and, as we were reminded recently, Taiwan is not in the most stable location (for both geopolitical and seismic reasons). When the chips go away, the cars go away, as we learned during the pandemic.
I mention this because S&P Global has an analysis saying that, yes, the recent earthquake in Taiwan didn’t cause any major disruptions, but that doesn’t mean the car market still isn’t at risk:
The recent earthquake further highlights the electronics industry’s vulnerability to regionally concentrated parts of the semiconductor supply chain. In recent years, chipmakers and governments, including the US government, have announced substantial investments aimed at diversifying chip production.
However, the reliance on Taiwan will not diminish anytime soon.
Despite TSMC’s plans to establish new semiconductor fabs in Japan, Germany, and the United States in recent years, the realization of these plans has encountered delays. Particularly, the anticipated second factory in Arizona, initially slated for operation this year following its announcement in 2022, has faced repeated setbacks. TSMC’s chips are integral to tech giants like Apple, Qualcomm, Nvidia and AMD, underpinning crucial sectors such as AI where chip supply is already strained.While the sector has escaped repercussions this time thanks to well-established disaster recovery and risk mitigation the quake served as a timely reminder of the fragility of semiconductor supply.
Amusingly, this is all circular. I started TMD with a story about how China wanted to use America’s southern neighbor to sneak in cars. Now we’re finishing it with a story about America needing Taiwan, China’s southern neighbor, to make its own cars.
What I’m Listening To While Writing TMD
I’m always impressed by people who can sing and play an instrument that isn’t the guitar or piano or whatever. Like, it’s cool that Sting can play both the mandolin and the pan flute. Sudan Archives has a great jam above and it’s made just a little better by the fact that she can shred on the violin. Also, this album has probably the best song about a Chevy S-10 on it.
The Big Question
Will Mexico just push ahead anyway and build plants? Should they?
“…the United States-Mexico-Canada Agreement (USMCA) was not meant to “provide a back door to China and others who may be seeking to access our market without paying … tariffs.”
They may not need Mexico to get into the US. The US has tariff-free agreements with Australia, South Korea and South Africa, so there wouldn’t be a problem. This is why Geely bought the Renault-Samsung auto plant in Busan, South Korea last year.
Also, in the case of BYD, all they need to do is to expand their Southern California manufacturing facility. Who will follow suit? I suspect Great Wall and their series of pickups and SUVs.
I’ve had that auto braking thing happen to me out of nowhere at freeway speed on an empty highway for no reason in a new car — not a Honda, by the way. I don’t want to say the brand because companies sue for that now. The vehicle slammed on the brakes and beeped at me, slowing from 75 to 40 in the blink of an eye. Then all was fine. No evidence of the thing happening except for my elevated heart rate. I still don’t know what happened. Since then I turn off automatic driving doodads off if possible, meaning auto braking and steering correction.
Given the financial tomfoolery that has been doing quite the number on American industry, how long until China wins this soft war?
2022
So what does this mean for “western” automakers like Volvo? They are a subsidiary of a Chinese company, and are currently selling two models of EV that are built in China. Are they just sucking it up and paying the tariff?
Volvo is avoiding paying the tariff by exporting a twice as expensive gas car built in the US to China. This also gets to avoid China tariffs on US built cars. They are technically reallocating inventory internally within the company under WTO rules.
I want to stress to my fellow readers that this isn’t because automakers can’t afford to build a factory without subsidies–it’s because they’ve so refined their pitch that there’s always someone wanting to throw money at them even if one government declines. The top reasons across all industries for site selection remain access to a qualified workforce and proximity to appropriate infrastructure (e.g., railway spurs, pipelines, cooling water). Financial incentives are well down the list, although corporate executives like to claim they’re critical so they can justify asking for more of them.
Whether it’s a car factory, an Amazon distribution center, or an NFL stadium, big businesses want your money as subsidies but almost never need it to make the deal pencil out.
