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How China’s EV boom caught Western car companies asleep at the wheel
Link information
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- Authors
- Carlton Reid, Amanda Hoover, David Gilbert, Ramin Skibba, Boone Ashworth, Steven Levy, Morgan Meaker, Will Knight, Lexi Pandell
- Published
- Oct 14 2023
- Word count
- 3393 words
Not just Western companies but Japanese companies too. For some very, very odd reason, these car companies just did not invest in electric vehicles. Even Tesla is slow to release and update their models, and when they do, their cars tend to be bugged out and have poor make and build.
Electric cars have been around for long, but it's like only Chinese companies seem really keen on investing in their electric cars. Only recently are we seeing futuristic looking all-electric concept cars boom in other companies. I honestly think the other companies just didn't take it very seriously.
Look up the GMC skateboard. They had a great idea for an EV platform 20 years ago. Patented it, then did nothing. The execs at the big companies are the worst.
Capitalism and expense.
Legacy car makers constantly have to show growth. Until Tesla, there was no proof that people would buy electric en masse. Add to that that it is extremely expensive to switch from ICE to EV, which we are only really starting to see. There will definitely be Legacy car makers that fail to make the transition and collapse.
The advantage China has that many people still forget about is scale. Japan has 125M people. America has 330M. China has 1.4B.
Japan and America are effectively in a post industrial era while China was in the middle of their industrial boom. China's numbers just support the transition to EVs better than anywhere else.
There are plenty of American companies trying to copy Tesla but none of them have the benefit of being the first mover and most of them probably will not survive.
How long can Rivian lose $32k per car it sells?
The economics in China are just different and I would argue better support EV start ups.
Japan has had an Official Hydrogen Roadmap for a long time. Japanese car companies were expected to toe the line. Toyota has been promising a solid-state battery for 20 years now. My theory is that they're trying to Osborne Effect people into not buying EVs yet, because Toyota will have a superior one Really Soon - and they should buy a Toyota hybrid instead.
In addition Japan's own electric grid isn't fit for large scale electrification (single-phase 100V, half the country is 50Hz, other half 60Hz).
Now that's pretty interesting. What turn of events led to that happening, and how are they going to fix it in the future?
Doesn't exactly seem like the kind of thing they can just leave unaddressed...
If Wikipedia is to be believed, it’s because Tokyo bought generators from AEG (a German company, 50 hz) while Osaka bought ones from GE (an American company, 60 hz).
It is actually. The vast majority of electronics will work with either.
Everything you plug in will work with both pretty easily.
The problem is that you need to have a transformer between the grids if you want to share produced energy. And that capacity will be limited. So in theory you could have a huge overproduction of wind/solar in the 50Hz area while the 60Hz area has rolling blackouts because of production issues.
I think it's no secret that the West is in an economic war with China that goes beyond mere competition. In this sense I accept the article's choice of words plainly, allowing the current China economic dominance in critical sectors are threats to the West - automotive being one of those critical sectors.
Western economic reliance on China imperils their economies, not only due to competition but also due to supply chain insecurity, heightened inequality due to offshoring, espionage threats, environmental concerns, and more. These are all threats to the security and economic certainty that Western citizens enjoy.
China is a country that seems to be able to take any of the abuses perpetrated by the West and double down on them. There was once hope that an economically "free" China would join the rules-based world community but that never came to be, China was able to embrace Capitalism while still enjoying Communist Party Rule. That's a party which exercises extreme human rights abuses at home; ensnares vulnerable countries in debt traps designed to expropriate real property, resources, and entire industries; builds their industries through well documented industrial espionage; and is playing a very dangerous game in the South China Sea vis-a-vis theft of Southeast Asian territorial waters and the looming Taiwan question. In my opinion this is a country led by a Party whose dominance in critical industries is a threat to the world, more so than any Western country. And while we in the West, via democracy, have an opportunity to confront and correct the abuses committed by our own nations the people of China do not have that opportunity. In fact, even standing up to the CCP peacefully can be damning for a Party subject.
