You can pull my car, child.
Yes, I’m gonna be a superstar
You can pull my car, child.
And sometimes you’ll fall in love with me.The Beatles
Out of nowhere in the 1950s, over 100 firms in Japan started making riders. The subsequent battle, then known as the Chinese motorcycle wars, was wild, unregulated, frequently despicable, and breathtakingly inventive.
It was a heart game, where bodies were scattered all over the dohy. All American brands were completely destroyed. Harley Davidson was the only American left position. The natives were mutilated.
Only four Samurai vehicles remain, including Honda, Kawasaki, Suzuki, and Yamaha, after the Japanese even brutally savaged each another. Those were magnificent days for Chinese business.  ,
Japan’s automakers even experienced a historic increase, but it was much more genteel. Theirs was a tale of perseverance, progressive improvement (kaizen ), muscular production with a laser focus on quality, lacking the kill- or- become- killed bet- the- farm foolish abandon of the motorcycle wars. Although Toyota, Nissan, and Honda did n’t completely revolutionize the car, they did. The crotch-rocket revolutionized what a bike may be, and the survivors of Japan’s bike wars went on to create it. And the world is a better spot for it.  ,
Han Feizi again had gas in his arteries. He read , Iacocca , as an young child and, at one point, may identify every vehicle on American highways only by their lights ( women have their horse step ). A brief stint as an expert at General Motors immediately drained the fuel from Han Feizi’s young arteries.
Han Feizi, however, managed to maintain his status as a vehicle man enough to realize that business blood-sport had returned this day in a much bigger industry and with much more at stake fifteen minutes into the Car China 2024 show in Beijing. China is repeating the Japanese scooter war, except it’s with vehicles. It will be terrible and will change the nature of a vehicle.  ,
It is still earlier in the game but every component of the automobile sector is now being disrupted. Gladiators from all over the world have come together in an epic battle royal in China, where the auto market is the largest in the world is twice the size of the US. There are no interests in this free for all society. Partnerships are being formed. There are being cut off partnerships. Soldiers are creating new arms and selling each other’s. Anyone knows that this is a destroy- or- become- killed blood sport and that only a handful of combatants may live.
BYD bet the farm on unhinged growth. It has grown more than 700,000 people in three times to over 700,000 ( with over 100,000 in R&, D), which is roughly five times as many as Tesla. The company’s model lineup of over a dozen EVs sold under four brands runs the gamut from$ 9, 600 commuters to$ 140, 000 luxury sedans to$ 240, 000 supercars and everything in between. BYD has a solar arm and an EV vehicle section. BYD is vertically integrated, making parts in-house, with the majority of its device output being sold directly. Besides large new factories in China, BYD is even building capacity in Europe, ASEAN, Central Asia and Latin America.  ,
To address the charging time issue, NIO bets on battery swapping. The luxury company known for white gloves customer service only survived its next near death experience. The Hefei federal made a proper investment to get past the first one. In a crowded industry, NIO’s batteries as a support model stands out from competitors, but success has been difficult and hard charging technology is in high demand. Late last year, the company received a$ 2.2 billion capital injection from CYCN, an Abu Dhabi investment fund, buying valuable time. Writing off NIO would be a miscalculation. When surviving to battle another day is now a success, it would be wrong to dismiss someone in China’s vehicle wars.
Xiaomi bet the farm that a manufacturer of phones can pack a vehicle with all the bells and whistles and rate it to market. The SU7 is three to six times the price of a Tesla and a Porsche, and on paper, it has excellent performance, styling, and digital features. The business is betting that the company’s experience with mobile phones will be transferred to EVs ( built in conjunction with BAIC ), enabling a startup like Xiaomi to compete with well-known car makers like Porsche and Tesla. Directions for its leading SU7 have exceeded 70, 000 products. If shipping, cost, and excellent meet expectations, only time will tell.  ,
Huawei bet the land that the value of EVs is embedded in modern architecture. The software giant has collaborated with Seres, Chery, Changan, and JAC to create energy vehicles made of Huawei systems, including entertainment, device set, engine, self-driving system, etc. Will this model function seamlessly across all of Huawei’s partner companies? We will find out.
