Speaker 1: You're listening to Asia Centric from Bloomberg Intelligence, the podcast
Speaker 1: that pulls back the curtain non global business so you
Speaker 1: can invest better across the Pacific rim. I'm Tom Corbett
Speaker 1: in Hong Kong.
Speaker 2: And I'm John Lee. The glow is fading on the
Speaker 2: once hot electric vehicle market. Demand is dropping, competition is growing,
Speaker 2: consumers are skeptical, and the outlook concertain.
Speaker 1: Tesla has become the poster child for the industry's struggles,
Speaker 1: with slowing sales, a tumbling stock price, and China's economic
Speaker 1: woes all converging into a grim picture. But other EV
Speaker 1: makers are also struggling and the road ahead could be rough.
Speaker 2: Is this just a rough patch for the EV industry?
Speaker 2: A hybrid cause the answer? And which automakers can take
Speaker 2: advantage of this trend.
Speaker 1: Let's sort it all out with Steve Mann, Global Director
Speaker 1: of Industrials and Automotive Search at Bloomberg Intelligence. He's been
Speaker 1: covering the industry for more than twenty years. He joins
Speaker 1: us from Princeton, New Jersey. Steve, great to have you
Speaker 1: back on Asia Centric.
Speaker 3: Thanks for having me, Steve.
Speaker 2: Demand for electric vehicles seems to be weaker than expected
Speaker 2: in many parts of the world. Do you think there's
Speaker 2: a consumer backlash against evs, especially in the US.
Speaker 3: I think the ship have sailed for EV's. I think
Speaker 3: evs are here to stay, especially the battery electric vehicles.
Speaker 3: I'm a little bit more optimistic than the street and
Speaker 3: a lot of rhetoric you're hearing out there. I think
Speaker 3: it's the right solution for the long term, but it's
Speaker 3: gonna take time to get to know the numbers we're
Speaker 3: seeing in China, where you have twenty five percent penetration,
Speaker 3: Over the US you only have about seven or eight,
Speaker 3: so it's going to take time to get there. If
Speaker 3: you're talking about the US, there's not as many regulations
Speaker 3: to push battery EV sales as there is in China.
Speaker 3: But if you look at the Inflation Reduction Act, it's
Speaker 3: something that I think will help drive greater affordability and
Speaker 3: hopefully higher sales, especially in the second half of the decade.
Speaker 2: But Stave lots of car companies have spent a lot
Speaker 2: of money building EV capacity. Do you think there's going
Speaker 2: to be enough demand to meet all the new v's
Speaker 2: hitting the market of the next few years.
Speaker 3: I think so. I think if you look at some
Speaker 3: of the trends that we're seeing. EV sales is still growing.
Speaker 3: It's not dropping, obviously, it's not growing as fast as
Speaker 3: it used to be. And the main reason for this
Speaker 3: is affordability. If you look at what BMW's offering, Mercedes offering,
Speaker 3: all these luxury automakers are offering, the prices are just
Speaker 3: too high for the mass market. Most of these evs
Speaker 3: are over fifty thousand. The only ones that are offering
Speaker 3: cheaper evs is actually Tesla, and that's why you see
Speaker 3: their sales much better than other automakers. So if you
Speaker 3: look into the future just a bit, not too far
Speaker 3: away into twenty twenty five, twenty twenty six, most automakers
Speaker 3: are actually rolling out what we call sub thirty thousand,
Speaker 3: anything that's below thirty thousand US dollar evs, compact ev
Speaker 3: subcompact EV's that's going to resonate a lot more with
Speaker 3: the masses. And I think that's when you know we're
Speaker 3: going to see a cyclical recovery, if I can call
Speaker 3: it that.
Speaker 1: Steve Mann, what the industry is going through right now
Speaker 1: is kind of a plot twist that really few anticipated
Speaker 1: how much of the industry's troubles and maybe specifically Tesla's
Speaker 1: challenges are self inflicted or was all this inevitable?
Speaker 3: My point of view is competitive landscape is changing. I
Speaker 3: want to think Tesla is probably one of the strategy
Speaker 3: during this downturn is really to squeeze some of their
Speaker 3: competitors out of the market. I mean, there's different debates
Speaker 3: arguments around it. You know, you're based in Hong Kong.
