“When will Chinese-made cars come to the U.S.?” is one of the biggest questions in the business right now. At the moment, this new crop of newcomers is kept out by stiff 27.5% import tariffs, even when you know automakers like BYD would love a shot at stealing sales from General Motors and Toyota and Tesla and the rest. But in some ways, Chinese cars are already here.
That leads us off on this fine (but warm) July Monday morning. Also on today’s docket: China’s automakers back off on their “socialist values” pledge not to price-gouge each other into oblivion, a look at who’s winning and where now that the year’s halfway over and a gut check on e-fuels. Let’s dive in.
BYD May Come Someday But Geely’s Cars Are Already Here
As we all take bets on when Chinese cars will show up in America, the Wall Street Journal has the smart take. It starts thusly:
Chinese automotive tycoon Eric Li is letting more people into his $30 billion-plus private garage. It is full of old brands, new tech and potential conflicts of interest.
First off, great lede, 10/10, no notes. But while Geely’s not as visible a parent company as, say, General Motors, it has its hands in a lot these days: Volvo, Polestar, Lotus, now, plus some slightly lesser-known brands here like Lynk & Co, Proton, Zeekr and Geely itself in China.
Generally speaking, Geely’s actually been a great steward of these brands. It’s hard to argue the current era of Volvo isn’t the best one ever. Polestar has been putting out some really excellent products, the Lynk & Co vehicles I’ve seen in Europe seem impressive and Lotus may finally get the stability that has eluded it since… um, always, I guess. While Geely is a Chinese conglomerate, it keeps local engineering, development and production in place and gives those brands the resources they need to succeed.
But the empire goes deeper than that for Eric Li, or Li Shufu, as he’s also called:
Yet his portfolio also includes opportunistically acquired stakes in Mercedes-Benz and Aston Martin Lagonda, as well as dominant interests in electric-vehicle startups such as Polestar, Zeekr and Lotus Technology. Li borrowed the Lotus name from the venerable British sports-car maker, in which he bought a majority stake in 2017.
More of the companies he has held privately have started to seek public capital lately. The process started with the 2021 minority initial public offering of Volvo Car. Then came last year’s merger of Polestar, previously a Volvo subbrand, with a U.S. special-purpose acquisition company. In January, Lotus Technology agreed to go public via another SPAC deal at a $5.4 billion valuation. In February, Zeekr, which was only founded in 2021 but has grown rapidly in China, raised $750 million at a $13 billion valuation ahead of a potential U.S. IPO.
Others could follow in time, such as London Electric Vehicle Company, the maker of London’s famous black cabs. Li bought the company out of distress a decade ago, rebranded it and is now considering raising capital from private investors, Bloomberg reported last month.
That story says Li’s Geely bet big on EVs earlier than many international rivals, and while he’s raising capital with SPACs and selling shares to pay for it, so far it’s paying off. And they’re eager to start building cars here too, though positioning is not without its challenges:
Having made a splash with a Super Bowl ad, Polestar sold almost 10,000 Chinese-made cars in the U.S. last year, despite a 27.5% import duty. Starting next year, Polestars will be produced at Volvo’s Charleston factory to avoid the tariff. Lotus Tech and Zeekr also want to launch Chinese-built vehicles stateside. They too might find ways within the group to localize assembly.
[…] One concrete example of the tension between brand and group interests is the competition between different Geely premium EVs. New products from Volvo, Polestar, Zeekr and Lotus, some of them built on common vehicle platforms, will be fighting for many of the same customers.
I have often wondered where Polestar begins and where Volvo ends, especially since the latter says it’s also going all-electric by the start of the next decade. But one thing’s becoming clear: Geely may be the secret Chinese automaker success in America that flies completely under the radar if it keeps doing what it’s been doing.
Chinese Automakers’ ‘Socialist’ Gentlemen’s Agreement Goes Out The Window
Yes, we all got a good laugh at Elon Musk’s Tesla having to sign a pledge in China committing to “core socialist values” and promising not to enter a price war with other EV manufacturers. I know I did! But now that’s gone out the window after just a couple of days. Here’s Reuters:
The group representing China’s auto manufacturers has retracted a pledge to avoid “abnormal pricing” that it had brokered between 16 automakers, including Tesla, breaking off a truce in a brutal price war over electric vehicles.
The China Association of Auto Manufacturers (CAAM) said in a statement on Saturday it recognised the agreement had violated China’s antitrust law and would retract it.
To recap, Tesla started slashing prices in China at the start of this year, just like it did in America. But unlike in the U.S., about two dozen Chinese domestic and Western automakers followed suit, leading to a kind of race to the bottom that would cut into profit margins and hammer all but the biggest EV manufacturers.
So this group CAAM brokered a kind of truce, apparently supported by government officials and worded in a CCP-friendly way to make them happy. It was retracted mere days later after Tesla just tried another tactic and Volkswagen said the hell with it, plus it didn’t seem legally binding anyway:
It appeared in doubt just a day later when Tesla said it was offering a referral payout equal to about $500 on its Model 3 and Model Y vehicles, including in China. Volkswagen’s (VOWG_p.DE) joint ventures with SAIC and FAW also announced price cuts in China on their ID-series EVs on Friday.
