A Nightmare Tariff Scenario for the Auto Industry — ft. Tim Higgins

26:02And one of the concerns, one of the really big concerns you hear from economists and kind of industry observers since the pandemic, it has just been really amazing to watch kind of the cost of cars increase for your pocketbook. I look at numbers from earlier this year, and this was before the tariffs. The average price of a new car transacting in the U.S. was around$48 ,000. I don't think a lot of people think$48 ,000 is affordable for many people. Economists kind of look at that number and they think it'll probably just go higher with these tariffs. Though, as my colleagues at The Wall Street Journal have reported, Trump has been perhaps warning U.S.

26:49automakers not to raise those prices, though most believe the cost increases will be pushed off to consumers. Yeah, there was this quote he said that I wanted to get your take on. The reporters were asking him about the prices and if he was concerned about what this would do to prices, because I think this is one of the main consequences of these tariffs is that prices go up. He said, quote, I couldn't care less. I hope they raise their prices because if they do, people are going to buy American-made cars and we have plenty. So his point is, you know, let them raise the prices because it doesn't matter because people will buy American and the American cars, the American companies won't have to raise their prices.

27:32I guess my question to you, is that true? Is that true that we have enough American car makers and, you know, enough American car part makers. Can we do this all on our own such that the price of a truly American car won't actually go up? It depends on the timeline you're looking at. He's making the gamble, the president's making the gamble that production will return to the U.S., that a new American economy will emerge, they'll be stronger. That's going to take time. Cars take many, many years to develop and to kind of create that ecosystem. And you just don't see it pop up overnight. In the interim, there does seem to have been a buildup of inventory by some of the makers, car makers in the U.S., but that's going to probably be eaten through very quickly.

28:25If you look at sales results in March, which are just coming in, it seems to be a surge of buyers out there trying to get in before the effects go into place. Economists and industry observers are kind of talking about how the situation is kind of a perfect storm, if you will, that resembles perhaps what we saw in the wake of the pandemic when there was shortages of vehicles and sent prices up just because of that. There's a concern that there'll be a shortage of affordable vehicles and that'll just push prices up for everybody, not just in new cars, but also in used cars. You mentioned Tesla there, that it's a winner potentially from these tariffs.

29:14I'd like to talk about Tesla more generally, which you've covered extensively. It's been a very bad year for the stock overall. It's down 36 % in the first quarter. Worst performance for the company in any period since 2022. They've lost almost half a trillion dollars in market cap. As you look at Tesla today, what do you think are the biggest obstacles for the company right now? What's gone wrong? And what do you think the next four years look like for Tesla? Well, there are two really big issues for Tesla. The one that's obvious, at least to people who are kind of paying attention to the brand and protesting outside of the stores or the showrooms in recent weeks, is the political one.

30:03Elon Musk and Tesla are intertwined. It's hard to say – it's hard to talk about Tesla as a brand without thinking about Elon Musk, and Elon Musk has clearly become very political. I can't think of a modern equivalent of a CEO essentially operating out of the White House grounds on a day-to-day basis. I mean, it's unprecedented in the modern time. And by that kind of very position, there's a large percentage of the U.S. who's against it because they're Democrats perhaps. And he's on the Republican side, right? So you've got the politicalization of the brand. you've got Musk taking some contentious positions and so that's you know a challenge for Tesla the brand but then Tesla the company also has a challenge in that it does not have new product to speak of in the mainstream sense of course we all know the Cybertruck that is not a mainstream vehicle the last mainstream vehicle they brought out was the Model Y a compact sport utility vehicle as musk likes to point out that best-selling vehicle in the world really helped build the modern tesla what we think of as this powerhouse most valuable automaker in the world company because of this vehicle but it's old and it's long in the tooth in the car business fresh sheet metal is key to keep those sales growing and investors are getting jittery about that.

