No One Wants To Make Cars Anymore

Yesterday’s Morning Dump was all about Europe’s car industry and how screwed it might be and the possibility of it unscrewing itself. At the core of the “Europe is screwed” argument is the idea that no one wants to be a carmaker anymore after a century of carmaking being the thing that proves you’re an advanced economy. No one is impressed by carmaking anymore.

So, today, let’s talk about what it means to be a carmaker in the 21st century and why that’s maybe not what you want to be. First, we’ll go back to Europe, where the former head of Europe’s Central Bank put out a big report on Europe’s burgeoning industrial crisis that argues that the continent needs to innovate more (in all areas, not just carmaking. Hell, you gotta come to America for croissant innovation).

What could you possibly do if you don’t make “cars” in the normal sense? You could make software! Automakers were huge on the idea of getting into the SaaS (Software-as-a-Service) game, but that hasn’t panned out as initially hoped.

When I say “no one” wants to make cars I’m being a little hyperbolic. There’s one country that wants to make cars and, in fact, needs to make cars: China. Don’t worry, China is here to help.

And, finally, we now have a date for the last day of Autoblog as we know it.

European Leader: We Are ‘Stuck In A Static Industrial Structure’

I’ve written before that Tesla CEO Elon Musk seems bored with the idea of Tesla being a carmaker. He wants Tesla to be an AI company, or a self-driving car company, or a robot company. Or all of the above. To hear him talk you come to the conclusion that, in his mind, there simply isn’t enough margin and, frankly, not much of a future in just making cars. Cars are an old, 20th-century idea.

He’s not alone. Carmakers around the world, but especially in the United States, are putting up big money to make cars less something you own and more a service you subscribe to and use. European carmakers, to varying degrees, have dipped their toes in this but haven’t been quite successful at transforming their businesses.

Why?

Former European Central Bank President and Italian Prime Minister Mario Draghi celebrated his 77th birthday yesterday by releasing a 69-page report (nice) that basically says: Europe doesn’t have to be screwed, but we need to do a lot to fix the country, and one big way is to stop just thinking about ourselves as carmakers.

Here’s how it opens:

Europe is stuck in a static industrial structure with few new companies rising up to disrupt existing industries or
develop new growth engines. In fact, there is no EU company with a market capitalisation over EUR 100 billion that has been set up from scratch in the last fifty years, while all six US companies with a valuation above EUR 1 trillion have been created in this period.

This lack of dynamism is self-fulfilling.

As EU companies are specialised in mature technologies where the potential for breakthroughs is limited, they spend less on research and innovation (R&I) – EUR 270 billion less than their US counterparts in 2021. The top 3 investors in R&I in Europe have been dominated by automotive companies for the past twenty years. It was the same in the US in the early 2000s, with autos and pharma leading, but now the top 3 are all in tech.

The problem is not that Europe lacks ideas or ambition. We have many talented researchers and entrepreneurs filing patents. But innovation is blocked at the next stage: we are failing to translate innovation into commercialisation, and innovative companies that want to scale up in Europe are hindered at every stage by inconsistent and restrictive regulations.

There are, indeed, a lot of regulations in Europe. There’s also a complicated way that EU-wide laws get implemented called “Comitology” which basically means ‘We’ll set up a bunch of meetings and commissions’ to get anything done. That is not always an ideal way to work. Silicon Valley’s ‘Move fast and break things’ mantra may have its drawbacks (for example: breaking democracy), but the alternative isn’t much better.

Draghi doesn’t just call for a cutting of red tape, he also pushes hard at the idea of spending some of the continent’s money collectively to catch up with China and the United States and, hopefully, move ahead:

To meet the objectives laid out in this report, a minimum annual additional investment of EUR 750 to 800 billion is needed, based on the latest Commission estimates, corresponding to 4.4-4.7% of EU GDP in 2023. For comparison, investment under the Marshall Plan between 1948-51 was equivalent to 1-2% of EU GDP. Delivering this increase would require the EU’s investment share to jump from around 22% of GDP today to around 27%, reversing a multi-decade decline across most large EU economies

That little mention of the Marshall Plan is quite good, although it skips the part where the U.S. footed some of the bill. I think it’s a smart comparison and exactly what Europe needs. It can slowly die like a frog boiling in the pot or it can try to leap out of it.

Of course, low-debt countries like Germany will be key to financing that investment, so let’s check in and see how Germany feels about that:

It took less than three hours. Germany’s Finance Minister Christian Lindner said a firm nein to Mario Draghi’s call for more common debt to boost private investment.

Lindner, whose liberal party’s share of the vote has collapsed in recent state and EU elections, told POLITICO that the pooling of “risks and liability creates democratic and fiscal problems.”

[…]

“Germany will not agree to this,” Lindner said.

Well, it was worth a shot.

So Much For Carmakers Becoming Software Companies

I remember in the late-online media hype cycle that the narrative being pushed was that the old place, Gawker Media, was not a media company but “a tech company,” with our tech being Kinja. Some of you may find that amusing, though I now respect how hard it is to have a fully functioning commenting system (we’re working on it, I promise).

Big carmakers here in the United States have acted in the same way. For a while, it was driverless cars that were getting all the hype, with both GM and Ford investing huge sums in the concept. Ford bailed on its investment with VW, which left GM and Cruise as the big automotive-backed player, though it’s not going great.