Speaker 3: I think the folks in that side of world is
Speaker 3: going to have a different perspective because the competition is
Speaker 3: so intense in China with buid was jely with a
Speaker 3: whole host of local automakers rolling out very affordable EV's
Speaker 3: over there. In the US is quite different. You hear
Speaker 3: for kind of pulling back investments. GM is kind of
Speaker 3: delaying some of their rollouts, but they're still maintaining some
Speaker 3: of the medium termed long term targets of launching these
Speaker 3: what I call a more affordable, budget friendly evs in
Speaker 3: twenty twenty five, twenty twenty six. And also, I want
Speaker 3: to say the EV supply chain in the US, and
Speaker 3: I would say in Europe as well, it's actually expanding.
Speaker 3: This trade spat that's been going on between China and
Speaker 3: the West is actually having a benefit. There's all these
Speaker 3: negative rhetoric around trades, bad tariffs going up. I think
Speaker 3: in the political world we call it geopolitics, but this
Speaker 3: is real business competition. What you're seeing actually with this
Speaker 3: trace bad is the US with the Inflation Reduction Act
Speaker 3: is actually helping. It's leading to a lot of investments
Speaker 3: in the US one hundred and sixty billion dollars of
Speaker 3: investment in the US to actually expand the ev supply
Speaker 3: chain over time. That's going to drive cost down and
Speaker 3: make these cars evs more affordable.
Speaker 1: Is it just a matter of affordability, Steve? You alluded
Speaker 1: just a short time ago to the American all wakers
Speaker 1: scaling back, perhaps limiting their investment in evs. Is there
Speaker 1: just a skepticism about EV's in the US that doesn't
Speaker 1: exist in China or in Europe?
Speaker 3: There is. If you look at the three regions, you
Speaker 3: have the Chinese adopting EV's a much faster rate. US
Speaker 3: is actually on the other side of the spectrum. It's
Speaker 3: the slowest, and then EUS kind of in the middle.
Speaker 3: And you can see that by the numbers, twenty five
Speaker 3: percent penetration rate in China, you got eight percent in
Speaker 3: the USA. In around low teens thirteen percent in Europe.
Speaker 3: So I think Tom, you're right, there is right now.
Speaker 3: The main hurdle is affordability. I think once we have
Speaker 3: more affordable EV's in a row, it's going to draw
Speaker 3: a lot more consumers into the space. Another problem is
Speaker 3: going to show up, for example, charging. You know, I
Speaker 3: think charging infrastructure needs to catch up as well. There's
Speaker 3: not a lot of spending on this side of the
Speaker 3: world for charging, especially from the government.
Speaker 2: But Steve, you don't believe in the weather argument there,
Speaker 2: Like it's okay for early adopters in California with warm
Speaker 2: weather to buy evs, but if you're sitting in say
Speaker 2: like Minnesota, cold winters, it's less battery efficient.
Speaker 3: Yeah, I think there's a number of issues that the
Speaker 3: US has to face. The consuming here are probably not
Speaker 3: used to having EV's. They're not as if I can say,
Speaker 3: not as educated on how to manage or how to
Speaker 3: maintain any Look you have for example in Scandinavia, Norway,
Speaker 3: you know, some of the coldest weather on Earth, but
Speaker 3: their battery EV penetration rates are in the eighties and
Speaker 3: ninety percent. So you know, I think the consumer over
Speaker 3: time will understand how evs operate and we'll be more
Speaker 3: educated in keeping ownership of an EV.
Speaker 2: So, Steve, sounds like you believe that evs are just
Speaker 2: hitting a rough patch, but I know your Global Autos
Speaker 2: team has done quite a few surveys. This seems to
Speaker 2: be a surprising demand for hybrid cars. Are you surprised
Speaker 2: by that?
