The Exchanges

Q and, and those who import into the U.S., and There's all the standard versions of differentiation. The product is different. Cars are different from each other. Um, what do you see as, like, the biggest differences amongst the major players, at least in China? Are they approaching the market with different strategies or different types of products, or are they all pretty similar and they're just cutthroat with each other?

A Oh, there, there's, I think of them as, you don't ever see that picture of, like, a massive school of Schools of fish all mixed together, shaped sizes, colors, going in different directions. That's China's auto industry. So you have niche players, you have mass scale players, you have electric only specialists, you have companies that will produce every powertrain. But if I were going to think, try to distill it down, you have really, uh, Old generation or your legacy automakers who are dependent on scale and low cost. That's your BYDs and GLEs and SAICs. Then you have this new generation. That's all about software and software defined vehicles and over there updates and digital interfaces. So they're focused on making the car gadget, the urban, the ultimate urban device. And so you have. Kind of, if we put it in American terms, you have Ford, GM, and Chrysler on the one hand, and you have Tesla, Rivian, Lucid on the other. That's the biggest distinction, uh, relevant to us in our discussion today.

AI assessment note: “Old generation or your legacy automakers who are dependent on scale and low cost.”

Q to the U.S. then, in the rest of the world, you know, these Chinese cars are flooding the market. Are we seeing automakers outside of the U.S. start to feel the pain meaningfully? Like, are we going to see a wave of failures of automakers of basically everybody who's not Chinese and not U.S.-based, or at least not importing enough into the U.S. for it to make up the difference?

A We're already seeing it in Europe for sure. Uh, Volkswagen's come out and said between now and 2030, they'll lay off 50,000 people. This is unprecedented. They're closing plants for the first time since World War II. And the Germans are not alone. Honda, also for the first time since the 19 fifties, uh, announced a loss last year. Why? They're getting beaten down in traditional markets like Thailand. Indonesia, Australia, the UK, across Europe, uh, virtually every legacy automaker is taking it on the chin, and the most vulnerable right now, there's two of them. One is Nissan, and the other is Stellantis, the group that owns, you know, Fiat, and Maserati, and Jeep, and Chrysler brands. Those two are the most vulnerable, so what will happen is either they'll joint venture with the Chinese And eventually be taken over by them, or the Chinese would just buy their brands outright. I mean, we're not talking about something that might happen three to five years from now. It's happening right, right now in Europe. Enormous pressure on the existing automakers just to stay alive.

AI assessment note: “We're already seeing it in Europe for sure. Uh, Volkswagen's come out”

Q that you mentioned, they're selling at 10,000 dollars. Even with a hundred percent import tariff, they're still going to be cheaper in the US. Like, if you're trying to buy an EV in the US, it's hard to find a 20,000 dollar EV as well. So I'm sort of surprised that even despite that tariff, we haven't started to see a lot of imports. Why do you think that is?

A I really appreciate it at the outset when you said we might go deeper in the weeds because it gets a little bit hairy here. So a couple of caveats that, that under 10,000 dollar vehicle that's sold in China would not qualify for registration United States on safety. And probably on overall emissions, depending on if it's PHEV or EV, but mainly safety, homologation is not there. So, for example, that same seagull that sold in China at 10,000 dollars, let's call it, sells in Mexico for 20,000 dollars. Mexico's standards are not as high as the United States, so we're talking about 25, 30,000 dollars. Now you have a small car with small range, and guess what? The American consumer goes not really into that. I know it's 25, but it's small and short range, ah, not that great looking. Uh, no, I want a bigger vehicle. So let's be care, I think we need to be careful about what kinds of cars would actually, the Chinese would actually aim to sell here. Second thing to note, the Chinese are starved for profits, and when I talk to the Chinese manufacturers, they're far less interested in solving America's affordability program And far more interested in saying, how can we attack the larger SUV and pickup truck segments? BYD, for example, recently launched this midsize pickup truck called the Shark. It's aimed directly at the Tacoma and the Ranger, and I know other Chinese automakers have th…

AI assessment note: “under 10,000 dollar vehicle that's sold in China would not qualify for registration”

Q autonomy for a second. Where, where does autonomy fit into the mix in China? Um, you know, obviously in the U S we have, we have Waymo, we have the Tesla robotaxi coming. There are others like Zoox who are starting to arrive in some cities. Is China seem ahead behind? Is it, uh, is it part of the export strategy or is it not? Like where does autonomy fit?

A Great, great, uh, arena here. Autonomy. So it is a two horse race. Between the United States and China, the edge to China comes on the regulatory front. Here's a comparison. When I talk to regulators in China, their job, as they see it, their mission is to smooth the way to commercial ramp of autonomous in China and other markets worldwide. Make it as easy as possible. Facilitate. Make it go faster. What do you need to make it happen? Whereas here in the United States, the regulators are much more cautious. How do we make sure things don't go wrong? How do we make sure it's safe? So in that respect, The U.S. leads in technological innovation, but China, once again, is quicker when it comes to commercialization. Not only inside China, but we're seeing the Chinese autonomous vehicle makers move into the Middle East, and in the U.K. and Germany now, moving quicker to market than their U.S. counterparts, and this is where we're at risk. We might be the inventors, but China commercializes more quickly, and that's a problem for us.

AI assessment note: “China, once again, is quicker when it comes to commercialization.”

Q Okay, let's get a little closer to home, um, and start with the, our neighbors to the north and to the south. So you mentioned Canada got rid of its hundred percent tariffs. You mentioned Mexico still has a 50% tariff. So in both of those cases, how quickly and how much have Chinese vehicles started to penetrate those markets?