On Saturday, CAAM retracted the pricing pledge.
Liu Xu, a researcher at the National Strategy Institute of Tsinghua University, said enforcement of antitrust law in China’s auto industry had been selective and that the language of the pricing pledge was so vague it would be hard to determine if it constituted a price monopoly.
While steady price cuts by companies should be allowed, subsidies from local authorities should be removed as they distort the pricing system, Cui Dongshu, secretary general of the China Passenger Car Association, said on Monday.
Why does this matter to you, a presumably Western reader of this website? Because this kind of thing has profound impacts on the profitability of brands that sell in North America and Europe and so on. And more importantly, this is the whittling-down period of the Chinese brands that could move into our market later:
AlixPartners said while China’s EV market will continue to grow rapidly, intensifying competition and excess capacity will also drive a shakeout. Only 25 to 30 out of the 167 companies registered to produce EVs or plug-in hybrids in China will survive by 2030, it forecast.
Yeah, that’s the thing about capitalism. There are winners and losers. Womp-womp.
The American Auto Industry Is Basically Back And Trucks Are Really Back
The worst of the supply chain issues that have dogged the car industry these past few years does seem to be over and Q2’s sales figures reflect that. Here’s the scorecard from Automotive News:
General Motors outsold Toyota at the halfway point for a second consecutive year, and Ford was on pace to be the top brand for the first time in three years. Hyundai-Kia leapfrogged Stellantis to become the No. 4 automaker, as Tesla — based on estimates since it doesn’t report U.S. results — climbed to No. 8. Tesla still had three of the four most popular electric vehicles, though others are grabbing more market share every quarter.
It’s a tight race for pickup sales supremacy between Ford Motor Co., which was No. 1 in the second quarter, and GM, which had a slight lead year to date. GM’s highly profitable large SUVs easily outsold the competition from Stellantis and Ford combined.
The top-sellers are the usual suspects: the Ford F-Series trucks (up 28% just this quarter), compact crossovers, GM’s pickups and large SUVs, the Tesla Model Y and the Ford Mustang over its two direct competitors.
Interesting developments, all of it, especially when you consider that interest rates aren’t doing buyers any favors these days. But this data tells me we’re tracking to get a lot more “normal” into the rest of this year.
E-Fuels: A Useful Stopgap Or The Future?
The auto industry is making some big promises around going “all-electric,” but I get the growing sense that deep down it would just… rather not. After all, it’s spent a century making internal combustion engines, cars and parts to support them and that’s awfully hard to walk back in just a decade. Maybe gasoline is the problem! Maybe there’s a magic-bullet way to keep doing what they’ve always done, while reducing carbon in the process. Right?
That’s the unlikely promise of synthetic e-fuels, or carbon neutral fuels that can still support internal combustion with far fewer emissions. Here’s Automotive News with the latest on what’s happening there:
Porsche, Stellantis, Ferrari, BMW and other automakers are taking a hard look at e-fuel, a replacement for gasoline and diesel. E-fuel combines carbon dioxide taken from the atmosphere — or captured at the source, such as at a refinery — and hydrogen obtained from water through electrolysis.
[…] “We will take the approach that it’s e-fuels for engines, not engines for e-fuels, meaning that we are not going to change the hardware to accommodate them,” said Micky Bly, Stellantis’ head of global propulsion systems, at a panel discussion in April at the SAE International conference. Stellantis tested and is validating e-fuel in 28 gasoline and diesel engine families dating back nearly a decade.
Sounds great. But!
“We will take the approach that it’s e-fuels for engines, not engines for e-fuels, meaning that we are not going to change the hardware to accommodate them,” said Micky Bly, Stellantis’ head of global propulsion systems, at a panel discussion in April at the SAE International conference. Stellantis tested and is validating e-fuel in 28 gasoline and diesel engine families dating back nearly a decade.
That’s a lot. It’s also worth noting that investments and R&D into e-fuels are still in their infancy, vs. tons and tons of both happening for decades with batteries. But you get why automakers want to at least try this out. Companies like Porsche and Ferrari are worried about losing their souls if they go all-electric, the jury’s out on whether EVs can do pickup-truck duty the way buyers want and it’s probably smart to have options going into the future.
But it’s incredibly tough to make this stuff in the first place, to the point where it’ll almost not matter from an emissions perspective:
Speakers at the SAE International panel in Detroit agreed that an internal combustion vehicle running e-fuel could be nearly as clean as a battery-electric vehicle.
But that doesn’t mean pure air — with no CO2, nitrogen oxides and other greenhouse gases — comes out of the exhaust pipes of vehicles burning e-fuel. Far from it, and this where things get complicated. E-fuel is intended to be a carbon neutral fuel, meaning that the CO2 it produces must equal the CO2 required to make and transport it.
To do that, the electricity required to separate hydrogen from water must come from a renewable source, such as a wind turbine, solar panel or a hydroelectric dam.
Using e-fuel in a gasoline or diesel car requires about five times more renewable electricity than running a battery-electric vehicle, according to a 2021 paper in the Nature Climate Change journal, Reuters reported.
Reducing carbon emissions is the factor that’s guiding where the car business is going next—that and profits, as always. Should automakers even bother with e-fuels or just commit to longer-term, guaranteed zero-emission strategies?
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