Speaker 3: No, I think hybrid is a very good solution to
Speaker 3: address some of the attitudes. You know, we talked about
Speaker 3: educating the use of battery evs. I think these plugin
Speaker 3: EV's is a good transition. I'm based in Princeville. The
Speaker 3: whole section of the parking lot that's that's electrified. I
Speaker 3: don't have charging points, and you see a lot of
Speaker 3: battery EV's. You see a lot of phgvs plug in
Speaker 3: hybrid electric vehicles out there, and I think consumer that
Speaker 3: are buying the PHVs today will actually graduate to battery
Speaker 3: evs in a few years because I think they need
Speaker 3: to get used to how to set up their schedule,
Speaker 3: charge your vehicles for the number of hours that they need,
Speaker 3: and then have that fit that into their lifestyle.
Speaker 2: So if we do see continued demand for hybrid cause
Speaker 2: at least in the need term, which car makers do
Speaker 2: you think are best suited? Is it Toyota, because that's
Speaker 2: who I'm thinking.
Speaker 3: Yeah, I think Toyota is the one that's going to
Speaker 3: be most beneficial to this. And the reason why is
Speaker 3: they really own the technology. If you look at the
Speaker 3: number of patents that are out there on hybrid vehicles,
Speaker 3: most of them are owned by Toyota. They invented hybrid vehicles.
Speaker 3: It's interesting go back in history a little bit. Hybrid
Speaker 3: vehicles actually started with forklift trucks that Toyota made. For
Speaker 3: the listeners out there, forkliff trucks are actually material handling
Speaker 3: equipment that are in warehouses, that are in factories, and
Speaker 3: those typically run on battery plus some kind of fuel.
Speaker 3: They've been owning that technology for long time now. Just
Speaker 3: to put it into a greater context, Toyota has twenty
Speaker 3: four thousand patents on hybrids. Tesla has probably half the
Speaker 3: number of patents on evs. So you can imagine how
Speaker 3: Toyota dominates the hybrid vehicle. So that's why I want
Speaker 3: to say Toyota is going to be a long term
Speaker 3: winter and that's also why they're really advocating for hybrid
Speaker 3: because even though they own the pattern they've opened up
Speaker 3: the patents for others to use. The supply chain is
Speaker 3: actually owned by Toyota and Stick.
Speaker 2: That's an amazing turnaround in the narrative for Toyota. I
Speaker 2: remember having you on our podcast one year ago. You
Speaker 2: weren't criticizing, but there was a lot of analysts really
Speaker 2: criticizing Toyota management. They're calling them dinosaurs. You know, the
Speaker 2: CEO had to step down because they weren't as aggressive
Speaker 2: into making evs. But maybe the big bed on hybrids
Speaker 2: was the right strategy. Do you think that's the case.
Speaker 3: I think if you look at battery EV's today, they're
Speaker 3: still expensive. If you look at the global auto fleet,
Speaker 3: it's there going to be a mix. It's not going
Speaker 3: to be one hundred percent bvs because you know, we've
Speaker 3: discussed some of the challenges facing the BV market, right,
Speaker 3: it's not just price, is charging points. I don't think
Speaker 3: every country is able to build out the infrastructure say
Speaker 3: China has today, or the US has today, and to
Speaker 3: a certain extent, the European have a pretty good charging infrastructure.
Speaker 3: Not every country is going to get to that point.
Speaker 3: So I think there's going to be a mix of
Speaker 3: battery evs, hybrid vehicles, and even the traditional gasoline petrol cars.
Speaker 3: What I'm saying is that the penetration rate for BV
Speaker 3: is still low and there's room to grow, and we're
Speaker 3: just going through a temporary rough patch. And we get
Speaker 3: more affordable vehicles out there, it's going to attract another
Speaker 3: group of buyers that the automakers, the EV maker haven't
Speaker 3: even penetrated.
Speaker 1: What about used evs STEVE, both from a depreciation standpoint
Speaker 1: and from an environmental disposal standpoint, is that a challenge
Speaker 1: the industry can easily overcome.
