China’s Carmakers Bet Big on (Electric) SUVs

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0:33After an attack outside the White House Correspondents Association dinner, we'll look at how simple security flaws expose the president to another gunman. Plus, budget airlines team up to appeal for government assistance. And Chinese carmakers copied Detroit's big SUV playbook with an EV twist. The manufacturers have been looking for ways to, in this intensely competitive market, to stand out and to actually make higher profit. And larger vehicles tend to be more profitable. That's one of the reasons why Detroit focuses on these large vehicles. It's Monday, April 27th. I'm Luke Vargas for The Wall Street Journal.

1:09And here is the AM edition of What's News, the top headlines and business stories moving your world today.

1:19The suspected gunman behind Saturday's shooting at the White House Correspondents' Dinner, which left a law enforcement officer wounded, is set to appear in court today. 31-year-old tutor Cole Allen had a shotgun, a handgun, and knives on him when he ran at a Secret Service checkpoint inside the Washington Hilton Hotel, and according to a document that authorities have tied to him, was targeting President Trump and administration officials. Allen had also outlined security breaches that he said made getting firearms into the hotel, where he checked in the prior night, easier than he expected. Our Washington coverage chief, Damian Paletta, who attended the correspondence dinner, said those security vulnerabilities at the same hotel where then-President Ronald Reagan was shot 45 years ago weren't hard to spot.

2:02Everyone's kind of funneled through these smaller choke points into magnometers and security. So, you know, it's actually not that hard to get into the Hilton, to get quite close to the ballroom without having gone through security. And it's kind of a wild scene because, you know, you might be right next to a cabinet member. As we got through, I could see the Treasury Secretary talking to the Transportation Secretary and others.

2:29Obviously, the event could have been a terrible, terrible tragedy, given how many people were there and how tightly packed that room was and how there was really no way to get out in the event of a mass shooting. The president has also said that this reinforces his call for why he needs a ballroom at the White House that can be controlled much better in terms of the security. There's been a lot of questions about the lax outside perimeter of the Washington Hilton, especially it felt like there was a way to figuratively climb in the side window by checking in as a guest at the hotel the day before, allowing you to bring in whatever you might want to before the security stuff is in place.

3:10And there's a lot of questions, again, about political violence and how to make the country safer and how to make situations like this safe, if they even ever can be safe. And if not, are events like this possible relics of the past? President Trump says that future peace talks with Iran can be held over the phone after he declined to send negotiators to Pakistan over the weekend. Our Benoit Foucault left Islamabad this morning and says the move away from in-person diplomacy comes as the sides remain far apart on key issues, including maritime trade and Iran's nuclear program. There is no prospect of immediate agreement.

3:49They're on the same page on Ormuz. There is no agreement on the nuclear file. But most crucially, the U.S. continues to blockade Iranian ports, and Iran continues to blockade the Strait of Ormuz. So in terms of just the conflict itself, it's not resolved, not to mention still the attack by Israel in Lebanon. But one crucial point the Iranians sort of keep on highlighting is that Trump continues to do severe threats on Iran, existential threats or threats to bomb infrastructure. And that makes it very difficult for the Iranian to sell any conversation at home when it looks like they would be talking under duress, under threats, under almost death threats.

4:28Oil futures and U.S. gasoline prices are once again moving higher today amid rising tensions in the Strait of Hormuz after Iran's Revolutionary Guard boarded a pair of container ships yesterday.

4:42Well, those elevated fuel costs have led a group of U.S. budget airlines, including Frontier and Avello, to ask the Trump administration for two and a half billion dollars in federal assistance. In exchange, we report that the government would get warrants, giving it the option to turn that debt into equity stakes in the airlines. Here's Journal Aviation reporter Ben Katz. What we've really seen in the last few years is the budget airlines in the U.S. really struggling. And that's left them really exposed to the fallout from the war in Iran. And that's really what pushed these budget airlines into seeking this kind of bailout package.

5:18It's not unprecedented. We saw back in COVID during the pandemic, the airlines receiving tens of billions in bailout funds. This is a lot less,$2.5 billion, but it really all comes down to how they can weather the storm effectively of higher jet fuel prices with a forecast that prices will remain high through at least the end of the year. And Ben says that the timing of the request is key as the Trump administration weighs a rescue of Spirit Airlines. The other airlines are seeing an opportunity. They're seeing the fact that Trump is encouraging competitive environment when it comes to the aviation market in the U.S.

5:54So Spurs' rivals are seeing kind of those conversations between the administration and the airline. And they're saying, you know what, we were asking initially for some tax cuts, but we actually see an opportunity here to get more support. A White House spokesperson didn't respond to a request for comment. Backers of a proposed California billionaire tax believe that they've gathered over a million and a half signatures, more than enough to get the one-time 5 % wealth tax on November's ballot. The tax was proposed by a union for health care workers in order to offset cuts to health care funding in President Trump's signature tax and spending law last year.

6:33California Governor Gavin Newsom opposes the tax, warning that it could spark an exodus of the wealthy, while some billionaires say it would stifle innovation in the state. Meanwhile, the fight over how to regulate AI in the U.S. is coming to a head, as we report that the Trump administration is fighting to stop Republican-led states like Florida, Utah, and Tennessee from enacting their own AI laws. Tech reporter Amruth Ramkumar says the White House efforts include threats to withhold federal broadband funding. This shows how divided the Republican Party is over AI. You've had senators like Marsha Blackburn of Tennessee, Josh Hawley of Missouri in the past year voice their concerns about AI, say they need more aggressive guardrails to come from the federal level.

