Detroit's Hour of Battle Is Here
Chinese automakers are poised to run over Detroit. What now?
Note to Readers: This Op-Ed by Michael Dunne was published by in Automotive News on January 22, 2024 and is reprinted here with permission.
Detroit's Hour of Battle Is Here
Know the enemy and know yourself; in a hundred battles you will never be in peril. — Sun Tzu, The Art of War
These are dangerous days for Detroit. The Chinese are on the offensive, invading markets worldwide. The Motor City is in retreat. Leaders in Detroit must find ways to compete or they risk vanishing, like Kodak or Blockbuster.
China’s auto industry is a modern-day Godzilla, the likes of which Detroit has never seen. In 2023, China blew past Japan to become the world’s No. 1 automotive exporter, shipping almost 5 million vehicles to more than 120 markets worldwide.
China is already the No. 1 supplier of vehicles to Mexico and will add transplants there soon. Major Chinese companies such as BYD and SAIC are taking over idled Ford Motor Co. and General Motors plants in Brazil, Thailand and South Africa and setting up new plants in strategic locations such as Hungary and Indonesia.
When it comes to electric vehicles, China enjoys overwhelming superiority. China’s EV and battery production is 10 times greater than that in the U.S. Ten times. Consider this: BYD produced 76,800 EVs in the last week of December while GM built 75,883 in all of 2023.
Detroit, on the other hand, is turning inward. In the last decade, GM, Ford and Jeep have retreated from markets worldwide. There were grand plans for growth and profits in China. Sadly, that strategy has backfired.
Jeep has already withdrawn from China. Ford and GM sales are down by more than 50 percent from their peak in 2017. Profits have fallen even further. These companies will exit the Chinese market within the next five years.
Painted into a corner
General Sun Tzu would make the following observations: Chinese automakers know themselves and they know their enemy. Detroit does not know Chinese automakers. And Detroit’s own identity seems stuck between the grandeur of yesteryear and the raw vulnerabilities of today.
For Detroit to compete with the Chinese will require monumental effort, guts, tenacity, innovation, daring and, yes, lots of luck. But the starting point will be to look in the mirror. Who are we, Detroit?
GM, Ford and Jeep-Dodge are very good at building quality large trucks and large SUVs for Americans at a profit. Period. Detroit is not competitive anywhere else. The Chinese are better on costs. The Japanese are better at quality. The Koreans are better in value. The Germans are better at luxury. And Tesla is better in just about every facet.
In recent years, Detroit has made a series of efforts to learn how to develop electric vehicles, batteries, autonomous vehicles and software. Those forays have been major disappointments with billions spent and little to show for it.
A great battle
Now is the time to develop a bold and realistic battle plan.
Start by identifying your foes’ weaknesses. Chinese automakers are awash in excess capacity and a bloody price war at home. They need access to Europe and the U.S. to be profitable. Detroit and Washington should sustain prohibitive import tariffs on made-in-China cars. Nobody likes tariffs. But protections will buy Detroit time.
Fortify strengths in the home market. No one can match Detroit when it comes to large pickups and SUVs. Ford F-150, Chevrolet Silverado, Ram and Jeep customers are among the most loyal in the world. Detroit should work closely with its dealers, suppliers and finance companies to deepen those intense emotional bonds to American car brands. Profits from the truck business are Detroit’s oxygen and lifeline to tomorrow.
Detroit also needs to develop more offerings under $30,000. This will block a point of entry for the Chinese. The Ford Maverick or the Chevrolet Trax are excellent examples.
Avoid trying to do too many different things at the same time. It is OK to go slower on electrics while battery supply chains are being built out. It took China more than 10 years to get to where it is with electrics today. Go faster on the key differentiator: Software-defined vehicles. Starting with software as the base lets automakers roll out new features without changing the hardware.
Now What
Set up operations next to Tesla in Austin. Or alongside BYD in Shenzhen. Maybe even buy into a Chinese EV player as VW has done with Xpeng. Learn how to design and develop exceptionally good cars and trucks that win in markets worldwide.
