The Push To Electric Cars Is Shifting The Auto Industry To China

Catldump

The Chinese are moving on up in supplier rankings while Elon Musk is again in the middle of some controversy. Also, there’s a new smaller Hummer (probably) coming. It’s 2005 all over again! All this and more in today’s issue of The Morning Dump.

Welcome to The Morning Dump, bite-sized stories corralled into a single article for your morning perusal. If your morning coffee’s working a little too well, pull up a throne and have a gander at the best of the rest of yesterday.

The Chinese Are Ready For The Future

I start today with this clip from “The West Wing” to make two points:

  1. mea culpa. I really liked “The West Wing” and it sort of led me to believe that, in politics, a righteous speech in defense of the truth could persuade the population (or individuals) to do what’s right. Clearly, we do not live in that world.
  2. This clip is espousing something like economic Liberalism (not to be confused with political liberalism) and how much of that speech feels true today?

We have fairly free trade, though it’s unequal (thus the rush to build EV battery plants in America). Do your prices for everything feel cheaper? Well, no, of course not, but is that trade’s fault? We built a highly interconnected system of global suppliers and just-in-time production built on the back of containerized shipping and labor wherever it was efficient (cheap, union-free, maybe child labor). This would lower prices and stop wars!

Not quite. We built a flat world instead of a tall one only to discover that the costs of putting our supplies so far away is that if anything went wrong we wouldn’t be able to get them here. The pandemic didn’t help, of course, but the fact that Taiwan makes 65% of the world’s microchips seems like it’s been an issue.

But hey, it stops wars, right! By building a lot of connections between Russia and Europe it brought cheap gas to the continent so they could make cars and Russia got money and McDonald’s and Nissans and it all worked out.

Oh…

I say all this because Beryll, a large global automotive consulting firm made up of former auto execs, has put out its annual list of biggest automotive suppliers. “Biggest” in this case is determined by revenue and the list is the normal mix of the expected Germans and Japanese (Bosch, Denso, ZF). Tires are there from France (Michelin) and Germany (Continental) and Japan (Bridgestone). Tires make sense because all cars, EVs or otherwise, need tires. What’s interesting is #10.

CATL. You may not know who CATL is, but it’s an acronym for Contemporary Amperex Technology Co. Limited. It’s a Chinese company and it jumped 24 places to crack the top 10. What does it do? From CATL:

“CATL is a global leader of new energy innovative technologies, committed to providing premier solutions and services for new energy applications worldwide”

What that means is it makes batteries. They make more batteries for cars than anyone else and its clients include Tesla and Ford, two of the world’s biggest EV companies.

What’s the biggest American company on there, you ask? Cummins, at #11. It is, historically, an engine maker and more recently an emissions equipment developer (though it is rapidly trying to diversify by building battery packs).

What does the U.S. Managing Director of Beryll’s Martin French want us to take away from all this?

“We will see a shift towards Asian auto suppliers due to the growing importance of electric vehicle battery manufacturing, IT and Infotainment,” said French. “And, if the Chinese companies can consistently continue their recent success in battery production, they will take the lead in the supplier rankings by 2028. A truly unimaginable feat just a few years ago.”

Yup. Maybe that’ll keep us from going to war over that island that makes all the chips.

Tesla Says It Is Going To Miss Deliveries Because Of Supplies (Not Demand)

Musklaughing

Hey, boy, what a coincidence that the next part of The Morning Dump is Elon Musk complaining that Tesla isn’t going to hit its estimates because of supply chain and logistics issues. Wow, who could have seen it coming?

Per Reuters, Musk doesn’t think this is a big deal:

Chief Executive Elon Musk told analysts on a conference call there was excellent demand in the fourth quarter, addressing investors’ concerns that buyers could be discouraged by the weak global economy and high prices for Tesla vehicles.

But Tesla said some logistics challenges would persist, with fourth-quarter deliveries growing by less than 50% while production rose 50%.

