The automotive world is all about workarounds. Diesel cars can't pass emissions? Workaround. Run out of parts while assembling your cars? Workaround. Tariffs on EVs? You guessed it—workaround.
Welcome back to Critical Materials, your daily roundup for all things EV and automotive tech. Today, we're chatting about China proposing a way to keep some EV manufacturing at home while OEMs avoid tariffs, China planning a Vehicle-to-Grid (V2G) pilot to ease power concerns, and dealerships being unprepared for ways to earn revenue in the EV age. Let's jump in.
30%: China Tells Automakers Not To Send Key EV Tech Overseas
With waves of international tariffs weighing down on EV imports from China, automakers look to open new production plants in order to preserve profits. China is politely asking them to reconsider.
China's Ministry of Commerce (MOFCOM) recently instructed OEMs to consider exporting knock-down kits—a package that allows cars to be exported and assembled without a local factory, essentially—to their operations abroad rather than fully building every single part in a new tariff-dodging manufacturing plant, according to Bloomberg.
People familiar with the matter say that the country is attempting to safeguard trade secrets and potentially mitigate some regulatory risks in the process.
Some automakers are already planning to go this route. For example, Chery, which is taking over the former Nissan plant in Barcelona, Spain, previously said that it will use the factory to build partially "knocked down" kits. SAIC also has a similar plant in Pakistan.
The move comes just as Chinese automakers are beginning to expand more broadly outside of the country while still receiving heavily "unfair" government subsidies that offset the cost of vehicles to the consumer. Global powers claimed that Chinese EV production outpaced domestic demand—something called a "fake concept" previously—and pushed through exorbitant duty fees of as high as 100%.
Bloomberg explains in detail:
China’s directive comes at a time most major Chinese carmakers are looking to localize manufacturing so as to avoid tariffs on Chinese-made EVs. MOFCOM guidelines that demand key production should remain within China could hurt automakers’ efforts to globalize as they search for new customers to offset fierce competition and sluggish sales at home that are cutting into their bottom lines.
It could also come as a blow to those European nations wooing Chinese carmakers in the hopes their presence will bring jobs and a local economic boost. BYD is planning on building a factory in Turkey, for example, that’s expected to have an annual capacity of 150,000 cars and employ up to 5,000 people.
During the meeting, MOFCOM noted that the countries inviting Chinese automakers to build factories are usually those enacting or considering trade barriers against Chinese vehicles. Officials told attendees that manufacturers shouldn’t blindly follow trends or believe such calls for investment from foreign governments, according to the people.
Now the ball is in the OEM's court. On one hand, the bag holder that is providing subsidies to offset the total vehicle price is asking nicely to keep as much manufacturing as localized as possible. On the other is global profits.
However, if automakers do begin to send these knock-down kits to factories in countries that impose tariffs, they will still need to meet other strict sourcing requirement for other components and battery chemistry. They also risk additional duty fees being imposed at a later date.
60%: China To Launch National V2G Pilot To Ease Strain On Power Grid
China is the world's largest EV market by a long shot. Seriously, it accounted for more than 60% of global EV sales last year. It also happens to be a country struggling with its power sector.
To ease that pain, China is looking to one of the most obvious answers—batteries. Using batteries, the country believes that it can solve peaks and valleys in its grid that contribute to general instability. And rather than deploy Tesla Megapacks across the city, China will pilot a program that uses millions of smaller batteries already deployed across the country: its growing fleet of electric cars.
Bloomberg yet again:
Under the trial, all provinces will be asked to nominate one city to set up a V2G system — where electric cars can feed power back into the grid during times of high demand. The goal is to expand the scale of V2G projects and explore commercial models that can be replicated, according to a document published by the National Development and Reform Commission on Tuesday.
The selected sites should fully implement peak-and-trough power pricing, with the aim to concentrate at least 60% of EV charging during off-peak times, the commission said. At least 80% of EV charging done through private chargers should be outside of peak hours.
