WEBVTT - How China Won the Car Industry 0:00:15.356 --> 0:00:21.156 Pushkin. Over the past few years, there's been this just 0:00:21.396 --> 0:00:27.156 incredible transformation in the Chinese car industry, and this transformation 0:00:27.396 --> 0:00:30.236 has been basically invisible to those of us in the 0:00:30.316 --> 0:00:34.596 United States because the US has essentially banned Chinese cars. 0:00:35.236 --> 0:00:38.596 What's happened is this, Chinese car makers spent decades as 0:00:38.596 --> 0:00:41.756 sort of marginal players in the global car industry, but 0:00:41.876 --> 0:00:44.756 now kind of all of a sudden, Chinese car makers 0:00:44.796 --> 0:00:48.676 are the biggest car exporters in the world by far, 0:00:49.436 --> 0:00:51.796 and they're not just selling cheap cars. They're selling some 0:00:51.836 --> 0:00:53.996 of the best cars on the planet to buyers in 0:00:54.076 --> 0:01:08.156 countries around the world. I'm Jacob Goldstein, and this is 0:01:08.196 --> 0:01:11.516 what's your problem. My guest today is Michael Dunn. He's 0:01:11.556 --> 0:01:14.556 the CEO of Done Insights, a company that consults on 0:01:14.596 --> 0:01:17.636 the future of cars. Michael grew up in Detroit. He 0:01:17.676 --> 0:01:20.516 studied Chinese at the University of Michigan, and he's been 0:01:20.556 --> 0:01:24.356 consulting to the Chinese car industry since nineteen ninety. If 0:01:24.356 --> 0:01:28.116 I were doing our usual problem framing for this episode, 0:01:28.116 --> 0:01:31.596 I'd say something like, Michael's problem is this, how can 0:01:31.636 --> 0:01:34.996 the United States catch up with the Chinese auto industry? 0:01:35.676 --> 0:01:37.836 And we do talk about that later in the show, 0:01:38.116 --> 0:01:40.276 and we talk about why, in Michael's view, having a 0:01:40.396 --> 0:01:43.636 robust auto industry is just essential for the United States. 0:01:44.156 --> 0:01:46.556 But to be honest, largely I wanted to talk to 0:01:46.596 --> 0:01:50.196 Michael because I'm really curious about how this happened, about 0:01:50.196 --> 0:01:54.556 how China suddenly emerged with this world beating auto industry. 0:01:54.796 --> 0:01:56.836 And Michael was a great person to tell the story 0:01:57.076 --> 0:02:00.556 because he was there to see it. But honestly, to 0:02:00.636 --> 0:02:03.756 a large extent, I was just curious about how all 0:02:03.796 --> 0:02:07.356 this happened, about how China suddenly emerged with this world 0:02:07.396 --> 0:02:10.476 beating auto industry. Michael was a great person to tell 0:02:10.476 --> 0:02:13.396 the story because he was there to see this transformation. 0:02:14.156 --> 0:02:16.236 To start, I wanted to get a sense of where 0:02:16.276 --> 0:02:19.436 things stand today, where we are now, So I asked 0:02:19.436 --> 0:02:21.556 Michael to tell me about a few of the leading 0:02:21.676 --> 0:02:22.796 Chinese car makers. 0:02:23.476 --> 0:02:25.756 First one to know is a company called shall me, 0:02:26.516 --> 0:02:33.316 shall Me? And Chinese, of course means millet, as in 0:02:33.476 --> 0:02:34.676 rice millet. 0:02:35.076 --> 0:02:36.956 Not a name. Is that how you're showing up in 0:02:36.996 --> 0:02:37.716 your millet? 0:02:37.956 --> 0:02:38.236 What? 0:02:39.116 --> 0:02:43.116 So there's a history there. Malzatong famously said, rifles and 0:02:43.196 --> 0:02:46.956 rice millets, that's the people's liberation Army and so as 0:02:46.996 --> 0:02:50.076 a tribute this founder, late June who's the CEO and 0:02:50.116 --> 0:02:53.196 founder of Shaw me one of the biggest handset makers 0:02:53.196 --> 0:02:53.756 in the world. 0:02:54.236 --> 0:02:54.876 Phonemakers. 