Given that many of us here tend to live in the past, discussing in great detail automotive minutia of 1956 or 1976, it might be a good idea to come up for air once in a while and consider just what is currently happening in the automotive industry. The industry is going through one of the most tumultuous periods ever, as it reckons with massive changes.
Change is a bitch, and large segments of the car industry is struggling with the two most massive agents of change, Tesla and the Chinese. The extent of this was brought home the other morning when I read a NYT story about Emma Tucker, the new editor in chief of the Wall Street Journal. In her first meeting with her editorial staff, she said: “The media industry had morphed “beyond recognition” and The Journal needed to adapt, or be left behind. “We don’t want to be the German car industry of news publishing,” (Note: Tucker is from the UK)
Thirty years ago or so, it would have been “the American car industry”, which was then being battered by the Germans and Japanese. When the travails of the established car manufacturers once again become warnings for other industries, you know it’s serious.
#1: Tesla Model Y Becomes The Best Selling Car In The World
Let’s start closer to home with Tesla, especially since the US market is largely insulated from the Chinese due to our 27.5% import duty.
The fact that the Tesla Model Y is widely acclaimed to be the best selling car in the world in 2023 is probably not news for most of you, unless you really do live under a rock. Technically he claim is somewhat debatable, as the car it dethroned, the Toyota Corolla, is a large family of cars, with numerous models, variations, body styles and regional differences, so just how the Corolla numbers are counted makes a difference. Or does it? The Tesla Model Y is one model in one body style, so even if there’s some debate, the point has been made.
More importantly, the Model Y was up 85.3% in the earlier part of the year while the Corolla was down some 6%. That alone tells the real story of their respective trajectories.
The Model Y is also the single best selling car in Europe as well as in China. In the EV-laggard US, it’s only #4, behind the Big 3 pickups and the Toyota Rav4. But the Model Y was only slightly behind the Rav4, and the momentum is clearly in the Y’s favor.
Elon Musk is absolutely determined to keep Tesla’s growth in Ludicrous mode, and he’s dropped prices repeatedly all year, which are now down over 40% from the beginning of 2023. The Model 3 now starts at $38,990, which when combined with the federal $7,500 tax credit brings it down to close to $30k, and many states offer their own credits. In other words, in Corolla territory. And the Model Y starts at $43,990, before tax credits. Teslas are now genuinely affordable mass-market cars, selling well below the national median car price of about $50k.
And there’s a low cost Tesla in the works, often referred to as “the $25,000 car”. Who knows what it will sell for? Furthermore, the Cybertruck is due to be officially released any day now; production is projected to be in the 250+k per year range, when fully ramped up.
Speaking of Musk, I recently finished Walter Isaacson’s new biography of him, and it’s an excellent read (or listen). There’s lots of insights as to how Musk works, which has resulted in huge successes along with some collateral damage. I recommend it.
#2: Tesla Tops Toyota As The Best Selling Brand in California
There’s an old saying: As goes California so goes the nation. That was certainly the case with imports in general and Japanese brands as well as a huge amount of non-automotive trends. Now will it be the case with Tesla? It has dislodged Toyota as the #1 brand in the Golden State. Tesla was up 62.3% in Q2, and Toyota was down 8.3%.
For Toyota, which has been in deep denial about EVs, perhaps losing its long-established top spot in California was the final straw. They’ve finally accepted that Tesla represents an existential threat and they need to get real about EVs.
#3: Toyota Gets Tesla Religion
This could a long post by itself. I’ve been reading the travails of Toyota’s mixed-messages EV strategy for years, often with un-repressed snickers and guffaws. Former CEO Akio Toyoda (above) kept vacillating between telling the world that battery EV’s were not the solution — but hybrids and hydrogen were — and yet repeatedly telling us that Toyota was going to unleash a barrage of new Tesla-killer EVs by 2021, 2022, 2023, 2024… To date, the only Toyota EV available is the ill-fated bz4x, whose wheels kept falling off and whose sales have not found any real traction.
