March 19, 2025 • 29 mins
Looming US auto tariffs are forcing tough decisions for the world’s biggest automakers, with firms already reeling from high borrowing costs and slower sales. Tesla’s been rocked by a political backlash and plunging sales, while Chinese EV manufacturers gain global market share and make big strides in autonomous driving.
The levies – which could raise costs for companies and customers – present an existential threat to the industry, according to Steve Man, global autos and industrials research manager at Bloomberg Intelligence. He joins John Lee and Katia Dmitrieva to discuss the game-changing impact.
Read Bloomberg News on how auto tariffs could shake up the industry (https://blinks.bloomberg.com/news/stories/ST2QSBT0G1KW) and Steve's full research (https://blinks.bloomberg.com/news/stories/SSJQKHDWRGG0) on the Bloomberg Terminal.
See omnystudio.com/listener for privacy information.
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:01):
US President Donald Trump has threatened tariffs on a number
of goods coming into the country, and that's including autos.
There's still a lot of uncertainty, but what is threatened
so far is twenty five percent tariffs on all cars
coming into the US as early as April, and that's
in addition to a slow of other charges on Mexico
Canada steel and aluminum and more to come.
Speaker 2 (00:25):
Tariffs threatened to raise the price of a car in
the US by thousands of dollars at a time when
US consumer confidence is already weakening and some economists are
even seeing the risk of a recession. It also comes
at a bad time for American car makers, who are
already facing challenges. The tariffs also threatened companies in South
(00:47):
Korea and Japan, major suppliers to the US. Meanwhile, China's
ev makers continue to gain market share.
Speaker 1 (00:58):
We're listening to Asia Centric from Bloomberg Intelligence. I'm John
Lee calling in from Hong Kong, and I'm.
Speaker 2 (01:04):
Cart Tom Treva, also in Hong Kong.
Speaker 1 (01:06):
Today we've got Steve Man, Global Autos and Industrials research
manager from Bloomberg Intelligence. He's been a regular on the
podcast and he's dialing in from Princeton, New Jersey. Steve,
Welcome to the.
Speaker 3 (01:18):
Show, Thanks John, Thanks Katia, happy to be here.
Speaker 2 (01:22):
Glad to have you on to unpack all this for US. So,
President Trump has threatened twenty five percent tariffs on all
autos coming into the US. So maybe big picture, if
these tariffs were eventually to go through, which is an
if in April, what would be sort of the biggest
impact that you're looking at in the auto space.
Speaker 3 (01:45):
I think this time around, he's really going to implement
the tariffs on autos and it's going to impact every
automaker as well as the global auto supply chain in
a significant way because he really really want to bring
some of that manufacturing back into the US. No, he's
asking that question. If Tesla can produce cars a profit
(02:08):
in the US, why can't the Big three? Right, So,
you know a lot of the cars are still built
in Mexico and Canada. As of twenty twenty four, three
point six million vehicles that are sold in the US
and are built in Mexico and Canada. That's out of
sixteen million, So it's a significant chunk. And the terraffs
(02:29):
are not only going to be applied to Mexico and Canada,
it's going to be applied globally, and that's going to
impact half of the auto sales in the US because
half of those are are all imported from somewhere else.
Speaker 1 (02:43):
Steve, how much will it increase the price of buying
a car in the US if these tariffs were to occur.
Speaker 3 (02:49):
Yeah, that's a really good question, John, because there's different
ways of looking at it. If you just look at
the tariff itself, the twenty five percent, we act estimate
that it's going to increase prices for the consumer or
the automakers will have to absorb, or the auto supplies
will have to absorb about thirty five hundred dollars per vehicle.
(03:12):
That's significant, especially you know what Katya was saying earlier.
The auto market is not that healthy at the moment
in the US. That demand is not that healthy. But
if Trump says, oh, you're going to have to bring
some of that production back in the US, wow, automakers
in the supply chain will have to spend billions. We
(03:33):
dis some quick analysis like if they have to shift
just an example, about one hundred and fifty thousand units,
that's about the size of a small assembly plant in
the US that would cost between six hundred million if
you're talking about ev to about a couple of billion
(03:53):
dollars if you're building an suv a large pickup truck.
So it's a lot of money these automakers have to spend.
You know, that's going to be a huge added costs
and an impact on cash flow for the automakers.
Speaker 2 (04:07):
So will that actually happen then? I mean, is there
a world in which automakers just swallow the cost or
raise the price, but don't necessarily go through the work
of reconfiguring supply chains and building out plants because of
course there's a human component too. I mean, will there
even be people to work in these factories?