“I wouldn’t say we’re recession proof, but it’s certainly recession resilient,” Musk said.

Previously, Tesla had repeatedly said it was aiming for 50% growth this year from the 936,172 cars it delivered in 2021.

He’s probably not lying, though. It’s important to clarify that with Musk’s statements because he tends to stretch the truth a lot.

(Updated for some more context because there’s some debate online as to whether it’s really supply or demand, though the explanation seems reasonable enough and it’ll take at least another quarter to sort out what’s the reality – MH) Here’s the full transcript readout and here’s the key part:

We also continue to experience margin headwinds associated with macroeconomic conditions, as we’ve discussed at length on prior calls. In particular, raw materials, logistics, and foreign exchange was a big part of this past quarter. On energy profitability, we achieved our strongest gross profit yet for this business, driven primarily by record volumes of our Megapack and Powerwall products. Our free cash flows were also a record despite an increase in cars in transit at the end of the quarter, which has a negative impact on working capital.

Specifically on cars in transit, as noted in our press release on October 2, we’ve started to experience limits on outbound logistics capacity which we didn’t anticipate. This issue is particularly present for ships from Shanghai to Europe and local trucking within certain parts of the U.S. and Europe. Our historical operating pattern of batch building by delivery region leads to extreme concentrations of outbound logistics needs in the final weeks of each quarter.

Just to put this in perspective, roughly two-thirds of our Q3 deliveries occurred in September and one-third in the final two weeks. As a result, we have begun to smooth the regional builds throughout the quarter to reduce our peak needs for outbound logistics. We expect this to simplify our operations, reduce costs, and improve the experience of our customers. As we look ahead, our plans show that we’re on track for the 50% annual growth in production this year, although we are tracking supply chain risks which are beyond our control.

Whatever issues they have, Tesla makes great cars that are the most in-demand ones in the world, and the company is the most valuable brand in the world. It will deal with its logistical issues and it will continue to grow, pending anything super weird happening.

And it’s an American company and Elon Musk is nothing if not a great, patriotic American.

American Government Reportedly Considering A Security Review For Elon Musk Over Things

Musklaughingclsoer

Welp. According to Bloomberg the White House is maybe gonna want to test my last theory:

US officials have grown uncomfortable over Musk’s recent threat to stop supplying the Starlink satellite service to Ukraine — he said it had cost him $80 million so far — and what they see as his increasingly Russia-friendly stance following a series of tweets that outlined peace proposals favorable to President Vladimir Putin. They are also concerned by his plans to buy Twitter with a group of foreign investors.

I’m hoping Elon Musk isn’t trying to speed run Henry Ford’s goodwill-for-building-an-awesome-American-company-to-boy-he-seems-real-friendly-with-fascist-invaders move.

I love Twitter and in some ways I worry about what Musk will do with it, and I’m reminded of the time I emailed Musk (long ago this was a thing that very occasionally happened) to invite him to a party on behalf of Gawker founder Nick Denton and, oh, I may have just compared him to Richard Nixon. Musk accepted the invite and signed the email “Nixon,” which was pretty funny. Musk sometimes acts like an 18-year-old boy who never grew up and sometimes it works because 18-year-old boys are occasionally funny.

I’m hopeful that if push-came-to-shove that Musk would actually do the right thing, as Henry Ford eventually did. And I’m not sure the Nixon comparison is fair anymore because, well, Nixon recognized the real threat Russia posed.

GM Might Build A Smaller Hummer EV

Hummerh3

America is still going to build EVs with or without Musk! We’re going to build the most American EVs ever! We’re going to build some more Hummers! Just maybe ones that aren’t 9,000 pounds and $100k+.

This one comes from Automotive News and it’s really not much of a surprise:

A smaller, electric Hummer is still a design concept in GM’s California studio, but has a good chance of going into production and is seen as a priority project, said the people, who asked not to be identified because the plans are private. GM already builds the large electric Hummer pickup and will begin building a full-size SUV early next year.