0:02:54.956 --> 0:02:58.796 Yeah, phone makers five years ago said we're going in 0:02:58.876 --> 0:03:03.596 the cars. And today they manufactured two models, the XU seven, 0:03:03.636 --> 0:03:08.356 the Yu seven that look like a hybrid of a Porsche, 0:03:08.476 --> 0:03:12.956 and a Model three, beautifully designed. He recruited the best 0:03:13.196 --> 0:03:17.356 designers out of Germany. It's got a battery powered vehicle, 0:03:17.596 --> 0:03:20.076 really good looking, and it starts at like thirty two 0:03:20.156 --> 0:03:24.196 thousand dollars. It's a total unbelievable shocker. Jim Farley at 0:03:24.196 --> 0:03:25.716 Ford drives one. 0:03:26.116 --> 0:03:29.356 Wait, Jim Farley, the CEO of Ford, drives a Chinese car, 0:03:29.396 --> 0:03:31.036 a Chinese car that, by the way, you basically can't 0:03:31.076 --> 0:03:31.996 get in America. 0:03:32.556 --> 0:03:36.636 Right, that's just sacrilegious. As a native of Detroit, he's 0:03:36.756 --> 0:03:37.676 crossed the line. 0:03:37.716 --> 0:03:38.676 What is he doing? 0:03:38.836 --> 0:03:39.756 What is he doing? 0:03:40.356 --> 0:03:42.996 Yeah, he went to China. He saw one, and he said, 0:03:43.156 --> 0:03:45.396 I need to drive that thing to figure out just 0:03:45.476 --> 0:03:47.956 how good they are and why they're better than we are. 0:03:48.636 --> 0:03:51.116 And so he drove one at least for six months. 0:03:51.116 --> 0:03:53.356 He may still have it, said he didn't want to 0:03:53.396 --> 0:03:53.876 give it up. 0:03:54.636 --> 0:03:57.596 Is it right that there's a high end Chinese car 0:03:57.676 --> 0:04:01.076 that can rotate three hundred and sixty degrees in place 0:04:01.836 --> 0:04:05.716 and operate in the water like a boat for short distances? 0:04:05.876 --> 0:04:07.276 Is that true? 0:04:07.836 --> 0:04:11.676 This is not science fiction? That's absolutely right. BYD, which 0:04:11.716 --> 0:04:16.196 is China's leading ev maker, recently launched a high end 0:04:16.196 --> 0:04:19.796 brand to compete against Range Drover, and it's called the 0:04:19.916 --> 0:04:22.916 Yang Wang or Look Up or Aspire the Young Lung. 0:04:22.996 --> 0:04:26.956 You wait, I've bin in one here in California. Drove 0:04:27.156 --> 0:04:29.476 into a parking lot, got to a dead end, you know, 0:04:29.516 --> 0:04:31.356 the kind where you have cars parked on the right, 0:04:31.476 --> 0:04:33.916 right and left. How do I back out here? No, 0:04:33.916 --> 0:04:36.316 no backing out. Just hit a button and the car 0:04:36.436 --> 0:04:39.036 rotated one hundred age agrees. 0:04:39.116 --> 0:04:40.676 It turns on its axis. 0:04:41.076 --> 0:04:44.676 Yeah, right, like in place. It's spin spinned around and 0:04:44.676 --> 0:04:48.996 then I'm facing outward. Unbelievable. I haven't had the courage 0:04:49.036 --> 0:04:50.596 to go in the water with one yet. 0:04:50.516 --> 0:04:53.236 And just drive into the Pacific Ocean and see what happens. 0:04:53.676 --> 0:04:54.996 Someone else do that. Touch. 0:04:56.476 --> 0:05:01.796 But the point is that Chinese automakers have really come 0:05:01.876 --> 0:05:04.916 up in terms of their capabilities, their R and D, 0:05:05.196 --> 0:05:10.156 their innovation. They're not just delivering affordable vehicles, they're delivering 0:05:10.196 --> 0:05:13.796 world class products that have all the latest features. So 0:05:14.596 --> 0:05:18.556 this is what keeps the boardrooms in Stuttgart, in Nagoya, 0:05:19.036 --> 0:05:23.556 and Detroit up at night. This is real, This is existential, 0:05:23.596 --> 0:05:26.076 as Jim Farley's said, So. 0:05:26.236 --> 0:05:29.196 I want to talk a lot more about what's happening 0:05:29.236 --> 0:05:32.396 now and how carmakers in the US and elsewhere, and 0:05:32.396 --> 0:05:35.116 for that matter, policymakers in the US and elsewhere are 0:05:35.476 --> 0:05:38.396 responding and should respond. But I want to spend some 0:05:38.436 --> 0:05:41.916 time talking about how China got here. And I'm particularly 0:05:41.916 --> 0:05:44.636 interested to talk with you because, as I understand it, 0:05:44.716 --> 0:05:47.596 you first went was it in nineteen ninety? You first 0:05:47.596 --> 0:05:50.356 went to China and worked with the car industry in 0:05:50.436 --> 0:05:51.756 nineteen ninety? Is that true? 0:05:52.316 --> 0:05:52.876 That's right. 