It seems like companies are paying fewer taxes than ever, and reaping the largest benefits of taxes. Meanwhile, Joe Public is lucky to get the pothole filled in front of their house.
Public incentives are myriad. A good public education system. In some regions, public healthcare. Safety, etc. It actually seems that land and tax breaks are often the last resort incentives when those first ones don’t exist.
Never mind the best song, I want know what’s the worst song about an S-10.
Honda’s not the only one with the AEB problems (excluding other car makers’ vehicles that have been recalled for similar, like Tesla) going by my own experiences driving cars with this (a big reason I bought the GR86 is its lack of this dumb garbage), behavior I see on the road that seems suspiciously more likely to be the car than the driver, and people I know complaining about the bad tech. Of course the dealers can’t reproduce it since it’s not like these systems do it all the time. It doesn’t have to, though, for it to be dangerous.
Every car with AEB I have driven has had some level of phantom braking. It didn’t matter if it was radar or vision based. The trick was just to learn the conditions that trigger it and cover the accelerator. I had the Subaru and Jeep systems very well figured out. I almost have Tesla figured out, but every update tweaks it.
I think the Tesla recall helped as I had noticed it happening with them a lot. First one, I thought the guy was some weirdo brake-checking me even though I was well back and could brake gently to not hit him. After it happened with him again on the same road before he turned and encountering a few more Teslas doing the same (mostly in the same area of winding, tree-lined road with no sidewalks or shoulder, so I wonder if it was something about that kind of road that really aggravated the problem), I realized it must be the AEB or something similar freaking out over nothing. After the recall, I haven’t seen it happening. Doesn’t mean they never do it and this is anecdotal, but if I was seeing several of them in a relatively short time and it’s not like I stopped seeing Teslas or driving those roads, I imagine the problem must have been much worse.
I know on Teslas you can turn it off… which basically solves the problem. Not sure if that’s the case in all others.
It varies by manufacturer. I think the Corolla loaner I had would let you turn off most of the nannies, but not that particular one, only allowing adjustment of the sensitivity. Even at the weakest setting, it would still activate when someone was changing lanes or turning ahead.
How will Chinese manufacturers survive without Mexican subsidies? It’s not like the Chinese government gives them any…
At the very least, it’ll help Mexico compete with Brazil on the Central/South American auto manufacturing front. I can’t see why it wouldn’t benefit Mexico to have more factory jobs boosting their economy. Nearly all car factories are from companies foreign to Mexico anyways, is there really a difference if they’re from the U.S., Japan Germany or China?
If Mexico is smart, they’ll cold shoulder Chinese automakers until the USMCA is signed, and then give them the smallest subsidies that will still get the factories built.
hello mr Ballon, we are making the best of both and he worst 2, because we have a lot of Tier 1, and tier 2 chain factories for us factories but with a 3rd world pay. For OEM factories Chinese are the wrst because those are focused just in assambly, with mostly automated production and almost finsihed cars coming from china, this does not provide economic growth neiher side industry benefist.
Building a Chinese brand factory in Mexico is not enough to meet USMCA’s requirements. They still need to meet 75% of the vehicle’s contents in North America and that would likely destroy the tightly integrated and cost effective supply chain advantage from China.
If they need to setup suppliers in Mexico, China or Canada, their value proposition will likely evaporate by the time the 1st vehicle leaves the factory.
They can try breaking into the US/Canada market if they want, but the factory will at the very least be able to sell cars to the Central/South American market. This contingency means that their investment is still pretty safe even if they fail/choose not to meet the US’s trade requirements (like North American supply chains).
Correct. I see lots of speculation and uninformed opinions thinking setting up shop in Mexico would mean easy access to the US, but that’s not exactly true. Yes, they can sell to other markets without meeting a higher content of North American parts and still save on logistics by shipping raw materials for much cheaper than whole vehicles.