31:33What Musk is doing, he's been kind of vocal about that, is that he's betting that the future of Tesla is not about pumping out new sheet metal per se, but it's about software and it's about autonomous vehicles. It is about robots. The Model Y and whatever the future cars that he makes, the Cybertruck or Cybertab, these will be delivery vehicles, if you will, for that software that The potential, the value is in autonomy, and that's the gamble. The interim, however, is all about selling that sheet metal, and he's still playing in the game of selling cars. And so it's not surprising, given kind of the age of his fleet, that sales have been the way they are.

32:24They're trying to kind of juice them or get some excitement in the lineup this year with a refreshed version of the Model Y. It's not yet clear if that will bring the excitement back to the brand. Supporters, fans of the company say that sales in the first quarter were probably affected because people are waiting to buy this new vehicle in the coming days and whatnot. But we will see. What do you think? Do you think that's true? Well, I think that there are always, as a segment of the Tesla kind of fan community, who wants the newest thing. And clearly they're going to be out there. Now, how much wind behind that sale is there, I'm not quite sure.

33:04If you look at other car companies over the years, refreshes help, but they don't kind of overcome the fact that they aren't new vehicles. Time will tell. There's also efforts to bring out cheaper vehicles this year, basically variations of what's already out there. So that could help. At one point, Elon, at one point, Musk was talking about deliveries rising 23 percent this year. I don't think a lot of people think that's going to happen. Yeah, it seems that the valuation, which is still actually quite high, I mean, yes, the stock's down 36%, but on a price-to-earnings multiple, still trading at 130 times earnings, and then you've got GM trading at 5, 6, 7, Ford at 5, 6, 7, Stellantis in the same ballpark.

33:49I mean, it's a totally different story. It's a totally different valuation. And it certainly appears that the real story here for Tesla, or at least the growth story, is, you know, the robotaxis and the energy business and the AI and the robots, etc. As you look at all of those other businesses, which I often write off because I say, well, show me when they ship. But when you look at those businesses, which of them is most compelling to you? If you had to sort of fashion a bull case on Tesla, which of those businesses do you think is going to really drive the value for the company? The biggest bet is the idea of the robots, the humanoid robots.

34:36Now, when you talk about how real that is, I mean, there's a lot of steps. When I talk to robotic experts, experts, professors, people in the space. There's a lot of things that need to occur. You can do demos, you can do concepts, but many steps ahead. There are others out there who are still kind of showing the same thing, and that's a big leap. When you talk about driverless taxis, now this is a technology that some have figured out. I'm in San Francisco. I have been in the Waymo RoboTaxi. People are using it for their daily commutes here. It's a business. It is expanding to places like it's in Los Angeles.

35:19It's going other places. Next on the horizon here in San Francisco is Amazon.com's its own gamble with Zooks. I have been in their RoboTaxi as well. It's not yet been opened up to the general public, but is on a path. We've seen those. With Tesla, we have not seen the company demonstrate an ability to operate vehicles without people behind the wheel on public roads. That's a big leap forward. Now, supporters and Tesla enthusiasts will say that FSD, their full self-driving technology, which is not fully self-driving just yet, it is a driver-assisted system, which still requires somebody behind the wheel.

36:04Supporters would say that's getting very far along and they can see it happening. And Musk talks about how they're going to launch technology in Texas this year, the robo-taxi technology. We'll see. We haven't seen it yet. And when you look at companies that have launched robo-taxis like Waymo, it's a many, many year process. The operational part of it, the behind the scenes, the boring stuff, if you will, how you get the cars charged, how you clean out the vomit in the backseat, how you just kind of keep that fleet operating is complicated. It's expensive. It takes effort. It takes discipline.

36:44And we haven't really seen Tesla get into the details of how they are going to think about operating all that. Yeah, we were talking about Waymo on this podcast last week because they're expanding into D.C. and many other cities around America. and something I was noticing is just how much of a difference there is between what they've shipped versus what all the other autonomous companies have shipped and that is Waymo is doing 10 ,000 rides a week and all the other companies are doing none you know not a single other company has completed a paid passenger ride in one of these robotaxis you mentioned And Zook's there, for example.