We should certainly thank China for hopefully waking us up to embracing more green technologies, to how we associate ourselves with the Global South, and the dangers of globalization but I don't think anyone should find happiness in a dominant China in its current form. China, in the form of the CCP, does not deserve access to the Western economic system and the threats that their economic dominance entails should be pointed out by articles like this. I am an idealist at heart and want desperately for a better system than the West provides but in the world of realpolitik a Western-led order is highly preferable to a Chinese-led one.
I read the same article and I disagree that the tone was anti-China. If anything the tone is one of disappointment for American and Western countries inability to adapt fast enough.
It's a shame that it took massive government subsidies from the Biden administration. It's very likely that these subsidies will put pressure to raise tariffs on Chinese EVs in the future to protect American subsidized giant EV SUV companies.
American, German and Japanese manufacturers really were asleep at the wheel. They should have seen this happening from miles away. They should have prepared for it themselves, instead of waiting for hand-outs to save them from "the big bad Chinese".
Wired article — archive: https://archive.li/lU610
Western auto execs never thought Chinese EVs were a threat. This oversight has led to an impending crisis that could threaten the dominance of Western car companies.
Competition and the rise of the Chinese EV industry
With over 300 companies manufacturing EVs in China, the competition is intense, but one homegrown brand is much, much bigger than the rest. Steered by a billionaire CEO, BYD may well soon eclipse Tesla in both tech savvy and sales.BYD is Tesla’s main competitor in China, and it is soon to be a serious competitor to many of the world’s auto brands. The 28-year-old company is a Warren Buffet-backed manufacturer that’s dominant in EV battery production for itself and others, including Tesla. Indeed, BYD is second only to CATL in Chinese battery production, a sector in which China arguably leads the world.
Even Elon Musk acknowledges that BYD is now a significant player. In a 2011 interview, Musk mocked one of the company’s first vehicles. “Have you seen their car?” Musk asked, giggling that he didn’t consider BYD to be competition for Tesla. “I think their focus should be making sure they don’t die in China,” he scoffed.
Responding to a snippet of this interview posted on X, Musk admitted that many things have changed since then; he’s no longer laughing at BYD. “That was many years ago,” Musk conceded in May. “Their cars are highly competitive these days.”
Auto Industry History Repeating
The failure of 'legacy' automotive companies to foresee the rise of Chinese EVs echoes previous instances where they overlooked the potential of emerging threats, be it from Japanese automakers in the 1980s or Tesla more recently.Auto industry analysts are highly critical of CEOs from legacy brands, believing they should have reacted much earlier to the EV threat Chinese carmakers posed to their businesses. “These people are getting paid 20, 30, 40, 50 million euros (...) It’s their job to know these things, right? It can’t be like, ‘Oh man, China moves so fast, so we didn’t see it coming.’ Well, that’s your job.”
Ex-Chrysler exec Bill Russo considers the failure of traditional automakers to see what was coming as a recurring self-harm. In the 80s, legacy brands didn’t take seriously the threat from Toyota, Nissan, and other East Asian car brands until it was too late, Russo says. The same happened with Tesla, and now history repeats itself with China’s emergence as an EV powerhouse.
Legacy auto companies “tend not to take seriously an emerging threat,” Russo says. “They thought that because the math didn’t work for them, it can’t work for others. (...) The car industry resists change.”
Tu, an industry analyst, agrees. Industry executives “have known about EVs for a very long time — Tesla has been around for 20 years, right? They just thought it was a flash in the pan,” he says. “They had no familiarity with battery power, so they leaned into what they were comfortable with” and largely ignored what startups in the US and battery companies in China were doing.