Speaker 3: That's interesting, Tom, because that hasn't been really discussed a
Speaker 3: lot in the industry because there isn't that many EV's
Speaker 3: battery EV's out there anyway. But there are discussions and
Speaker 3: one of the things that the industry is exploring, especially
Speaker 3: when these EV's get to be ten, fifteen, maybe even
Speaker 3: twenty years old, these batteries are decommissioned. One of the
Speaker 3: ideas out there is really to use those batteries for
Speaker 3: distributed power generation, meaning they can use those batteries, deploy
Speaker 3: them in various geographies near the power grids, and what
Speaker 3: these batteries can do is actually during peak hours they
Speaker 3: will release power to the grid, supplementing the grid, and
Speaker 3: during non peak hours, which is typically during nighttime, they
Speaker 3: can actually store electricity that keeps power plants more efficient,
Speaker 3: you know, no waste energy because power plants needs to
Speaker 3: produce at the same level of power twenty four to seven.
Speaker 2: So Steve Fu could bring the conversation to China. There
Speaker 2: seems to be a massive EV price war going on.
Speaker 2: You know, some of the Chinese EV makers are cutting
Speaker 2: prices by about thirty to forty percent. I hear that
Speaker 2: some evs are even cheaper than the traditional internal combustion
Speaker 2: engine cars. Are you worried about what's going on there?
Speaker 3: I am very worried because you can't spiral out into losses.
Speaker 3: I think, you know, what we're seeing today in the
Speaker 3: auto industry has happened before in previous cycles where you
Speaker 3: have price wars. But I actually do see a light
Speaker 3: at the end of the time over here. If you
Speaker 3: look at lithium prices, it's starting to tick up. And
Speaker 3: I'm hoping that lithium prices coming back to a little
Speaker 3: bit more reality because right now lithium prices are pretty
Speaker 3: much at all time low. I haven't seen this low
Speaker 3: in the past. Now liftium prices is coming back, lithium
Speaker 3: carbonate supply is drinking around the world, So I think
Speaker 3: that's going to be a catalyst for the automakers actually
Speaker 3: to stop price cuts. But you brought up an interesting
Speaker 3: point like if you look at Tesla, prices have been
Speaker 3: cut by twenty five percent over the past eighteen months,
Speaker 3: and a lot of that is driven by China.
Speaker 2: Because the start of the price cuts, right.
Speaker 3: Yeah, Yeah, Like I said earlier, I think one of
Speaker 3: the strategy that it's not talked a lot about is
Speaker 3: one of the strategy that Tesla is doing. It's probably
Speaker 3: trying to squeeze out some of the competitor during a
Speaker 3: cyclical downturn on evs. But that's another conversation. I think, John,
Speaker 3: You're bringing up these price cuts and how these some
Speaker 3: of these companies are still able to make some profit
Speaker 3: is actually pretty amazing. You know, Vertical integration is something
Speaker 3: we actually need to discuss here. Vertical integration in the
Speaker 3: auto industry actually hasn't been used. You know, that type
Speaker 3: of strategy in manufacturing and auto production hasn't been used
Speaker 3: since Henry Ford over one hundred years ago. And if
Speaker 3: you look at how Tesla and even the Chinese automakers
Speaker 3: are doing. They're actually taking a page out of Henry
Speaker 3: Fort's Vertical Integration manual. And because this is a newer technology,
Speaker 3: EV is still relative of newer technology compared to gasoline cars.
Speaker 3: And a lot of these automakers are building evs are
Speaker 3: actually extending to improve connectivity of the vehicle, to improve
Speaker 3: the consumer experience in the vehicles using various connectivity tools,
Speaker 3: right streaming music, streaming videos, personal assistance in the vehicles.
Speaker 3: So these are really relatively higher tech for the auto
Speaker 3: industry back you know, in the late eighteen hundred, petrol
Speaker 3: cars gasoline car at that time were new technology. And
Speaker 3: what Henry Ford understood was he need to manage a
Speaker 3: whole supply chain to cut costs, to be flexible enough
Speaker 3: to change to consumer demand when we see new technology
Speaker 3: coming into the market. That vertical integration at the end
Speaker 3: of the day will help companies maintain costs and react
Speaker 3: and it just costs much quicker. And that's what the
Speaker 3: Chinese automakers have done, and that's what Tesla has done.
Speaker 2: And your friend to BYD.
Speaker 3: Yeah, yeah, especially BYD. They built their own batteries. They
Speaker 3: pretty much built a lot of the motors and verters
Speaker 3: in house. That's exactly what Tesla is doing. But if
Speaker 3: you look at the legacy automakers, they're still using the
Speaker 3: old approach. You know, I'm going to farm out different systems,
Speaker 3: different components, and I'm going to outsource those and I'm
Speaker 3: just going to bring it in the house and assemble them.