37:27By the way, insane name for a company. It sounds like a Dr. Seuss character to me. Or some sort of prescription drug. Or a prescription drug, exactly. But they haven't done anything yet, nor has Tesla. There's GM's service, Cruise, which was shut down last year. The way it looks to me, Waymo is way ahead in this market, which seems like it is going to be a very large market. Now, what others would say to me is, well, Tesla has the scale. Tesla has the benefit of the unsupervised driving versus the supervised driving, which people talk about. Take us through what the robotaxi market looks like in your view.

38:13And do you think I have it right or wrong that Waymo is just light years ahead of all the rest of them? Or is it a bit more competitive than that? I don't think you're wrong in the idea that Waymo's out there doing it. And that means a lot at this point. Now, I understand, you know, in tech, we can always point to, you know, the folks who let the other guys go ahead and learn and then come in and kind of dominate the market. I think of Apple, right? I mean, they weren't the first with a cell phone or a smartphone, right? And they came in with a better idea and totally cleaned up, right? Maybe that's what Tesla will do.

38:45You know, we'll see. But Waymo gets a lot of credit for what they've done. It's not just their technology. It's the politics of the situation. It is managing the relationships with the local communities. General Motors' crews in San Francisco really suffered from its relationship with the community. Uber Technology, when they had their test vehicle back when they were in the business of trying to develop autonomous cars, really suffered when they had a fatality with one of their test vehicles outside of Phoenix. These were black eyes for the industry and kind of showed that this is life and death stuff we're talking about here.

39:26This is not just shipping software and fixing it down the road. Move fast and break things takes on new meaning when it's a multiple thousands of pounds of robots going down the road in the messiness of humanity. It's complicated. Now, you know, the Tesla case argument is somewhat compelling, right? They are trying to figure out a way to price a vehicle that could be sold to the consumer, that that fleet of vehicles could in part be owned by the consumer. Maybe somebody will have a flock of autonomous vehicles. The owner will then be responsible for maintaining them. This is all kind of like interesting kind of modeling that could make sense.

40:12But one of the challenges for that kind of idea of a consumer model is the regulatory issues. In this country, in the U.S., historically, the federal government has regulated the car and the state governments have regulated the driver, raising the question of who's in charge when the car is the driver. Right now, it seems to be the states. And so the challenge is a patchwork of 50 states with 50 different ideas for how these vehicles could be operating. And on top of that, you have local municipalities raising concerns. So there was some thought and investors seemed to reward Tesla in the aftermath of the November elections that Musk being close with Trump, Musk being in Washington might help Tesla in this regulatory issue in Washington, you know, for a few months into the Trump administration.

41:09And we haven't necessarily seen any of those signs yet, but it's still early days for that kind of question. but regulations are going to be a big issue for kind of the tesla kind of version or vision of the future we'll be right back

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44:05We're back with Prof G Markets. Just want to shift us to some of these other EV makers that have been in the headlines recently. One company we've been talking about a lot and looking at is BYD, which is the Chinese electric vehicle maker. Stock is up more than 50 % year to date. They recently reported that they had higher sales annually last year than Tesla, which is just striking. You know, we now have a new EV leader. So tell us about BYD. What has made this company so successful? And I'd be curious to know how you think it compares with Tesla, both in terms of the vehicles themselves, but also the company as a whole.

44:49Yeah, BYD is a real threat. There are several Chinese companies that are a real threat. And even Elon Musk would talk about The way he sees competition in the market is China being very formidable. It is a place that has embraced the idea of the electrification of the automobile and in a lot of ways embraced his vision for the idea of what the future of the car will be. These vehicles, these EVs coming out of China that are for that market are really kind of the next step, if you will, in the consumer product. Much more personal gadget-like, if you will. They do feel like kind of iPhones on wheels, if you will, which is what Tesla really carved as a niche for itself here in the States, in part because the people that are working on these vehicles in China come out of kind of that world.

