The Chinese EV Maker That's Selling More Cars Than Tesla

24:57We look at the back half of next year into 2025 as when you actually see the kind of announcements made since the law passed coming into fruition. And then hopefully that's passed on to consumers. Again, it depends on what automakers will do. But it's a powerful tool to kind of level the playing field with China or Europe. And we've even seen automakers move battery manufacturing to the US instead of Europe. Tesla was a good example. They were building up in Germany. And then, you know, they're putting more of a focus on here because of how potent that tax credit is. So this is why Germany is mad, clearly.

25:31But just to hit this point home, because, I mean, it seems like domestic policy was very important for China's EV industry. And it could become very, very important for America's EV industry. What are the key differences and similarities between how these two countries are pursuing that type of policy? I guess there's tax credits on either side, but compare and contrast for us. Yeah, I'd say the similarity is the subsidization and the tax credits. Now both focus smartly on the battery side and the EV side. China did have more of the restrictions in terms of making it more difficult to register gasoline cars, which over time encourages consumers to move towards electric.

26:14When you have so many cars being sold, you want to be able to get them registered. In the U.S., the version of that would be through stronger fuel economy standards, which the Biden administration has talked about, or California having an internal combustion engine phase out. One thing that Europe has done that we haven't seen in China is having a 2035 internal combustion engine new sales target. So fully electric or hydrogen fuel cell for those vehicles as well. You see U.S. states doing that as well. But outside of California, the rest of the U.S. isn't necessarily on that kind of growth trajectory.

26:47So compared to if we had this conversation maybe like two years ago, you would say the U.S. from a policymaking standpoint is far behind China and Europe. Now, because of the Inflation Reduction Act, the U.S. is pulled within where they need to be. It's now just keeping those policies in place and automakers seeing the advantage and the opportunity here. So many questions still. There's two questions and I want to make sure I don't forget them. But you mentioned charging. And I'm curious, there was that deal a few weeks ago. that was announced where like GM and Ford, they're like, we're going to adopt Tesla's charging standard.

27:22Yeah. Can you just sort of real quickly explain like what the significance of that agreement is, how it benefits Tesla? Do they get like a penny every time there's a charge? And how charging works in China? Like, is there just a nationwide standard there? Yeah, there's a different standard than China and there's a different standard than Europe. And now there will be a different standard in the US. Not a huge deal in terms of ultimately, all these EVs are charging on similar-ish batteries, but it's more so what the plug looks like. And the US charging network compared to China, China beyond laps, the US in terms of annual public charging installation.

27:57And they have for some time now. Why the deal with Tesla, GM, Ford, and then it seems like a new automaker every week, Nissan jumped on, Volvo jumped on, Rivian jumped on, is really handing the, not the keys to the car necessarily, but a lot of your potential success over to Tesla, what Tesla gets out of it is they become the premier charging network and they've already been outdoing their competitors. You know, it's not a slam dunk case that this is gonna be as successful yet. I think the hesitation is maybe Tesla hasn't had to manage. It's one thing when you have four models, for example, to kind of balance on your charging network.

28:38Now you're having dozens, right? GM has a bunch of models, Ford has a bunch of models. But like we were saying before about batteries, batteries and charging are core to the EV experience. And I think for a long time, GM and Ford and others said, we're going to trust these other charging companies to handle something that's core to our product. And Ford eventually got fed up and these other automakers have followed. In terms of Tesla getting a licensing fee, we haven't seen the terms of the agreement. So we don't fully know what they were promised. But even without knowing those details, consumers now see Tesla as the premium charging network, and that will benefit them by having more uptake on their charging network.

29:17And they've been building it out fairly quickly. Wait, I have an even simpler question, which is what is charging infrastructure look like in China? Because this was always thought to be one of the impediments in the US, this idea that, you know, you can buy an EV, but if you're going to do some long road trip, it might be challenging to find the requisite charging stations. Is it different in China? Yeah. So, Tracy, again, I guess on that one, I would definitely posit to our China-specific expert on the nitty-gritty details. What I can say, like we discussed before, is that the actual vehicle needs are different.

29:51So when you have various different ranges and in general globally, a lot of charging is done at home. So when you have smaller batteries in smaller cars, it's a different pull on the grid there than it is here in the U.S. But just from a pure kind of addition standpoint, China's been far more focused and able to scale up the total number of EV chargers. I wish I had the numbers in front of me. But I think it's, I'm not even going to throw it out there. But again, to kind of restate, China has been a lot more on top of building out that EV charging network. I think in the US, you haven't had the federal money up until really the last year or so.