Finally in January of this year Toyoda conceded he was out of touch and stepped down, handing the reins to a younger and decidedly less hide-bound Koji Sato (center, above). Sato tacitly acknowledged that Toyota’s existing EV strategy was utterly doomed, resulting in cars like the bz4x that could never be profitable or built in the volumes that it would take to compete with Tesla. And that was before Tesla started dropping its prices drastically several times throughout 2023.
Sato recently unveiled a massive and radical new EV strategy, involving completely new platforms and utilizing giant gigapress castings for major underbody sections as pioneered by Tesla. And they’re going to be built with radical new assembly processes to lower production costs. It’s all straight out of the Tesla playbook. What sweet irony, coming from a company that has been so universally held up to be the master of lean production, a system that so many advised Tesla to imitate. Nothing stays the same…meanwhile, Tesla is readying its low-cost car (∼$25,000), to be built in an even more radically new process where major portions of the car are completely built in modules, and then assembled, all without any assembly line. If it works as planned, it will once again revolutionize the field.
#4: The Little Big Three
Did you know that the combined market share of the Big Three (GM, Ford & Stellantis) is under 40%? (39.7%, Jan.- Sept. 2023). GM: 16.7%; Ford: 12.8%; Stellantis 10.2%.
#5: Stellantis’ Profits (and Inventory) Are Vastly Higher Than GM’s or Ford’s
First half 2023 Net Profits:
Stellantis: $12.1 B
GM: 5.0 B
Ford: 3.7 B
The great majority of Stellantis’ profits came from its North America ops, where its operating margin was a rather astounding 17.5%, more than double of GM’s. And that’s despite Jeep sales sliding steadily all year. Carlos Tavares is an exceptional CEO when it comes to wringing out costs and maximizing efficiency and profits.
Where are all those that predicted failure when Fiat bought Chrysler, and then when FCA merged with PSA to create Stellantis? Oh, right; standing in the same corner of shame as those that endlessly predicted Tesla’s imminent demise.
The big question is how long will the fat profits continue. Stellantis dominates this chart of the ten cars with the highest inventory currently. These numbers are jaw-dropping; 60 days is the industry norm. 90-100 days is a serious problem. Almost half of these represent a full year’s worth of sales. It’s a good time to negotiate on a Jeep or Ram, never mind Lincoln.
#6: Ford’s EV Travails; Pivot To Hybrids
No one seemed more eager to rush into the EV market to take on Tesla than Ford’s CEO Jim Farley; well, along along with VW’s ex-CEO Herbert Diess. Lots of talk about beating Tesla at their own game and lots of hoopla about their EV pickup, the F-150 Lightning. Unfortunately, things aren’t turning out very electrifying. Ford is losing some $4.5 billion per year on their EV division (Ford Model e) and the Lightning’s sales are stumbling; the Rivian’s RT1 pickup is now outselling the Lightning. Ford had to drop the price of the Lightning by $10,000 after inventory increased to 88 days of supply. It hasn’t helped; as of October 1, there’s 97 days of supply, even after the price cut. Well, for that matter, Ford overall has a ballooning supply problem, with 96 days of supply, well above the 60 days industry target. With prices up some 27% since 2019 and interest rates way up, that’s not exactly surprising. Update: Ford just announced a $7500 incentive on the Lightning for the higher trim versions.
Just as dire (or more), the Mustang Mach E currently has a whopping 217 days of supply. It’s a giant money loser, and had to be majorly re-engineered in an effort to try to reduce its high production costs. But with Tesla constantly dropping its prices, Ford is chasing a rapidly moving target to make the Mach E profitable. Which of course is precisely Tesla’s intent.
Farley’s gambit to push up Ford’s long-lagging stock worked for a while, peaking at $25 in January 2022. But it’s since dropped back into its historical doldrums range.
In a tacit admission that its EV strategy is stumbling or crumbling, Ford is pivoting to hybrids—because they can—and of course because hybrids are cheaper and actually make quite a lot of sense in pickups, where battery range when towing or hauling loads is heavily impacted. Farley announced recently that it would double production of its F-150 hybrid version in 2024, from 10% of the pickups line currently to 20%. And that the hybrid’s price in 2024 would be the same as the base Eco-Boost version. The F-150 hybrid has a 25 mpg EPA rating. BTW, 24% of Toyota’s Tundra sales in 2023 are hybrids.