0:05:53.116 --> 0:05:57.276 Days after graduating from Michigan with a degree in Chinese, 0:05:57.796 --> 0:06:01.076 I got a three thousand dollars grant to start a 0:06:01.156 --> 0:06:03.636 company in China, three thousand bucks. So I bought an 0:06:03.676 --> 0:06:06.756 airline ticket and Apple computer and I was gone. 0:06:06.756 --> 0:06:09.556 What a little farther in nineteen ninety that it goes today? 0:06:12.236 --> 0:06:17.436 And so what tell me about the car industry as 0:06:17.436 --> 0:06:20.036 you encountered it there in nineteen ninety. What was going 0:06:20.036 --> 0:06:21.476 on with Chinese cars at the time. 0:06:22.076 --> 0:06:24.916 Pitiful, just pitiful. 0:06:24.956 --> 0:06:27.756 You wouldn't have like, Okay, First of all, I got 0:06:27.756 --> 0:06:30.076 there and I announced I'm here to help. You know, 0:06:30.516 --> 0:06:33.636 American companies sell cars to the Chinese, and my Chinese 0:06:33.716 --> 0:06:37.036 friends on the ground said, well, that's ridiculous because nobody 0:06:37.076 --> 0:06:39.836 here owns a private car there. We don't manufacture our 0:06:39.836 --> 0:06:43.236 own cars, we don't have the incomes. What are you 0:06:43.316 --> 0:06:43.916 doing here? 0:06:44.676 --> 0:06:48.836 Yeah, I mean China was a profoundly poorer country at 0:06:48.836 --> 0:06:51.916 that time. Right, the economic rise of China over those 0:06:52.036 --> 0:06:54.956 thirty five years has been maybe unprecedented in the history 0:06:54.956 --> 0:06:57.036 of the world, certainly like the unails over that time. 0:06:57.196 --> 0:06:59.396 Yeah, give a little color to it. 0:06:59.476 --> 0:07:01.716 So the very first car I did ride in was 0:07:01.756 --> 0:07:06.836 called the Shanghai seven sixty. There's powder blue bench, seats, 0:07:07.356 --> 0:07:10.676 no seat belts, big steering wheel, and I thought, wow, 0:07:10.716 --> 0:07:13.756 this reminds me of something from my earliest childhood in 0:07:13.796 --> 0:07:16.796 the nineteen sixties. Well, it turns out the Shanghai seven 0:07:16.956 --> 0:07:20.156 sixty is a replica of a Russian car that was 0:07:20.436 --> 0:07:23.436 a copy of a German car from nineteen fifty five. 0:07:23.716 --> 0:07:26.476 Wow, and that's what they were still making in China 0:07:26.556 --> 0:07:27.476 in nineteen ninety. 0:07:27.796 --> 0:07:30.196 That's right, only a few thousand of them, and only 0:07:30.276 --> 0:07:34.156 for senior party officials or in my case, the president 0:07:34.196 --> 0:07:36.996 of the university where I was studying in China got 0:07:37.036 --> 0:07:40.196 one to be driven around in. That was it one 0:07:40.236 --> 0:07:41.676 car in the whole basically. 0:07:41.436 --> 0:07:43.916 So it was an extremely high status thing to have 0:07:43.956 --> 0:07:46.916 a car that was built on a forty year old 0:07:47.596 --> 0:07:49.956 car at that time extraordinary. 0:07:49.996 --> 0:07:52.996 You drive in a car, you ride in a car 0:07:53.036 --> 0:07:57.516 more often, you are elite, and the common person in 0:07:57.596 --> 0:08:01.876 China has no hope of riding in a car, let 0:08:01.916 --> 0:08:07.916 alone owning one. Now China looked around. Dunshell Ping was 0:08:07.956 --> 0:08:11.356 a leader and he's very pragmatic guy. He famously said, 0:08:11.396 --> 0:08:13.276 I don't care if the cat is black or white. 0:08:13.276 --> 0:08:15.116 If it catches a mouse, it's a good cat. 0:08:15.476 --> 0:08:18.636 This is him pivoting from socialism to capitalism in some. 0:08:18.716 --> 0:08:22.236 Way without saying it, without saying the word capitalism. Yeah, 0:08:22.396 --> 0:08:24.956 let's just be let's just be smarter as a nation. 