Stop me if you've heard this one before. A bunch of established car companies with advanced technology are seeking access to a new (for them, anyway) country that's extremely important because it means potentially millions of buyers. But first, that country's domestic automakers say they want something out of that too. A deal is struck: to allow an expansion into this car market, the new players have to team up with the old ones and teach them how to dance.
Am I talking about how China demanded that Western and other Asian automakers enter into joint ventures with the locals in the 2000s and 2010s until they too learned the art of car manufacturing, or am I talking about what could be next for America's auto industry as it seeks to deal with a rising China? Because more and more, there's a case to be made for that, and on today's Critical Materials news roundup, we're going to explore why.
Also on tap today: America isn't the only one playing catch-up on EVs, and the Honda Prologue seems to be an unexpected hit. Let's dig in.
30%: A Case For American Team-Ups With China
Today on Critical Materials, we're going to discuss the merits of Western automakers teaming up with China to get more up to speed on high-tech, low-cost, profitable EVs. Volkswagen has already figured this out. It's teaming up with Xpeng to make better EVs that Chinese buyers will actually want. Stellantis is doing the same with China's Leapmotor, although those EVs are destined for Europe as well.
Here in the U.S., politicians on both sides have gone to great lengths to cordon off Chinese anything from our cars—batteries especially, but also the automakers themselves. Stiff 100% tariffs on Chinese EVs keep them out of our market and rules around battery sourcing prevent cars from getting EV tax credits if too much is sourced from China. Lawmakers cite national security concerns about China as well as political and economic worries for these policies.
Perhaps some people consider those to be long-term, permanent solutions. I do not. So maybe more U.S.-focused joint ventures with China's automakers are the way to go instead?
That's what Bloomberg's Liam Denning argues today, and he makes a strong case that current policies reinforce "Detroit’s isolationism":
That the world’s two largest auto markets [the U.S. and China] which together account for more than half the vehicles sold globally, are essentially moving in opposite directions has geopolitical, technological and even climatic consequences... a better option would be to co-opt Chinese competitors—just as China did with the likes of Ford Motor Co. and General Motors Co. a generation ago.
Chinese brands such as BYD Co. had less than half of their home market four years ago but will account for more than 60% of sales—of all types of vehicles—this year, according to Dunne Insights, an auto sector consulting firm. GM’s operations in China last year earned only a quarter of what they did five years before. China’s manufacturers embraced electrification to a far greater degree than most foreign operators, save Tesla Inc., and even Elon Musk’s EV powerhouse is now losing market share there.
The sense of an old power being shoved offstage by a rising one is unmistakable.
It helps to start with what's wrong with America's car market anyway—what needs changing.
Denning argues something I did too in The Atlantic recently that's widely known but not talked about enough: America's Big Three are now basically just gas truck and SUV manufacturers, running on those profits and shielded by the Chicken Tax. We're kind of isolated here with big trucks like the F-150 and the like becoming our own sort of kei cars.
The problem is that the truck sector is inherently limited and it's not getting bigger (from a sales sense, anyway) in recent years:
This leaves them vulnerable. US vehicle sales stopped growing a generation ago. Pushing drivers to ditch sedans for bigger, more expensive models protected profits, but demand for trucks and SUVs is now saturated and average prices have reached almost $50,000. The lack of growth prospects is evident in Ford’s and GM’s minuscule price-earnings multiples and the latter’s resorting to big stock buybacks to court investors.
Turning the vehicle fleet over to electric models offers another way to grow in an ex-growth market. But the reliance on trucks complicates this: Weighing several tons and with the aerodynamics of a brick, they are particularly hard to electrify.
This raises the worrying prospect that the US will become saddled with a stagnating auto industry that’s unable to decarbonize, while ceding much of the rest of the world to Chinese rivals.
And as that story notes, China needs America, too. It's hitting walls with sales back home and expanding into Europe will only get them so far. I also tend to think—or rather, hope—that in a best-case scenario, getting China's business interests intertwined with America's could defuse some geopolitical tensions. Maybe we're all less likely to get into a shooting war over Taiwan if BYD has 30,000 people here working side-by-side with Americans.