Speaker 3: So when there's a change in taste from the consumer's perspective,
Speaker 3: when they want to cut costs quickly to compete with Tesla,
Speaker 3: they have to go through multiple layers to get there, right,
Speaker 3: they have to talk to the suppliers, tier one supplier,
Speaker 3: Tier two supplier, Tier three suppliers, they have to talk
Speaker 3: to their shipper, etc. So there's multiple layers they have
Speaker 3: to get to just to bring costs down. And that's
Speaker 3: why it's really hard for the legacy automakers to compete
Speaker 3: today with Tesla, because Tesla, with twenty five percent price cuts,
Speaker 3: they're still booking profits at the bottom line. They're booking
Speaker 3: mid teens gross margin, which is the same margins that
Speaker 3: the legacy automakers are making today. I think that's one
Speaker 3: of the reason why Tesla's valuation is higher than their
Speaker 3: peer group.
Speaker 1: Steve Man, We've talked about China, We've talked about the
Speaker 1: US and their respective electric vehicle markets. What do you
Speaker 1: think it will take to get Americans to buy a
Speaker 1: Chinese made electric vehicle A BYD or do you see
Speaker 1: that not happening.
Speaker 3: I don't see it happening. We actually had research out there.
Speaker 3: I think gasoline car is going to be really difficult.
Speaker 3: First of all, gasoline cars from China probably not going
Speaker 3: to come into the US. You know, there's debate out
Speaker 3: there if Chinese EV should be sold in the US.
Speaker 3: I really don't think so. You know, if you look
Speaker 3: at the Inflation Reduction Act, it really spurred that one
Speaker 3: hundred and sixty billion dollars investments in the EV supply chain,
Speaker 3: and I don't think the government is going to go
Speaker 3: out there and undercut that investment. Given the geopolitical situation
Speaker 3: between the US and China, I think the US is
Speaker 3: really focused on first of all, building supply chain for evs,
Speaker 3: and then the next step is how to innovate the
Speaker 3: automotive market, the EV market so that they can compete.
Speaker 3: I would say the US is a little bit behind China,
Speaker 3: especially if you look at the battery technology. I think
Speaker 3: the US really needs to catch up to be relevant
Speaker 3: in the global automotive market.
Speaker 2: Steve we talked a lot about Tesla, and Tom alluded
Speaker 2: to the fact that the share price has been really weak.
Speaker 2: It's down almost sixty percent from its all time highs now.
Speaker 2: Tesla is part of a group of you know, well
Speaker 2: known stocks called the Magnificent Seven. I think it's the
Speaker 2: smallest one. Some analysts now are starting to call it
Speaker 2: the Magnificent six or the Magnificent five. They want to
Speaker 2: exclude Tesla from this group. What does Tesla need to
Speaker 2: do to get investors excited again?
Speaker 3: I think, you know, I'm positive on the battery electric
Speaker 3: vehicle market, the BEV market. The winner and loser is
Speaker 3: still a toss up. I think Tesla has an advantage
Speaker 3: right now during a down cycle. You know, they're able
Speaker 3: to cut prices make their cars more affordable to the masses.
Speaker 3: But their biggest risk is execution. They're trying to do
Speaker 3: a lot right. They're cutting costs. They're trying to push
Speaker 3: out a new model. They dubbed it the Model to
Speaker 3: They may call it something else, but it's a compact
Speaker 3: vehicle that's going to be priced around twenty five thousand dollars.
Speaker 3: They're actually looking to start building that in Texas and
Speaker 3: then breaking ground on a new plant in Mexico. At
Speaker 3: the same time, they're trying to ramp up cyber truck.
