Welcome friends. Robinson Meyer still has mojo, despite what you might have read in the Financial Times. The founding executive editor of the great climate site Heatmap News had an op-ed in the NYT yesterday, China’s Electric Vehicles Are Going to Hit Detroit Like a Wrecking Ball, that covers an incredibly important story. I’ve written around these topics previously. I’m jotting down these notes to help clarify for myself what I see as some of the nuances that I am mulling over and perhaps that we all should be thinking about more.
The US big three are in trouble, despite their recent profits. They aren’t in trouble because of union contracts but their lack of movement toward EVs.
BYD and Chinese automakers in general are a major threat.
BYD wants to build cars not just in China but around the world. [[Including, intriguingly, in Mexico, where they would in theory have access to US markets through NAFTA/USMCA.]]
They are building great cars, and more generically, EVs are basically already both better and cheaper than ICE vehicles in China. BYD has a slogan on this: Electricity is cheaper than oil. Now, to be fair, this vehicle is a plug-in hybrid.
Caption: “Electricity is cheaper than oil. Starting from 79,800 RMB ($11,000)”
Ford is not great at making/selling EVs. It’s EV division apparently lost over $4 billion last year, which if you divide the numbers is around $64k / electric vehicle sold. GM’s new ultium battery isn’t going well either.
There is a current — not in Meyer’s piece but in people referenced that goes against the idea that EVs are the future. Robert Bryce writes: “it’s clear that Ford’s headlong plunge into the EV market has been an unmitigated disaster and that the company would be far more profitable had it ignored the EV fad.”
Here’s a crux of Meyer’s argument:
In the coming years, these companies must cross a bridge from one business model to another: They must use their robust truck and S.U.V. earnings to subsidize their growing electric vehicle business and learn how to make E.V.s profitably. If they can make it across this bridge quickly, they will survive. But if their S.U.V. profits crumble before their E.V. business is ready, they will fall into the chasm and perish.
He addresses the — why should we care if these firms die — problem in explicitly political terms: (1) as proof that union-made EVs are possible and (2) that these firms collapse would kill Biden’s re-election chances.
In policy recommendations, Meyer suggests that IRA subsidies, even with strong anti-China provisions, will likely not be enough and even more trade restrictions (beyond the 25% tariff that is a holdover from the Trump era) are needed to allow American firms to meet this challenge.
But selling extremely expensive trucks and SUVs to Americans isn’t really a great place to be and certainly not something that good policy should protect over the medium to long-term. If China can make cheap EVs that people want to buy, so can America.
What’s missing here?
Geopolitics. If Toyota had taken its technological lead in hybrids and plowed it into bigger batteries and EVs rather than continuing to fetishize fuel cell vehicles that are never going to happen, would everything be different? How much of this is that it is China, strategic competitor of the United States that we’re talking about here? Toyota or other Japanese manufacturers employ Americans and build the cars here. Would that be so difficult for us to stomach? It would touch on the union/non-union divide, but I don’t think it would be as remarkable. UAW is clearly interested in expanding beyond the Big Three in the US, and there seem s to be some indication that it might actually get some foothold (UAW just said 1/2 of workers at a Mercedes-Benz plant in Alabama have voted to join the union). In fact, it isn’t happening with the Japanese who are as far behind on EVs as the US Big Three but it is happening with Hyundai/Kia. [I’ll simply note that I’m part of this trend, although I’m quite sour that my Ioniq 5 has been in the shop for almost two weeks now needing a back-ordered battery coolant pump with no word on when it will be installed.] No one is overly concerned about our Korean competitors.
Relatedly, there seems to be no willingness to allow or interest in having Chinese firms employ Americans. Here’s a recent story about a Chinese solar maker trying to build a factory in Ohio but getting pushback. Chinese firms are completely dominant in the solar supply chain, but Americans don’t seem to be interested in or willing to accept that they need to learn from the Chinese to compete in these markets. Ford’s CATL collaboration on a battery plant is still meeting similar pushback even though the facility is on hold.
For all of our talk about ruthlessly efficient American capitalism, there seem to be all manner of cozy incumbents unwilling to make big bets on the future. The auto majors are systemically important actors, but this kind of cushiness is everywhere. See the electricity transformer sector.
All of the talk about China’s “overcapacity” in some of these tradable sectors is similar cope. That’s what capitalism is supposed to do, isn’t it? The pursuit of profits leads firms to raise money to make investments and compete where they see demand. Lots of firms doing this is obviously going to lead some of them to fail, but again, isn’t that the supposed advantage of capitalism? That competitive pressures keep prices down, push efficiency by way of survival?
Finally, I’ll just end on this. While tons of solar manufacturing capacity in the world is good, I have concerns about excessive automobile manufacturing capacity. Since it’s just us here, I’ll let you in on my not-so-private opinion, that decarbonization is going to require making nice with automobile makers in the short run—until they’ve completed their transitions to EVs—even though EVs are insufficient as a climate solution and eventually autos will need to be de-emphasized. As I wrote over a year ago:
But, and it was clear that there would be a but, I do wonder about the order of operations here, or you could say the prioritization of enemies. And I’m of the opinion that Big Oil needs to be kneecapped ahead of Big Car.