Crafting such partnerships would require a sea change in American politics, however, and less knee-jerk blatant fear of China and its Communist Party leaders. That might be a much tougher ask, but if the alternative is for Ford and General Motors and the rest to become the next John Deere, maybe our politicians will find a way to make them all play nice.
60%: Japan's Parts Industry Is Playing Catch-Up Here Too
The good (???) news is that America is hardly alone in this "We're getting cooked by China" problem. Europe's automakers are feeling the heat probably the most. And the Japanese automakers, long skeptical of full electrification, are being spurred into action by China in ways that even Tesla could never do.
From Nikkei Asia, here's more on how Japan's auto parts suppliers are scrambling to pivot to EVs and more hybrids. What's at stake? In Japan's case, arguably the entire country's status as an automaker, including hundreds of thousands of jobs.
It's a wide-ranging story that hits on all areas of Japan's auto sector, from getting ready to make more EV-focused tires to automated driving tech:
Some 666,000 Japanese work in auto parts manufacturing, more than triple the number employed by companies like Honda and Nissan in the high-profile work of building cars, according to Japan Automobile Manufacturers Association figures.
The auto parts industry also accounts for a larger share of the country's total industrial production, at 10.5% of total output by shipment value versus 6.3% for automakers, according to data from the Japan Auto Parts Industries Association (JAPIA).
The government has set 2050 as Japan's target date for carbon neutrality while encouraging automakers to discontinue the sale of cars with conventional engines by 2035.
Ryuta Morishima, executive officer at Japan's Battery Association for Supply Chain (BASC), says that this means the country's automotive industry needs to put its focus now on preparing zero-emissions vehicles, given the time needed to develop new batteries and supply chains, and the potential working life of newly developed models."I don't care whether sales [of EVs] are slowing down at this moment or not," said Morishima, who was involved in the development of Toyota Motor's pathbreaking Prius hybrid and now serves as deputy director of Prime Planet Energy & Solutions, a battery joint venture between Toyota and Panasonic. "There is no time to rest."
Oh, and at least one of the companies profiled there has thrived after becoming a subsidiary of... BYD. You see what I mean?
90%: And Yet The Honda Prologue Seems To Be A Hit
Here's the thing that works in these automakers' favor: people really do want reasonably priced EVs from brands they know and trust. When InsideEVs' Deputy Editor Mack Hogan tested a Toyota bZ4X a while back, he got so many questions from bystanders about it: "Toyota makes an EV?", they'd ask excitedly. Now imagine how well Toyota would do if it took EVs more seriously.
Honda is getting around to that too, and the GM-underpinned Prologue is a stopgap until it can. But lo and behold, people want good EVs from Honda too. Here's Automotive News on where the sales wins are coming from lately:
New electric vehicle registrations surged 18 percent in July compared with the same month last year on the strength of newer models such as the Tesla Cybertruck and Honda Prologue, according to the most recent U.S. data from S&P Global Mobility.
EV leader Tesla broke a five-month losing streak in July, with its registrations rising 1.2 percent compared with a year earlier on robust Cybertruck deliveries of 5,175 vehicles, the data showed. All other EV pickups combined sold 5,546. The Cybertruck launched in November.
The positive trend was driven by sky-high incentives on popular battery-electric crossovers, including $19,703 on the Kia EV9, $13,015 on Volkswagen's ID 4 and $7,035 on the Honda Prologue, which went on sale in March, according to Motor Intelligence.
The problem is how much of that is subsidized either from tax credits or manufacturer and dealer discounts. And those moves are almost certainly not sustainable long-term.
100%: What Should A U.S.-China EV Partnership Look Like?
See that? It's the Toyota bZ3, the closest it's come to something like an electric Toyota Corolla. It's also made in China, primarily for China, and through a joint venture with BYD. Perhaps there's a version of this plan that works with Ford or GM but hinges on being built in the U.S. instead.
Is that a viable plan? If so, what should it look like?
Contact the author: patrick.george@insideevs.com