45:42It is perhaps not surprising then. A lot of attention on kind of that personal environment, the touchscreens and being technologically forward. BYD, the number of new vehicles they have brought out is really almost staggering in the last few years. And we get to that point again about Tesla not having brought out new vehicles in the China market in particular. Really, the Model Y was the last new vehicle for the Chinese market, and that's many years now. And so when you're competing in a place like China that is moving a rate of speed and development that U.S. companies, U.S. automakers are just not geared for.

46:29It's a challenge. I mean, even Tesla is a company that was known for moving fast, isn't keeping up in a place like China. And that, in a lot of ways, this was probably the hope of the Chinese government when they allowed Tesla in to be the first foreign automaker to open a factory in-country without having to have the requirement of a joint partner, they could be solely U.S. owned, was the idea that they would spark an EV car revolution, that it would encourage local EV makers to compete. And that's really what we've seen. So the challenge for a company like Tesla is can they remain relevant in the China market, which is so important to them.

47:09But you look at companies like General Motors, which has just fallen off a cliff in that market, and which is really incredible given GM was the original U.S. automaker, to figure out how to crack that, such an important market for them, saw, you know, huge growth, huge development in China. And to see it kind of, you know, fall apart in recent years is rather remarkable and is a kind of a lesson of like, you know, in China, just because you were big once doesn't mean you're going to continue to be big. There are all these upstarts like BYD and a whole bunch of other ones that if we were to name them, I think a lot of the listeners would never have heard of them, but are massive at this point.

47:50And BYD is taking the world. We don't have them in the U.S. They have some buses, but you can't buy these cars here in part because of these tariffs that we talk about. And so one potential here, if you look at the market for the global auto game, is kind of a two-world situation, maybe three worlds. It's unclear how Europe's going to play out. But the idea that China becomes kind of the creator of EVs for the world, and then is the U.S. kind of left with pickup trucks and SUVs and kind of a parochial kind of market? It seems like we're heading that way. Yeah, where does this leave all of the legacy car companies?

48:34Because, you know, a lot of these legacy car companies, they are making EVs too, and we very rarely mention them in the EV conversation. You know, name any company, GM, Mercedes-Benz, Porsche, BMW, everyone's making EVs. Where are they in that process? Are they just, is it right that we don't include them in the conversation? Are they just old news or are they in the race? Well, I think General Motors would take exception. They would like to argue that they are in the race. They have invested a lot of money and a lot of time over the years in trying to develop electric vehicles. They have some.

49:17But they have, I think it's fair to say, failed to capture the imagination of the consumer in the way that Tesla has. But they're trying. They're trying to bring down price. They're being very aggressive. One of the challenges companies, these traditional legacy automakers have is they make the profits from the sale of, at least in the U.S., they make the profits from the sale of pickups and SUVs. Having to go a whole new way is challenging. I mean, we've seen the Biden administration try to put in place kind of a regime that would help these legacy automakers make the transition to electric vehicles.

49:55And a lot of money was kind of promised for that. And the idea was to build up a U.S. manufacturing infrastructure to compete against China, to compete against the benefits they have with the battery supply chain and such. And now with the Trump administration, that idea is kind of thrown out the window and a lot of chaos has been thrown into that. The idea of kind of the way Trump would call it, it was mandating EVs, though it wasn't necessarily a mandate. He kind of argued it was. There was a push to have a percentage of vehicles go EV without a doubt. But it's part of this kind of uncertainty that we're seeing in the U.S.

50:41automotive landscape among these administrations. What the CEOs of these companies would like probably the most is a policy that stays in place for more than four years so they can plot it out. If you're looking at a seven-year window of trying to plot out for your next new vehicle, and in that time you're going to have two different administrations with totally opposite views about how to industrialize the economy, that's a nightmare scenario, which is kind of where we began this conversation of like this is kind of the nightmare scenario for these car company executives who thought things were going to go a certain way and now are scrambling to try to figure out the chaos that they say is ahead of them.

