I think the wave of tariffs is showing that fundamentally cars are becoming low margin businesses with the rise of electric cars, which is good for consumers and bad for producers.
Cars was always a low margin business, that's why no one makes them anymore. Car OEMs contracted out every component and system possible. Almost all the value in modern cars is various tiers of suppliers. There's a Mercedes model they contracted out even final assembly. They went to the same Jack Welch school of business that boeing did and thought they were clever not being responsible for anything and could just be middlemen pushing paper.
>They went to the same Jack Welch school of business that boeing did and thought they were clever not being responsible for anything and could just be middlemen pushing paper.
Mercedes thought themselves to be untouchable due to it being a premium brand with high margins by putting a star on commodity parts, like they're a Swiss watch.
That would have been fine, but they also simultaneously cheapened the brand by pushing out models aimed at younger less well heeled buyers. A Mercedes C class (US models) is like a slightly juiced up VW to me. Nice but not special at all.
Same impact as in fashion. Louis Vuitton can try and persuade us that they remain the choice of the world's wealthiest explorers, but when every two bit junior associate realtor is sporting an LV purse, I am not so sure.
Both brands fell for the growth at all costs mantra.
Historically the value was in knowing how to build reliable, clean burning, engines.
China never managed to catch up to other countries in terms of making combustion engines (it is incredibly hard, and from what I grok they were a generation or two behind), but EVs are mechanically much simpler.
What's more, BYD is following Tesla's playbook of vertical integration and making components inhouse to save money vs outsourcing everything.
They also invested early in battery technology. China was able to build a competitive battery industry with state support and little environmental protection.
The world is still waiting on a huge battery revolution to happen. It looks like it will actually happen Really Soon Now, and there are multiple technologies vying for first place. I hope someone with industry experience drops in and explains what is going on, because I haven't seen a comment like that here on HN for a couple years now. :-D
But honestly whoever gets 2x the density at the same cost will win, and it may be that incumbent advantages don't end up meaning much. AFAIK China's advantage isn't in much cheaper batteries, it is in cost savings everywhere else in making EVs.
For example, VW released a $60k USD EV minivan with mediocre range, and they thought that was a good idea. That sort of acceptance of mediocrity is why traditional automakers are going to get hammered into the ground, except instead of Japanese automakers teaching the lesson, this time it will be Chinese automakers. (Irony: At one point it was VW who helped teach American automakers the same lesson....)
Amprius is shipping batteries with ~30% better mass density for 10x the cost. Other companies are shipping cheaper LiFePo. Battery applications are so diverse there's going to be many winners. I also wish someone would come and give a good market analysis.
The issue with the tariff approach is that they generally apply to countries that actually have an auto industry, but not all countries have one. Countries without tariffs will enjoy lots of competition and cheap prices, while established automakers with tariff protections will be squeezed out.
I don't see how it's possible to stop China, even if rich western countries band together.
The problem is when it's not fair competition. Certainly Tesla has received government subsidies, but I expect their numbers to pale in comparison to whatever money the Chinese government has directly and indirectly poured into BYD.
Flooding foreign markets with your heavily-subsidized cars in order to kill your competition is great for you, but not so great for competitors in the market of sale.
I don't disagree with you that it's unfair, but from the perspective of a country without an industry to lose, they have everything to gain from a race to the bottom.
How does a rich, car-exporting country convince a less rich and car-importing country to not buy that inexpensive car from China and instead buy a more expensive one? Tariffs can't address this issue.
I don't think it matters. As long as the US has a strong base of car companies serving its own market. It needs this manufacturing capability to lean on during a large scale conflict.
Imagine how much better off Ukraine would be if it had had car factories it could have turned into tank factories.
That's orthogonal to the issue I'm referencing, which is that legacy automakers sell their wares domestically and internationally. Even with tariffs, they'll still be squeezed out in markets which don't have a car industry to protect.
And under capitalism, why should I care for the competitors? That unprofitable companies die is what is supposed to drive efficiency! Why mourn the death of a rent seeker?
Flooding is an emotive term. Surely a "flood" of imports only happens when there is sufficient demand to justify shipping in volume?
The subsidies are more interesting. When does legitimate assistance become a subsidy? Eg if Biden/successor invests in domestic lithium mines, is that a subsidy? If they offer buyers $x rebates, is that?
Looking at the last example, if BYD said to a US buyer, "this car is $x but we'll give you a rebate", that would seem to be just as fair as Uncle Sam offering one. The objection would seem to be that it was the Chinese government acting as the source of cash.
I suggest that the answer is that noone should offer direct purchase subsidies, but government can offer whatever investment they like to support their industries. I cant escape a feeling that the US and European car industry are crying foul because (despite Musk's attempts to drag them into the future) they havent figured out how to make electric vehicles profitably.
> The problem is when it's not fair competition. Certainly Tesla has received government subsidies, but I expect their numbers to pale in comparison to whatever money the Chinese government has directly and indirectly poured into BYD.
Then we should provide more government subsidies to US automakers for making EVs. The good in having more people driving cars that are more energy efficient and use cleaner energy would outweigh the costs of the subsidies.
Almost nothing scales like cars. In many countries nearly every adult has one and they only last a few years. As such they don't need high margins to make high profits.
Food scales even more than cars, and as a result has about the lowest margin of anything people buy.
If people bought jumbo jets like they bought food we could take several zeros off the price (but this would still be more $$$ than anyone can afford even if they wanted one so it would be stupid to try to scale up jet manufacturing that much)