Hummer is emerging as a key piece of GM’s electric-vehicle strategy. The company has said it’s spending $35 billion to build 30 EVs by 2025. It’s breaking into the market by appealing to high-end customers with pricey EVs from Hummer and Cadillac and offering lower-priced models to fleet buyers, allowing the automaker to build sales volume and manufacturing scale.

It’s a sound plan, as far as GM plans go. While Hummer was too weird and ill-timed for its introduction (though it was the perfect automotive consumer brand for the Bush era [Editor’s Note: And it would have been the perfect consumer brand to launch this decade to fight the new Jeep Gladiator, Wrangler, and Bronco. In fact, I once wrote that the “The Hummer H3T Is America’s Dream Truck but It Came Ten Years Too Early.” The Colorado ZR2 is remarkably similar if you look at the specs, except it is two cylinders worse. -DT]. their best product, in my mind, was the Hummer H3T. Sure, it was a dressed up Chevy Colorado, but a dressed up Chevy Colorado is a good thing! In particular, the H3T Alpha seems like it was a great truck.

The Flush

Whelp, time to drop the lid on this issue of The Morning Dump. The one thing I didn’t get into above regarding free trade is NAFTA (the North American Free Trade Agreement). Ross Perot, a magical nymph who sounded like every East Texas Auntie combined, said it would be bad. Bill Clinton and George Bush said it would be good. Was it good? Was it bad? Good for whom? Bad for whom?

Photo credits: Top (CATL), Tesla, Tesla, GM

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52 Responses

  1. A smaller Hummer EV is probably still going to be much larger than I want to see. We aren’t likely to see electric tow vehicles yet, so small pickups would be the better move. But I get it. Big vehicles can carry more battery, we like bigger vehicles, and there’s a lot of money to be had.

  2. The US needs to catch up on manufacturing, and quickly. Between microchips and battery tech we’re way behind at the moment and I don’t think I need to justify stating that having to rely on China for a lot of it it is uh…not great. In search of ever cheaper manufacturing we’ve really put ourselves in some bad situations both economically and ethically.

    There will literally always be demand for Teslas. As much as I loathe apartheid emerald failson Elon, there’s no denying that at the moment he’s leading an absolute juggernaut. Teslas hit at an intersection of desirability that no other manufacturer can at the moment….the people that want them won’t consider anything else, they’re universally recognized status symbols, they appeal to non-enthusiasts in a way that nothing else does, they capture the zeitgeist in a way few cars do, and they’re perceived as more environmentally friendly…so people that care a lot about being green and people who just want to virtue signal want them too.

    If you grabbed 10 random people off the street right now and asked them what their dream car is, I’ll bet at least half would say a Tesla. At my work parking lot there’s a handful of interesting cars and trucks, but the only one that consistently gets noticed and talked about is the lone Model 3. Normies love Teslas.

    Sadly Musk will never be held accountable for anything ever because he’s the richest man alive. All of this stuff is just hand wringing. The justice system is literally designed to shield people like Elon from consequences and money will make just about anything go away.

    I mean is it going to small or American truck small? The current Hummer EV is so laughably massive and unwieldy that I can’t take it seriously, and honestly even Gladiators are comically large to me. I live in the city and whenever I see one parked around normal cars it looks cartoonishly huge. I’d definitely be interested in one of these if it was say…Santa Cruise or Maverick size, but I assume it will be Colorado sized, and that’s too big and it’ll still be shockingly heavy. I want an electric mini truck. There are DOZENS of us! DOZENS!

    Le Flush: I think it’s best to try to leave politics off this site as much as possible. The couple times the comments have gotten super political it’s more or less looked to me like we have nothing but a lot of people who are on the far ends of their chosen side of the spectrum. I don’t think it lends itself to good conversation. I’d rather come here so we can all talk about neat cars. If I want to get riled up about politics I’ll just ask an older relative what they think of (insert issue here). I’d rather focus on what we all agree on…that cars rule.

