See that ship in the lead image? It's one of those giant car-carrying ships that Chinese automaker BYD is chartering on its own because the other shipping companies aren't able to meet its voracious export demands. And soon enough, BYD will be able to just truck those cars across the border to America once its long-rumored Mexican factory is open for business. That outcome is what industry lobbyists are about to try and thwart.
That kicks off this Monday edition of our Critical Materials news roundup. Also on tap today: Jeep tweaks its own EV plans in the U.S. market, and Rivian has a year ahead where it must cross the "valley of death." And no, that's not an off-roading thing. Let's dig in.
30%: U.S. Group Seeks To Block Chinese Imports From Mexico
Right now, the biggest thing keeping you from being able to buy a super cheap but surprisingly high-tech Chinese EV like a $10,000 BYD Seagull is the fact that the U.S. has 27.5% import tariffs on cars made there. (Some vehicles are sold here with the tariff in place, like the Polestar 2 and the upcoming Volvo EX30, but examples are few and far between.) But nothing is stopping automakers like BYD from getting around that tariff by making cars in Mexico; in fact, they'd even theoretically qualify for tax breaks up to $7,500 per car because they're made in North America.
The Alliance for American Manufacturing, a trade group that represents several manufacturing sectors here, calls this an "existential threat" to the U.S. economy. In a new report issued Friday and first covered by Reuters, they are calling on some significant policy changes to cut China off before it can make inroads into the U.S. via our neighbor (and top trading partner) to the south. From their report:
We have already seen in steel and aluminum industries what happens when unfairly traded imports are allowed to swamp the U.S. market: Job losses, bankruptcies and deindustrialization. It has taken some de-industrialized communities decades to revitalize. Others continue to struggle. The domestic auto industry, with its millions of American workers and intricate ties to hundreds of other industries, is integral to American manufacturing. It is simply too important to the country’s economic security to be exposed to such blatantly unfair competition.
The commercial backdoor left open to Chinese auto imports should be shut before it causes mass plant closures and job losses in the United States. Washington should undertake the following policy recommendations to preempt their entry.
They recommend a number of things, including exclusionary tariffs on all Chinese automobile imports into the U.S. regardless of origin; enforcing tougher rules under the United States-Mexico-Canada Agreement (USMCA), the successor to NAFTA; excluding "companies
headquartered in a non-market economy" from the USMCA terms; and keeping Chinese companies from accessing taxpayer-funded research in the U.S.
How serious a threat is all of this? Today, Business Insider has a big feature diving into the whole thing, and it puts it into very stark terms, emphasis mine below:
"The thought that Chinese-quality engineering and design are not as high quality as the legacy carmakers — that should be put to bed," Tu Le, the founder of Sino Auto Insights, a consultancy focusing on the Chinese EV market, told me. "Right now, the legacies don't have competitive products. There's a vacuum. If China EV Inc. were allowed to enter the US today or next year, the legacies would be gutted."
We are witnessing a shock to the global automotive order unseen since Japan barreled into the market in the 1970s. China's EV ascendance has sparked a fight that is forcing companies to stretch the limits of their technological capability and policymakers to reimagine the ideological underpinnings of decades of trade strategy. What's at stake is nothing less than a US industry worth $104 billion, about as much as Angola's national GDP, and all the 3 million jobs that come with it.
"It's a global game. It has been a global game," Le said. "Motherfuckers just haven't been paying attention."
America has certainly fired back with import tariffs and restrictions on foreign competition before, but this is on a different level—and aimed very specifically at China. Granted, doing so could spark a trade war with China if that country decides to turn the screws in a different way in retaliation. But everyone from Elon Musk to executives at Ford and Stellantis are calling China a grave and unprecedented threat to the U.S. auto industry, so it may be a risk politicians are willing to take.
60%: Jeep Needs A Price 'Correction' As It Enters The EV Market
One huge problem with the EV market in America is that the things are still widely regarded as too expensive for a permanent wave of mass adoption—yes, even with the tax incentives and copious dealer discounts. There are a lot of reasons for this. Rising interest rates and inflation are one. But another is that the U.S. auto industry (and you can include the "import" brands in this too) have become addicted to high-price, high-margin trucks and SUVs financed over eight, nine or 10 years. It can't compete on cheap cars anymore because it barely offers them.
This has especially hit the Jeep brand in recent years; it tried to go "upmarket" on its SUVs and customers didn't really respond. Jeep's sales were even down 6% last year in the U.S., which is not good.