51:23Two companies we haven't mentioned are Rivian and Lucid. I would say those are the other EV leaders in America, at least. Where do they stand in all of this? How are they faring at the moment? And are they in a similar position? Are they in a similar mess that these legacy car companies are as a result of these tariffs? Definitely not the same situation as legacy companies. They don't have the benefit of having the legacy product line that still is generating profit in the U.S., right? Rivian, you know, has seen, you know, I think an interesting kind of positioning with its branding. It is not Tesla.

52:04It is not Elon Musk. It is producing a vehicle that people seem to be excited about. Both companies, Lucid and Rivian, are probably on that, if we have a scale of like vehicles that companies who are like the koreans who are importing a lot of vehicles and seem to be in looking kind of bleak here with the idea of these tariffs and tesla on the other end of that according to least investors mindset of being largely u.s done they're probably closer to the tesla side of things on the tariff situation lucid is is an interesting kind of branding kind of deal they've got a cheaper vehicle coming i shouldn't say cheaper i think they'd be upset a more affordable vehicle coming.

52:47But they have an interesting branding position. They came out at the high end like Tesla did with the Model S. And the idea was to kind of go more mainstream. But what are they at this point? Are they a high end vehicle or are they more affordable? They've been trying to have lease deals and whatnot to make them more affordable. They've got new product that's interesting. People are excited about it, but they haven't quite hit that scale yet to be to get out of that danger zone of you're still a startup car company right i know they're public but um this rivian is similar they're the growing pains these it is not easy to start a car company in the modern era that's why tesla was such a remarkable story um and you know operating as a car company in this kind of environment this geopolitical environment is challenge.

53:37Then you throw in where are interest rates going to be? Are we going to head into a recession? There's a reason why it's tough to be in the car business, right? We've talked about all of these different car companies, these car stocks. Is there a car stock or a car company that you think that we're not paying enough attention to right now? And we talk a lot about Tesla and talking a lot more about BYD recently, I would say. But there are so many others out there. Is there a company that you're particularly interested in that you think that we should be paying more attention to, either for good reasons or for bad reasons?

54:15Well, you know, it's interesting. I think one of the more interesting car stories of the last 10 years or so is the rise of Hyundai and Kia. They have just developed such a strong position in the U.S. market. But still, a lot of that is coming from outside of the U.S. Yes, Hyundai just opened a new factory in Georgia for its EV and hybrid vehicles, and they're trying to become more U.S.-based. But it'll be interesting to see how they respond to these tariffs and can they respond quick enough. It's a company that has created a very powerful brand, and that's not easy to do. And so that's an interesting company.

54:58I think the Germans are also kind of at this inflection point, facing real challenges in their home market, real challenges with that kind of evolution to the EV as well, in kind of a similar but different way than the Detroit companies. And watching them play in the tariffs here in the States could be another kind of interesting and eye-opening experience. I think of a story one of my colleagues did about Mercedes and how Now, they invested heavily in a U.S. factory in Alabama, yet they still face the challenge that a good percentage of the parts come from outside of the U.S. And so even though they're building here, those vehicles will probably be hit with cost increases.

55:43So lots of different simmering dramas around the automotive industry. We're already seeing CEOs kind of move in and out of these companies, always a sign of kind of a critical period, if you will, in the space, a great global drama. Tim Higgins is a columnist for The Wall Street Journal. He writes about the worlds of autos, media and tech. He became a columnist in 2023 after working for more than two decades as an award-winning reporter covering everything from the bankruptcy of General Motors to the 2016 presidential campaigns. He is also a CNBC on-air contributor and the author of Power Play, a book about Tesla.

56:21Tim, this was great. I'm glad we got the auto update. And I appreciate your time. Well, thank you. This episode was produced by Claire Miller and engineered by Benjamin Spencer. Our associate producer is Alison Weiss. Mia Silverio is our research lead. Isabella Kinsel is our research associate. Drew Burrows is our technical director. And Catherine Dillon is our executive producer. Thank you for listening to Prof G Markets from the Vox Media Podcast Network. If you liked what you heard, give us a follow and join us for a fresh take on markets on Monday.

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