We are hearing it again, the Chinese are going to invade the US with their low cost electric
vehicles, we have been hearing it for years, but some people still seem to think this.
Authoritative people in the community.
I don't like naming people in the community I disagree with, I think its bad form.
Instead I take their rhetoric and give my own opinion, without insulting them or anything
remotely similar.
But it doesn't matter how well respected they are in the community, or even if it may make
me unpopular, I will keep giving my opinion as to how I think this industry will go, from
my background.
Other people who have these views are doing it based on their background, except often
they are so credible in their own background, they like to step out of their fields and
start talking about other areas too.
But it doesn't matter who they are, I will happily let you know that I disagree with
them, which doesn't mean I don't respect them, at least in their fields.
I have even said when I think Elon is wrong too, like Doge Coin.
Anyway, the narrative is that the Chinese EVs are going to take over the US auto market,
and the basis of this is due to the fact that something similar happened in the 70s and
80s with Japanese cars.
Although the Japanese didn't even get majority market share, and there was no equivalent
domestic auto manufacturer back then, as in an American compact that was even more fuel
efficient with better mpg, safer, higher options, quicker, nicer, better performance and handling,
better technology, etc.
As in other words, there is already a very competent domestic EV manufacturer in the
US called Tesla.
Personally I don't want a duopoly of cars available, as in just Tesla or Chinese EVs.
I am an auto enthusiast, and I think all nations have their own styles and competitive advantages,
and hope that is what we see.
I want variety for the consumer.
I want to drive on the road and see creative features.
I want engineers from different cultures to come up with unique ideas, that can be shared
by all.
I mean look at the French, what a creative bunch they were, when it came to autos, with
all uncanny styles and designs.
Then the Swedish who cared about safety with cars like Volvo and Saab, and ended up inventing
the point seat belt.
The design and style that came from Italy.
The efficiency of cost that came from the Japanese, with processes like just in time
delivery.
The class and prestige from England.
And then there is America, the amount of car you got for the money.
A big car, with a lot of features, for relatively low cost.
But not particularly fun to drive, when compared to a German car, with exceptional handling
and performance.
And China's cheap EVs too, for people just want to go from a to b.
Anyway, who am I to be talking about China's economy, just because I've read a few books,
been there 3 times, and done a little bit of business there.
Nothing compared to even many of you listening now, I am sure, and I listen to those of you
who have lived, worked there, or travel there regularly on business.
Sure I do go over all the financials of the Chinese EV companies regularly and report
about their progress.
But perhaps its me who is being naive, thinking that financials actually matter in a communist
regime.
And the continual comments I get about the fact that the CCP will just keep supporting
the EV companies are right, and wont let them go out of business.
The CCP just want jobs created, not necessarily profitable businesses.
SUBSIDIES Well for starters the subsidies for EVs in
China is dwindling.
So what would be next?
Nationalization?
If NIO goes under, will the government take them over?
Most of these Chinese EVs have a burn rate of about 2 more years remaining, after that
their capital has gone, and they are bankrupt.
That's with the current subsidies which are going to end sometime.
Implying their demand will drop because their prices will rise, or their profit will drop
because they will have to lower their prices to bring back the demand.
Except we are seeing BYD already starting to raise their prices.
There are a lot of Chinese EV companies, and people say that is an issue for Tesla in China.
Except there is still only one Tesla in China.
Just like there is one company that can make the iPhone too.
And the prestige of brands are important to the Chinese.
So if you think all these additional Chinese EV companies are competition for Tesla, they
are much more competition to one another.
All at similar price points, with low quality, low range, cheap EVs, with no competitive
advantage over one another.
They are far more likely to put one another out of business rather than Tesla, and are
also preventing one another hitting economies of scale, or volume production.
Tesla also have additional markets to export to as well, and profitably might I add.
MARKETS But not only that, Tesla is actually manufacturing
locally in other markets.
Now it's one thing competing against Tesla on your home turf with your subsidies and
local resources.
It's another trying to compete with Tesla by exporting to a market where Tesla is manufacturing
domestically.
Which is going to continue to be the case, as Tesla open up more factories in more markets.
Due to such incredible economies of scale through so much demand for their products
Tesla is able to set up factories for all markets.
US But the narrative here is the market for the
US.
Not just where Tesla has local manufacturing, in fact 2 factories even, and another one
likely on the way soon too.
But where Tesla is also based, their home turf.
And Americans love buying American brands.
In fact so does the rest of the world, America has the top brands in the world.
So much so the country is sometimes even referred to as the United States of Advertising.
And Tesla is becoming an ever stronger brand continually.
That brand alone carries a lot of value.
However, it also accompanied by so much value in the vehicle.
Well not just the vehicle but the charging network too, and the service centers, although
I understand they aren't great everywhere yet, but I think it's just growing pains.
Although it might make you wonder, if Tesla service centers are having this many issues
then how would Chinese EVs cope?
SERVICE CENTERS Especially when they don't have the economies
of scale of one brand with only about 2 models.