    1. I live in Tennessee. I suspect 10 random people would say Chevy Silverado, Ford F Series, and Ram. Also honorable mention for Chevy Suburban, Cadillac Escalade, or The Kia/Hyundai Telluride/Pallisade.

      Also note the full size trucks would likely be super duty/heavy duty top trim 4×4 with a lift, fake bead lock tires and accessory truck nutz. Sticker of Calvin peeing on another automakers brand may also be included.

        1. As an engineer in Tennessee, it was a weird paradox when our manufacturing techs complained about one of our engineers being paid too much when he bout a new Tesla, despite his Tesla costing less than $40k, while 50% of them drive lifted 2500 diesel Rams and Silverados, all of which I can say cost them more than his Tesla. Not only does the average southern blue collar worker despise Teslas, they also still see them as a societal symbol rather than attainable car.

          And personally I agree with them. Not to mention the amount of people who need trucks here (farming, hunting/fishing use, poor weather 4wd machine, neighborly “can I borrow your truck” duties) means it tends to have a real positive social outlook.

          The Ford Lightning and Silverado EVs will be what sways the south. If ranges are high enough, chargers are installed more frequently, and towing is addressed more heavily.

  3. Ross Perot had some smart ideas, but his isolationism wasn’t one of them. Some people want to imagine we would not have these supply chain issues if we didn’t broaden trade partnerships, but we also would have found ourselves limited in terms of both products/materials AND innovation. A thing that is often forgotten is that we trade in not just products, but ideas. And isolationism means we reduce that trade, even if we don’t intend to.

    1. Sure! But also wouldn’t you say the irony of it all is that NAFTA flushed out manufacturing jobs, populism took hold of people who are now much lower on the economic ladder, and their choice of political savior is going to be someone who at least pretends to be an uber-Isolationist?

      1. Absolutely! The populism we see now would have likely never taken hold if we’d gone isolationist then. Instead, we’d probably be in the middle of a push for more free trade right now, but we’d also have already been overtaken in global trade, so we’d be playing catch-up.
        It is always interesting to see the effects of things in retrospect, and one of those effects is the ability to spin a narrative. Go isolationist? Someone will tout the missed benefits of free trade. Go free trade? It’s the loss of manufacturing they’ll talk about. Reduce unemployment? Cost of labor rises. There’s always something you can react to and use to push a narrative.
        We’re looking at a very reactive choice to massively increase US manufacturing in certain sectors (mainly semiconductor and automotive, I think). In a few years, I wonder if choices to promote US manufacturing will be seen as investments that paid off in self-reliance or wasteful spending that cost us global trade share. I suspect it will depend on who is talking about it.

    2. Isolationism isn’t the opposite of “free trade”. “Free trade” in this context was to essentially make corporations borderless while not extending that freedom to workers. For many of us, the results were obvious. This bastardized version of “free trade” was predicated on chasing cheap labor and resources, as capitalism has always done, but without the coups and carpet-bombing, mostly. You can craft trade deals that protect jobs, the environment, and the transfer of ideas, but its less profitable for the corporations that right those deals, so it doesn’t happen.

      1. The problem is that Perot didn’t oppose NAFTA on the grounds that it was biased in favor of corporations (on which you are very much correct), but was instead promoting isolationism as the correct choice. He wanted to reduce our ties to Europe, not just avoid further trade agreements with Mexico and Canada. Could we have done a better job in implementing NAFTA and other free trade agreements? Absolutely. Would Perot’s policies have been any better? Most likely not. We just would have faced different problems.
        The best choice for people, as you have indicated, would be to craft better deals, but the money backing politicians comes from the corporations who will work to ensure they win one way or the other.