30:25And you guys can correct me if I'm wrong. But as far as I know, a lot of that, you know, NEVI funding, national EV charging infrastructure as a part of the infrastructure law passed a couple of years ago, hasn't actually rolled out yet. It's been through the RFP process and the states kind of building out their plans for what charging looks like. But the actual chargers haven't been deployed. And maybe it's a good thing because I think a lot of states don't know if they should be going with Tesla standard or still the CCS combined charging standard that the other automakers had agreed to almost 10 years ago before switching over and switching sides to Tesla.

31:00I like how you said you could correct me if I'm wrong, as if I would have any. Oh, yes. Actually, Corey, I don't think you got that quite right. And one of the big themes, and this is something that comes up all the time, and we've already talked about it lots on this episode just now, is just like building up knowledge within a company, whether it's building up how to put a car together, how to put a charging network together, how to make a battery, et cetera. And so something I'm curious, when you talk about like some of these BYD exports are really cheap just on the dollar basis, like as you've mentioned,$11 ,000 cars.

31:33Very cheap. How much of that is they've just gotten really good at bending the cost curve because they've been doing it a lot versus something like their labor costs are cheaper because it's in China? Yeah. It's probably a mix of both. I think, you know, having the – it was interesting. I was looking at a little bit of BYD history just before coming on. They were founded as a whole company in 1995. And then they bought, you know, acquired an auto business and built it up starting in 2003. And again, they've had the battery expertise, and obviously they were selling gasoline cars for a long time.

32:05But having that battery knowledge 15 years before you start to see that exponential strong growth from 2019 onwards, you're seeing other automakers who are in Tesla struggling with the growth curve of how do you build, you know, bend that cost curve? How do you begin to make a profit on electric vehicles? And even taking Rivian as a shorter term example, you could see how a newer EV company that started producing a couple years ago is maybe only starting to hit a stride at a low volume maybe in the last quarter or so. So these things take time, and that's without, you know, switching over from a gasoline product.

32:42One thing that BYD did do, and I'm interested to see which automakers follow suit, is there is an element of let's just go for it. Let's just put the gas car behind us fully and commit to being an electric vehicle company. I think other car companies want to balance kind of shareholder interest and say, we want to keep making money while we're figuring this EV thing out. BYD, maybe it's because of the knowledge and expertise, but to take the leap from we're making gas cars and EVs to going fully electric, it came fairly quickly, but they've reaped some of those benefits. And now moving forward, the questions we get often is, you know, who will be in second place or who will surpass Tesla in the US?

33:23And now the two horses in terms of Tesla and BYD are so far out of the barn, they're only going to gain more expertise and knowledge. I mean, Tesla announced earlier this year, they're a next generation vehicle that will compete with BYD in that kind of$25 ,000 range. For other automakers, if Tesla and BYD are in those kind of cheaper categories where you're going to see a lot of volume sales in the future, you're already behind or you're going to be further and further behind as these automakers are investing. It's a tricky thing for other automakers to figure out. But if they don't, there is a bigger problem if BYD and Tesla keep on taking more and more of that market share.

34:01So just to press on this point, because it's something that's come up, I think, in multiple conversations we've had with like Brian Deese and Jared Bernstein and certainly Dan Wong and Adam Ozemeck. But there's this idea that, OK, you know, U.S. policymakers can say that we want to build up a certain industry within the U.S. But if we're not able to do so in an efficient way that can compete with, you know, other efficient industries in places like China, then it could still be problematic. So I guess my question is, how much does price point and branding and origin actually matter for the EV market?

34:39Could we, for instance, have an American electric vehicle market where there are these cheaper Chinese imports available, but Americans still have a preference for Tesla and other domestic manufacturers? Yeah, and you even see the potential kind of Tesla brand premium. You know, Tesla does very well in the Chinese market, even despite BYD and these other kind of more competitive offerings. One thing on the kind of China point, Volvo, which is manufacturing many of its vehicles in China, you know, is in the U.S. market. And there is a kind of brand premium there. They unveiled earlier this week and in the past couple of months, the EX30, which is going to be at a$35 ,000 price point without any subsidy, because, of course, Chinese produced EVs won't receive any Inflation Reduction Act credits.

35:26That's coming out next summer and is planned to come out. So, you know, whether or not it's BYD, there are going to be other Chinese-built automakers that are already here. Polestar, you know, as a part of the Volvo, Gigli family is also already here. So, you know, you have those cars that may be seen as more premium because of the kind of Volvo badge. Tesla's going to continue. Volvo's a Chinese company. Yeah, Volvo is basically Swedish that was acquired by Gigli. So, they're a subsidiary of a subsidiary.