Ford is also adding another shift at its Mexico plant that makes the red-hot Maverick compact pickup, in an admission that it grossly underestimated its success. The demand, especially for the hybrid version is still well in excess of the supply. Ford’s crystal ball is not working too well.
It’s a logical pivot, since Ford was smart enough to develop and maintain a strong hybrid system, although the RWD version in the trucks is not really a “strong hybrid” like in the FWD Maverick and in other Ford FWD applications. But it’s better than nothing, which is what GM and Stellantis have for their trucks.
Which raises a big question: GM is also struggling to ramp up its EV production; output of its promised new Ultium-based EV’s has been grossly behind projections. GM hasn’t broken out its losses there yet in detail, but undoubtedly they are massive; quite likely greater than Ford’s. Well, maybe not, since they’re actually not building many of them, at a huge loss per unit. If GM encounters sales resistance to their EVs, it doesn’t have a proper hybrid system to pivot too. Mary Barra insisted that GM was all-in on the transition to EVs, and was not going to spend time or money on hybrids as a transitional technology. That largely goes for Stellantis too. It’ll be interesting to see how that plays out. Maybe it’s time to resurrect GM’s long-dead dual-mode hybrid system from 2008? It was actually very advanced and effective, but also very expensive.
#7: US and European Brands In Serious Decline In China
The China gold rush ended some years back for the foreign brands. Once upon a time, the American and European automakers were all scurrying to China to participate in the growth of the world’s now-largest auto market. They were forced to participate only in joint ventures with local manufacturers, which of course allowed the Chinese partners to gain full insight into the technology and processes of their foreign partners. It was a heady time; VW became the #1 brand, and GM and others enjoyed success and profits. Those days are well over. All the foreign brands have been in decline for some years now; GM’s market share is down 30% since 2015; Ford’s has plummeted to barely 2% in 2022; VW’s has crashed from a dominant 15% still in 2020 to 10% in 2023.
In fact, Chinese EV maker BYD just surpassed VW as the overall #1 brand in China. Mercedes is down 12% in the past year, and BMW is down too.
Stellantis has closed up shop and walked away. Others are trying desperately to stem the declines. But Chinese consumers are showing a clear preference for domestically developed cars, especially EVs, and there are many very attractive choices to chose from. The technology is world-class, and the design and technology is tailored to a new generation of Chinese car buyers, who are quickly seeing the once-vaunted German and American brands as old-fashioned. Plus there’s an anti-foreign atmosphere in the air, not surprisingly. This has lead to some drastic role-reversals (see #6).
#8 Europeans Want In On Chinese EV Technology and Platforms
If you can’t beat them, invest in them.
The Germans, who are struggling with their EVs, are admitting a shocking degree of defeat by buying in on new Chinese EV platforms developed by 100% Chinese domestic companies (not joint venture partners). It’s a 100% reversal from the past, when Chinese companies joint-ventured with foreign companies to gain their technology.
VW is having massive struggles with their EV program, most of all with their CARID software unit, which has delayed planned new top-tier EV’s from Audi, Porsche and Bentley until as late as 2030; these cars were originally planned for 2023, then delayed until 2025. This is the main reason CEO Herbert Diess was shown the door last year. New VW CEO Oliver Blume recently said “Our roof is on fire!”
So in desperation they’re now buying into new EV platforms from China. VW just announced an major investment in Xpeng, giving them access to their new G9 SUV platform. The VW version is intended for China, at least for the time being, but who knows? If the Chinese can develop and build new EVs much quicker and cheaper than VW…
Mercedes is also buying into a new platform/brand (Denza) with BYD, resulting in two new cars. Look for more of this trend.
#9: China On Track To Be World’s #1 Auto Exporter in 2023; Europeans Running Scared, Russians Loving It
The only thing holding back an even greater flood of Chinese automobile exports is the lack of ships to haul them. But more ships are being built as fast as possible, so the trend line seen in this chart is set to continue, strongly. What’s driving it? several things.