Geely wager the farm on an acquisition strategy that includes acquiring troubled automakers and defunct brands from all over the world. Volvo, Polestar, Lotus, Smart, London Taxi, Proton, Aston Martin, and other brands from Geely’s stable give the business a global presence and a local following. Time will tell how successfully Geely leverages its international sprawl.  ,  ,  ,  ,  ,  ,
Tesla placed a wager on the farm it needs to produce in China for profit-economizing exports to other countries. The company received a tremendous amount of grief for skipping the Auto China exhibition two years in a row. Tesla became the first company to consistently be profitable when the Shanghai Giga Factory started producing in 2019. Tesla’s excruciatingly long product cycle has, of late, kneecapped sales, a problem caused by China’s Cambrian explosion of new EV launches. Elon Musk was just in Beijing, securing a deal with Baidu to help bring full self driving to China, keeping Tesla in the game. It’s a win to fight another day in China’s car wars.  ,
These are just some of the plot lines clashing on the battlefield of China’s car wars. Every business is swimming in bloody, twisted waters caused by technology’s relentless march. Batteries are becoming less expensive, safer, lighter, and more energy-dense. AI- and 5G- enabled automation is lowering manufacturing costs across the supply chain. Self-driving abilities are continuously improving. Companies are field testing business models from battery-as-a-service to partnerships between car manufacturers, battery producers, and digital architecture providers. A Foxconn style contract manufacturing model may be taking shape. China is moving quickly toward solar power, which could potentially cause the price of electricity to fall, further accelerating the EV transition. Everything changes constantly. Nothing is certain.
Legacy carmakers are either sticking their heads in the sand, getting their ducks in order, or running up a creek without a paddle. Volkswagen has formed a partnership to develop future models ( getting ducks in order ) and has acquired a strategic 5 % stake in Xpeng for$ 700 million. BMW announced that it will invest$ 2.8B in its Shenyang factory to build EVs. In the upscale Denza brand, Mercedes has partnered with BYD and made flimsy promises to keep the company’s EV transition going.  ,
Nissan and Honda (up a creek ) are exploring a partnership to co- develop EVs. The CEO of Toyota ( head in sand ) is resolute about the dominance of pure electric vehicles over hybrid vehicles, internal combustion engines, and Toyota’s hobby horse hydrogen fuel cell vehicles, which account for 30 % of global car sales ( it has already surpassed 50 % in China ).
GM, Ford, and the other half of Stallantis ( Jeep and Dodge ) have their work cut out for them. All three operate in a Galapagos market distorted by the” chicken tax” – a 25 % tariff placed on light trucks in 1964 in retaliation for European tariffs on US chicken. Although European chicken tariffs have long been dropped, car manufacturers ‘ lobbying has kept light truck tariffs in place.
Since then, passenger cars have been depleted of engineering resources as the Big Three aggressively promoted pickup trucks, which were once a niche product for farmers and tradesmen, to suburban families. To further leverage the chicken tax, the Big Three invented the SUV – a passenger car pretending to be a truck.  ,
Selling $ 60K pickup trucks and SUVs in a protected market is a highly lucrative business in good times. Ford and GM generated$ 4B and$ 12B in profits last year. The Big Three find their product lines unimpressive and uncompetitive in difficult times. After the 1973 oil price boom and the Shah of Iran’s 1979 deposition, Chrysler was first bailed out by the Federal government. In the 1980s and 90s, the Big Three lobbied for and were granted “voluntary” export restrictions on Japanese cars. Both GM and Chrysler were ( again ) bailed out with loans from the Federal government during the 2008 financial crisis.
The Next Century, David Halberstam’s treatise on American competitiveness, was sent to all matriculating students for MIT’s class of 1995 in the summer of 1991. Discussion sessions on the book were held during freshman orientation. The Reckoning, Halberstam’s 800-page tome that was published in 1986 on the parallel histories of the Ford Motor Company and the Nissan Motor Company, is a condensed version of the original. The conclusion of Halberstam was unsatisfying. America was being outworked, outengineered and outcompeted not just by Japan but also Korea, hot on Japan’s heels.