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37:53Learn more at chase.com forward slash business card. Chase for business. Make more of what's yours. Accounts subject to credit approval. Restrictions and limitations apply. Cards are issued by JPMorgan Chase Bank and a member FDIC. I want to go back to the tension that the U.S. legacy automakers face right now. And you described it well. It's like they want to make money right now. And one way to make money is just selling ICE vehicles. They also want to be there for the future. and they are investing in EVs, but it's clearly a tension because it's going to be a while before they ramp up in their money-making, and it's a lot of capital expenditures.

38:30But then there's this other dynamic, and actually we're recording this July 25th, and just this morning GM came out with earnings, and they're like, things are looking good, provided we don't have a strike. Can you talk a little bit about how this shifts to EVs at places like GM and Ford, the labor tensions that are involved in this pretty big switchover the workforce. Yeah. And I think it's an interesting conundrum in the sense that you have basically the need to get electric vehicles out there at a lower price point. We talked before about the battery pack and how you need to improve those efficiencies.

39:04And so GM and Ford and all the other automakers are now building those battery plants here. And what does that look like for the workers? You know, you've got these negotiations coming up in the fall and, you know, for your contract, typically. We at BNEF, to give a broader context, last year, the electric share of new passenger car sales in the US was just under 8%. By mid-decade, by 2025, we see that going to about 23%. So nearly one in five new vehicles as electric. And so from a kind of negotiation standpoint, whatever GM, Ford, Stellantis, and UAW come to, it's going to be setting the rules of the road.

39:41Whether or not EVs are in the kind of core negotiations, as Tesla says, this a lot. EVs are part of an auto company. Tesla is an automotive company, even though people try and put EV companies into a different bucket. So GM, Ford, and the others, they have to kind of balance how do we make EVs cost less while keeping workers happy while still making a profit. It's a lot of balls to juggle. So you can see why UAW wants to kind of make a stand and take the issue there. That being said, there is the counter tension that if there is a kind of prolonged issue or worker problem, that Tesla is still here.

40:16They don't unionize their workers, and they're still trying to get market share. So I think you'll have those two kind of issues in tension, and we'll see where it lands. Now, just on the sort of challenge that GM and Ford are going to have in Stellantis, I guess, in these negotiations, like part of it is like EVs don't have as many parts, right? And we sort of hit on this earlier, and they're less complex. And I remember reading about this a couple years ago. There was this great Business this week's story about Germany and the conversion. They're just simpler machines. Can you talk a little bit about the manufacturing aspect?

40:51It's like the battery and a couple other things, right? Yeah, exactly. They're simpler machines. We do a lot of price parity research at BNEF. It changes depending on the battery size and how long range your electric vehicle will go. But we see by mid decade 2025 in European markets through the late 2020s in the US, depending on your segment, of reaching that upfront price parity. A lot of it is just figuring out the battery component aspect of it and building up those battery plants. But yes, there's less maintenance costs, which a lot of dealers have been concerned about. The battery portion, figuring out how to recycle that is going to be a key question.

41:29We don't do at BNEF any labor-specific research. But what I can say is that the auto industry is going to look different. It's not going to be as much focused on those smaller aspects of an internal combustion engine. It might be more jobs or more focus on the charging network, on balancing out the charging network through utilities, kind of shifting people around. But yes, the core kind of automotive worker, it's going to look a bit different in terms of what offerings, what they're going to actually be producing. But it has to be different if EVs are going to take off and if you're going to meet those climate targets.

42:02And EVs are part of that story as well. We've talked about that. It's interesting because EVs are both kind of fun in terms of analyzing the car market. Cars are always a good time. But there is a climate benefit here, too, which is why, you know, you're switching over from gas cars that lose a lot of that energy to the atmosphere versus EVs that are much more efficient. I have a related question, but more from the China side. You know, we're talking about BYD's stunning rise in recent years and basically like a lot of the success story of Chinese EV manufacturing. But what are the risk factors here?

42:35Like what could slow that industry down in the foreseeable future? What would make Warren Buffett worry about his BYD position? I don't know if I'm in a position to tell Warren Buffett what to or not to worry. One more stat I want to give you just on the EV dominance of BYD and Tesla, and then I'll get to your question, Tracy. But basically, if you look at BYD and Tesla combined last year, they were about 30 % of all global electric vehicle sales. And BYD in the first quarter of this year was about 21 % of global EV sales, and then Tesla was about 16.5%. So they went up from full year 2022, about 30 % of the market, and in the first quarter of this year, about 38%.

