15 January 2023

The state of the auto industry

It's a bit of a cliché to say "numbers don't lie." But there is fundamental truth in it. And here's what the numbers show:

  • Worldwide, and in North America, the only segment of the new auto market that is increasing is the electric vehicle segment, and no automaker is currently able to keep up with demand. All other segments have had decreased sales year/year as of 2022. The oft repeated mantra touted by CEOs of companies like Toyota and BMW that people "don't really want EVs" is just not true. People really really want EVs and they can't get enough of them. 
  • None of the legacy makers can produce enough EVs to meet demand. The Cadillac Lyriq, introduced to great fanfare, sold less than 1500 vehicles in 2022. Not because of lack of demand, but because they can't produce anywhere near enough to meet demand, which causes price gouging in America's ridiculous dealer sales system. Ford has over 200,000 orders for its electric pick up truck, but can't anywhere near meet that demand. So, as you would expect, people are canceling orders. Tesla sales, especially in California, are breaking records. 
  • Tesla and BYD (Chinese) are currently the only automakers in the world that have done the legwork sufficiently that they can make EVs at scale and make a profit on them. Tesla projects over 1 million EVs in 2023, quite realistically, and intends to ramp up from there to however many there is demand for. They have a huge plant in Shanghai and another in Texas, waiting to be expanded. One reason other makers cannot match this growth for now is that both VW and GM (for example) had close to $1 billion in recall and warranty chargeoffs in the last year, whereas Tesla's was not only much less in dollars, it was less than 10% of that on a per car basis. EVs are just much more reliable than ICE cars, cost less to operate, and last longer without mechanical failures on average. (Batteries are part of that, lasting longer and maintaining reliability better). Tesla will benefit from the US tax rebate, whereas the Chinese will not, so this is a huge plus for them, especially in North America.  
  • Batteries are following something similar to Moore's law in the current industrialization phase. Technologies are emerging that allow production at scale for a fraction of the cost of even ten years ago, and new battery designs will not require increasingly expensive rare materials like lithium and cobalt. (A design already in preproduction replaces lithium with sodium, which is virtually inexhaustible and cheap). The only companies that are already in development of the latest, most efficient and cheapest battery technologies are the Chinese makers and... you guessed it... Tesla. This is likely to become the competitive edge in the next few years. Something similar is happening with solar cells; new technology allows them to be about 5% the weight, and to be made into flexible rolls that can be glued to almost any surface, so future EVs will get a significant fraction of their power from sunlight as they're running.  

I've talked about this before, but here's what this all boils down to. The legacy automakers worldwide, all of them, are at a competitive disadvantage resulting from the biggest industrial disruption in the auto industry since about 1920, currently underway. Some, like VW, BMW, Mercedes, Tata, Hyundai Group, Ford, and GM, are at least working vigorously to catch up and some of them will likely succeed. Chinese makers, with heavy subsidies, and particularly BYD, and Tesla, are clear leaders. Much of Tesla's manufacturing, development and sales are in China. The Japanese, who have all missed the boat on this and are all very far behind in EV development despite having been early adopters and developers of hybrid technology, are in very, very serious jeopardy and Japan's entire economy is likely to be massively disrupted in the next 5 years. Toyota and BMW made a huge mistake in sticking with hydrogen fuel cell technology R&D (which GM abandoned over a decade ago), when it's clear that the infrastructure costs are just not going to allow this technology to be competitive. 

Japanese EVs that do exist, such as the Nissan Leaf and the BZ3 or whatever the hell Toyota calls it, are being made in small numbers at a loss, and are not particularly good compared to the Koreans, Chinese, and Tesla, or even the Europeans. Toyota stopped production of their car, which is just not competitive... along with the Subaru rebadge version. They say they are looking at an overhaul of the EV project, which is great, but about a decade too late. Honda is getting GM to make EVs for them, since they have nothing in the pipeline. Mazda's EV is so pitiful they are hardly selling at all and it's just a hollowed out ICE design with glommed on EV componentry, so it's highly inefficient and low-range. The Japanese bet heavily on hybrid technology, but it's clearer than ever that hybrids, including plug-in hybrids, are only a stopgap... the future of the auto industry is electric, where the infrastructure, still inadequate, is being rapidly developed and is relatively easy and cheap to build out. There's power everywhere, already, after all. And the cars are already good enough to replace gas cars across the board. 

It's a brave new world, but it's a safe bet that the huge majority of new cars in 2030 will be electric, and the largest automakers in the world will probably be Tesla and BYD. GM and Ford are poised to survive, probably, but VW and Toyota, both of which have absolutely massive debt, will be in real trouble, probably with vastly shrunken market share. It is even possible that several of the Japanese makers (like Mazda and Nissan, which are losing share fast), will be bankrupt. Stellantis (Fiat/Peugeot/Citroen/Chrysler) is in deep trouble. A mark you may see more of is Volvo... why? Because Volvo is now Geely, a Chinese company that is pretty far along in EV production and development. The Germans are experiencing growing pains and high costs, but at least they seem to be working on the problem assiduously and not just ignoring it and hoping it will go away, which is what the Japanese appear to be doing. The legacy makers, including the Japanese, do obviously have a lot of institutional wherewithal, so it's certainly possible that they will rapidly turn around and still be competitive, but if that's going to happen, they have to make up for a lot of lost time, starting yesterday. 

But, hey, let's remember. This is all pretty much good news. The conversion of transportation to electric power, which can and will be produced from nonfossil carbon neutral sources in the future, is just necessary for the global enterprise needed to combat the looming climate catastrophe. Disruption is inevitable. Governments can help their industries face reality and get the job done, but the bottom line is that it is already happening, and those that bring up the rear will lose out. 

Next up: air transport. Gotta get busy on that front. That one's gonna be hard. Might have to use carbon neutral manufactured fuels, which could make air transportation relatively more expensive. Ocean going transport might be easier, but that development is barely started too.

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