The Chinese domestic market has peaked and is now shrinking. There are over 100(!) auto manufacturers in China. There is massive excess production capacity. So the only solutions are consolidations, shut-downs, and exports. The latter is much more palatable in order to prevent job losses, especially given China’s weakening economy. And much of the world is quite eager to buy Chinese cars, as they are generally cheaper and yet have decent to excellent quality. One additional factor has been the Russian market, which all the Western auto makers ditched after Russia invaded Ukraine. Now Chinese cars have filled that substantial void.
In addition to Russia, South and Latin America, Australia, Southeast Asia and the developing world, exports to Europe are soaring too. With 10% tariffs on imported vehicles, Europe is hardly rolling out the red carpet. But that’s much lower than in the US, which jacked up its levies on Chinese cars to 27.5% during the Trump presidency. China exports mainly EVs to Western Europe, as that’s where the market is heading and its older IC cars would probably not be very competitive. Actually Chinese-owned MG is doing well with both types in the UK; the gas-engine HS SUV was the best selling car in the UK in the early months of 2023. And the EV MG4 is the #2 selling EV there after the Tesla Model Y. Don’t discount the lure of a venerable name.
A significant number of the new all-Chinese EV makers have or are setting up shop in Western Europe, like this elegant NIO store in Frankfurt. It’s a very worrisome trend, given the challenges the Europeans are having in getting affordable—or more importantly, profitable—EVs to market.
Increasing tariffs closer to US policy could help ward off Chinese EVs that Europe would rather see built where they’re sold. And yes, the Chinese are already planning or considering European EV plants.
Beijing has spent more than $26 billion in purchase subsidies for passenger EVs sold between 2016 and 2022, according to BNEF (Bloomberg) estimates. There were billions more spent for research and development and key components, public procurement and the build out of charging infrastructure. Local governments also showered manufacturers with grants, low-interest loans, tax breaks and cheaper land.
That’s not to say that the Chinese pure-EV brands are profitable; for instance NIO is still losing $35k per car, due to not having achieved sufficient scale. The same applies to the rest, except for BYD, which is profitable. But then BYD started out making batteries, and makes them for other car makers, and they have huge economies of scale.
BNEF’s estimate is that building a compact battery electric car in China costs roughly $15,000 today, excluding overhead, distribution, margins and any subsidies. That’s about 65% of the comparable cost for a similar-size EV in Europe. And in terms of batteries — the biggest cost factor in EVs — BNEF’s 2022 Lithium-Ion Battery Price Survey found that pack prices were 33% higher in Europe than in China, and 24% higher in the US.
As a result, the sales-weighted average price of a battery-electric vehicle in China in 2022 was $27,000, which is less than two-thirds the average EV transaction price in Europe and less than half those in the US (although that’s not quite the case with Tesla’s recently lowered prices.
So yes, higher tariffs might slow down Chinese EV exports, but ultimately, only further investments in innovation and scaling up will really help companies fend off competitors and fortify their position in the auto market. This is what the massive investments in battery production plants in the US spurred by the IRA is doing, or presumably will do.
Honorable Mention #1: GM Returns To Europe With Cadillac EV
How many times has Cadillac tried to sell their cars in Europe? If at first you don’t succeed… GM once again will try to take on the European market with Cadillac’s Lyriq EV in Europe, priced at a lofty $90,000. Here’s one already in a store in Switzerland. In the face of wave of European EVs and excellent and significantly cheaper Chinese EVs, all I can say is Good luck with that.
Honorable Mention #2: BYD Takes On Japan:
Not only is Japan very adverse to imports generally except for German premium brands, but it’s also been exceptionally EV-phobic, due to questionable government policies and innate conservatism. But BYD, China’s largest EV maker, introduced its Dolphin electric car to Japan, betting that the compact hatch will help spearhead sales in a market that remains hesitant to embrace Chinese automakers and electric vehicles.
The Dolphin — widely considered the world’s best of the truly affordable EVs — starts at a very attractive from ¥3.63 million ($24,560). The base model has a 70 kilowatt hour battery with 400 kilometers (250 miles) of range. The extended-range model costs ¥4 million. Its 150 kWh battery offers 476 kilometers per charge.
Tesla has already established a beachhead in Japan, with over 50 Superchargers and growing and its sales are growing too, albeit still modest.