Honestly if they want to sell in the US they’d likely do better by slapping the tariffs to their vehicles and ship directly from China
I haven’t seen that “friendship ended” meme in *years* – thanks for making me laugh.
in my 2018 Odyssey, I will occasionally get the big BRAKE!!! message on empty roads when there is a perfectly angled and dark shadow across the road. Luckily it has never activated the brakes themselves, but I wonder if that detection issue lines up with issues in the report
I was going to say the same thing about my ’22 Pilot, which I assume probably has the same hardware. It’s very nervous and likes to tell me I’m going to die, but has never pulled the trigger and hit the brakes. My ’24 Civic is positively chill in comparison.
I came down to right the same thing about my Odyssey. It drive me bonkers, but my wife and kids have gotten so used to it that it renders the system worthless for its intended purpose.
I did not expect to be reminded of the great friendship debacle this morning but I am so thankful that I was. I still say I’m not proudy to my friends. My favorite part of that whole thing was they all became friends again. I was so invested in that dumb shit back in the Gawker days.
https://www.buzzfeednews.com/article/stephaniemcneal/the-guy-who-broke-up-with-his-bff-on-facebook-says-they-have#.cxe03GAMy
Fun story! The reason why Gawker wrote that post is that my buddy Dan sent it to me, so I sent it to Ashley.
Nice! I’d like to thank all of you for making that post happen. But most importantly I’d like to thank Mudasir for being too proudy.
The EV market is interesting right now. The most all around useful (usable range, charging everywhere, decent storage and can pull a small trailer) EV’s are made by a company led by a madman enabled by fellow madmen. Meanwhile everyone else offers less useful vehicles at higher prices. In the middle of an affordability crisis. New, cheaper vehicles cannot arrive soon enough, yet the investments into those vehicles are being pulled because sales of high priced crappy vehicles are slowing. What an interesting time.
This is one spot I have to give GM credit. The Equinox EV offers up to 319 miles of range and will supposedly be about 35k for the 1LT (whenever it releases). Looks like the current lowest price is just over 43k, which is competitive with the madman, though not a clear victor.
I’m hoping the revived Bolt comes in at a truly affordable price.
They’re also going to push out some hybrids, but they seem to still want to be in EVs, which is nice.
I think the word “supposedly” is doing a lot of work here. Otherwise, I agree.
I was in Cozumel last week and was surprised how many BYD electric cars I saw at the airport in the taxi fleet
The business anarchist in me is a little saddened by this development but it sounds like it’s all about timing. Once the USMCA is renewed for the long haul, I could see Mexico working with China again. Also based on your previous articles, cars are ridiculously overpriced in Mexico. Chinese automakers getting plants in Mexico could:
A) give people affordable vehicles, which I’m always for, and…
B) force American automakers to seriously improve their products and go beyond decisions like Ford’s, where it takes $25,315 (after delivery) to buy their most “affordable” new vehicle.
We have literal decades of data that shows that deregulation or “freeing” of the market has lead to the export of sectors to cheaper bases, rather than improvement of these industries. There’s no point to opening up your market to hemorrhage IP via laissez faire policies when other countries are content with centralized subsidization of the same industries
This doesn’t even touch the inherent nature of unrestricted capitalism to become a race to the bottom for short term costs, which naturally leads to offshoring to cheaper economies. For which there will always be options due to the boom-bust cycle of “developing” countries accessing mostly more expensive and restrictive loans. E.G. if not China, then India. If not India, then Malaysia. If not Malaysia, then Vietnam, etc
I figure the actual mountain of evidence seen in the American industrial base over the last 40 years should be enough, however
If the switch to electric is truly the solution for going green, it’s hard to argue there’s a better value city car (or more important) than the BYD Seagull, with a range of 114 miles and an MSRP of under $10k. Even if you account for another $4k for the USA safety standards and other requirements, nothing comes close.
I guess it comes down to whether the environment or the economy is more important and if the federal government will ever step in to subsidize what needs to happen for both.
