When the Soviet Union became the first nation to put a manmade satellite into orbit in 1957, the initial response from the United States government was tepid at best. But the general public had a different reaction—one of fear, shock and urgency that our primary geopolitical rival could be technologically so far ahead of us. This led to more funding for what we'd now call STEM education, more R&D for aerospace tech and more public policies meant to drive innovation. It also gave us the term "Sputnik Moment," for when a country has to be jolted into action to catch up with an adversary with such a huge lead.
When it comes to how advanced China's automakers are at making electric vehicles, we've reached our Sputnik Moment here in the U.S. But so far, the answer seems to be... more tariffs, all while automakers get nervous about EV development after a few uneven quarters. How long is that going to work?
That kicks off this Monday edition of Critical Materials, our morning news roundup that's soon coming to your inbox as well. Also on tap: we discuss a crucial union vote for Mercedes-Benz in Alabama, and Tesla dealt with a literal angry mob in Germany.
30%: The Automotive Cold War Can't Just Be Fought With Tariffs
As we noted on Friday, it was likely a coincidence that Chinese EV startup Zeekr—owned by the Geely Group, and thus a cousin to Volvo and Polestar—had its New York Stock Exchange initial public offering the same day we got wind of likely upcoming 100% tariffs on Chinese-made vehicles. But the timing of both events says a lot about where China is on EVs, and where the U.S. is not.
Essentially, the U.S. and Europe are now realizing just how outpaced they are by China's electric automakers, not just at the bottom of the range with cheap stuff but also higher-end luxury cars too. In Europe, Chinese EVs are already eating into Volkswagen and Mercedes sales a lot more than those automakers would like on their home turf. Meanwhile, they're all losing ground in China itself to these new domestic automakers.
It's not like the U.S. hasn't done anything at all here, of course. The Biden Administration's signature legislative achievements, the Inflation Reduction Act and Bipartisan Infrastructure Act, have major incentives leading to more homegrown EV, battery and charger development right now. But China's been at this for two decades; we've got a lot of catching up to do.
In the meantime, the play seems to be to stop the bleeding before it starts by quadrupling tariffs on Chinese-made EVs, which would in theory make them so expensive and unprofitable they're not worth selling in America. That feels like a temporary solution at best.
Bloomberg columnist David Fickling has considerably stronger words here, and this is going to infuriate a lot of people but he's right:
Faced with the greatest challenge of the 21st century, America is giving up... That spirit of can-do optimism feels a very distant memory right now.
Ford Motor Co. is reducing orders from battery suppliers as part of a plan to trim its spending on EVs by $12 billion, Bloomberg News reported Saturday. One unnamed person cited losses of $100,000 per car — a dubious, if much-repeated, figure. General Motors Co. has missed its electrification targets for two years running. A company that once aspired to produce one in every five cars globally shifted less than 76,000 EVs last year, equivalent to one in 200 of the 14 million sold worldwide.
Tesla Inc. is cutting 10% of its workforce and disbanding a Supercharger team that the whole industry is relying on to provide refueling options on the go. Its shares have slumped 32% year-to-date. First-quarter US EV sales rose just 2.6% from a year earlier, a far cry from the rates of 81% and 46% in the same periods of 2022 and 2023. Auto analysts cheer every move away from battery power.
It's not just a policy-side issue; it's an automaker issue. Faced with the reality that there won't be some concurrent, one-to-one drop in internal combustion vehicle sales while EVs take off, the car companies are freaking out. They say they're doubling down on hybrids (even if they don't currently offer any) or are walking back commitments to go all-electric sometime in the next decade. Even Tesla, the leader in the EV field, seems dead-set on becoming a robotaxi company instead, although that likely has more to do with keeping its stock price high than anything else.
As for the rest, the dirty secret is that many carmakers don't really want to go electric. Why would they? These are huge, often 100-year-old, bureaucratic companies that have become deeply entrenched in society; walking back decades of existing supply chains, know-how and even sales tactics to pivot to batteries and software is hard and expensive. And generally, we've become a country that kind of hates doing things that are hard and expensive.
I call it "the American Crisis of Effort." Bloomberg's Fickling might too. He continues:
What we’re witnessing is an astonishing loss of nerve in a country whose capitalist hunger once created the modern auto industry.
Cosy within a market protected by distance and tariffs, and fearful of the wrenching shifts required by both electrification and Chinese competition, many executives would like to believe the whole energy transition thing was just a bad dream.