0:08:25.196 --> 0:08:27.076 So how did what did he set out to do? 0:08:27.116 --> 0:08:29.716 He said, the way we're going to get richer. He 0:08:29.836 --> 0:08:31.756 traveled to Japan and the United States, and he saw 0:08:31.836 --> 0:08:35.236 these two economies are booming, very wealthy, and they both 0:08:35.276 --> 0:08:37.876 have powerful auto industries. We want that too, So how 0:08:37.916 --> 0:08:40.316 do we get one? We have nothing. We have no capital, 0:08:40.396 --> 0:08:45.676 no no how, no management expertise, no technology, no market. 0:08:45.996 --> 0:08:48.716 How do we get going? So he said, we'll devise 0:08:48.796 --> 0:08:53.196 a strategy called the joint venture strategy. We'll invite automakers 0:08:53.196 --> 0:08:56.396 from around the world to come into China and they'll 0:08:56.436 --> 0:08:58.836 have access to potentially the biggest market in the world. 0:08:58.916 --> 0:09:04.356 But there's a caveat we will we China will always 0:09:04.396 --> 0:09:08.356 hold fifty percent or more of those companies that are 0:09:08.396 --> 0:09:10.876 investing in So they have to joint venture and they 0:09:10.916 --> 0:09:13.716 have to give fifty percent ownership to a Chinese partner. 0:09:14.356 --> 0:09:18.196 How does that fit with this country where essentially nobody 0:09:18.196 --> 0:09:20.596 could afford a car? Like, what is the incentive for 0:09:20.636 --> 0:09:23.436 automakers to come in if nobody could afford a car? 0:09:23.436 --> 0:09:27.836 Anyway, it was all about this enticing picture of the future. 0:09:28.116 --> 0:09:30.716 We're not there yet, but look what happened with Japan, 0:09:31.156 --> 0:09:34.476 Look what happened with Korea. China is opening up and 0:09:34.516 --> 0:09:38.076 reforming and we're going to allow some profit making. You 0:09:38.196 --> 0:09:41.116 guys come in and the first one is going to 0:09:41.156 --> 0:09:44.316 have access to the biggest potential market and was all 0:09:44.396 --> 0:09:46.716 a promise of the future. 0:09:47.396 --> 0:09:50.316 I've heard you talk about what it was like at 0:09:50.596 --> 0:09:53.396 Chinese car factories at that time when you went in. 0:09:53.436 --> 0:09:56.916 What was it like, wow, early days. 0:09:57.436 --> 0:10:00.316 I was at a company called Cherry, which today is 0:10:00.436 --> 0:10:03.476 China's leading exporter, ships of more than a million cars 0:10:03.516 --> 0:10:06.596 around the world, including to Europe, UK, Australia. But at 0:10:06.596 --> 0:10:10.276 that time, the manager said, I want you to walk 0:10:10.276 --> 0:10:13.436 the line with us. We have real quality issues. And 0:10:13.476 --> 0:10:15.556 I said what kind of quality issues? He goes, well, 0:10:15.596 --> 0:10:19.276 so people here are so unfamiliar with cars that, for example, 0:10:19.316 --> 0:10:22.276 you see that rear view mirror on that car, tell 0:10:22.316 --> 0:10:24.796 me what's wrong with it? And I looked closely, and 0:10:24.836 --> 0:10:28.756 I looked, oh, okay. The rear view mirror was assembled 0:10:28.796 --> 0:10:30.116 facing outward. 0:10:31.476 --> 0:10:33.276 So you looked at it. If you were driving, you 0:10:33.316 --> 0:10:34.676 wouldn't see the mirror. 0:10:35.196 --> 0:10:37.116 No, you don't see the mirror. The mirror is in 0:10:37.476 --> 0:10:40.076 the correct location, but it's facing. 