I wouldn’t expect any Chinese brand car to cost nearly the same if it ever comes to the US. Not even if they build a factory in Mexico. Other than the safety standards you mentioned there’s this thing about needing 75% of North American made parts to meet USMCA.
Of course China could develop suppliers in North America to meet that 75% but you’ll end up noticing it on the price tag
Not sure why Ford (or American automakers in general) are singled out here.
The cheapest VW is $22,660.
The cheapest Hyundai is $22,775.
The cheapest Toyota is $23,145.
The cheapest Subaru is $24,115.
The cheapest Honda is $25,045.
I don’t see a great deal of difference between those numbers, maybe you do.
Hell, Chevy will sell you a Trax for $21,495.
It was mostly because the Americans have the most expensive entry-level option. If you’re on minimal income, the $1,700 difference between VW and Ford is notable. However, I do have to tip my cap to Chevrolet (something I rarely do). The 2024 Trax starts at $21,495 after delivery and it’s a significant redesign to what used to be a penalty box. If my SO didn’t have a strong preference for AWD, it’d be my recommendation to replace her aging and rusting Honda Fit.
The new Trax looks amazing compared to most of what is out there, if I’m being honest. I was shocked at how nice an option it suddenly became, and convinced myself it will be the best selling vehicle in the US in short order. Just give it time.
It might be the name that’s holding it back. If I hear the name Trax, I think shitbox. Maybe if they had relaunched it using the legacy “Nomad” nameplate, and did some slightly sports CUV commercials, Americans wouldn’t be able to get enough.
Trax is at least 1/2 step above the Nissan Kicks. I would expect anyone driving a Kicks to have a spinny propeller hat.
Very good point. Psychological impact is so significant. A new name would have helped with that. At this point, who cares about the “trax legacy”.
If they just added an extra x to the name… Traxx sounds like an Autobot whereas Trax sounds like a cheap Matchbox knockoff name
Well, apparently Tracks is an Autobot, but a total narcissist.
Tracker would’ve been better. But maybe Chevy didn’t want people mix that name with another B segment CUV they sell overseas
In short order they’re everywhere in Tampa bay.
Mexico’s economy is based entirely upon America’s, so yeah I don’t see them being friendly with tax breaks to Chinese companies.
They have definitely gotten nicer over the years. I’m now a sucker for their store-brand stuffs.
As a (relatively) recent transplant to Texas, I can say that HEB is a revelation. Not only is the store amazing and prices good, but their HEB brand stuff has proven in my experience not only just as good as the name brand stuff, but often better – and still significantly less expensive. HEB oatmeal tastes better than Quaker, diet Dr. Pepper tastes worse than the HEB version, but costs 40% (!!!) more. Maybe The Brands should crack open an economics text book and reconsider if their brand recognition can really justify that level of margin…
Hmm…..HEB vs Wegmans. We need a Texan snowbird to tell us.
Never been to a HEB, but Wegmans is not exactly cheap.
Market Basket in New England is absolutely phenomenal
even if they do all have that sour milk smell
I have shopped regularly at both and HEB blows Wegmans out of the water. Wegmans is a nice grocery store, HEB is paradise with a frozen section.
As a former Texan and former northerner, Matt is correct. Wegmans isn’t bad, but HEB is on another level entirely.
I do still recount the story of visiting a Wegmans that had carpet instead of vinyl flooring and finding it both surreal and bizarre.
Agreed, and this is from someone who just came from a business lunch at Wegmans. I am not sure about all the love Wegmans gets – yes their prepared foods section is good (if expensive), and they have some decent produce, but on the whole I do not go out of my way to shop there – the produce & meats are better at Whole Foods (and often the same price).
HEB>>>>>>Wegmans
Add Winco to the mix.
Their meals and fresh squeezed juices and even the pizzas made fresh in the store (or nearby facility) also can’t be beat.
I have worked at one of the big food and beverage manufacturers in the U.S. The store brands are a constant source of consternation to them.
