Revolutionizing the Automotive Industry: Unleashing the Power of Cheap Electric Cars!
Ford's revolutionary moving assembly line in 1913 transformed the automotive industry, making cars affordable and accessible However, with the rise of cheap electric cars, particularly in China, Ford faces the challenge of keeping up with this fast-growing market
In 1913, Henry Ford revolutionized the carmaking industry through the implementation of the moving assembly line. This pioneering innovation significantly decreased the car assembly time, resulting in the ability for mass production and a substantial reduction in vehicle prices.
Over a century later, the carmaking sector is experiencing another monumental transformation. However, this time, Ford Motor Company (F) finds itself in a position of playing catch-up, rather than spearheading the change.
The emergence of electric vehicles signifies a fundamental transformation in technology and manufacturing practices, which have propelled Ford, Toyota, and Volkswagen to their dominant positions in the global automotive industry. Established car manufacturers have been striving to keep up with this significant change, facing substantial financial investments. However, they still lag far behind Tesla and a wave of emerging Chinese competitors like BYD and Xpeng.
The demand for affordable EVs is rising globally, as electric cars are crucial in reducing planet-heating pollution. However, a significant challenge arises for automakers in Europe and the United States, where governments are already outlining plans to restrict or prohibit the sale of new gas and diesel cars. Can these automakers successfully meet this demand?
F-150 Lightning electric trucks under production at a Ford plant in Dearborn, Michigan, seen in September 2022
Jeff Kowalsky/AFP/Getty Images
"According to Gene Munster, a managing partner at Deepwater Asset Management, some of the car companies that have traditionally dominated the industry for the past century will be significantly smaller in the future. The difference in electric vehicle (EV) sales between established carmakers and newer competitors is substantial. For example, in 2022, Tesla delivered 1.31 million battery EVs, while BYD saw sales triple from the previous year to over 900,000 (which increases to almost 1.86 million when plug-in hybrid vehicles are included)."
In comparison, the Volkswagen Group, which includes Audi and Porsche, achieved sales of 572,100 battery electric vehicles. Stellantis (STLA), the manufacturer of Chrysler and Jeep, sold 288,000 units. Toyota, Ford, and General Motors (GM) trail further behind.
New players in the market have an advantage in terms of technology, and the emerging Chinese brands benefit from lower production costs, enabling them to offer lower prices. This is a significant advantage considering that affordability is a major obstacle to the widespread adoption of electric vehicles, as highlighted by a 2021 survey conducted by the International Energy Agency (IEA).
Falling behind
In the EV race reshaping the global auto industry, China is speeding ahead. Japan, South Korea, Europe and the United Statesthe dominant players for decadesare lagging behind.
On September 6, 2023, at the IAA Mobility 2023 international motor show in Munich, Germany, visitors were captivated by the Cyberster electric car, proudly presented by the Chinese car brand MG. This year's IAA event, taking place from September 5 to September 10, showcased a range of remarkable vehicles, attracting enthusiasts to the trade fair grounds in Munich and various other locations throughout the city. (Photo by Leonhard Simon/Getty Images)
Leonhard Simon/Getty Images
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Between 2015 and 2022, the market dominance of well-established car manufacturers such as Volkswagen, General Motors, Toyota, Stellantis, Honda (HMC), the Renault-Nissan-Mitsubishi alliance, Ford, Hyundai-Kia, Geely, Mercedes-Benz, and BMW in terms of electric car sales has declined from over 55% to 40%, as reported by the IEA.
Contrastingly, during the same time frame, the combined market share of only two companies, namely Tesla and BYD, has witnessed a significant increase from 20% to over 30%.
According to investment bank UBS, Chinese car manufacturers may witness their share in the global electric vehicle (EV) market increase from 17% to 33% by 2030. In contrast, European companies are expected to experience the largest decline in market share. UBS analysts stated in a recent note that global companies heavily reliant on the Chinese market, such as Volkswagen and General Motors, are already facing negative consequences due to the emergence of local competitors.
An electric vehicle charging station at Alton Shopping Center parking lot, in Palm Beach Gardens, Florida, on February 11, 2023.
Lindsey Nicholson/UCG/Universal Images Group/Getty Images
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Established car manufacturers are currently investing billions of dollars and setting ambitious goals for electric vehicle (EV) sales in order to compete with Tesla and Chinese rivals. According to Atlas Public Policy, as of September last year, car manufacturers and battery makers in the United States, Europe, and Asia (excluding China) had announced over $650 billion in investments by 2030 towards the transition to EVs, which includes manufacturing facilities and battery production.