0:10:39.876 --> 0:10:43.036 Outward because the person making it has never driven, probably 0:10:43.076 --> 0:10:44.356 has never been in a car. 0:10:45.796 --> 0:10:47.436 No clue, no clue. 0:10:47.796 --> 0:10:51.276 So that's one small example of the kinds of quality 0:10:51.356 --> 0:10:54.796 issues they had. How to assemble a car when we've 0:10:54.796 --> 0:10:56.916 never driven one. We don't know what that looks like. 0:10:58.356 --> 0:11:02.836 So okay, So danksaw Ping sets up these rules. We're 0:11:02.876 --> 0:11:05.076 gonna we're gonna build a car industry using four and 0:11:05.156 --> 0:11:07.196 know how by having foreign companies come in and do 0:11:07.356 --> 0:11:12.596 joint ventures exact and that, in fact happens. Lots of 0:11:12.676 --> 0:11:15.796 companies do it right, Volkswagen does it. Audi becomes the 0:11:15.836 --> 0:11:22.156 high status car in China. What's the big inflection point 0:11:22.316 --> 0:11:25.716 after that? Like, obviously China's economy grows, people get cars. 0:11:25.716 --> 0:11:28.276 People are in China are driving Oudis and there's a 0:11:28.316 --> 0:11:30.956 GM brand, right, is it Buick that's big in China. 0:11:31.156 --> 0:11:36.276 Yeah, sensationally popular. Just everyone wants a Buick. 0:11:36.836 --> 0:11:38.836 And we're talking like turn of the century. Now two 0:11:38.916 --> 0:11:40.036 thousand is where we are. 0:11:39.916 --> 0:11:42.556 In our starting in the two thousand, So think about it. 0:11:42.876 --> 0:11:46.236 Two thousand and twenty ten, you go from a may 0:11:46.396 --> 0:11:48.596 less than a million cars a year sold in China 0:11:48.636 --> 0:11:52.436 to becoming it by twenty ten, the largest car market 0:11:52.476 --> 0:11:57.036 in the world, far surpassing the United States. Buick selling 0:11:57.476 --> 0:12:00.076 eighty percent of the worldwide sales are now in China, 0:12:00.676 --> 0:12:04.076 making lots of money. The president of GM China at 0:12:04.116 --> 0:12:05.716 the time is said, how is business? He said, We're 0:12:05.756 --> 0:12:09.116 making more money than God. So you got Chinese consumers 0:12:09.236 --> 0:12:11.996 loving buicks, are building a ton of them, selling them 0:12:12.036 --> 0:12:14.716 faster they can build them, and making big profits on it. 0:12:14.756 --> 0:12:17.476 So all is good for Western audio as you mentioned 0:12:17.516 --> 0:12:21.556 Audi with super BMW Mercedes come in. It's a party 0:12:21.796 --> 0:12:23.036 for Western automakers. 0:12:23.356 --> 0:12:24.356 Yeah. 0:12:24.396 --> 0:12:27.036 And then but for the people in Beijing who you 0:12:27.076 --> 0:12:33.036 know Dung's successors. Yeah, they're looking around saying, wait a second, 0:12:33.196 --> 0:12:35.436 We're the largest market in the world. We produce more 0:12:35.476 --> 0:12:38.836 cars than anyone else. But where are the Chinese cars? 0:12:38.996 --> 0:12:39.196 What? 0:12:39.356 --> 0:12:41.956 This is not acceptable? All this money going to the 0:12:41.996 --> 0:12:44.636 foreigners and the joint ventures. And oh, by the way, 0:12:45.036 --> 0:12:48.196 we now import one hundred billion dollars worth of oil 0:12:48.316 --> 0:12:52.436 a year. This is a problem. What are we going 0:12:52.516 --> 0:12:53.196 to do about it? 0:12:54.116 --> 0:12:56.076 Just to be clear, why is it a problem to 0:12:56.276 --> 0:12:58.476 import one hundred billion dollars worth of oil every year? 0:12:58.476 --> 0:13:00.076 I mean certainly they have a lot of exports. They 0:13:00.116 --> 0:13:02.196 have plenty of capital to buy the oil. 0:13:03.076 --> 0:13:03.276 Yeah. 0:13:03.316 --> 0:13:06.916 They don't like the idea of being vulnerable to outsiders. 0:13:07.276 --> 0:13:11.316 This goes back hundreds of years in Chinese history. We 0:13:11.436 --> 0:13:15.716 don't want to be vulnerable in any way. And also 0:13:15.996 --> 0:13:19.636 Chinese whenever possible, they don't like to spend money outside 0:13:19.716 --> 0:13:20.956 their own country. 0:13:20.716 --> 0:13:23.476 So they look around and they go, we're vulnerable on 0:13:23.516 --> 0:13:24.196 the oil front. 