Auto File: Tesla, Xiaomi and China’s New Era

Joe White Global Autos Correspondent Greetings from the Motor City! The biggest story in the World of Cars is unfolding in China, right now. The hierarchy of the world’s largest vehicle market is being reordered in double time.

General Motors and Volkswagen, once China’s dominant automotive players, have lost 1 million vehicles each in annual sales in China since 2019. Chinese consumers are shifting away from Western auto brands and combustion technology toward domestic EV brands such as BYD and now, suddenly, Xiaomi. Within one product cycle in auto industry terms, the best Chinese manufacturers have opened up leads in technology and production costs that have caused executives in Detroit, Europe and Japan to hit the alarm buttons. Legacy automakers now face big decisions about whether to adapt to diminished roles in China – and potentially other markets - or invest billions to catch up.

Then there’s Tesla, which reported first-quarter deliveries Tuesday well short of Wall Street guesstimates. With a giant factory in Shanghai, Tesla started this decade in pole position in China’s emerging EV market. Now, Elon Musk’s EV company has fallen behind Chinese champion BYD and is under intensifying pressure from upstarts such as smartphone maker Xiaomi’s new electric vehicle brand. The disruption of the Chinese auto market has been building for years. Home-grown vehicle makers such as BYD and Geely have sprinted up the learning curve mapped out by Japanese and South Korean automakers. First quarter financial reports in the next few weeks could draw a bright line between the Before Times and a new era. We’ve got other news – including disappointing delivery numbers from Tesla and Rivian and new theories on why U.S. consumers are balking at EVs. Let’s dive in!

• Xiaomi upends China’s EV race

• Tesla, Rivian and BYD slam into speed bumps

• The fight over big truck pollution China turns the page on legacy automakers Two stories from the past week illustrate how the Chinese auto market is getting turned upside down.

Xiaomi, the Chinese smartphone maker, last Friday unveiled its first electric vehicle – and racked up nearly 90,000 orders by Monday. Xiaomi CEO Lei Jun reveled as he unveiled the smartphone-inspired EV that Apple decided it could not build. The company’s market cap jumped by $4 billion to exceed GM and Ford for a time on Tuesday. And now the counterpoint: Reuters reported that state-owned Chinese automaker SAIC and Western partners General Motors and Volkswagen are working on plans to slash jobs after three decades of growth. The companies disputed sources who said they have specific job reduction targets. However, they left open the possibility that drives to push out poor performers could result in shrunken workforces by year end. GM and Volkswagen will need to reckon with their dramatic loss of sales at some point. Once the leading automakers in the Chinese market, GM and VW each sold roughly 1 million vehicles fewer in 2023 than they did before the pandemic in 2019. That’s the equivalent of three to four assembly plants worth of production for each company, no longer required. It’s also billions of dollars in revenue no longer coming in the door to pay engineers, marketers and executives. Other global automakers, starting from smaller bases, have already retrenched in China. Stellantis sold just 65,000 vehicles in China last year and is overhauling its strategy for the market. Ford has outlined plans to slash costs, focus on commercial vehicles and use China as an export base. (Some Chinese automakers are being forced to discount their combustion models as well. The China shakeout is about technology, not just brands.) Michael Dunne, an industry consultant, described “The Sudden Death of Detroit in China” in a Linkedin post that outlined an accelerating decline obscured until recently by China’s pandemic shutdowns and the semiconductor shortages. GM CEO Mary Barra warned investors in January the automaker’s China business could slide into the red for the first quarter. In the good old days – 2018 – GM earned $2 billion in China. Last year, GM China earned $446 million. First-quarter investor calls could become venues for CEOs to explain new strategies for China. Declaring that “everything is fine” will be a tough sell. Essential Reading

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Tesla reported Q1 deliveries on Tuesday morning that landed well short of investor expectations, falling year over year for the first time in four years. TSLA.O shares took a 5% dive out of the starting gate, slashing $27 billion from the company’s market value. EV rivals including Rivian, BYD and Nio also underperformed in the quarter, which will stoke the narrative that the “inevitable” transition to electric vehicles has hit a speed bump. (Chin up EV bulls! You will always have Norway!) How bad were Tesla’s numbers? After Tesla marked building its 6 millionth vehicle in a March 29 tweet, Deutsche Bank analyst Emmanuel Rosner used the data to estimate that Tesla Q1 deliveries would come in at 414,000 vehicles – “down YoY and well below median analyst consensus of 431k units.” In fact, Tesla delivered 386,810 vehicles in Q1. That was good enough to re-take the lead in global EV deliveries from BYD for the quarter. But the latest Tesla deliveries were down 8.5% from a year earlier. Tesla’s “growth company with no growth” problem is real. Tesla’s sales problem has more than one cause. The automaker’s vehicle designs are old – notwithstanding regular software upgrades, hype over “FSD” driving assistance technology and facelifts for the Models Y and 3.