They see the stores as their customers in most respects so they have to work with them. It’s not as if we’re all going to buy our groceries direct from the manufacturers so they have to do it. But they then find themselves having to bargain with that customer on prices and shelf space while also competing with them for buyers.
Remember, the store can sell at a much lower price and make profit. In your example, Dr Pepper has to sell to the store first and then leave room in the price for the store to make profit from the consumer. There is extra cost built into that system.
However, my experience working there also taught me that they are so very overpriced. They are currently taking huge price increases because they can, using scarcity and increased supply chain costs as an excuse. Luckily the grocers and shoppers are starting to push back on that tactic.
Except for just not buying that category of product ever again, switching to store brand is really the only opportunity shoppers have to push back. And if the store brand turns out to be delightfully good, as in the case of HEB, it is basically a guaranteed one-way trip – the national brand won’t ever get them back. Seems like a situation they should be extremely cautious to avoid.
In the specific example cited, a soda drinker is going to be much more loyal than a lot of other product categories. I doubt any usual Dr Pepper drinker will switch to a store brand but a root beer drinker is more likely. Not to mention things like orange juice and bottled water etc. Nobody is switching their Diet Coke to Diet Big K Cola for example though. The soda companies know this and have good data on it.
But you’re right in general. We all have our specific focus and companies really try to hook you with loyalty programs and other promotions. But there are a lot of products where the store brand is just as good or at least “good enough.” That was the crux of the study I read. People are doing exactly what you describe in hopes that sends a message.
Just have to keep it up for a while because the leaders at these companies will be watching to see if it’s just a blip or if it’s a trend that sticks. They really do fear the latter.
As a now Yankee, who was born in San Antonio but raised in Michigan, how does HEB compare to Publix? That store always seems solid when I visit my friends in Florida. It’s definitely a step up from Meijer or Kroger.
Publix is a good chain – my parents in South Carolina shop at Publix as their store of choice. But if I had the choice between Publix and HEB, it’s HEB all the way.
I kind of thought avoiding tariffs was one of the points of the USMCA? It allows American automakers to build cars in Canada and Mexico and sell them in the US, German automakers to build in Mexico and ship to the US, and Franco-Dutch-Italian automakers to build in Mexico and Canada and sell in the US, while also allowing Japanese, South Korean, German, Franco-Dutch-Italian and Chinese automakers to build in the US and sell in Canada and Mexico.
I mean, is Mexico mad about Geely building EVs in the United States and selling them there, tariff-free? Because they’re doing that right now already
One other point about manufacturing in Mexico is that Mexico has free trade agreements with like 50 countries, so not only is it a good place to ship to the U.S., it is a good place to ship to much of the rest of the world. Now if only they could get better rule of law, so when the manager finds employees skimming materials out of the factory they do not get death threats – which is a second-hand story I have heard happen within the last three years.
Well, the thing is Geely can build EVs in the US because they’re not exactly cheap to begin with. And they are still R&D in Sweden.
Legacy Chinese automakers have a vertically integrated supply chain to provide low cost vehicles. Building a plant in Mexico won’t circumvent USMCA if they don’t produce at least 75% of their contents in North America. So the savings won’t be as big as many people this side of the pond are dreaming of
The TPP could’ve solved this problem…
I believe two things:
If BYD or whoever else wants to build without the usual subsidies, I can’t see Mexico complaining. That’s a lot of tax revenue and jobs, and they can certainly point out that they’ve done a reasonable job of making it more expensive for those companies to come in. If Ford, GM, or whoever else that built down there with subsidies complains, the easy thing to do is to point to the competitive advantage they’ve been granted.
They could potentially go a little further and require the jobs be union. SINTTIA would be very happy to work with them, I’m sure, and it would put their workers on the same level as GM’s.
Would China play ball at that point? I don’t know, but it would seem like Mexico had done its part to give US automakers an advantage.
Mexico should be as leery of partnering with China as we are. Such partnerships rarely end well for anyone besides the CCP.