0:13:24.236 --> 0:13:27.156 We don't want to get into Mid East quagmires like 0:13:27.156 --> 0:13:28.556 the United States has done. 0:13:28.796 --> 0:13:30.116 Let's avoid that mistake. 0:13:30.876 --> 0:13:33.556 And then, as a point of national pride, why is 0:13:33.596 --> 0:13:36.836 it that we can put you know, rockets into orbit, 0:13:37.796 --> 0:13:39.996 but we have a nuclear bomb, but we don't have 0:13:40.036 --> 0:13:41.836 our own cars. This has got a little bit of 0:13:41.836 --> 0:13:46.916 a national embarrassment. And so the brightest mind of Beijing 0:13:46.956 --> 0:13:49.396 looked around and said, look, we've been playing a game 0:13:49.436 --> 0:13:52.476 of catch up with the West on internal combustion engines. 0:13:52.476 --> 0:13:55.516 Every time we learn to make a better engine, out 0:13:55.676 --> 0:13:59.396 or BMW or Toyota makes an even better engine, and 0:13:59.836 --> 0:14:02.556 Chinese consumers don't like Chinese bread. What can we do 0:14:02.676 --> 0:14:03.516 to change the game. 0:14:05.196 --> 0:14:05.996 So you know the. 0:14:05.916 --> 0:14:10.676 Answer evs electric vehicles. 0:14:10.996 --> 0:14:14.076 Yes, And it didn't just suddenly come to them in 0:14:14.156 --> 0:14:19.316 twenty ten. Earlier on in the year two thousand. This 0:14:19.436 --> 0:14:22.236 is only known later on. It's a very important guy 0:14:22.276 --> 0:14:27.596 named Wan Gong Onan Gong born in northeast humble beginnings, 0:14:27.636 --> 0:14:31.916 Northeast China, and the rust belt, goes to Germany, gets 0:14:31.916 --> 0:14:35.396 a PhD, goes to work for Audi in the nineteen nineties, 0:14:35.436 --> 0:14:37.636 works there for eight years. In two thousand, he comes 0:14:37.676 --> 0:14:41.636 back secretly and delivers a white paper to the State Council, 0:14:41.676 --> 0:14:45.276 the highest governing body in China, and he said, I've 0:14:45.356 --> 0:14:47.596 seen it. We're never going to catch up with the 0:14:47.636 --> 0:14:50.756 Germans or the other westerners. In Gasinba in two thousand 0:14:50.876 --> 0:14:52.876 wrote a white paper and said the future for China 0:14:52.916 --> 0:14:56.316 is electric and here's how to get there now. At 0:14:56.356 --> 0:14:59.556 the time, everybody, kind of the leaders in China said, 0:14:59.556 --> 0:15:02.396 that's very a brilliant take, but we have nothing. We 0:15:02.436 --> 0:15:06.316 have zero capability and a small market and we're just 0:15:06.436 --> 0:15:09.516 starting out. We'll tuck it, we'll put it in side. 0:15:09.556 --> 0:15:11.836 But good idea and eves aren't a thing, right, I 0:15:11.836 --> 0:15:13.916 mean at that point, GM had tried an electric car 0:15:13.996 --> 0:15:17.276 that failed, right, Tesla is not a company yet maybe 0:15:17.276 --> 0:15:18.476 in two thousand, Yeah. 0:15:18.316 --> 0:15:20.556 Two thousand and three. Was only in two thousand and 0:15:20.556 --> 0:15:22.716 three that they're founded. And you're right, GM tried that 0:15:22.756 --> 0:15:25.756 ev one didn't work out. They ended up, you know, 0:15:25.916 --> 0:15:29.996 collecting them and smashing them, so it didn't wasn't a 0:15:30.036 --> 0:15:32.316 thing It wasn't a moment in time two thousand, but 0:15:32.356 --> 0:15:35.956 in twenty ten, who's the Minister of Science and Technology 0:15:35.956 --> 0:15:39.516 in China in twenty ten one Gum he left Audi. 0:15:40.036 --> 0:15:41.996 He's the guy, He's the guy in charge. 0:15:42.076 --> 0:15:44.596 He goes, hey, by the way, I have an idea 0:15:44.636 --> 0:15:47.916 how he can make this pivot, dusts off his old paper. 0:15:48.476 --> 0:15:53.796 Shijing Ping takes power. China's new leader. He looks around 0:15:53.796 --> 0:15:57.236 and he's a definitely they call him redder than red. 0:15:57.836 --> 0:16:01.116 He wants China to win, he wants the Communist Party 0:16:01.156 --> 0:16:03.676 to win, and he loves anything they will give him 0:16:03.756 --> 0:16:06.836 leverage on that front. So he throws his weight behind 0:16:06.916 --> 0:16:10.516 this big new policy called Maiden China twenty twenty five. 0:16:11.156 --> 0:16:13.836 This is this isn't a period from like twenty eleven 0:16:13.916 --> 0:16:14.876 to twenty fourteen. 