Speaker 3: If you've seen the truck, it's not the easiest thing
Speaker 3: to build. And at the same time they're really aggressive
Speaker 3: in building out their full self driving apparatus. This is
Speaker 3: the autonomous vehicle software that supposedly, when it's complete, you
Speaker 3: can plot any Tesla at any points in the world
Speaker 3: and it's going to be able to drive itself. They're
Speaker 3: making a lot of investments in that. So there's a
Speaker 3: lot of things going on with Tesla. So execution is
Speaker 3: the risk. And I said earlier Tesla's taking advantage of
Speaker 3: the situation. Right now. They're the only EV makers that's
Speaker 3: still able to make profit in the downturn, but the
Speaker 3: rivals are catching up. GM is actually rolling out like
Speaker 3: half a dozen evs this year and next year. Some
Speaker 3: of them will be affordable. Some of them are like
Speaker 3: the Blazer EV, the new Bolt, the best selling EV
Speaker 3: for GM. They discontinued it at the end of twenty
Speaker 3: twenty three. They're totally redesigning the thing so that it's
Speaker 3: cheaper to bill that's actually coming out in twenty twenty five,
Speaker 3: twenty twenty six. You have Rivian. You know they're gonna
Speaker 3: need cash at some point, but they're also aggressively pulling
Speaker 3: their schedule ahead to roll out some of these cheaper evs.
Speaker 3: So Tesla's gonna face a few more competition, bigger competitors
Speaker 3: in twenty twenty six, twenty twenty seven. So that's why
Speaker 3: you know the winner loser, You can't really call it
Speaker 3: at the moment. Tesla actually, at this moment looks better,
Speaker 3: but we don't know a right. There's going a lot
Speaker 3: more affordable EV's rolling out that's going to be priced
Speaker 3: at the same level as Tesla, so consumer benefits, they're
Speaker 3: gonna have a lot more choices, and I think we'll
Speaker 3: see there are risks. Even though I'm very optimistic about
Speaker 3: EV market, Tesla is not the only player in town.
Speaker 2: Steve, before I let you go, I asked this question
Speaker 2: to you last year, and you didn't give me a
Speaker 2: straight answer. I asked you last year, what car did
Speaker 2: you drive. You did mention you'd used to drive a
Speaker 2: German car. I'm assuming that was a sports car. Then
Speaker 2: you did profess your respect for Japanese cars. Now you're
Speaker 2: in Princeton, did you buy American muscle? What are you
Speaker 2: driving now?
Speaker 3: So for the audience out there, I just relocated back
Speaker 3: to the US. You know, I've been in age of
Speaker 3: fifteen years. I didn't really have to own a car,
Speaker 3: but I did own a car. I own a BMW
Speaker 3: in Hong Kong and then now back in the US.
Speaker 3: We actually have two vehicles. One is an American car,
Speaker 3: a Chevrolet, a very nice car. Actually, my wife's been converted.
Speaker 3: She was not very much in tune on a Chevrolet,
Speaker 3: but after she drove it, loved at first drive, if
Speaker 3: you want to call it that way. It's a good
Speaker 3: question because I actually was thinking of buying a Prius,
Speaker 3: the plug in hybrid Prius.
Speaker 2: John oh Norius.
Speaker 3: It's a family.
Speaker 1: Yeah.
Speaker 3: Gas is not cheap, hair gas is expensive, fear, and
Speaker 3: the commutes are long. But I couldn't get one because
Speaker 3: the wait time is a year long for the Toyota Prius.
Speaker 3: So I decided to own a Mercedes. Now it's a
Speaker 3: mile hybrid. It gets around twenty two miles per the gallon,
Speaker 3: which is considered not bad not bad so that's what
Speaker 3: I drive today.
Speaker 2: Grand answer.
Speaker 1: We've been talking EV, Tesla, shine Up, and all things
Speaker 1: automotive with Steve Mann, Global Director of Industrials and Automotive
Speaker 1: Research at Bloomberg Intelligence. He has been with us from
Speaker 1: his offices in Princeton, New Jersey. Steve, exciting times, some
Speaker 1: would say, interesting times in evs and in global business.
Speaker 1: Always good to see you, a pleasure to have you
Speaker 1: back on the program, and we look forward to staying
Speaker 1: in touch.
Speaker 3: Nice to be here.
Speaker 1: I'm Tom Corbett in Hong Kong.
Speaker 2: And I'm John Lee. This podcast was produced by Clara
Speaker 2: Chan and you've been listening to the Asia Centric podcast