Elon Musk’s behavior as proprietor of the former Twitter, his embrace of conservative causes and his volatile public persona have begun to turn off some potential buyers, Reuters reported on Monday. Plunging Tesla resale values are a more tangible issue. Tesla’s price cuts have undermined prices for used Teslas at the expense of current owners. Plunging Tesla resale prices slammed financial results at Hertz, the big rental car company. Individual Tesla owners also have been jolted by the impact of the company’s volatile pricing. Tesla shares were down 30% for the year as of the start of trading today. Toyota – the anti-Tesla? Up 40%. Inventory is back in style Supplies of unsold new vehicles are almost back to pre-pandemic levels, Cox Automotive said Friday. That’s good news for consumers, and risky business for automakers. On average, dealers have 74 days’ worth of new vehicles to sell, up 50% from a year ago, Cox analysts said. That inventory average obscures wide differences among brands and types of vehicles, according to the latest Cox Automotive market data, which you can find here. There are nearly four months’ worth of unsold EVs for shoppers to choose from, according to Cox. That means manufacturers hoping to reverse last year’s price cuts will have a rough time. Shopping for a Toyota? Dealers have a tight 30-35 days worth of vehicles in stock. Prefer a Jeep or Ram truck from Stellantis? Bargain with confidence – those brands have 130 to 140 days’ worth of vehicles gathering dust. U.S. traffic deaths – stuck on a higher plateau New data show that U.S. highway fatalities, including pedestrian deaths, fell 3.6% from a year ago but remain higher than pre-pandemic levels for both the total numbers of people killed and deaths per 100 million miles traveled by vehicles on U.S. roads. The government’s April 1 report is here.

Distracted driving is part of the problem. Crashes involving distracted drivers killed 3,308 people in 2022 and injured another 289,310 people, the National Highway Traffic Safety Administration estimated. The number of fatal crashes involving drivers aged 65 and up rose 4.7% in 2022 from the year before to the highest number since NHTSA began keeping records in 1975 – when many 65+ Americans born at the peak of the post-war Baby Boom were teen drivers. Why more American aren’t buying EVs Young U.S. consumers between 18 and 34 are keen to buy EVs. But many don’t because most available EVs are still too expensive, according to a new survey from Edmunds.com, which runs a popular auto shopping and information website. Average EV prices still exceed $50,000, but 60% of consumers say they want an EV for $40,000 or less, Edmunds found. The Edmunds survey builds on other recent market studies that point to the same factors: The perception that EVs are pricey, their driving ranges aren’t adequate and charging is hard to find. The conundrum is that many EVs are available for less than $40,000, but consumers don’t know it, says Chris Harto, an analyst with Consumer Reports. Psyched about the Cybertruck, F-150 Lightning or the Rivian R1T electric pickup trucks? You’re in the minority. Edmunds survey says 85% of would-be EV buyers want a sedan or an SUV – and among them, just over half want an EV in the shape of a car. Maybe the Hyundai Ioniq6 or the forthcoming electric Dodge muscle cars aren’t so crazy. The EPA’s trucking rumble The Biden Administration chose Good Friday to roll out new greenhouse gas emissions standards for medium and heavy trucks – a tip-off to the trouble to come over the latest piece of White House climate policy. Big trucks account for about 2% of vehicles on the road, and about 7% of U.S. CO2 and other greenhouse gas emissions (25% of the 29% emitted by all forms of transport.) The EPA’s new rules promise to cut 1 billion tons of climate-affecting gas through 2055, and generate $13 billion in social benefits. The EPA rule estimates the heavy duty industry will spend $1.1 billion on the technology to comply, and save $3.5 billion in operating costs. What’s not to like? Plenty, according to industry groups including the American Trucking Associations (which called the EPA standards “entirely unachievable,”) and a group that represents heavy truck and engine manufacturers. The EPA acknowledged in its rule that shifting long-haul trucks away from diesel will be a heavy lift barring breakthroughs in battery or hydrogen technology as well as heavy-duty charging. The agency delayed tougher standards for long-haul trucks to 2030 and estimated 64% to 75% would still be using combustion engines by 2032. Some environmental groups criticized the EPA’s concessions to the trucking industry. Heavy truck charging infrastructure is a challenge. A charging hub for a fleet of heavy trucks can “require 10 megawatts of power or more,” said Matt Horton, chief executive of charging startup Voltera. “That’s 10X what you get in a standard light-duty charging site.” Voltera recently opened a charging hub that could serve about 200 electric trucks a day near the Ports of Los Angeles and Long Beach. The EPA rules are an opportunity for Voltera and other companies betting on electrification of heavy vehicles – especially those used for garbage pickup, hauling trailers in depots and other short-haul uses. Those types of trucks could go electric because it makes financial sense even if – as is likely - the EPA rules are revisited by future administrations and litigated in the courts. Fast Laps - U.S. auto sales reporting began Tuesday. Analysts expected single-digit percentage growth. Hyundai said Q1 sales rose 0.2% - just good enough for a new Q1 record. - EVs and suburbia are made for each other, according to the U.S. Department of Energy. The Energy Department said it expects owners of 60% of the EVs in the United States will be suburbanites, with the remaining 40% divided equally between cities and rural areas. Suburbs have lots of single family homes with garages that can house chargers – infrastructure that makes it relatively painless to use an EV for daily driving. - Hyundai scrapped an agreement to buy aluminum from Indonesia after young K-pop fans (aka future customers) protested the deal would exacerbate climate harm. - Panasonic sold its automotive systems business to private equity firm Apollo for just over $2 billion. - Battery recycler Li-Cycle said it will cut staff by 17% as it struggles to stay ahead of soaring costs. - Israeli cybersecurity company C2A announced a deal with Daimler Trucks, the latest sign of the bonanza tough European Union vehicle anti-hacking rules are creating for software suppliers. C2A already has deals with several other automakers. What’s the penalty for not upgrading security? Porsche will discontinue sales of gas-fueled, outgoing generation Macan SUVs because they don’t comply. - Indian automakers reported record sales for 2024, driven by demand for larger and more expensive SUVs. - China made nice with France, promising to import more French-made goods as part of an effort to head off threatened European tariffs on Chinese-made cars. Auto File is published on Tuesdays and Fridays. Think your friend or colleague should know about us? Forward this newsletter to them. They can also subscribe here.

(Editing by Tomasz Janowski)