Currently, EVs make up around 7% of the total vehicles in China. Despite that feeling like a relatively small number, the actual figure is close to 25 million battery-powered vehicles roaming the streets.
Now, it's important to point out that EV nay-sayers will often point fingers about an influx in EVs causing instability in the power grid, but it's important to call out this isn't necessarily a cause-and-effect scenario. That being said, EVs certainly are responsible for pulling power down—but so are a washer and dryer.
In China's case, however, the country's Electricity Council says that grid demand from EV charging and battery swapping increased by 64% year-over-year.
The idea here is that China is looking to EVs not just as a consumer of power, but also as a supplier. And if the country can stabilize its grid using its cars like portable battery packs—sipping electricity during times of low demand and discharging back into the grid when demand is high—why not try it? Well, aside from battery degradation, that is.
By including even a sliver of those 25 million BEVs feeding back into the grid, China believes that it can help stabilize its power and potentially even expand new commercial V2G models across the country.
90%: Dealerships Have No Idea How To Make Up For Lost Service Revenue With EVs
With fewer moving parts to break, EVs have a significantly lower lifetime maintenance cost than traditional combustion-powered vehicles. Reliability permitting, that also means fewer trips to the dealership compared to a traditional gas-powered car.
For dealers, this means less opportunity to sell its biggest money maker to consumers: service. Industry veterans are beginning to signal a shift in the ways that dealership will earn revenue, and according to a recent interview that Automotive News recently covered, most dealers have no idea how to plan for the change.
"I think you're going to see [customer pay] opportunities dropping with EVs but you're going to see warranty increasing," said Jim Roche, CEO of WarrCloud, an automotive warranty processing company that works with some OEMs. "You would have this fundamental shift."
What Roche means is that dealerships aren't going to be able to sell service how they used to on newer EVs. Sure, tires, brakes, wipers—consumable items—will still be an opportunity for dealerships. But revenue earned by performing common preventative and wear-and-tear repairs like oil changes, replacement serpentine belts, and leaky gaskets will likely decrease in the coming years.
A whitepaper published by CDK Global (yes, the same one that recently recovered from a quite devastating cyber attack) outlines potential earning streams for EVs. Its study anticipates that the majority of service concerns will be over software and infotainment problems, and other issues will be minor like tires and wiper blades.
"When it comes to EVs, tires are the new oil change," reads a dealership quoted in CDK's whitepaper.
"Typically, you got 60, 65% of service department revenue coming from customer pay. And call it 30%, 35% comes from warranty. I think you're going to see a shift in those ratios," said Roche. "That means a couple of things. Most fundamentally, if there are fewer [customer pay] opportunities and there's more warranty opportunities, don't you have to rethink how you market your service department, how you capture that warranty work from customers?"
A separate piece previously penned by Roche says that warranty work is forecasted to increase 20% over the next three years. Additionally, Roche says that EV warranty expenditures have skyrocketed to 300% compared to ICE vehicles over the first 12 months on the road.
Roche's solution is to cut warranty processing time, something his company specializes in. Especially since manual data entry, look-up, and other processes continue to drive inefficiencies—but that's not something that earns additional revenue. And as Roche points out, earning additional revenue with booming EV sales will need to be addressed sooner rather than later:
"I haven't heard a lot of conversation about rethinking all of that and it's just around the corner. We really need to be thinking about how we're going to manage that transition."
100%: Have You Had To Take Your EV To The Shop?
Come to think of it, outside of new tires and annual vehicle inspections, my Tesla Model 3 hasn't seen the inside of a shop in nearly two years (knock on wood). In fact, the only time it actually went back to Tesla was directly after delivery—something sadly to be expected—for some warranty repairs.
To those EV veterans out there: have you had to bring your battery-powered to the shop for anything outside of basic maintenance? What about you new adopters? Let me know in the comments.