#10: The Arcimoto Death Watch
Why am I bothering with Arcimoto? For two reasons: the manufacturer of three-wheel EVs (“FUV”, Fun Utility Vehicle) is based in Eugene, my hometown. I predicted its eventual death right from the beginning, but the insane run up in all EV stocks forestalled that by a few years. Look at this stock chart: Arcimoto peaked at $637.40 on February 5, 2021. That’s a market cap of $1.27 Billion! For a company that at the time had a tiny storefront for its offices and managed to hand-build all of 88(!) of its FUVs in that first quarter of 2021. I can think of no better example of the EV stock mania of 2021. To date, all of 600 Arcimotos have been built since the company formed in 2012. Given Arcimotos $180 million total losses to date, that means that they’ve lost $300,000 on each of those 600 built so far.
Sure, that makes it a billion dollar company! The bigger the losses, the higher the stock price?
Yes, there’s a few Arcimotos on the streets here in Eugene (in the warm summer months), as a lot of locals invested and wanted to support local-boy Mark Frohnmayer, its founder and CEO. I should say “ex-CEO” as he resigned last winter after he got a DIU and production had come to a standstill. I can understand why he was drinking last winter: his stock had been worth several hundred million two years earlier; now the stock is down to 75 cents, and still dropping. Poof!
Arcimoto is only still going sort-of because some idiots were willing to buy more new stock earlier this year, it mortgaged its new factory (bought with the proceeds of stock sales) at 20% interest, and most recently they sold the factory and is leasing back a small part of it, as it’s way too big. Inventory is piling up, and incentives are up to $10k in an effort to sell the $21-24k three-wheelers.
Total accumulated operating deficits (losses) are some $180 million, and growing by the day. It’s just a matter of months, weeks or days…
Ironically, Arcimoto is not the first EV three-wheeler to be built in Eugene. The Nevco Gizmo was first built here back in the late 1990’s, and then struggled along for a couple of years. But it eventually ran out of juice.
In my 2012 CC on the Nevco Gizmo, I wrote the following about Arcimoto, which had just recently announced its plans:
Which leads me to the efforts of another Eugene outfit trying to do almost the same thing: Arcimoto. It also has lead-acids, although li-ions will be optional. And top speed is supposedly a freeway-compatible 65mph. Price: TBD. But given its greater complexity and speed, it’s bound to butt right up into Mitsubishi iMiev and Nissan Leaf territory. Prospects for success: about the same as the Nevco Gizmo.
That’s proof that I wasn’t just making up my prediction after the fact. My only regret is that I didn’t short Arcimoto stock in 2021.
So there you have it; if you’ve stuck with this to the end, you now know more about the state of the auto industry than most. As to the actual cars they build that are available here, they’re mostly of little or no interest to me. I want to see some really cute and cheap little EVs on the market, like the Chinese are gobbling up. How about an exception in our high import tariffs on Chinese cars for EV’s costing less than $10k? There’s a genuine need to get folks out of tired old gas guzzling beaters into clean, cheap EVs.
If the Chinese can build EVs like this for $4k over there, they can surely sell them here for $10k.
Or better yet, how about Honda offering this cute little EV van here, to be sold for a mere $7,300 in Japan. Now that would be right up my alley for running errands, hauling appliances and tools for my rentals, and to my favorite local trail heads, with a range of some 124 miles. I’d pay a premium for that over here.
I don’t know about you, but I’m really frustrated with the lack of diversity of what’s available on the market here. The manufacturers are all chasing maximum profits because enough Americans are willing to take on 7 and 8 year loans to finance their SUVs and trucks. They’re afraid they’d be laughed at driving something like this while laughing all the way to the bank. It’s not going to happen, sadly. But the high-price, high-profit salad days of the pandemic look to be crashing back to earth, with expensive new domestic cars and trucks piling up like cordwood at the dealers. It’s not sustainable.
OK; enough of the current reality; time to get back to discussing the correct color of the upholstery piping on a 1956 Chrysler.
Update: I didn’t even touch on the current UAW strike. Let’s just say that it will inevitably result in an even larger gap in hourly labor costs between the Big Three and the non-unionized foreign transplants and Tesla.