🔋Export Explosion
US automakers struggle in what isn’t much of a race to China.
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Starting and leading a company is hard work. Reaching an economy of scale and profitability is a whole other beast. While many noteworthy organizations and news channels have touted the EV revolution that would only accelerate for years, the reality is much different.
Just last week, EV/hydrogen truck maker Nikola filed for bankruptcy. Nikola had issues with a recall due to fires which accelerated their downfall. Safety recalls are a top concern for EV makers as they can make or break companies in the sector. Nikola had other issues such as mismanagement and fraud, but financial struggles are not new to prospective EV manufacturers in the US.
I’ve touched on the struggles of legacy automakers in the past. Ford and GM are struggling to achieve profitability on their electric vehicles. Ford has been losing $50k+ on each vehicle sold for years and GM’s guidance on profitability has not been optimistic either. Both companies have also seen battery plant plans foiled. Ford’s plant in Marshall looks to be delayed for the time being, while GM sold its stake in a facility altogether. Toyota was the buyer.
The legacy carmakers may not be best suited for the newer technology environment, so what about the new companies? Rivian and Lucid are some other new EV companies in the US other than Tesla. Lucid is struggling heavily, with staggering losses of $341,000 per vehicle in Q3 2024. Rivian is doing better but still has heavy losses. The truck/SUV maker reported losses of $39,130 per vehicle in the same time frame. Next quarter things got worse, as Q4 2024 losses are reported to be $52,386 per vehicle. While this is a dramatic improvement from the $100,000+ losses of 2023, there is a way to go.
Tesla is the only profitable EV company in the US. They make up nearly 50% of EVs sold in the US. Their sales are also dwarfed by other legacy and foreign automakers. Optimistically, this leaves Tesla with a lot of room to grow and capture more market share. This goes for other EV companies too, but they are far behind. Not to mention the Trump administration planning to make life harder, it won’t be smooth sailing.
With higher operating costs like labor and energy making manufacturing more expensive, could the answer be elsewhere? The most prolific Chinese automakers right now are BYD and Geely who are now in the top 10 for global sales in Q3 2024. Overall Chinese auto exports have shot up since 2020 and BYD profits and net margin exceeded Tesla in 2024.
Chinese EV/HEV exports were over 1 million units in 2024 and saw large growth. Europe is now playing protectionist games alongside the US by putting extra tariffs on China. While this could stall the rapid growth in auto exports, especially EV/HEV, China will continue to sell to the rest of the world at a hot pace. Russia, Mexico, and the United Arab Emirates were the top export destinations for Chinese cars.
While in the US it is hard to say that Teslas is not objectively the best and most innovative car, that is not the case in China. There are a handful of companies with compelling products with similar specs, some of which can compete and beat Tesla in terms of cost. There is also plenty of other car engineering innovation occurring in China that has not happened here in the US. Not only innovation but offering small compact cars and cheaper cars on all levels provide a better value to consumers.
Say what you will about the importance of protectionism, tariffs will leave US and EU consumers with worse and more expensive vehicles. Through China’s internal incentive structure, the hunger games for success have driven Chinese automakers to be the best in the world, but many nations are saying no to them. With cheaper operational costs and innovation, many automakers have appeared to achieve success and impressive sales. Many have been focusing on hybrid vehicles as well, something the West has brushed aside.
China’s government has no doubt spurred the push for auto exports, but the results speak for themselves. They make great cars, have impressive global and domestic sales figures, and aren’t pigeonholed into only working on EVs. China is winning the automotive race despite the best efforts of the US, and it isn’t clear to me that protectionism will all of a sudden improve the profits or quality of products delivered to consumers. Until next week,
-Grayson
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