It is uncertain if those investments will yield positive results. According to UBS analyst Patrick Hummel, legacy carmakers face challenges in catching up to Tesla or leading Chinese automakers due to their lack of in-house expertise. Moreover, the industry is currently experiencing difficulties, including semiconductor shortages and supply chain issues. Car sales remain below pre-pandemic levels and established players struggle with slim or non-existent profit margins on EVs.
A VW ID. GTI Concept electric car on display at the Munich Motor Show in Germany, on September 4
Volkswagen intends to halt production of certain EV models in Germany next month due to a decline in demand, according to a company spokesperson.
"Traditional auto companies, including Ford, are struggling to keep up with the electrification trend and will continue to face financial challenges for at least the next two years," Munster stated on X, previously known as Twitter. Ford, for example, recently revised its projected losses for its electric vehicle (EV) business in the current fiscal year to $4.5 billion, up from its previous estimate of $3 billion, and postponed its goal of producing 600,000 EVs annually."
Chinas advantage
Established automakers may become even less competitive if striking workers at Ford, General Motors and Stellantis win improved pay deals in the United States.
According to Munster, the Big Three will face a tougher situation compared to Tesla in terms of the cost of manufacturing labor per hour. If US automakers yield to the demands of the union, which involve significant wage hikes and guarantees for job protection, the electric vehicle strategy would essentially fail right from the start, as stated by Dan Ives, a senior analyst at Wedbush Securities, to CNN.
That is due to the concessions, which would result in an increase of $3,000-$5,000 in the average EV's cost. In a research note, he mentioned that passing on these cost increases to consumers would jeopardize the future business models of the Big Three.
Members of the United Auto Workers union strike outside a General Motors facility in Lansing, Michigan, on September 23.
Bill Pugliano/Getty Images
EVs are more expensive to produce compared to combustion engine vehicles due to the high cost and scarcity of raw materials for batteries. Additionally, refining manufacturing processes and increasing production capacity also require a significant amount of time. It is worth noting that China holds a significant advantage in this regard, being the largest global manufacturer of EV batteries and holding a dominant position in the supply and processing of crucial battery components.
Daniel Röska, head of EU automotive research at Bernstein, a brokerage, commented that the battery supply chain is predominantly controlled by Chinese entities. He highlighted that China has prioritized this sector earlier than other countries, resulting in it becoming the central hub. In light of this, global automakers have been compelled to form partnerships with Chinese EV and battery manufacturers. However, these collaborations have become increasingly intricate due to mounting trade tensions between China and Western nations, as well as the Western governments' efforts to decrease reliance on China.
Ford not ready for Chinese EVs
On Monday, Ford announced that it will temporarily halt the construction of its $3.5 billion factory in Michigan, where it had initially intended to manufacture electric vehicle (EV) batteries. The batteries were planned to be sourced from China's CATL, a supplier of Tesla's batteries as well. Notably, this decision faced backlash from Republican senator Marco Rubio due to the association with a Chinese company.China is solidifying its dominant role by implementing protectionist measures on crucial raw materials for electric vehicles (EVs) and the green energy transformation. In August, China imposed restrictions on overseas sales, citing national security, resulting in a complete halt in exports of two rare minerals necessary for semiconductor manufacturing, which are abundant in EVs.
The European Union's newly launched investigation into China's state support for EVs could potentially exacerbate the situation. Lawmakers in the EU have expressed worries that Chinese government subsidies enable EV manufacturers to maintain artificially low prices, thus creating unfair competition for European counterparts.
The BYD ATTO 3, a model manufactured by BYD, a Chinese automobile company, is showcased at an event held one day prior to the official commencement of the 2023 Munich Auto Show IAA Mobility in Munich, Germany on September 4, 2023. REUTERS/Leonhard Simon
Leonhard Simon/Reuters
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Imposing tariffs on imported cars above the EU's standard 10% rate may lead to retaliatory actions from China, posing potential harm to European car manufacturers. A significant portion of their profits is generated in China. According to Röska, implementing protectionist measures against China is akin to self-inflicted damage.
Europe needs affordable EVs in order to reduce its carbon emissions. A 2022 report by Jato Dynamics reveals that Chinese vehicles are approximately 40% less expensive than European ones and around 50% cheaper than their American counterparts. As trade barriers increase, Chinese car manufacturers are already establishing manufacturing plants in Europe. It is expected that a similar trend will occur in the United States, which currently imposes a 27.5% import duty on cars.
"In June, CNN's Fareed Zakaria interviewed Ford chairman Bill Ford who mentioned that, although they are currently not present, it is anticipated that they will eventually establish their presence here. Additionally, he acknowledged that Ford is not yet prepared to rival Chinese electric vehicles in the American market, emphasizing the importance of readiness which they are actively working towards."