The better dream, perhaps, was seeing the car as a software platform. This way companies can create value by offering a service that people subscribe to, therefore encouraging revenue beyond just greasy and labor-intensive things like maintenance (which, in an EV environment, there might be less of in the future).

How’s that going? According to S&P Global Mobility, not as well as hyped:

There is money to be made from infotainment and advanced driver assistance systems packages, feature upgrades and enhancements, service unlocks, advanced safety or navigation features, and various other means.

That said, the industry is slowly waking up to the fact that the monetization potential of connected vehicle data has been overhyped and that a massive portion of this potential is derivative or indirect. According to S&P Global Mobility, the annual revenue generated by connected services and paid updates amounts to about $6 billion, while projections put revenue at about $200 billion for software, services and data in 2030.

The recent collapse of big data aggregators such as Wejo and Otonomo was a reality check for the industry and sobered the lofty monetization projections issued just half a decade ago. The industry is learning the hard way that it’s not only difficult to extract value from car data, but it may also be illegal and have lingering ramifications if done without proper consumer consent.

That last little bit is important. Remember when we found out that companies like GM and Honda were sharing information with insurance companies to potentially drive rates up? That hasn’t gone well for those companies, which have walked back some of those integrations, though that hasn’t stopped the lawsuits.

This doesn’t mean that carmakers won’t figure out a way to extract more money out of the life of a car. They will. It just might generate less money and take longer than automakers originally hoped.

Chinese Automotive Leader: ‘We Will Never Turn Against The European Market’

Here’s a wild fact from Europe’s car industry group, the ACEA. China exported way more cars to Europe in 2023 than Europe exported to China, but the value is way backward:

• 359,271 cars were exported from the EU to China
  in 2023, valuing €19.4 billion
• 706,976 cars were imported from China into the
  EU in 2023, valuing €12.9 billion

Some of this makes sense. Europe has more partnerships with local manufacturing in China and, therefore, is exporting more big BMWs, Porsches, and even Ferraris while importing cheaper Chinese cars. This does underscore, however, that both Europe and China need the other group as a trading partner and that Europe needs more domestic production from Chinese brands.

Or, as one exec said at a conference on EV production held in Frankfurt said:

“Even if some in Europe turn against us, we will never turn against the European market,” said Victor Yang, senior vice-president at Geely, the only carmaker to host a press conference at the fair.

China does seem to be the one country happy to be an automaker, especially because it controls a large chunk of the battery supply chain, which is the key to successfully building electric cars (also, China is investing in software, advanced semiconductors, planes. and autonomous driving as well).

It’s invested a ton in automotive capacity, so, it needs to send its cars elsewhere. It’s happy to sell cars in Southeast Asia and Latin America and will continue to do so. Big profits, though, lie in more advanced economies like Europe. In this way, Europe has a bit of a bargaining chip with China, though barely.

As Draghi remarked in his report:

We rely on a handful of suppliers for critical raw materials, especially China, even as global demand for those materials is exploding owing to the clean energy transition. We are also hugely reliant on imports of digital technology. For chips production, 75-90% of global wafer fabrication capacity is in Asia.

These dependencies are often two-way – for example, China relies on the EU to absorb its industrial overcapacity – but other major economies like the US are actively trying to disentangle themselves. If the EU does not act, we risk being vulnerable to coercion.

It’s tough! Italy is calling for the EU to relax its ICE-ban targets, which would make Chinese cars less attractive, while at the same time, the EU is proposing to trim back some of the tariffs it planned to impose on Chinese-built EVs.

Thursday Will Be The Last Day Of Autoblog As We Know It

Last month we were the first to report that Autoblog, at least in its current iteration, is basically no more. The company has been sold to The Arena Group and, while they may resurrect Autoblog and bring it back to life, the current staff was going to be dismissed at some point in the future.

The writers of the site seem to be putting their farewells in various posts, including in this last luggage test from author James Riswick, who wrote:

In the beginning, there was a Hyundai Palisade in Portland, Ore. In the end, there will be a Porsche Panamera in Agoura Hills, Calif. After almost exactly five years, this Luggage Test will be the 157th. It will also be the last.

I enjoyed these posts and have often looked at them when I was about to get an unfamiliar press car for a trip. A commenter further inquired as to what the reason for ending the series was, to which Riswick replied:

It’s not so much that I’m ending them, it’s that this website has been sold and that entity is ending the entire staff. The last day of this staff publishing is this Thursday with the future TBA. I certainly hope to do luggage tests again soon, albeit under a new name, elsewhere. -James Riswick

Thursday looks like the last day. Hat tip to Benton Kalani in the Discord for pointing this out.

What I’m Listening To While Writing TMD

In honor of the passing of James Earl Jones, instead of some hyperpop, here’s James Earl Jones explaining why you’d be foolish to buy anything other than a Plymouth Laser XE. I had the honor of meeting Jones when he came to The University of Texas to speak. I was a freshman and somehow was lucky enough to be part one of two students to drive in the limo to go pick him up from the airport. After a quick introduction, he looked at me and the other guy and asked in his famously deep voice: “Where can I get some guns and barbecue?” His speech, as he himself later admitted, wasn’t particularly memorable, but I’ll never forget that moment.

The Big Question

What does a carmaker become so that it’s not just a carmaker?

Lead image: Ford via Newspress UK