China Is Putting Every Automaker on Notice

Toyota unveiled another new plan for electrification, there is more monkey business with Tesla prices, and China. All that and more in this edition of The Morning Shift for April 21, 2023.

My First Car: Randall Park Cruised LA in His New, Gifted 1992 Toyota Corolla

1st Gear: China Isn’t Here Just to Participate

Buick, as a car brand, hasn’t really been relevant in the U.S. for a couple of decades now, though it still exists in large part because it is huge in China, or at least it was, until recently. It’s not just Buick, though, that is big there; foreign automakers have spent years cashing in on their global cachet in the world’s biggest car market, including marques that are still relevant, like BMW and the rest of the Germans.

This makes some sense — Americans overpay for a lot of dumb European shit, too, and some of us even still buy Buicks — but in the long run, it always seemed likely that at some point there would be an inflection point, in which Chinese automakers would begin to assert their own dominance not just at home but abroad as well.

According to the Financial Times, that inflection point is just about here. The FT was in Shanghai for the auto show there this month and, well, things are starting to hit a little different. China is flexing a bit on the strength of EV sales and also the robustness of its EV supply chains.

The world’s carmakers now face a “moment of truth”, said Fabian Brandt, a Munich-based industry consultant who had not been in China since late 2019. The country’s electric-vehicle manufacturers had demonstrated how they were extending their local dominance and would start taking on US and European companies on their home turfs.

China, already the world’s biggest market for electric vehicles, is set to knock Japan from the top spot for global car export volume this year after overtaking Germany in 2022.

Pointing to China’s advances in so-called infotainment features, experimental interior concepts and the use of multiple exterior cameras and sensors in anticipation of autonomous driving, Brandt, who leads the global auto team at consultancy Oliver Wyman, said Chinese players could “jeopardise the currently very solid financial performance of many established players”.

“On the cost side, the scale effects resulting from the fast adoption of electric mobility in combination with world-class battery technology innovation are resulting in highly competitive Chinese car models that will put established manufacturers under significant cost pressure,” he said.

Volkswagen, among others, seems spooked.

In an acknowledgment of the urgent challenge posed by Chinese rivals, Volkswagen executives used the Shanghai event to announce a €1bn investment in a new innovation centre in Hefei, eastern China.

For the German group, which has relied on Chinese consumers for at least half of its annual net profits, the Hefei centre is a key part of a plan to reduce the time needed to develop new products and technologies for China by about 30 per cent in the coming years.

It seems likely that it will be a few more years before Chinese automakers really take it to their counterparts in the U.S. or Europe, but anyone who bore witness to the rapid rise of Toyota and Honda across the world last century will know not to sleep on automakers with the means and ambition for global growth. There was a big difference in quality then, too, and if Chinese automakers can do anything like a repeat, look out.

2nd Gear: Speaking of VW and China

Volkswagen reported its first-quarter delivery numbers on Friday. The top line is that VW delivered 42 percent more all-electric cars globally in the first three months of 2023 than it did in the first three months of 2022, or 141,000 BEVs for the first-quarter of 2023. Another top line is that VW says it has a backlog of more than 260,000 orders for BEVs in Europe.

Another one is that VW said it shipped over two million cars globally in the first quarter, up a modest 7.5 percent year-over-year. More concerning for VW, as Reuters points out, is that its numbers in China fell.

Volkswagen significantly increased deliveries in the first quarter despite weaker business in China, its most important single market, the German carmaker said on Friday.

The group delivered 2.04 million vehicles to customers worldwide, up 7.5% compared with the same quarter last year, while in China, sales fell 14.5% to 644,500 vehicles.

[…]

VW’s mass-market brands have lost share in China over the past year as the market shifted to electric vehicles (EVs) and plug-in hybrids where made-in-China brands, led by BYD, have moved faster.

The VW Group, which owns or majority owns Lamborghini, Audi, Skoda, Volkswagen, Porsche, and Bentley, in addition to other lesser-known automakers, is such a juggernaut that it almost resists critical interpretation, plodding along every year and seemingly doing just fine. Its managers in China are probably a little worried, though.

3rd Gear: Tesla Prices

Tesla has changed prices so many times just this year that it seems likely that instead of CEO Elon Musk sitting in a chair somewhere and pressing a big red button that says “Change Tesla Prices Again To Fuck With Everyone” there is probably some sort of gamified formula behind it: A computer has determined that Tesla sales are up or down a hair, and there must be a slight price adjustment to account for that.