Warnings
Another industry veteran who identified the threat from China early on was Andy Palmer, sometimes described as the “grandfather of the electric car”. In 2005, he started Nissan’s development of the Leaf, the world’s first mass-market EV. He became Nissan's global chief operating officer, the third-most-powerful exec at Nissan, stepping down in 2014.Palmer says he's been cautioning anyone who would listen, “increasingly vocally,” that China would become a threat to Western and Asian auto interests, and that letting China succeed would be folly. “I’ve been warning about China for 15 years,” he says. “I warned the Japanese, UK, and US governments that there was a real risk that China might get this right. And, ultimately, that has proven to be the case.”
Why issue such warnings? “Just in the UK alone, the auto industry sustains 800,000 jobs” (4.3 million in the US). “Automotive engineering also casts a shadow on other parts of the economy. When you lose your automotive industry, you lose engineering expertise, specialist education, and science-based capability. By failing to back its auto industry with sufficient subsidies and other support, the UK government “has been asleep at the wheel,” says Palmer.
“China has a vast market, it has economies of scale, it has subsidies and encouragement from central government, and it has an international strategy that seeks dominance in overseas markets with a product — affordable electric vehicles — that Western manufacturers aren’t able to make,” says Palmer. He saw China’s long-term game plan firsthand when, in 2005, he was a board member of a 50-50 joint venture between Nissan and China’s Dongfeng Motor Corporation.
“I was a rare foreigner in the middle of that environment,” says Palmer, “Even back then, it was apparent that China had concluded that they couldn’t compete with the West with internal combustion engines. Their risky but innovative solution was that the way to leapfrog the West was through what they called ‘New Energy Vehicles.’
China's early investments into New Energy Vehicles
China has been planning the transition to electric power in transportation for decades. Wan Gang, a former minister of science and technology, convinced leaders more than 20 years ago to bet on what became NEVs, selling this leapfrogging of overseas carmakers as a way to boost economic growth, tackle China’s air pollution, and reduce its dependence on oil imports.
“The primary motivation for China to push for EVs was energy security,” says Russo. “Second was industrial competitiveness, and a far distant third was sustainability.”
Makers had to be supported, says Palmer, because such a novel, innovative sector could not be profitable for at least several years without subsidies. “Chinese companies received instructions from central government that they had to move in the direction of EVs. Essentially, the government said it would be stimulating the sale of those vehicles. Initially, we didn’t have that benefit in the West,” he says.
David Tyfield, a professor of political economy at Lancaster University, says there is “no future for the EV which does not feature significant, if not disproportionate, Chinese presence. Chinese companies are just too far in the lead across the whole supply chain of the electric vehicle: from the minerals to the batteries to the building of the cars.”
Response
Policymakers worldwide fret over China’s ambition to control entire supply chains—for instance, the minerals inside EV batteries. Such domination by China is claimed to threaten individual economies and the (Western-led) global innovation system.
Shortly after the EU opened an anti-subsidy investigation against China, Valdis Dombrovskis, the EU’s trade commissioner, said the trade bloc was “open to competition” in the EV sector, but “competition needs to be fair.”
Responding to the imports probe, Cui Dongshu, secretary general of the China Passenger Car Association, urged the EU to cease the economic saber rattling. “I firmly oppose the EU’s evaluation of China’s New Energy Vehicle exports, not because of huge national subsidies, but because of the strong competitiveness of China’s industrial chain under full market competition”.
Interestingly, some Western auto brands, have seemingly adopted the “If you can’t beat ’em, join ’em” approach. Mercedes-Benz has reportedly had talks with Nio that could see the German automaker investing and gaining access to the Chinese company’s R&D capabilities. There have been other German-Chinese auto deals recently too—the latest being VW investment in XPeng to collaborate on EVs.
From Deimos (Tildes' admin):
p.s. Providing a link to a mirror/archive of the article is fine though.
Thanks, this is definitely a good thing to be reminded of.
I wanted to highlight key parts, as this is along article is a bit long, but I now realise I have used too many snippets without adequate reinterpretation. ~30% of the article might be a bit too much. I definitely should have rephrased more of the snippets rather than copy the selected paragraphs.