  4. Spending 35 billion to build 30 EV’s by 2025? Wow, 30 whole cars? Ha ha
    (I could buy 30 whole parts cars from junkyard,etc for $3500! Imagine how many junkers I could buy for $35 billion- would start my own junkyard heaven!)

  5. When Hummer first hit the market they had a gigantic vehicle that they knew everyone would love. Turns out, not enough people loved it. They made a smaller Hummer so more people would love it. Turns out, the few that loved Hummer only wanted the larger one. GM killed off Hummer and vowed never to make the same mistake again.

  6. What America needs to face up to is that it has an education problem. Sure, it has the best universities in the world with advanced research, but a lot of blue collar manufacturing jobs only need a good high school education followed by trade school. The catch here, is that ‘good’ high school education has been declining for the last fifty years while it has been steadily improving in developing countries. A big part of the decline in manufacturing has also been a skills and intelligence gap. Add to that, the cultural contempt for education in large parts of the country. “You went to school and learned something other than how to play football? I don’t trust elites like you.” Or, what are we paying teachers for? Just pay the police more.

    Of course no leader would dare the political suicide to address (See Hillary Clinton, deplorables)

    1. “[C]ultural contempt” – bingo, my friend, you’ve nailed it. There is a very large base of support in the country for a party that implicitly (and hell, probably explicitly) intends to limit education to as many people as possible, because an uneducated populace is easy for them to control. This has manifested itself for decades now and here we are.

    2. Declines in HS education are certainly part of the problem. As are NIMBYs who don’t want manufacturing anywhere near where they live. But the bigger part of the problem is Wall St. and hedge fund emphasis on “if we can build in Bangladesh or Azerbaijan for 3 cents less, that’ll drive the stock price and bonuses higher, so of course!” Exacerbated by stock traders who pounce on price changes to buy or sell within milliseconds. A tax on stock trades, even 0.1%, would help mitigate this.

      1. Further compounding the problem is that stock prices are complete garbage. If you make a billion dollars this year, but next year looks like 900 million, your stock will drop. So companies do everything to decrease costs and increase profits at completely unsustainable rates for as long as possible. Capitalism demands constant growth, even though that is an unrealistic expectation.

    3. The failing public schools are also dragging down undergraduate education. Half of the time in College is spent bringing everyone up to speed, since some kids have never heard of Geography while another group of kids never had to write any papers before, and so on. Add teachers being afraid of failing students and grade inflation in higher levels and we have a massive problem.

      What you say about cultural contempt is absolutely true – I grew up in Sweden and you would see that attitude amongst 8th grade boys (I would hide good grades), but it had wore off by 10th grade. Here it is a perfectly reasonable stance for leaders of companies, judges, and of course politicians. Not sure how to reverse that trend.

      A friend of mine quit his job as a music teacher in NYC to become a busker in the subway… not sure what that can teach us but it must mean something.

  7. I think free trade among nations is good. But what does “free” really mean. Is it “free” when only one country can really produce the product because they are willing to cut corners (underregulate) environmentally? If one of the goals of free trade is producing cheap products, how do you account for the cost of the environmental impact? I wonder if the idealists/globalists really consider us one world. If they did, would they be so keen to outsource the mining and effluents generated in the production of these goods? Or would it be wiser to “shop elsewhere” until environmental concerns are addressed by China et. al.

    Electric cars are battery cars, and it may be true that battery cars are our future. For an automotive journalist, reporting on the environmental impact of battery production would be a good place to start in helping to address some of these questions.

    1. Slight Correction; reporting on the environmental impact of battery production *& charging, in the context of the current environmental impact of oil extraction, refining & transportation*. It’s important to keep in mind that none of this is happening in a vacuum.

    2. Well, we (the US) don’t have a free trade agreement with China. They undercut our domestic producers and free trade partners despite that. That said, we absolutely should be doing more to help people and less to help corporations (which are not people, regardless of court rulings to the contrary). Beyond environmental impact, we should be doing more to ensure workers (and non-workers) are treated fairly. I’d love to see free trade agreements include more caveats regarding pay and working conditions.

