As Auto China comes to a close, journalists, analysts, friends and colleagues – many “new arrivals” to the mobility revolution – are raising alarm. Ten years too late, and just perhaps, without reason.
As an event, the Beijing International Auto Show was twice the size of IAA, and three times the size of the New York Auto Show. The show hosted some 120 world premieres, from $7,500 BEVs to luxury brands. China is now the world’s largest auto market and largest auto exporter as well, so this all makes perfect sense.
The inevitable (yes, inevitable) transition to electric vehicles has opened the door to new brands, new manufacturers, and a new industry leader. Just as the switch from CRT to flat-screen (and a bungled response by industry and government) mostly ended domestic TV manufacturing in Europe and the US, the automotive industry will continue to shift eastward.
Through shrewd, long-term planning, it’s now inevitable that China will dominate EVs – and therefore the auto industry – for at least the next decade to come. The first step to embracing this fact, is accepting it.
Who cares? Not consumers.
47 percent of all cars sold in Europe are now hybrid or fully electric; one in five has a plug. In the US, one in ten were BEV or PHEV in Q1 2024. Aside from Teslas (also built in China), new brands and arguably more attractive EVs from China are sure to leave most legacy manufacturers behind. “Better batteries and falling costs underpin China’s push in electric cars,” notes the NY Times (May 1, 2024) and summarizes: “Long-established Western automakers, by contrast, lag in autonomous driving and are struggling to catch up in electric cars”.
This is as predicted by many. And as planned in China.
A decade ago, I wrote “The Mobility Revolution”, in which I compared the legacy automobile industry to Kodak and Smith-Corona typewriters and highlighted the “threat” coming from BYD and others in a shift to electrification (a “threat” that some, including Warren Buffet and Elon Musk, rightly saw as an opportunity).
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In fact, the “threat” was clear the moment China, then the world’s most populous nation, published its “Medium and Long-Term Program Science and Technology Development” in 2006, or its “Made in China 2025” Industry Policy in May 2015 (dubbed “A Threat to Global Trade” by the Council on Foreign Relations). Ignored for too long by legacy carmakers, it’s only now that OEMs realize they “can’t keep up” and “shouldn’t have utopian expectations.”
No worries though. What domestic innovation and the free market can’t solve, government protectionism will. Except, when it doesn’t. Or when it shouldn’t.
Should we save the legacy automobile industry?
The automobile industry will go the way of textiles, household appliances, and consumer electronics. But should government step in to save jobs in a legacy industry that has missed the off-ramp?
The textile industry – once the pride of Italy, the UK, and employer to millions in the US Southern States – was ceded to China in the early 2000s (“An Industry in Crisis” noted the National Cotton Council in 2001). US chipmaking capacity has declined for three decades, although it took a crisis in 2020 for the general public and governments to even take notice. Similarly, “Made in China” has dominated consumer electronics for over two decades. By now, the consumer insists on it – by buying fairly-priced, innovative, high-quality goods, which just happen to be designed and built elsewhere. The divergence between those who shout “buy local” and those who actually do so could not be greater (just as the divergence of consumers who “care about the environment” diverges from those who act. But I digress.)
The automotive industry has seen the push-pull between what the customer wants and what government and industry want time and time again. Almost fifty years ago, the “threat” was “Japan’s Amazing Auto Machine” (NY Times, January 18, 1981). Two decades later, it was Korea’s manufacturing juggernaut that became a “threat”. In each case, the “foreign” manufacturer simply built cars that were better suited and better developed for the evolving tastes of the consumer. GM even bought Daewoo in 2002 to “share in the benefits associated with its outstanding product development and manufacturing capabilities.”
In each case, “foreign” manufacturer also became domestic. The “Americanization of Volkswagen” (NY Times) began five decades ago. Toyota, Nissan (Datsun) and Honda followed suit. Today’s Nissan and Honda cars sold in the US have considerably more domestic content than GM or Ford. Tomorrow’s BYD may be built in Mexico and Hungary.
Saving a domestic industry might mean letting go.
Brands and jobs will be lost. That’s no reason for protectionism
Overall, manufacturing jobs in all legacy industries will continue to be lost to automation, productivity gains, and (in Europe and the US at least) the higher cost of labor. But this clearly isn’t the reason European and US auto manufacturers are at unease - it’s the loss of their own brands and identity. But the consumer has spoken.
While the Top 25 vehicles sold in the US are distinctly “American”, their brands aren’t. Even “The Big Three” US domestic manufacturer keiretsu is a misnomer; Toyota is larger than Ford, and Stellantis isn’t American. European brands fare slightly better in terms of vehicles sold “at home”, although a Chinese-American imposter (the Tesla Model Y) took top honors across Europe in 2023.
Across both continents, it’s a sensible but temporary flight to profitability instead of volume for domestic OEMs. European OEMs are retrenching to the premium segment (a mirage), and Americans to domestic pickup trucks in search of profitability and relevance – but not to save manufacturing jobs.
In fact, the flight to profitability invariably costs jobs. While OEMs have had record profits (and shared record dividends with shareholders) in 2023, job numbers are stagnating or falling – at suppliers, as well as at OEMs.
World Bank Research ManagerDaria Taglioni argues, “The goals that drive protectionist measures could be better achieved through increased rather than reduced international openness and cooperation.” Even the German auto lobby (VDA) agrees, “Tariffs on China EVs Would Threaten Jobs.”
So while European and US manufacturers will continue to appeal to governments for protectionist measures, governments should wield caution. The OEM they save isn’t returning the favor.
Invest in growth. Embrace local mobility innovation
Finally, governments and investors should veer toward growing industries, not save ones with shrinking relevance. OEMs are playing to a shrinking proportion of the world. While Earth’s population has grown by a Billion people since 2013, the global automotive industry doesn’t sell any more cars today than it didthen - for all the reasons that we explained a decade ago, when “The Mobility Revolution” was launched. Less than half of households in many of the world’s megacities own cars; why cater to an automobile-driving minority?
Manufacturing can come or go, as the consumer requires it to. But the provision of mobility is distinctly local - this can’t be easily outsourced or offshored. Whether on foot, pedals, or by shuttle, bus or train, there are significant gains to be made – social and economic – from investing in the smart mobility and smart city solutions we (will) use every day. Autonomous technology is set to transform how we move around. Electric-, shared- and micromobility already has. And this innovation is distinctly local. To benefit from this, governments and investors don’t need to look far - the innovation is at their own doorstep.
In a podcast, “Talks on Mobility”, with PetrolPlaza (a name that has surely run its course) I suggested a bright future for westernmobilityinnovation, and also for building the infrastructure that supports it. All we need to do now, is embrace that support for automobile-centric industries and companies will yield to human-centric mobility innovation.
Lukas is Managing Director of Neckermann Strategic Advisors, a boutique consultancy founded in 2013 with a unique focus on #mobility and #smartcities. He is an advisor to multiple investors and scale-up companies across mobility, a lecturer at Technische Universität Berlin, Co-Founder of InterMobility , PAVE Europe , and the Urban Places Lab at the IMO-HSG | Institute for Mobility. He is (co-)author of several books and countless research studies on the #mobilityrevolution.