So as Jeep seeks to deploy EVs for the first time—the Jeep Wagoneer S and Jeep Recon—it needs to reevaluate pricing across the board, Antonio Filsosa, the brand’s new CEO, said on Friday. Here's The Detroit News:
"We need to do something on market penetration and market share, because it's not where this brand deserves to be," Filosa said during a roundtable with reporters at the automaker's North American headquarters. "The perception of the brand is fantastic, and we have survey data that never has been so strong."
Lineup adjustments affect about 90% of its sales. Jeep has added more than $3,000 in content to the flagship Jeep Wrangler off-roader as well as the refreshed ’24 Gladiator midsize pickup, whose manufacturer’s suggested retail price is $1,700 lower this week starting at $38,990. The Jeep Compass crossover, now the brand’s entry-level model in the United States after discontinuing the Renegade in the market, starts at $25,900 with a $2,500 lower MSRP. The Grand Cherokee, Jeep’s best-selling offering, is as much as $4,000 lower starting at $36,495.
[...] EVs also could be an opportunity to grow market share if Jeep's 4xe plug-in hybrid success is any indication. The Wrangler and Grand Cherokee 4xes are the best-selling PHEVs in the United States, securing more than half of PHEV sales. Ninety percent of those customers, Filosa said, are conquests.
"We need those models to be along with our consumers," he said of the EVs. "It's a consumer-based strategy, not regulation-based."
This reminds me of when Ford looked at slowing F-150 Lightning sales last year and declared that the rules have changed. It's not enough for these automakers to keep doing the same things they've always done in the electric transition, at the same prices, and just expect customers to show up—certainly not until charging gets better across the board, anyway.
90%: Rivian Faces The 'March To Scale' Challenge
Several of the EV startups—Rivian, Lucid and Fisker—have slightly different versions of the same problem in 2024. They launched with their most expensive models to gin up cash, and next, they want to use that cash and investor capital to scale up for more mass-production models—and hope that customers show up. The space between those things is often called the "EV valley of death."
Electric truck maker Rivian is in that spot too. I think it's doing better, and has more potential, than other startups in the field, but this year is going to be tough until it can start selling the smaller and more affordable R2 in volume. Here are our friends at climate site Heatmap News to explain:
Claire McDonough, Rivian’s chief financial officer and a former J.P. Morgan director, has a plan for crossing that canyon — an aptly if strangely named “bridge to profitability” that it will attempt to build this year. Rivian’s survival, she said, will depend above all on cutting the unit costs of producing its vehicles, including by using fewer materials to make every car. Other savings will come from making more vehicles faster. That’s what makes the shutdown plan, though it might seem extreme, worth it; McDonough said those improvements alone will get the company about 80% of the way to profitability.
Another 15% will come from marketing more “software-enabled products” to Rivian drivers and by selling air-pollution credits to other carmakers, whose vehicles are not as climate-friendly. This is a tried-and-true technique; Tesla first turned a profit in 2021 by selling regulatory credits needed to comply with federal and California state-level rules to other, dirtier automakers. But that same year, Tesla also debuted an entirely new vehicle: the Model Y crossover, which quickly became its top seller in the United States. Tesla, in other words, finally started to make money by cutting costs, finding new revenue sources, and releasing new products.
New products, however, are becoming a weak point for Rivian. The company says that high interest rates will keep demand for its vehicles flat this year. It expects to make about 60,000 of them, about 20,000 fewer than what it had once anticipated. The Rivian R1S, a three-row S.U.V., has become the company’s flagship; it is selling better and is cheaper to manufacture than Rivian’s pickup, the R1T. It also costs at least $75,000, or nearly $600 a month to lease. The highest-tier models can cost $99,000. Turns out, it’s difficult to sell a lot of $70,000 trucks when even the cheapest new-car loans hover around 6%.
Rivian announced layoffs last week, citing high interest rates that led to projections of flat sales for most of 2024. Does it have what it takes to make it?
100%: Can The Auto Industry Have It Both Ways?
On one hand, we have dealer groups and industry lobbyists begging the White House to "slow down" on emissions rules that will lead to wider EV adoption, and that could push back more EV models and further R&D. On the other hand, they realize they're pretty outclassed by China at the moment and asking to keep those cars out of the U.S. market.
Can the business have it both ways here? How far does protectionism go to actually protect before it makes you technologically behind?