Which brings us to the final, and possibly most important, thing to do: Detroit must dig deep to rediscover the determination to win — whatever it takes. When the goals appear too daunting, remember this: Hyundai and Kia, which hail from a country smaller than Michigan, are winning. Why not Detroit?
The hour of battle has come. Detroit has a choice: Hunker down some more, defend shrinking positions and gradually fade into oblivion. Or understand that this is an existential moment. Now — and not one minute later — is the time for Detroit to get back on the offensive.
Original version in Automotive News Link
Future Cars & Markets
Electrics
BYD’s Expanding Global Footprint. BYD is building overseas plants in three key geographies: Hungary, Thailand and Brazil (where it is taking over an idled Ford plant). This week the company announced plans to invest $1.3 billion for an EV plant in Indonesia, too. Link
VinFast - Wild Pickup Adds to Expanding Lineup. VinFast revealed two new products at CES this month - the VF3 city car and the Wild pickup truck concept. The pickup, named Wild, was designed in coordination with Italy’s Turino Design. Link
Ola Electric Eyes IPO, Fire in the Belly. Seen by his supporters as India’s answer to Elon Musk but by detractors as a boss who demands too much of his workers, company founder Aggarwal has defended Ola Electric’s “intense” work culture. “People need to come in with fire in their belly.” Link
Batteries / Supply Chains
Panasonic Into Kansas. CATL and BYD and LG Energy took battery industry leadership away from Panasonic. Now the Japanese battery king is investing $4 billion into a massive new manufacturing facility in De Soto, Kansas as part of a comeback drive. Link
Australia Fortescue Into Detroit. The plan is to manufacture batteries and fast chargers. Michigan is paving the way with rich incentives, hoping the investment will create 600 new jobs. Link
Advanced Technologies
TSMC Chips Down In Arizona. TSMC, based in the Taiwanese city of Hsinchu, produces an estimated 90 percent of the world’s super-advanced semiconductors and supplies to global tech giants such as Apple and Nvidia. Efforts to build a $40 billion plant in Arizona are encountering roadblocks, pushing out dates for start of production. Link
China Baohang Radar to VinFast. Vietnam and China are bitter enemies historically. But that’s not stopping tech cooperation today. One example: Baohang Automotive offers high integration, enabling a single-chip radar to fulfill multiple functions such as Blind Spot Detection, Lane Change Assist, Rear Cross-Traffic Alert, and Door Opening Warning (DOW). Link
New Numbers / Milestones
China’s Global Export Machine. China exported 5.2 million vehicles in 2023, becoming the world’s number one car exporter. What is less well known is that Tesla and other foreign automakers combined to ship almost a million cars from China last year, too. Link
BYD Edges VW to Become New China No. 1. BYD sold just over 3 million cars in 2023 marking the first time since 1985 that VW was not the country’s best-selling brand. Link
GM China Sales Breakdown. GM sold just 2.1 million vehicles in China - down about half from its peak sales year of 2017. That’s not the worst of it. Look closer and you will see that 1.2 of the 2.1 million in 2023 were produced by SAIC-GM Wuling, a Chinese company in which GM has only a minority share. Link
Meet the Luvly O – a Swedish light urban vehicle that could be the future.
Hakan Lutz, Founder and CEO, Luvly
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Very interesting POV as usual Mr. Dunne. Your recommendation are intriguing as well. I feel Detroit automakers will be slow to recognize the threat just as they (and others) were slow to recognize the Tesla threat.
Great insights, Mr. Dunne, thank you for helping inform some of my own thoughts on the matter that I expanded upon here: https://yallstreet.substack.com/p/shanghai-noon
It's possible, even unintentionally, that Americans' preference for large, gas-guzzling trucks and SUVs is, for now, a moat against the Chinese invasion. Fully agreed that Detroit needs to shore up the cheap end of the market to deny the Chinese a beachhead (and before Tesla makes up for its time wasted on the Cybertruck and puts out a sub-$30k Model 2)!