A Okay, so let's take Mexico first, because there's a little bit of history there. Mid-COVID, the government decided, oh, Our consumers need affordable vehicles, so we'll drop import duties to zero, and that was the beginning of this torrent of Chinese cars going into Mexico, and for the last two years, Mexico's has been the single largest destination of Chinese exports. So much so, the United States said, hey, what the hell's is going on down there, guys? You're letting all these Chinese cars, and I was recently in Mexico City, you see dozens of brands with, there's Chinese cars all over the place, dealerships going up. And so the U.S. put pressure on Mexico finally in January of this year to raise that import tariff from basically nothing to 20% last September to now 50%. So we've seen a deluge or an outpouring of cars into Mexico. There's several 100,000 on the road now. Many brands. It's slowed a little bit by the tariffs, but guess what? The Chinese are now Eyeing plants inside Mexico. They'll do assembly and sell to Mexican customers. So Mexico is a strategic launch pad for the, for the Chinese in North America. And if we go north of the border, just as you said, Canada held the line on imports at a hundred percent with the United States until earlier. Gosh, time flies so fast. Earlier this year, when Carney went and said, we're going to allow our first 49,000 cars from Chi…

AI assessment note: “There's several 100,000 on the road now. Many brands.”

Q hit yet. We're gonna, we're gonna talk about this. It's a meteor that's, that seems to be coming, but, uh, has not landed, not made landfall in the United States just yet. But before we get to the U.S. part of it, giant, brutal, those are interesting words to use. Do you just mean in the context of, uh, the competition is brutal, or what do you mean by brutal?

A Yeah, so there's something among China hands known as the China's killer playbook, and we've seen China apply this to industry after industry over decades now. Starting when, when I first went to China in the 19 eighties, it was buttons. Yeah, the buttons you wear on your shirt. China said, we are going to be the world dominator when it comes to manufacturing buttons. They concentrated massive capacity inside their country. It was brutal competition there, and then they export it globally. They're the king of buttons, and they still are, and since then, we've seen that same playbook happen in steel, in solar panels, in drones today, and now it's happening in cars, so much so that China has enough capacity today to supply half the world's demand for cars, and it's not out of the question that one day China could be Capable of producing all the cars for everybody in the world. So they amass massive capacity at home, brutal price wars at home, which incentivizes companies to export like crazy all over the place. And that's exactly what we're seeing with cars today in China.

AI assessment note: “So they amass massive capacity at home, brutal price wars at home”

Q What's the charging infrastructure like in, in China? Particularly in urban areas, I wonder. There's such dense urban cities, Beijing and Shanghai and things like that. How do people charge?

A You know what? It's so good that people don't even think about it anymore. Uh, there's charging, uh, For example, Tesla superchargers, you know how, how in the United States there's more or less planted in between cities. When you take a road trip between San Diego here in LA, I know where the supercharger stations are in China. They put the supercharger stations inside the cities so that people on their way to work and stop and charge up. But there are dozens of other providers of charging services inside the city, outside the city, so that many owners of EVs don't have to worry about charging at home. They can charge at the office. They can charge at the mall. They can charge on their way to work, on their way home. Very convenient in most major metropolitan areas across China. That's a, that's one of their secret superpowers in this rapid adoption of EVs.

AI assessment note: “They put the supercharger stations inside the cities so that people on their way”

Q things where we have cybersecurity concerns. I can imagine that our vehicles are one of the areas that that would be a concern for us. Um, obviously we've effectively banned Chinese vehicles anyway via this tariff, but other countries, is that a concern that You have a Chinese vehicle that is a software-defined vehicle, as you said, um, taking over the market. Like, how have other countries dealt with that?

A It's absolutely a concern here in the United States, and other countries so far look at it and seem to just shrunk. UK, no problem. Australia, New Zealand, no problem. Uh, I can't think Canada, bring them in. So Mexico, that's fine. Brazil, no problem with the Chinese. So what's going on here? I feel as though the United States understands that it's engaged in a knockdown drag out rivalry competition with China, and we would find ourselves vulnerable. Whereas China is not going to go after a Thailand or even a UK, but they could do significant damage to us. Uh, and, and we only have to, we can look at the situation in Iran. Remember the story in Iran of the traffic light and the cameras on the traffic lights were being hacked by the Israelis and they understood where everyone was. Well, let's not be naive. That same kind of tool could be used in the form of cars here. We have more to lose than other countries. So on the one hand, we look like we're over paranoid. On the other hand, I feel it's justified because we have a lot to lose. We could be extraordinarily vulnerable. They could do massive damage in seconds to, you know, they could unleash chaos. All they have to do is say, run the red lights, or Don't stop at the stop signs. In a few cities at the same time, and there would be panics feel across the United States. So I feel it's much more a case of how vulnerable we feel …

AI assessment note: “UK, no problem. Australia, New Zealand, no problem. Uh, I can't think Canada”

Q You mentioned cost. Um, where are we in terms of cost? What, what are they charging in China, and then what are they charging for exported vehicles? And let's focus, I guess, predominantly on electric vehicles. I know there's differences, but like, let's talk about the EVs.

A Okay, because it's the future. I mean, electrics were five percent of the Chinese market in 2020. They're half now, so they're really on the ascendancy. Um, cost. This is where the meteor starts to look really scary. You can build an electric car in China for, and they do, and sell it for under 10,000 dollars. In terms of comparison to Europe and the United States, they're 30 to 40% less expensive. And so, as you look around the world, you say, if you're going to build an electric vehicle, where should you build it? There's only one answer, and that's China. And Tesla's, uh, proof of concept of that, half of Tesla's global production is centered in China. That's not by mistake. Elon looked around the world, where can I be most competitive? China is the place to manufacture at scale and at low cost electric vehicles.

AI assessment note: “sell it for under 10,000 dollars. In terms of comparison... 30 to 40% less”