Yet we expect BYD, Polestar, NIO, XPeng, Li, Geely, CATL, and a plethora of others to all
have a network of service centers?
Oh and likely with multiple models to have to work on and manage.
I am sorry, but this alone I find very hard to believe.
Possibly BYD is large enough to set up in California perhaps.
But wait the Japanese did it.
Well the likes of Honda were already selling in the US, they had motorcycle dealerships.
DEALERSHIPS Right dealerships too, they take a while to
set up, or they may end up doing what BYD are doing with some of their international
sales, and going through traditional dealer networks.
Losing one of the vertical integration advantage that Tesla has in order to keep costs so much
lower.
Thus affecting margin or having to raise prices.
TARIFFS As would also the import tariffs.
I think its around 20% that the Chinese EVs would have to pay just in tariffs.
There would also be a substantial shipping cost going across the pacific.
Then the delivery cost to wherever it is headed in the US, although if they are just concentrating
on California to start with then perhaps not too major.
Still that's probably around an additional $6,000 cost advantage that Tesla has making
them locally, maybe $10,000 including dealers.
Wow, I think we are already at price parity for a BYD equivalent against a Tesla.
As in electric sedan for electric sedan, if we exclude the additional range and performance,
and extras that you get from a Tesla.
Oh, and we still have these Chinese EVs selling at a loss.
And by the sounds of it Teslas eventually reducing in price, due to further cost savings.
SUBSIDIES Except we didn't even get to the good bit,
the Tesla consumer will be getting a $7,500 rebate.
Then Tesla get perhaps a further $4,000 in battery subsidies.
The imported Chinese EV gets nothing.
In other words even if China sold their vehicles at break even, as in 0% operating margin,
then a Tesla would still be perhaps $10,000 less, and offer a lot more value.
Assuming Tesla don't raise their prices, which is moot anyway, because if they had to Tesla
would sell every car they make either way.
NUMBERS But is it about numbers.
Perhaps the Chinese can just make so many, and people just want EVs, and the ICE industry
has collapsed and there is nothing else available.
Can these other EVs scale fast enough?
Faster than Tesla, after the Chinese EVs serving their domestic market of course, it would
only be the left overs that they could export, the left overs of what they weren't exporting
to less competitive markets.
LEGACY However, there is also the awakening giants,
known as US legacy autos.
They have something these Chinese EVs don't have, tens of billions of dollars to invest
in cell and battery factories.
Brands that people trust, a dealer and service network, along with subsidies and incentives.
Not only that they can also offer long enough range for the target market.
Americans seem to want around 300 miles of range, or at least close to that.
For the Europeans, or the Chinese it would seem range is not as important.
And Chinese EVs are becoming so popular, because they are making so many with LFP cells, which
only offer usually around 200 miles of range.
Due to such large budgets from legacy autos, this will mean they can manufacturer around
4 million EVs a year, just in the US.
It's taking them a while to get there, but they will go from a small number to a large
quantity very quickly, once their factories are complete.
Legacy invested in nickel based cells, and are aiming for around 300 miles.
And will likely be able to offer these vehicles at a lower cost than the Chinese, especially
when you factor in the range for the money.
Yes, the CCP love their EV industry because it creates so many jobs.
Well there is also a socialist side to the US too, along with the UAW, and US government
who also love how much employment legacy autos creates for the US.
And the government is going to do what it can to keep these jobs.
And Ford even hit an impressive milestone of 150,000 Mach Es now.
And they their F-150 Lightning will likely be even more popular and possibly profitable,
especially with the tax credit and subsidies.
LOCAL MANUFACTURING Well then the Chinese can just start making
their cars in the US too, and benefit from all the subsidies.
They can start making their own cells, BYD know how to make cells.
Absolutely, I don't think any reason why they can't.
Except how long will it take them to locate a factory, design the factory, build it, find
all the local components, resources, that Tesla struggle with so much that they had
to vertically integrate.
Then ramp up the production of these factories, to half volume production, compared to Tesla
likely to hit 4 to 5 times volume production.
This would take likely 4 years for them in a market they are not familiar with, probably
more, it's taking US legacy autos almost that long just for cell factories.
Oh and the Chinese EVs have to do all this without their number one advantage, China,
the low cost of labor and manufacturing, along with all the other local low cost suppliers
of components that they need.
Just look at how well Rivian is going.
They are losing an absolute fortune.
So bear in mind we are talking about companies already losing a fortune, to then go attempt
a foreign market with overheads so much higher, tougher competition, and nowhere near the
capital that Rivian has.
If they attempted this it would bankrupt them instantly.
SUMMARY The overall point I really am making, is just
because someone is very credible in one area of automotive, or the economy, investing,
Tesla, batteries, or whatever, it doesn't mean they can predict the future of the industry.
The research they do may let them jump to these assumptions, but the research I do says
the contrary.
It's up to you to work it out for yourself, I can only give my opinion.
But that's the only opinion I will ever give, and will not simply go along with the narrative
of the rest of the community, just to be popular.
I think the US EV invasion, for the record a description I don't even like, will be Tesla.