0:16:15.036 --> 0:16:17.316 So this is their forward looking It's like a it's 0:16:17.356 --> 0:16:19.196 like instead of a five year plan, it's a ten 0:16:19.276 --> 0:16:20.756 or fifteen year plan kind. 0:16:20.636 --> 0:16:24.076 Of yes, like with muscle, like, we're not fooling around. 0:16:24.116 --> 0:16:26.756 We're going this is a pivot, but there's an opportunity 0:16:27.316 --> 0:16:30.236 to change the game. We are going to throw all 0:16:30.356 --> 0:16:37.116 kinds of funding behind the cultivation of our own independent 0:16:37.156 --> 0:16:41.116 auto industry built on batteries and electric vehicles. 0:16:41.276 --> 0:16:47.476 Okay, So, I mean interestingly, there's a long history of 0:16:47.556 --> 0:16:51.396 governments trying to sort of steer their economies and it 0:16:51.516 --> 0:16:56.556 going quite badly, not least in China in the middle 0:16:56.596 --> 0:16:59.236 of the twentieth century. Right, Like, the reason at some 0:16:59.436 --> 0:17:01.756 level that China got rich was they stopped doing that. 0:17:02.116 --> 0:17:06.676 You could argue absolutely one hundred percent agree and so 0:17:07.436 --> 0:17:10.516 and guess what in the early years of this effort 0:17:10.636 --> 0:17:13.476 to throw tens of billions, even hundreds of billions of 0:17:13.556 --> 0:17:19.516 dollars behind electric vehicles, it falls completely flat. The Chinese 0:17:19.556 --> 0:17:23.316 consumer doesn't want two things. No electric it's short range, 0:17:23.316 --> 0:17:27.476 it's unreliable. We heard about fires, and they're not good looking. 0:17:28.676 --> 0:17:32.436 And two they're not foreign. There's no prestige. Like Chinese 0:17:32.476 --> 0:17:34.716 electric car is a double loser. I don't want to 0:17:34.756 --> 0:17:39.276 go there. So for most of the twenty tens, that 0:17:39.436 --> 0:17:41.036 policy really struggles. 0:17:41.556 --> 0:17:44.676 So what changed? So in fact it wasn't working. It's 0:17:44.716 --> 0:17:48.156 a classic example of like government policy not working, wasting money. 0:17:48.236 --> 0:17:51.796 Like it could have ended that way, right, I mean, 0:17:51.796 --> 0:17:53.476 it could have just been a thing they tried that 0:17:53.476 --> 0:17:54.156 didn't work. 0:17:54.956 --> 0:17:59.356 It was very nearly that because by the end of 0:17:59.396 --> 0:18:03.756 the decade, they were spending as much on subsidies as 0:18:03.756 --> 0:18:05.476 they were on oil imports. 0:18:05.796 --> 0:18:08.236 Wow, on subsidies for cars and batteries. 0:18:09.196 --> 0:18:11.636 Right, it's like, please consumer, and. 0:18:11.556 --> 0:18:13.756 This is twenty twenty, this is the decades, this. 0:18:14.276 --> 0:18:17.716 Is twenty nineteen. I remember being with the CEO of 0:18:17.756 --> 0:18:20.676 a major Chinese automaker and I asked him, I said, 0:18:20.716 --> 0:18:23.076 what's the future of EVS. I know you guys been 0:18:23.116 --> 0:18:26.956 trying now for almost a decade. He said, never more 0:18:26.996 --> 0:18:30.316 than an issue here, huh, five to ten percent. Chinese 0:18:30.356 --> 0:18:34.356 consumer doesn't want it. They're too complicated. What about charging 0:18:35.036 --> 0:18:39.836 the batteries or shorter range? The government wants us to 0:18:39.836 --> 0:18:43.196 go in that direction. But he had joined ventures with 0:18:43.276 --> 0:18:46.436 Toyota and Honda. He said, we're making great products, we're 0:18:46.476 --> 0:18:51.596 making great profits, consumers love the brand. We'll carve out 0:18:51.676 --> 0:18:53.636 part of our business for EVS. But it's more like 0:18:53.716 --> 0:18:55.196 compliance than enthusiastic. 