43:15In terms of risk, and I think the India story gets to it, BYD has been moving really fast and operating under the radar. Now people are paying attention. And I think one thing maybe to take away from our conversation today is that if you haven't heard of BYD before, maybe go Google them and look them up and see their rise. What it means is, you know, there might be more of that brand value and upside, but, you know, companies or countries could be more wary in taking them seriously as a competitor. In terms of the overall issues with the EV market in China and elsewhere, I think it's the same challenges of getting consumers to buy, you know, a newer product.

43:49The charging concerns, even, you know, outside of the US remain paramount. How do you reach consumers who may want to go further? In newer markets, how do you trust a new brand that you may not have seen before, like in Europe? But again, China has, and Chinese companies have done quite well by getting out and getting that early mover advantage. We haven't talked too much about CATL today, but they are an important part of this. Tell us, we've talked, CATL has come up on some of our battery episodes, but in the context of this specific conversation, what should listeners know about CATL? CATL has a lot of battery know-how and wherewithal.

44:25They're the leading battery manufacturer globally. They have partnerships with Ford. That's going to allow Ford to be able to, assuming that the factory is built and all goes well, to sell vehicles with lithium ion phosphate, LFP, that may go a shorter range than the traditional batteries you see here, but offers more variety in terms of what consumers can expect. I think it's going to be kind of interesting in a couple of years. Maybe savvy consumers will say, hey, I bought a Ford Mach-E with LFP. Or, oh, I have a long-range Mach-E that has a traditional NMC, which is wonky battery talk, that acts differently.

45:01But ultimately, because of Ford's partnership and licensing that technology, they have access to it. And there's a great Bloomberg piece by BN, a great reporter who looked at the kind of history of LFP, which has moved between U.S. and China, who actually kind of has been investing in it. But CATL has been a kind of pioneer in that space, and Tesla wants to partner with them. Everyone's trying to figure out, and this is maybe a good time to drop, an IRA provision around foreign entities of concern, which is the kind of last year to drop around the EV tax credit, the 7500. Basically, within the Inflation Reduction Act, Senator Manchin was adamant that cars basically from these foreign entities of concern shouldn't be subsidized.

45:40So Ford CATL's arrangement is a way of maybe getting around that provision. It hasn't been defined by the Treasury Department yet. But I know when we speak to clients, there's a lot of anxiety around if we have a small portion of our EV battery that comes from China or really China, Russia and Iran are thrown in the kind of foreign entities concern kind of thought process. But really, this is about China. Folks are concerned about does that mean we won't have an EV subsidy anymore? You know, how low of a threshold does it take to trigger that provision? It's something for folks to keep an eye on.

46:12Automakers, Joe, to your earlier point, are really beginning to look at their supply chain. And we've seen many announcements by GM and Ford to say, oh, we're going to be sourcing, you know, these metals from here. And so this is one outstanding part. As a big picture, almost returning to our earlier point, how close do automakers want to work with China or how close can they work with China? And on the flip side, you know, will China, because of that kind of built up early advantage, really need subsidies to compete here? It's an ongoing story. It's going to be a lot of, honestly, a lot of fun to watch it unfold here.

46:44I just have one last question. And, you know, Tracy asked about risks. And so that was sort of where my head went to. You know, like battery tech is not settled, right? Like you even just described it just now. There's like multiple different kinds, maybe solid state batteries. There'll be some great breakthrough, even though supposedly like they've been working on that for like 100 years or something like that. And then you have other entities that are not even 100 percent sold on EVs. I think like Toyota, for example, is not actually like completely convinced that EVs are the future. I think they still have a dipping a toe in hydrogen-powered vehicles, and there's some optimism there.

47:16I think Joe Manchin likes hydrogen-powered vehicles. Can you just talk a little bit about, like, when you think about risks, the possibility that, like, we don't actually know yet, or maybe we do, but the possibility that the future is sort of uncertain about what we'll be driving? Yeah, I think that's what makes the EV space really exciting. One analogy I like to use a lot when speaking with subscribers to BNEF is when you look at the current automotive market, you're really relying on a few different gasoline types, right? In Europe, they have more diesel. I was just in Europe, you know, we filled up on diesel when taking a nice little drive through Portugal.

47:51In the US, you have ethanol, you know, different mixes of gasoline. But that's it. The EV industry, if done correctly, can have many different battery types. You know, a common criticism of EVs is that you're using cobalt in NMC batteries. With LFP, there's no cobalt and no nickel. Lithium is the kind of key mineral in many of these EV batteries and will continue to be important moving forward. But what's exciting about it is we don't know what the future looks like. If automakers can kind of leapfrog into solid state or other type of battery chemistries, you know, you can create new supply chains and a potential new competitive advantage, even if you're behind, you know, like a Toyota or other, you know, Japanese automakers have been.