Should I edit my comment to be more transformative? I can remove some less important snippets and rephrase the more important ones. Currently, I've temporarily collapsed the snippets.
(Also please label this comment as noise)
30% is probably fine. I mistakenly thought you had copied the whole article, since it wasn't broken up into separate quoted sections. My bad.
I see this very strange position from (continental) European politicians
If the Chinese want to sell cheap cars for Europe, then that's great.
The only worse case I've seen this argument applied to is solar panels (buying cheap Chinese solar panels is a no-brainer).
It's free markets when it's a European or American company. It's a political adversary when it's anyone else doing capitalism. Same goes for semiconductors. China's chip engineering capability is getting too close for comfort even if they're still generations behind. America does not want anyone coming close to challenging Intel or AMD in the market.
I’m a little surprised they didn’t mention BMW. Instead of trying to make their own small EVs they have been working with one of the Chinese EV makers to make the next generation of the MINI Cooper EV. And a damn good thing, as the current MINI Electric is embarrassingly poor in range, performance, and price.
My point being that “if you can’t beat them or catch them, work with them” is one of the approaches legacy makers can take, and some (like BMW) are doing so. Not sure it’ll save them from seeing their lunch eaten by the new Chinese makers, in the long run. But not every company has its head firmly stuck in the sand. Just most of them. (And even BMW had to be dragged kicking and screaming.)
Well, it’s Wired. It wouldn’t be a Wired article if they didn’t miss an enormous part of the story. :-)
Asianometry has had a better series on Chinese EVs including the 868 policy.
On a side note, as someone who sat in the GM EV1, the kneecapping of it with a strange lease policy, poor marketing, and minimal attempts to make an infrastructure showed most legacy companies were going to replicate Kodak's legacy of failing to adapt to new technology at their peril even if they had an early start.
https://youtu.be/04rvKCoZWLM?si=NwqJ1V-sWD-ipuxk
Maybe it was a mistake all along to expect ICE manufacturers to pivot to EV, just as was expecting a chemical giant with an expertise and brand in photoreactive strips to pivot to becoming a chip manufacturer.
What gives these companies strength is their inertia and strong company culture paired with their recognition. Rip out your core business and try to replace it with a competing technology and you will turn all of these strengths into liabilities. Suddenly your immensely valuable domain experts are redundant cost centers, your company culture is an obstacle, and your brand reception needs a complete overhaul.
It might actually be easier, and smoother, to ignore the change, slowly wind down the dying business until it becomes a niche operation and move your capital into a new company that will then cherry pick talent and processes from the carcass of the old.
Sadly what actually happens is that the old companies refuse to yield gracefully. They buy out threatening start ups around them and poisen the field with regulation bought by long term political connections, leaving the whole country unprepared for the day the leeves break and the market is flooded with superior foreign products.
Funnily enough this is an area where capitalism isn't ruthless enough for me. We tend to prop up dying companies for much too long because they are too big to fail, and then we stare down the barrel of a whole industry failing at the same time and with even more catastrophic cascading consequences.
I'm reminded of Japanese Zombie Companies which are cited by many economists as a major reason for the lack of growth in the Japanese economy. Hard to have an effective free market when the current players are all shambling husks carried on via pure momentum.
Kodak is a fascinating example. Most people seem unaware that Kodak invented digital photography. But they didn’t take it seriously.
I am reminded of Upton Sinclair’s adage: It* is difficult to get a man to understand something, when his salary depends upon his not understanding it.*
Marx is laughing in his grave. It really seems that the malignant short-term thinking of western capitalism simply can't compete long term with the long term planning possible in a socialist system. The Communists are better at capitalism than the capitalists.
China is not a communist country – wealth inequality in China is significantly higher than the USA (for a crude proof consider their respective Gini coefficients).
Sure it's labelled as "communist" on the tin, but it runs essentially market capitalism with an autocratic state.