0:18:55.476 --> 0:18:57.476 Keep the government happy, basically. 0:18:57.156 --> 0:18:59.676 Keep the government. Yep, we're trying our hardest. Yeah, we're 0:18:59.716 --> 0:19:03.756 really going for it. So what changes? And this is 0:19:03.796 --> 0:19:08.716 where China's probably China's secret superpower is where are most 0:19:09.156 --> 0:19:11.036 Where are Apple iPhones built in the. 0:19:11.036 --> 0:19:16.276 World changin in China, in China, right. So they look 0:19:16.316 --> 0:19:18.036 around and they go, we have the very. 0:19:17.916 --> 0:19:23.236 Best smartphone maker in the world manufacturing their products here. 0:19:23.796 --> 0:19:26.596 How do we get the best, very best e who 0:19:26.676 --> 0:19:27.756 is Oh wait. 0:19:27.556 --> 0:19:30.396 A second, there's this company out of California that's ripping 0:19:30.476 --> 0:19:35.956 it in the US and in Europe, wildly popular, defying 0:19:36.036 --> 0:19:39.996 all expectations. And they seem to have changed consumers' minds 0:19:40.036 --> 0:19:44.316 about what an electric vehicle can be. They can be sexy, 0:19:44.356 --> 0:19:46.276 they can be attractive, they can be fast. 0:19:47.196 --> 0:19:49.316 You haven't said Tesla yet. I keep waiting for you 0:19:49.396 --> 0:19:52.556 to say Tesla. So they see Tesla, Yes. 0:19:52.516 --> 0:19:55.436 You see Tesla, and they go, you ever hear of 0:19:55.676 --> 0:20:00.516 China red carpet? Yeah, Like they laid out their red 0:20:00.556 --> 0:20:04.196 carpet for Tesla for the first time. They said, Tesla, 0:20:04.316 --> 0:20:06.156 we'd love to have you come here to China to 0:20:06.356 --> 0:20:08.876 sell your cars. By the way, we want you to 0:20:08.916 --> 0:20:11.396 make manufacture them here, just like we want everyone else 0:20:11.436 --> 0:20:14.476 to manufacture them here. But we're going to sweeten the deal. 0:20:14.716 --> 0:20:18.396 You can have one hundred percent ownership, no joint venture. 0:20:19.436 --> 0:20:23.236 You're in charge. You bring their manufacturing capabilities in, your 0:20:23.236 --> 0:20:27.036 suppliers in and you run the show and Elon Musk 0:20:27.076 --> 0:20:29.356 looks around and goes, that looks pretty sweet. 0:20:29.516 --> 0:20:32.356 What's the catch, Ah. 0:20:31.956 --> 0:20:32.796 What's the catch? 0:20:35.636 --> 0:20:42.916 Well, it's never spoken, but it's understood that as soon 0:20:42.956 --> 0:20:47.556 as Tesla sets up operations in China, everything it knows 0:20:47.876 --> 0:20:54.516 will one way or another leak to Chinese automakers, and 0:20:54.876 --> 0:20:59.996 they are very quickly. We see five, six, seven companies 0:20:59.996 --> 0:21:04.116 sprout up Like Selmy, we talked about, going, Wow, that's 0:21:04.156 --> 0:21:07.036 a super incredible car. I wonder if we can do 0:21:07.076 --> 0:21:09.916 that ourselves here. Oh, by the way, test suppliers are 0:21:09.956 --> 0:21:12.636 just up the road and I know them because they're 0:21:12.676 --> 0:21:14.596 you know, they know so and so and so and 0:21:14.596 --> 0:21:18.716 so there's Yeah. I talked to one supply chain executive 0:21:18.756 --> 0:21:20.596 at the time and I said how long does that 0:21:20.636 --> 0:21:23.836 take though, like, how quickly? And he said overnight? 0:21:24.636 --> 0:21:31.356 Overnight, So overnight everybody knows everything. Overnight. Everybody China could 0:21:31.476 --> 0:21:35.236 make a Tesla if they wanted. Yeah, So when does 0:21:35.276 --> 0:21:37.516 Tesla set up in China. 0:21:38.316 --> 0:21:42.596 It sets up in China, It goes into production at 0:21:42.636 --> 0:21:46.236 the very end of twenty nineteen, first weeks of twenty twenty, 0:21:46.276 --> 0:21:50.716 exactly when COVID's happening. So it was not an auspicious start, 0:21:51.836 --> 0:21:57.316