The enthusiasm with which some auto executives bandy about such spurious figures shouldn’t be taken as a sign of how costly EVs are, but of the deep cultural aversion to change within many US car companies.
[...] Like birds on isolated islands, America’s carmakers are evolving to suit an oddly congenial environment — one where they can grow big and bloated in the absence of competition from hungry rivals. Gradually, they’ll lose the ability to fly.
I would also argue that the type of capitalism that those companies came up on has been replaced by one where quarterly returns matter above all things, and now justifying massive capital costs to compete in the future is out of fashion. After all, why build for tomorrow when you can get short-term wins today? The first one is hard and expensive, after all.
Either way, we'll see more tariff-related news this week. But the automakers are crazy if they think protectionism alone is going to keep them afloat in the face of a technologically superior adversary.
60%: Mercedes Faces Union Vote At Alabama Plant
Meanwhile, Mercedes faces a disruption of a different sort at its Tuscaloosa, Alabama plant. This week, workers at the factory will decide whether to join the United Auto Workers union. If they do, the plant will only be the second so-called "foreign" plant in the U.S. south to be a unionized one, and also the second that makes electric vehicles; the plant builds Mercedes' electric EQ SUVs.
The first, of course, was Volkswagen, just in April. But Reuters explains why the Mercedes union drive is different.
A union victory at the plant, weeks after a resounding win at a Volkswagen factory in Tennessee, would be a watershed moment for the UAW as it seeks to organize more than a dozen automakers across the nation and add to its dwindling ranks.
The campaign at Mercedes has been much more contentious. The company has urged workers to vote no, according to fliers and signage viewed by Reuters. Mercedes also hired anti-union firms to speak with workers, plant employees said.
[...] Mercedes has mounted a more aggressive campaign against the union than VW did, labor professors and workers said. It has held meetings led by company executives as well as outside labor firms emphasizing the risks of joining the UAW, according to workers and meeting audio reviewed by Reuters. Signage posted around the plant, which company leaders pointed to in meetings, urged workers to "vote no," according to employees and photos reviewed by Reuters.
This is also the first election at the plant, whereas the UAW had two attempts at VW before winning.
"I don't know that they have spent the same amount of time and investment in Vance, Alabama, as they did over the years in Chattanooga," Art Wheaton, labor professor at Cornell University, said, comparing the Mercedes and VW efforts.
A Mercedes spokesperson told Reuters that the automaker "respects employee unionizing efforts and is ensuring every worker has a chance to vote by secret ballot while having the information needed to make an informed choice."
What a union vote might mean, if anything at all, for car prices remains to be seen. The vote takes place this week and initial results are expected Friday.
90%: Anti-Tesla Protests Get Wild In Germany
Lots of disruption going around this week, I suppose. The next example comes to us from a group called Disrupt Tesla, who are climate-focused protesters angry about potential environmental damage as the electric automaker seeks to double its Berlin-area factory. And this past weekend, protests led to arrests. From the BBC:
Hundreds of climate protesters have clashed with police in Germany after attempting to storm the Tesla factory near Berlin. Several people were injured, including three police officers, during Friday's demonstration against the proposed expansion of the electric car giant's only European plant.
Police made several arrests and prevented activists from gaining access to the facility.
Campaigners have been camped out in woods in Grünheide, in the state of Brandenburg, since February, claiming Tesla's plans to double the size of its factory would damage the environment. Demonstrators on Friday blocked a nearby motorway and interrupted the railway service by sitting on the tracks, police said.
There was also a sit-in on a country road near the factory.
Footage on social media shows hundreds of people, many donning blue caps and holding blue flags, running towards the site attempting to gain access.
One video, verified by the BBC, shows protesters breaking through the police cordon and entering the grounds of the factory, which is located around 30km (18 miles) from the capital.
At least on Friday, Tesla CEO Elon Musk called reports and video of the protesters breaking through "fake news." He also complained that "police let the left-wing protestors off [too] easily." What a bizarre outcome.
100%: What Must Automakers Do To Compete With China's EVs?
I've been thinking about this all weekend, especially after Kevin's big feature on the Beijing Auto Show revealed just how far ahead many of these cars are. Besides advancements in batteries, range and affordability, what do you want to see? One thing his story stresses is how those automakers struck deep partnerships with tech companies, to ensure their car software is compatible across all users' device ecosystems.
We're barely scratching the surface of that here, even with Android Automotive catching on in cars or the more aggressive Apple CarPlay coming up. What do you think?
Contact the author: patrick.george@insideevs.com