48:29That being said, I think the big takeaway from our conversation and watching both Tesla and BYD is that you can't completely make up ground because Because Tesla and BYD are also looking into the same next-gen battery technologies. Certain automakers may say, oh, we're looking into this. We're going to leapfrog. It's easier said than done. And ultimately, producing EVs at scale is a challenge. Making cars is not easy. But if you kind of work through the process and you really focus on it, these two companies show that there is success waiting and improvements to be made. So to sum up on the question, there is a lot uncertain.

49:04And really, there's recessions. There's other black swan events. Even Russia's invasion of Ukraine had an impact on the commodity costs of the materials that went into batteries, increasing the overall battery cost in our survey for the first time in the 10 years that we had been doing it between 21 and 2022. But there's also potential upside moving forward. And that's something that we on the EV team at BNEF track every quarter, every week, every day. Corey Cantor, Bloomberg NEF, thank you so much for coming on Odd Lots. We really needed to do that episode. I learned a lot. Thanks, Corey. That was super interesting.

49:37Yeah, that was great.

49:52Tracy, I really enjoyed that conversation. I learned a lot. You know, I want to, just in terms of my thoughts, I kind of like want to start like at the very last point that Corey made that like, you know, this is such a key theme for us, the sort of like learning by experience, learning by doing, et cetera. And this idea that like, even if the future of like battery tech is still TBD and it's probably going to keep evolving for the rest of our lives, that like, it's really hard to just leapfrog anyone. Like if you have the experience already building high performance EV batteries, you're probably going to be better at it than some other entity that's starting today who like imagines they're going to leapfrog you.

50:30Well, I learned a new word, which is coopetition. And maybe that speaks to some of the idiosyncrasies around battery making as an industry. But this idea that, you know, if you can't leapfrog your way into this technology, then maybe it makes sense to partner with a company that has some expertise in it, even if they are ostensibly in a country with which you might have some sort of trade or geopolitical tensions at the moment. Well, and also to Corey's point, like, you know, a big story for the rest of the world and China in particular over the last several decades was the sort of their importation of American know-how of like various tech, right?

51:10And like companies setting up domestic JVs and that tech transfer process, et cetera. Historically, that hasn't gone in the other direction so much. But the U.S. is behind on battery tech. There are these subsidies. And so to the extent that like the U.S. is sort of like our shot is like sort of partnering with foreign non-U.S. battery makers, like importing that know-how learning from them, that seems like part of how the U.S. could at least in theory be a major player. Yeah, but it is going to be interesting to see whether or not it continues in the current landscape. So yes, it kind of makes sense for the past few years, but with the IRA underway with some of the tensions arising in Europe, I do wonder whether or not those types of partnerships that have really helped sort of spring load or jumpstart China's EV industry, whether or not they're going to continue at the same pace that they have previously.

52:07Yeah. There's so much money in it. Like, there's just like, no, that's like everything. Every time I hear about how they designed the IRA, it's like they're just like absolutely spray hosing cash at all this. And so I feel like when you see all these announcements, it's like no one wants to avoid that money. Everyone wants to get in front of it. Like, I'm imagining those like boxes where the dollars fly around and everyone just sort of like grabbing it. That's sort of how I think of like IRA investments. That's Joe's mental framework of industrial policy in America. It's like a telephone booth of swirling dollars and all these companies trying to catch it.

52:40All right. Shall we leave it there? Let's leave it there. Okay. This has been another episode of the All Thoughts podcast. I'm Tracy Alloway. You can follow me on Twitter at Tracy Alloway. And I'm Joe Weisenthal. You can follow me on Twitter at The Stalwart. Follow our guest, Corey Cantor. He's at Corey B. Cantor. Check out all of his work. Great stuff by him and his team over at Bloomberg NEF, really tracking this data well. Follow our producers, Carmen Rodriguez at Carmen Arman and Dashiell Bennett at Dashbot. And check out all of our podcasts under the handle at podcasts. And for more OddLots content, go to Bloomberg.com slash OddLots, where we post transcripts.

53:18We have a blog and a newsletter. And check out the Discord. We have a whole room. We talk about transport. We talk about energy. All of these topics actively discussed 24-7. Discord.gg slash OddLots. Yeah. And if you enjoy Odd Lots, if you like conversations about Chinese EV and competition with the rest of the world, then please leave us a positive review on your favorite podcast platform. Thanks for listening.

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