There are, at any rate, news stories whenever a new price adjustment happens, not because this is actionable information for consumers, per se, but because the business press likes to keep a close eye on what Tesla is doing in order to estimate how it might affect Tesla’s stock price, or just its long-term business prospects in general, or the prices of Tesla’s competitors.

This happened this week, when Tesla cut some prices for the sixth time this year. It also apparently happened again yesterday, when Tesla actually raised prices on Model S and Model X.

From Reuters:

Tesla’s Model S Plaid and Model X Plaid- the performance versions of those models – are now priced at $107,490, up from $104,990 earlier, the company’s website showed.

The price of the Model X is now roughly 2.6% higher at $97,490, while that of the Model S was increased around 2.9% to $87,490.

However, the prices of [Model S, X, Y, and 3] are still both between 16% and 23% cheaper than at the start of the year.

Tesla had cut prices on both versions of the Model S and Model X by $5,000 earlier this month, days after reporting deliveries of these vehicles slumped by 38% in January to March.

It’s probably best to ignore all this for a while, as the only consistency with Tesla is inconsistency. Next month or next week, we’ll likely see some newer, different prices, based on a complicated computer algorithm or just a stray thought Elon had while taking a shit. It happens to the best of us.

4th Gear: Meanwhile, A Jury in California Is Deliberating Over Tesla

Reuters says this is in “the first trial related to a crash involving Tesla’s Autopilot,” which is sort of remarkable considering how long Autopilot has been around. The alleged facts of the case sound pretty serious:

Justine Hsu, a resident of Los Angeles, sued the electric-vehicle maker in 2020, saying her Tesla Model S swerved into a curb while it was on Autopilot and then an airbag was deployed “so violently it fractured Plaintiff’s jaw, knocked out teeth, and caused nerve damage to her face.”

She alleges there are defects in the design of Autopilot and the airbag, and is seeking more than $3 million in damages for the alleged defects and other claims.

Tesla denies liability for the 2019 accident. It said in a court filing that Hsu used Autopilot on city streets, despite Tesla’s user manual warning against doing so.

The case made its way to trial and now to a jury, which suggests that it could go any number of ways, though legal experts that Reuters spoke to say that a Tesla loss would be especially bad for Tesla, because it could open the door to claims not just about Autopilot but about Full Self-Driving, too.

A verdict for the plaintiff would likely be more significant than a Tesla win, particularly if the jury concludes Tesla defrauded Hsu, said Bryant Walker Smith, an assistant professor at the University of South Carolina School of Law.

“All of the actual or alleged issues with Autopilot, from faulty performance to driver distraction to misrepresentation, could become an order of magnitude greater with FSD,” he said. “So think of Autopilot litigation as a preview for what might be ahead.”

5th Gear: ‘Yota

As much as we all like and respect Akio Toyoda, it was clear by the time he was on his way out that Toyota needed a new direction and, specifically, one headed toward electrification, in a big way. Since then, Toyota has given us plan after plan on how it will do that, almost as a smokescreen to distract from the fact that it wasn’t doing much before.

Toyota CEO Koji Sato said on Friday that he has another plan, perhaps in conjunction with the others, that requires three steps. The plan, according to Automotive News, is: (1) let’s build more EVs, (2) let’s make a new EV platform, and (3) big profits.

“It will be a different concept from what we’ve had until now,” Sato, 53, said in an April 21 media roundtable. “In the Step 3 timing, productivity should be significantly enhanced.

Sato, who took office April 1 with the task of speeding up the Japanese carmaker’s slow start in the global EV race, said the world’s biggest automaker is now in the first of the three EV stages.

Toyota enters the second phase around 2026. That’s when Toyota introduces a completely new EV platform and will have built up worldwide factory capacity to sell some 1.5 million EVs globally.

The third phase kicks in after that when Toyota leverages a new vehicles software system to unlock new revenue streams, business models and hyper-efficient product development cycles.

I have no doubt that Toyota will accomplish some or all of this in the years to come, because Toyota is a juggernaut, like Volkswagen, and tends to get what it wants. I am also impressed that Toyota has been making all these big strategic shifts without simultaneously trashing its old CEO, who is almost certainly to blame for Toyota’s flat-footedness even if no one has the heart to say so. We still love you, Akio.

Reverse: 100 Million GM Cars

For some reason, this story doesn’t mention the make or model of the car in question. It was a fairly modest Chevy Caprice.

Neutral: Happy Friday

On Monday, I saw my podiatrist, which has become a regular thing for me, because I’m almost 40. He owns a car and street parks it in New York City, like I do, which means we have a lot to talk about and everything in common.