You may look at the auto industry's current chaos in Europe and think that those problems won't come to America. That this country is now taking aggressive steps to protect its auto market with 100% tariffs on Chinese-made EVs or a software ban that will effectively prohibit those cars from being sold here entirely. From that, you may think that it's all problem solved—the U.S. keeps new players from China out for good.
But the truth is that these protectionist measures are temporary at best, and even the auto industry seems to get it. Or at least, the smart folks in the business do.
That leads off this midweek edition of Critical Materials, our morning roundup of tech and industry news. Also on tap today: Hyundai's online sales program with Amazon seems to hit the skids, and another reminder that China's auto industry is strong, but not invincible. Let's dig in.
30%: Tariffs, NatSec Measures Mostly Buy America's Automakers Time But Not Safety
This week, the U.S. government instituted some of its toughest moves yet to keep Chinese cars from pouring into the U.S. market. Officially, the bans that will go into effect later this decade are predicated on national security: keeping high-tech, connected, camera-equipped cars from potentially spying or collecting sensitive data on citizens.
While U.S. Department of Commerce officials say the measures aren't related to any other anti-China policy actions, like the earlier tariffs, it's easy to see what's really going on here. And that's a plan to at the very least help the U.S. automakers (and ones operating here, like Toyota and the rest) to buy time to build cars that can compete with China.
That was the vibe on a panel yesterday at the Automotive News Congress in Detroit:
"This industry here in the United States should not think that this is going to be here forever," said John Bozzella, CEO of the Alliance for Automotive Innovation, at the conference in Pontiac, Mich., a suburb of Detroit. "Then the question is, what will we do with our time?"
The moves are aimed at addressing national security concerns and boosting the competitiveness of the North American auto industry in the face of the threat of imported, inexpensive Chinese EVs flooding the market.
They're unlikely to keep Chinese automakers out of the region for long, as companies such as BYD eye Mexico as a location to open an assembly plant, AutoForecast Solutions CEO Joe McCabe said. But they do give companies in the region the ability to become more competitive by building back brand loyalty and addressing issues such as range anxiety and the high cost of new EVs, he said.
"This gives us time for manufacturers to not be complacent," McCabe said. "If you build here, get competitive."
The North American auto industry cannot directly compete for long with the enormous subsidies Chinese automakers receive from China's government, but tariffs and federal incentives provide the region with an "amazing buffer" to create more products that can go toe-to-toe with them, said Kate Kalutkiewicz, senior managing director at McLarty Associates.
They're all correct here. China has a big lead on two things: batteries and software. The first is because countries like the U.S. spent decades outsourcing to China and China spent the same amount of time cornering the market on the entire battery supply chain. It's one huge reason why so many U.S. EVs are massive money-losers: no ownership of those battery costs. The country is also a leader in-car software, as its EV makers have fully committed to the "software-defined vehicle" strategy that Tesla pioneered. Couple those advantages with extremely cheap labor costs (and often questionable labor practices, to put it diplomatically) and you get a recipe for cars that can outclass and undercut ours by a significant margin.
But if these automakers are shut out of the U.S. for a few years, that in theory gives our car companies—and the country as a whole—time to build up the local supply chain, get better at making EVs and up their collective software game.
Now the big question is: Can they?
60%: Hyundai's Amazon Sales Program Hits The Skids?
I've been wondering what's been happening with Hyundai's groundbreaking plan to sell cars (with the help of local dealers, of course) on Amazon. That was announced at last year's Los Angeles Auto Show, and save for a small pilot program only for Amazon employees, it hasn't seen much of a wider rollout.
Now we sort of know more, also thanks to an Automotive News Congress panel event:
Auto dealers are frustrated at the lack of progress in Hyundai's plans to sell its full portfolio of vehicles on the Amazon shopping platform, said Mike Stanton, CEO of the National Automobile Dealers Association.
"Amazon announced this about a year ago and they're still not out of pilot," Stanton said at a Sept. 24 retail-focused panel discussion held at the Automotive News Congress in Pontiac, Mich. One of the main topics was direct-to-consumer versus dealership distribution models.
"What I am hearing right now is that the dealers are frustrated," Stanton said. "They're not there yet with the agreement. It appears to be another digital retailing tool at the moment and probably not top tier."
For example:
"When you look at our whole ecosystem of vendors that we work with ... we need these partners to make sure that we can deliver on that experience," Stanton said.
He said he believes Amazon understands the complexity of how the car-selling process works, but the partnership pilot still has a lot more work to go.
"They still haven't set up a situation where the dealer can deal with multiple banks or work on trades, so I think more will come," Stanton said.
We're working on learning more about this situation, but some of that makes sense. We anticipated some dealer resistance to the idea of online car-shopping, since some of them could see the move as laying the groundwork to eliminate them from the sales process. That would take major legal overhauls, however, since the car dealer franchise system is cemented into new car sales laws in many states.
Hyundai won't ever say this, but I get the sense the Amazon move happened over some frustration with the fact that it now makes world-class EVs but has a U.S. dealer network with a bit of a... reputation, let's just say. (All the time, we hear from prospective Ioniq 5 and Ioniq 6 buyers who encounter nightmare scenarios at car-buying time.) It sounds like both sides have things to figure out if this program is to move past the pilot stage.
90%: China Still Isn't Invincible
Don't think the Chinese auto industry is some unstoppable juggernaut. After decades of explosive growth, the country's economy is slowing down and the huge field of car brands is starting to narrow. Here's Bloomberg on Chinese auto dealers feeling the sting:
Car dealerships across China are facing losses of almost $20 billion as consumers hold off on making major purchases and vehicles pile up in sales lots.
The country’s car retailers are experiencing “extremely intense liquidity” and looking at losses of about 138 billion yuan ($19.6 billion) for the first eight months of 2024 alone, the China Automobile Dealers Association said in a statement Monday.
While sales of new-energy vehicles in China are relatively strong, retail passenger car sales overall are more muted, expected to rise just 4% year-on-year in September, China’s Passenger Car Association said last week. Government subsidies encouraging drivers to trade in older cars are largely responsible for the NEV sales surge but dealerships are hurting due to the industry’s continued price war.
Instead, they're relying heavily on discounts to move metal, but inventory is still piling up. Sound familiar?
100%: How Does The U.S. Step Up Is Car Game?
Let's say you're in charge of U.S. policy to help the auto industry—which, by the way, adds some $600 billion to our GDP and employs millions of people—keep up with China. What do you do? No wrong ideas here, let's brainstorm.
Contact the author: patrick.george@insideevs.com