The circumstance could n’t have been worse. MIT freshmen were asked to consider a world in which America was at the beginning of Japan’s long stagnation. Over time, the call to arms fell on deaf ears. As Japan and the Soviet Union’s threat both magically vanished, the fighting spirit that the MIT leadership intended to instill in America’s top technical minds quickly vanished.  ,
The MIT class of 1995 went on to exciting companies like Microsoft, Goldman Sachs and dotcoms. The Big Three car companies, which David Halberstam questioned, were flyover-friendly because they were intended for state school graduates.  ,
The Reckoning , was published thirty years too soon and chose the wrong Asian boogeyman. Nissan would remain in Japan, which would be easily stifled by Yen appreciation ( thank you, Plaza Accord ) and export restrictions. No matter how much better Japanese engineering was, the US was the largest car market in the 1990s.  ,
The reckoning of today is much deeper. This is not a flurry of Japanese automakers bringing American cars into the country; it was easily done. This is 100 Chinese carmakers revolutionizing the industry with reckless ambition in what is now the world’s largest and most competitive car market. The Chinese car wars are still in their early stages, but they already threaten to slam a tsunami of EVs developed in fierce competition onto global markets. This poses an existential threat for nations with auto industries. Nations without auto industries are climbing all over each other trying to secure an offshore assembly plant from a Chinese carmaker.  ,
The once-climate-obsessed EU is reducing its goal of phasing out sales of cars with internal combustion engines by 2035 in response to the imports of Chinese EVs. EU commissioners in Belgium are busily formulating tariff strategies for Chinese EVs. Senators have already urged a straight ban on Chinese cars for, you guessed it, national security reasons, which is expected in the US.  ,
As we saw from the unintended consequences of the chicken tax, protectionist policies often result in distorted markets with higher priced and inferior products – American pickup trucks and land- whale SUVs are overpriced abominations with no export appeal.  ,
At its core, the US/EU/Japan and Korea are faced with a dilemma involving human capital. Japan is the canary in the coal mine with its STEM workforce having peaked in the late 1990’s. The Japanese people’s human capital is gradually declining, reflecting the three lost decades in Japan. While the US and Korea are unique cases, Europe is not far behind.
Korea has so far managed to outrun demographics by grinding harder, educating every last person to the highest level possible. It’s comparable to escorting young people and elderly people off the streets during wartime. This is undoubtedly not sustainable.
At least the US, home to immigrants, should be able to navigate the waters. Unfortunately, there has n’t been a measurable increase in innovation, scientific papers, or company formation despite Asians accounting for 1 % of the population in 1980 and accounting for 5 % of the population today. The only conclusion we can draw is that this is a case of in- one- pocket out- the- other. Jews and “heritage” white populations dropped out as Asians piled on top of STEM fields. Immigration has not improved America’s technological leadership.
Meanwhile, China is adding ~6 million technical grads (university and junior college ) to its workforce every year. This will continue for thirty more years, doubling China’s STEM workforce. The Cambrian explosion of car manufacturers and new model launches is the result of this development, known as China’s real demographic story.  ,
With 6 million college graduates to choose from, BYD and Huawei are regarded as the best employers to work for. After Tesla, Silicon Valley, and Wall Street had their pick, General Motors and Ford have a few hundred thousand to choose from.  ,
Apple canceled its car project ten years in the making in February after spending a rumored$ 10B. Tim Cook, what are you thinking? Apple has more money than God – just do it, man! However, we believe we are aware of what Tim Cook was thinking. The controversy is that the program was canceled after JV negotiations with Hyundai failed. Apple just does not have, nor does it believe it can hire, the manpower to pull it off. Similar crises are occurring at TSMC, Boeing, and American shipyards.  ,
Winston Churchill famously said,” Americans can always be trusted to do the right thing, once all other possibilities have been exhausted”. In this situation, the best course of action is to either engage with the changing world or be forgotten. Retracting back to tariff barriers or complete bans will isolate America’s auto industry and create a Galapagos market of ridiculous trucks sold at nosebleed prices.  ,
Without a rise in STEM graduates, the right thing turns out to be bitter to swallow: it would require US US approval to allow Chinese EV makers to establish factories and possibly R&, D centers in America. Given that the US only accounts for 13 % of the global car market, it might be difficult to get Chinese companies to form joint ventures with local partners. However, some technology transfer might be possible.  ,
In 1990, David Halberstam was unaware that the US, which accounted for a third of the global car market, could easily deviate from its Japanese position. Perhaps a generation of policymakers was persuaded by this that China could use the same magic trick once more. That would be a stupid move. China’s car market is now twice as large as the US, and the Global South’s market is now more than three times as large (up from the two-thirds of the US figure in 1990 ).  ,
The US market simply does not matter as much as it used to. The Chinese car battles will be like the Japanese motorcycle battles, full of blood, guts, and spectacular innovation. The US will eventually make the right decision. But dawdling will result in more corpses than necessary.  ,