China is not practicing socialism in its industry. It is practicing classic 18th century European-style mercantilism. China’s political-economic system bears very little relationship to the socialism that Marx predicted.
I wouldn't say they're practising mercantilism. I think China runs a market economy with a high level of central planning.
Sure some of their policies are a bit mercantile (e.g. having such huge foreign currency reserves) but that has proved to be effective (and they essentially used them to bail out the world economy post 2008). I think a lot of western foreign policy analysts who describe China in this way are mainly jealous that China can still produce things cheaply and efficiently whereas many western economies cannot.
Maybe there are valid reasons why the west hasn't exactly taken electric cars with welcome arms until now ?
One key difference is that China has a lot more strategic interest to move away from fossil fuels, and oil in particular. The US is now self-sufficient in terms of its oil production. In contrast, China has very little domestic oil production relative to its needs. It has some, in the South China Sea for instance, but its dependence on oil imports is a huge geopolitical liability. It gets most of its oil from the Middle East, and that oil has to go right past one of its biggest rivals, India. Then it has to go through multiple easy to blockade choke points such as the Strait of Malacca. And that oil has so sail past countries it doesn't have the greatest relationship with, Vietnam and the Philippines. China is working to eventually build sufficient pipeline capacity from Russia and other friendly Asian countries, but building pipelines over thousands of miles is a slow and expensive thing. Plus, those pipelines represent fixed, easily destructible infrastructure in the event of a war.
China simply has a lot more geopolitical incentive to get off oil than the US does. If the US got into a conflict with China over Taiwan, it could blockade the US Navy could blockade the Strait of Malacca and other key choke points. In relatively short order, this could cause the entire Chinese economy to grind to a halt. And the US can do this without sending ships anywhere near the Chinese coast.
In contrast, the only way any foreign power is ever shutting down US oil production is if they stage a direct invasion of the US mainland. The CCP touts their electric vehicle rollout as being primarily for environmental reasons. But doubtlessly their motivations are as much geopolitical as they are environmental.
Love to hear some.
My whole interpretation of electric cars in the west is that they tried in the 90's when the tech wasn't quite there yet and gave up. Then around the '10's Tesla came in to disrupt the industry and the major American corporations lobbied as stalling tactics until they caught up. Which is just starting now, slowly.
Meanwhile, while Tesla has been held back by industry, Tesla itself has been silently imploding and rushing out features for the sake of being "first to market". Which ironically enough slows it down with all the litigation as a result of being the first to hit all the ineivtable lawsuits. So the biggest lead lags in the race as well.
I don't quite know how Japan faired, but the West's lollygagging on the tech isn't too surprising. My best guess for the slow progress is factories. You need a whole new pipeline for such cars and the car industry as is wasn't doing the best before this. That + inflation means it'll cost a lot of money to invest properly domestically. sounds like a job for outsourcing, but that just feeds right back into China.
It's not factories, but the whole subcontracting chain.
Especially with German companies. There might be a family-owned company who has been providing, say, Mercedes with some widget for a 100 years. The executives of both companies have known their parents, each other and each other's children intimately their whole lives.
Going to the next meeting and saying "we're pivoting to EVs and we won't be needing the [ICE specific widget] your company provides any more" is not something you can do lightly. It's not just a numbers game.
And this is in addition to the whole technical problem of pivoting to an EV drive chain and the attached software cycle. In ye olden times, the car's software was locked when it was produced and it might've gotten some map updates when you take it in. With EV's it's expected and almost required to have an always-on internet connection, OTA software updates and all that.
A company who has only released software updates every 5 years can't do that kind of change easily - as proven by VW wasting 1 billion in its attempt, failing and firing the executive in charge.
In short, the current EV market is this:
The one who succeeds first will win.
Now the Chinese have gotten their quality and design together enough to compete in the western world and are bringing out something in between those two. Decent cars with decent software BUT the price point is lower than either of the two previous categories.
Like what?