7:18And they've said that if Congress is not going to act, that these states should be allowed to do something. And it's notable that Missouri and Tennessee were two of the states where the White House told them not to pursue state AI bills. So you do have an increasing number of Republicans, including former Trump advisor Steve Bannon, who have really opposed the White House policy on this and criticized it for being too friendly. So it's definitely causing friction within the MAGA movement. While the administration argues that a federal standard is vital to ensure U.S. dominance in the global AI arms race, Amrith notes that internal party divisions may leave AI almost unregulated while the technology develops.

7:57The White House campaign could definitely delay AI regulation in a lot of parts of the U.S. for six months or a year, even longer. And that's very meaningful. AI is developing so quickly that new models come out at a rapid pace. And six months or a year or even longer without rules can make a huge difference. A lot of lawmakers in these states are worried about kids who have committed suicide after having relationships with chatbots. They're worried about power prices going up potentially because of data centers that are used to run these AI models. And they're worried about job losses caused by AI.

8:30And we haven't even seen the worst of those job losses yet, you would think. So this issue is only going to become more salient. Artificial intelligence is also likely to be key in the upcoming midterms, with recent polling showing it's the fastest rising issue in terms of importance to U.S. voters. Coming up, we'll look at what the world's largest auto show reveals about the cars of the future. and the Chinese competition in store for Detroit. That's after the break. Harvard Business School Executive Education creates powerful connections for leaders from around the world. Their programs strengthen organizations and individuals by deepening relationships and fostering new ones.

9:11Participants leave with lifelong friends, new potential business partners, and a powerful, globe-spanning network of fellow changemakers. Learn more at hbs.me slash breakthrough. That's hbs.me slash breakthrough.

9:32To understand where the global car industry is headed, look to China. Journal Autos reporter Stephen Wilmot is freshly off the plane after returning from the Beijing Auto Show, which runs until next weekend. Stephen, good to have you back. You've just peered into the automotive looking glass, if you will. What did you see? Well, that's right. The Beijing Auto Show is a real showcase for the industry of the future, really. It's the largest show in the world. It just has hundreds of launches, hundreds of manufacturers, which is astonishing given that we've had maybe a dozen major manufacturers in the West for years.

10:08And I think this is the result of the massive capacity build that we've seen in China in the last few years, combined with actually a somewhat tepid car market. And that's led to this very, very intense period of competition. So competing for the attention of the Chinese consumer and sort of rethinking what the car is, which for someone who covers this industry, I mean, maybe is a bit exciting. Yeah, absolutely. There's a lot more focus on interior tech than you get on a Western car show. At the same time, you saw a lot of vehicles which would look very familiar to Americans, big SUVs and pickup trucks, but electrified or semi-electrified.

10:43So one trend of the show very much is, I would say, solving the pain points around EVs, which Chinese consumers also have. People often focus on range anxiety, even though more than half of car sales last year were what they call new energy vehicles, which is electric vehicles and plug-in hybrids. But yeah, they're very focused on things like fast charging technology, putting small gasoline engines into electric vehicles so that they kind of recharge the battery. That's something called extended range electric vehicles or e-revs that enables the the growth of the body style from what was the dominant style i would say which was small suvs the kind of tesla model y lookalikes essentially to what we saw a lot of at this show which was the three rear suvs the pickup trucks what you think of as like the core of the american car market these are called full size suvs i believe in the u.s and this has kind of been the domain of ford and of gm's brands cadillac Obviously, everyone knows the Escalade, but Chevy and GMC have these full-size SUVs as well.

11:38Just for a point of clarification for our American listeners, we don't expect because of really high tariff rates and other measures for those Chinese full-size SUVs to be landing in America in any large numbers. So I'm curious then what this tells us. The manufacturers have been looking, I think, for ways to, in this intensely competitive market, to stand out and to actually make higher profit. And larger vehicles tend to be more profitable. That's one of the reasons why Detroit focuses on these large vehicles. Just to put a finer point on it, does this pose a risk then maybe to U.S. carmaker exports to the rest of the world?

12:13I mean, if this trend that we're seeing in China portends kind of where the global car consumer market may mature into, I mean, that's a market presumably US carmakers would ostensibly want to benefit from. Absolutely. It's a real challenge for global automakers, including the American ones in places like South America, in emerging markets, also in Europe where, you know, GM pulled out many years ago, but Ford is still there. And that's going to be a real challenge for Ford. They are talking about partnerships to solve this problem. announced a partnership with Renault, the French carmaker, in December.

12:44And we've reported that they're in talks with Gigli, a Chinese automaker, also to explore options in Europe and potentially elsewhere. Though that would likely hit some political pressure in the US were they to do that. I wonder if it doesn't reveal some uneasiness on Detroit's part about whether it's sustainable for them to remain shielded from Chinese competition over the long haul. Absolutely. I think Detroit is very concerned that in the long run, they need to be competitive and that actually their home market isn't a great training ground for them. The Volkswagen CEO in Beijing spoke to us and called China the fitness center for the automotive industry.

13:23It's where the global players go to work out. They need to be competitive in China so they can be competitive elsewhere. That's particularly relevant for Volkswagen because the Chinese players are coming to its home turf in Europe now. But it will also be true eventually, the American players assume for them that they need to be competitive with Chinese technology or in the long run, they won't survive. I've been speaking to Wall Street Journal Autos reporter Stephen Wilmot. Stephen, thanks as always. Thank you, Luke. And that's it for What's News for this Monday morning. Today's show was produced by Hattie Moyer and Daniel Bach.

13:55Our supervising producer is Sondra Kilhoff. And I'm Luke Vargas for the Wall Street Journal. We will be back tonight with a new show. Until then, thanks for listening.

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