      As to the question of the environmental impact of extracting lithium, several studies have shown that the impact of lithium extraction, vehicle construction, and charging batteries is lower than the impact of vehicle construction, petroleum processing, and burning the fuel in an ICE vehicle. It would be even better if even more of the grid were using hydro, solar, geothermal, wind, and nuclear power. Also important is the progress toward other battery chemistries. Carbon batteries look like a pretty solid choice if we can get them sorted. We could potentially capture carbon that would otherwise be released into the atmosphere and use it in batteries down the road. Hydrogen also still looks promising, especially for commercial vehicles, but only if we can reduce the energy needed to create it, which seems possible.

  8. I’m wondering about the inflection point that will happen when the usual new car purchaser starts to notice that legacy automakers are putting out EVs that fit their needs better than a Tesla, cost less than a Tesla, have better QC than a Tesla, and go through regular product development cycles, unlike a Tesla. I already look at Teslas on the road as being old and stale, and are much more interested in what Hyundai/Kia, VW, and GM are bringing to the table.

    NAFTA was bad for the US manufacturing sector, but good for Mexico, and it kept Canada manufacturing. NAFTA or not, the US manufacturing sector was failing because of labor costs and the rise of global supply chains and shipping. With the CHIPS act, companies like TSMC now have incentives to put production on US soil, even if it is a Taiwanese company. And manufacturers are waking up to the idea that putting factories in the US means shortening supply chains, and paying workers to create opportunities for more of their products to be purchased, even if the price of the product is slightly higher. Wages in China have risen to the point where it’s not so economic to do business there. Stellantis CEO Tavares suggests China should be prepared to accept tariff levels on their EVs and other products comparable to the protectionist barriers they raise for outside products. (China with a 15-25% tariff on outside autos, while there is only a 10% tariff on Chinese auto imports). There’s no reason for the world to let China continue with this level of protectionist policies. If the Chinese government wants to subsidize their businesses, at least that is investment.

      1. I am all about praise when praise is due. For the cost, they are not good cars in my opinion.

        If you like the Tesla, then rock on with your badself. This is more of a personal choice then the hive mind “Must love all things Elon made”. 🙂

        1. Oh, I definitely don’t think the praise is due. For the money, Hyundai and Kia are offering better products than the Model 3/Y. And for less money, there’s the Chevy Bolt. And the S/X do not compete well with anything, in my estimation. Other things are more affordable or more luxurious, as a general rule.

  9. Was my college econ professor actually Matt Hardigree in disguise? I’d say NAFTA was good good for white collar jobs in the US, but led to lots of manufacturing jobs going to Mexico. Side Note: The windows on the H3T are too small typical Bob Lutz era design, looks great though.

        1. I’d argue that automate a plant in the US is better than moving that plant to China.

          “Free trade” is and always was for the big corps, never in the country’s or its people’s interests, which makes sense, since our country is practically ruled by corporations since the Citizens United decision.

          Free trade’s endgame is having an oligarch class rule over a country of serfs fighting in the streets for rat meat.

          1. I’m pretty sure we’re getting close to serfs fighting in the streets for rate meat. When I poke my head up from work and interact with the real world, it is clear that we’ve lost the battle on having an educated populace. How do we expect to build nice and necessary things here when there is a non-zero percentage of the population that believes in a flat earth and continues voting against their own best interests (i.e. funding education)? Seems like the only thing I can do at this point is try to join the oligarch class ¯\_(ツ)_/¯

            1. “Seems like the only thing I can do at this point is try to join the oligarch class ¯\_(ツ)_/¯

              Or maybe, I dunno, volunteer as a teacher at your local schools. Maybe start a class in critical thinking, speech and debate, science or whatever at your local rec center. Found your own church of science and rational thought.

              If it bugs you that much get out there and make a difference.

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