"It's the most humbling thing I have ever seen. Seventy percent of all EVs in the world, electric vehicles, are made in China…They have far superior in-vehicle technology… their cost, their quality of their vehicles is far superior to what I see in the West…We are in a global competition with China, and it's not just EVs. And if we lose this, we do not have a future Ford…"
Those aren’t the words of some pro-China analyst. Those statements were made by the CEO of the Ford Motor Compay Jim Farley. Read that last part again: “if we lose this, we DO NOT HAVE A FUTURE FORD.”
Mr. Farley is telling investors that China’s electric vehicles are a direct existential threat to the company that started it all: the Ford Motor Company.
And it’s not just because of their low price. Farley says it outright: China’s EVs simply have better quality than American EVs – even those from his own company.
He should know. Farley has been driving a Chinese EV from Xiaomi (XIACY) that Ford brought in for the last six months. He says he doesn’t want to give it up…
You may recall that Chinese EVs have been effectively banned in the US for years. Trump put tariffs on Chinese and EVs at 25%, and Biden upped it to 100%. And it’s because of fear…
Ford and GM are both scared of Chinese electric vehicles because like Farley says, they are simply better than what U.S. companies can make. And any U.S. president is pretty well aware that policies that cost American jobs will also cost votes.
Now I know, plenty of people will make fun of EVs, point out that they are not the environmentally friendly vehicle they are supposed to be, that battery range is lame, charging times are too long and stations are too hard to find. Whatever. But if people could buy a perfectly good EV for $25-$30 grand – half the price of the average new car in America today – I guarantee you all those objections would go away, fast. Money talks…
U.S. Market Geofence
Now I understand that China’s government subsidizes its EV market – because it wants to dominate the global EV market. It’s a worthy goal: to the victor go the spoils.
We can complain all we want about China’s strategy, but the facts are pretty simple. For one, many American sectors have enjoyed government support that helped them dominate global markets. Just look at the steps the U.S. government has taken to throttle back China’s AI aspirations so American AI companies can dominate…the U.S. is actively trying to keep the playing field from being levelled.
Now I haven’t driven a Chinese EV, so I can’t say for sure, but the general consensus is that they are high quality. And they are cheap. Just ask Ford CEO Farley or even Elon Musk, who has had to cut Tesla prices repeatedly in China and is still losing market share.
So I’m thinking about Tesla’s Robo-Taxi launch in Austin last weekend. The coverage area was “geofenced” – meaning that the cars would only operate in a certain area, one that afforded a high degree of safety because the geofenced area deliberately excluded potential challenges like difficult intersections and school buses (which have been a problem for Tesla’s).
Sound familiar?
Tariffs on Chinese EVs effectively geofence the U.S. market for U.S. automakers. Sure, it’s a cozy arrangement. U.S. automakers can muddle along – maybe they can make it another decade before they become completely obsolete on the global stage…
The Saudi Effect
I’m also thinking about 2014, when Saudi Arabia decided to crush U.S. shale oil companies by opening their oil spigots and crushing oil prices down to $35.
Oh it hurt. Over 100 small oil companies went belly up. But the survivors did exactly what capitalism prescribes – they innovated, automated and cut their cost of production nearly in half…
Now the U.S. oil sector is the biggest in the world.
Capitalism would say that the best thing to do for U.S. automakers is to remove the training wheels…rip off the band-aid and let them innovate or die.
Ultimately, it may not even matter. It might already be too late for the legacy car makers. Because Tesla and Google haven’t stopped innovating. And especially with Google and its Waymo Robo-Taxi subsidiary, their success with Robo-Taxi in major cities has the potential to make car ownership itself obsolete…
On a per-mile basis, it’s already 50% cheaper to use a Waymo Robo-Taxi than drive your own car. Throw in Waymo’s safety record and the value proposition gets even more appealing. All that’s missing is a large enough fleet of Robo-Taxis available 24/7 to take you where you need to go…
And that’s coming.
Ford and GM can’t compete with China’s EV right now. Robo-Taxis will be the nail in their coffin. This is why McKinsey & Co. say that the Robo-Taxi sector is likely to grow 35% a year and be worth $400 billion 2030.
As I’ve said before, Robo-Taxi is the bull market you’ve been waiting for. Here’s how to play it…
Cheers,
Briton Ryle
Chief Investment Strategist
Outsider Club
X/Twitter: https://twitter.com/BritonRyle
