EV leadership means more than just sales figures

Automobiles are in my blood.

My grandfather sold cars and was at one time — so I was told — the biggest dealer in the United States. (That was the product of a geographic quirk: His was the closest dealership to a major military base and as a result got the largest quota during World War II when sales were rationed.)

My father was an auto guy as well, selling cars his entire business career. He too benefited from a geographic quirk: His dealership was closest to NASA and when the space program was launched, General Motors gave Corvettes to the initial seven astronauts. He got to know all the astronauts and took care of their auto business; our house was full of NASA memorabilia and many of them were family friends.

I doubt either of them would recognize the auto industry today. It is undergoing a transformation that is forcing producers and consumers to rethink the very meaning of automobiles and of transportation itself. That’s why then-Toyota President Akio Toyoda declared in May 2019 that it was “my mission to transform Toyota into a mobility company,” one that doesn’t just make cars but meets all its customers’ transportation needs.

For Toyota, the key concept is MaaS: Mobility as a Service, which goes well beyond the details of the automobile experience. It incorporates every dimension of travel from start to finish, even if you don’t even own a car. For the Mercedes-Benz Group, the German car manufacturer, the operative acronym is CASE: connected, autonomous, shared and electric, an idea first realized in the Mercedes-Benz EQ brand unveiled at the 2016 Paris Motor Show.

Driving this transformation are new technologies. New vehicles not only rely on artificial intelligence, sensors, the huge amounts of data they generate, the Internet of Things and green tech, but also the 5G networks that put all the pieces together. These cars are linked to your personal network, that of the manufacturer and, eventually, the metropolitan areas in which the vehicles operate.

The automobile industry matters — a lot. A 2010 report by the International Labor Organization noted that “the automobile industry is an important pillar of the world economy,” one that “affects every aspect of daily life and it is an important source of employment — approximately 5% of global labor is directly or indirectly employed in this industry.” It is reckoned to account for 3% of global gross domestic product and about 3.5% in the U.S. In European Union, the sector accounts for 10% of manufacturing value added.

Historically, the industry has been dominated by developed economies. That is no longer. In 2009, China surpassed the United States as the world’s largest automotive market and producer. Determined, as in so many other fields, to end its reliance on foreign manufacturers and develop its own industry — and recognizing the importance of electric vehicles — the Beijing government set out policies that would set the country on a course for global leadership.

They worked. By October 2021, China became a net auto exporter for the first time, and since mid-2022, exports have continuously outperformed imports. In 2022, China overtook Germany to become the world’s second largest car exporter and according to official Chinese government figures released this May, China seized the number one spot, eclipsing Japan in the first quarter of this year. That performance was accelerated by demand for electric cars — a 90% increase from a year earlier — and sales to Russia (a market that Western manufacturers have abandoned in the wake of Moscow’s invasion of Ukraine).

EV dominance matters because electric vehicles are the future. The Paris-based International Energy Agency forecasts that 18% of all auto sales this year will be EVs, up from just 4% in 2020, and anticipates the number will reach 35% in 2030. The Rocky Mountain Institute is more bullish still, predicting that EV sales could make up 62% to 86% of global auto sales by 2030.

European automakers and politicians are alarmed by a fast-approaching tsunami of Chinese EV imports that is accelerating as Europe phases out use of internal combustion engines. China’s market share in Europe tops 8% and is forecast to almost double to 15% by 2030. According to the Financial Times, Michael Shu, head of the Chinese automaker BYD, intends for his company to be among the top three manufacturers in Europe by the end of the decade and number one “if possible.”

The EU and most experts credit that success to state subsidies that allow Chinese companies to dominate the EV supply chain. Bloomberg estimates that China’s Ministry of Industry and Information Technology paid almost 39 billion Chinese yuan ($5.4 billion) to subsidize production of some 3.76 million new-energy vehicles. CSIS, the U.S. think tank, estimated that overall government support to the EV industry between 2009 and 2017 exceeded 390 billion yuan , and public procurement of EVs (another form of subsidy) between 2019 and 2021 added another 100 billion yuan.

In response, the EU last week launched an anti-subsidy probe into Chinese EVs, with European Commission President Ursula von der Leyen blaming “huge state subsidies” and the exclusion of European companies from foreign — read: Chinese — markets. Europe is worried that its automakers will suffer the same fate as its solar cell manufacturers, which were forced out of business a decade ago by cheap Chinese imports.

China countered that the success of its EV industry reflects “its own endeavor and strength,” and the ministry of commerce called the EU probe a blatant act of protectionism that will severely disrupt and distort the global automotive industrial and supply chain, including that of the EU, and warned that it will have a negative impact on China-EU economic and trade relations.

The impact of those subsidies is reflected in another set of recent headlines, those concerning the strike by autoworkers in the United States. The first strike by the United Auto Workers against all three U.S. manufacturers at the same time is most immediately an attempt to get a “fair share” of the $21 billion in profits in the first half of 2023.

The longer-term concern is jobs and pay for the next generation of EV workers. EVs have many fewer parts than gasoline models — catalytic converters, fuel injectors and mufflers, to name just a few, won’t be needed — and GM estimates that they require 40% less labor.

Moreover, since a considerable amount of the EV supply chain is overseas, it has been estimated that the transition to electric vehicles could cost the U.S. 75,000 jobs. (The numbers are contested. One study concluded battery EVs require more labor due to the way that battery packs are manufactured and with inducements, those production networks could be reshored in the U.S.) Ultimately, though John Casesa, a former director of strategy at Ford Motor, nailed it in a The New York Times article where he said, “really, it’s all about positioning the union to have a central role in the new electric industry.”

As in the ‘80s, when the U.S. auto sector was threatened by Japanese competition, the problem is more complex than it appears. Poor decisions by carmakers have compounded problems. Sunk costs have made them reluctant to commit to EVs, and when they do, they focus on the upper end of the market, leaving China the rest of the field. Those companies then steadily improve quality to challenge the old guard. In the absence of a significant shift in thinking, tariffs from the subsidy probe — the usual response — will have little impact on market dynamics.

Typically, this discussion focuses on the social and economic costs of industrial transformation — and the resulting political impact. Gideon Rachman made this point in his column in this week’s Financial Times. But that reflects an outdated view of automobiles and how they work.

Recall that list of technologies at the start of this column. The companies and countries that lead in this industry will, by necessity, be leading the competitions that pace those technologies, too. And, even without intending to, those technologies have national security implications. The data generated is invariably a concern. (See, Tesla: banned from government facilities.) We haven’t begun to appreciate the significance of all that information — the tracking and surveillance potential — for human rights and government power.

While soft power is invariably difficult — if not impossible — to quantify, imagine a world in which green cars, if not green tech generally, is associated with China the way luxury cars are linked to Germany and manufacturing quality and efficiency are with Japan. My father and grandfather could understand the significance of that development — although they would likely be dumbfounded by the reality.