Speaker 3 (04:26):
Yeah? You know, Trump is a pretty dead set about
bringing manufacturing back. So there's a one month delay. April
second is the day, right, he's going to implement these tariffs,
and that one month's delay. Look, automakers, the global auto
supply chain can't really do anything in one month because
the globalization of the auto industry really started in nineteen
(04:49):
ninety four with the North American Free Trade Agreement NAFTA
that was the predecessor to the current free Chair Agreement,
which is the United States, Mexico Canada Free Chery Agreement,
and so it took many, many decades to actually go global.
To unwind all that, it's definitely going to take more
than a month. So I think what Trump is really
(05:09):
looking for within this one month is for the automakers
in the supply chain to really come back and give
them some concrete plans, you know, how to bring some
or all manufacturing back into the US. And the plan
well likely needs to come with a timeline. I'm pretty
sure he probably wants a lot of this done before
(05:31):
his term ends, because you know, is in his second
term as president.
Speaker 1 (05:36):
And Steve, for the listener out there, how long will
it take for an automaker to reshore into the US.
So if they have a factory in Canada or Mexico
and they decide to move it to the US, are
we talking years?
Speaker 3 (05:50):
Yeah, it could be years, it could be months. We
also looked into that. For example, GM builds the Chevy Silverado,
one of the best selling pickup trucks in the US
as well as Canada. For GM, you know, the option
is maybe shift some of that production back into a
plant that builds the Silverado. In the US. You know,
(06:12):
if they have capacity to do so, and all they
would have to do, you know, they're going to have
to spend money, for sure, hundreds of million dollars. It
probably just some of the equipment could be just lifted
off the ground in Canada and then transfer it back
into US. That could take a few months. Right, But
GM's evs, all their evs are actually built in Mexico,
(06:34):
new plants, a new assembly line. They don't have any
duplication of manufacturing assembly in the US, So for them
to shift that back it could take years. If they
have to construct a new building, years to get the approvals,
any types of approval. They're gonna have to build the plant.
(06:55):
They have to shift the production back, so it will
take a couple of year, two three years if that's
the case.
Speaker 2 (07:02):
Which carmakers do you see being hit the most by
these tariffs kind of globally?
Speaker 3 (07:09):
I honestly think that Trump is really targeting the Asians
and the European autos. Earlier we kind of alluded to
Trump may not implement the tariffs as long as they
have plans to bring production back. The other thing that
we have to be cognizant of is the free trade agreement,
the United States Mexico Canada Agreement. This is something that
(07:31):
Trump signed in his first term. It's his baby, right,
you know, he's a businessman, and I think he will
also keep his word, meaning that if the automakers meet
what we call the local content rule within the USMCA.
That means that so within the USMCA, as long as
(07:54):
the value of the components of the vehicles, you know,
with seventy five of the value of the component are
built in US, Mexico and Canada, those vehicles are exempt
from terroriffs. Obviously, he can bypass that if he really
wants to. But I think that he's going to cut
a break for the Big three, especially a Big three,
because you know, at the end of the day, they're
(08:15):
American automobiles. I can't see why he would disadvantage, right,
the American companies. You know, his mantra is really to
make America great again, So he think he really wants
to have the American automat makers thrive. So I think
the terriffs will at the end of the day target
(08:36):
the Japanese, the Koreans, and the Europeans. You know, Hondas
built a lot of their cars that are sold in
the US and Canada, and they also import a lot.
Same thing with Toyota. Toyota actually still imports a lot,
especially like Lexus. There's only one model that they built
in North America. Every Lexus that they sell in North
America are built in Japan in Shandai. Same thing, a
(09:01):
lot of the cars are built there in their home
country and Europeans. Volkswagen has a plant here in the US,
has a couple of plants in Mexico, but you know,
a lot of it is important. And then even more
so with the German luxuries, you know, the BMW, Mercedes
and Volkswagen. I think those automakers will have to really
(09:23):
brace for the cost hit that they're going to experience
with the higher tariffs and state.
Speaker 1 (09:29):
On a macro front, even excluding these tariffs, there's a
lot of news coming out that the US consumer is
weakening and some economists are even talking about a recession
in the US. Is the auto industry ready for this
weakening macro picture?
Speaker 3 (09:45):
Yeah, John, the auto industry is already in a recession. Okay, Okay,
sales have slowed. Look at Ford Ford's fourth quarter and
first quarter sales. It was down in the teens. Part
of it is related to some changeover on their popular vehicles.
But if you listen to all the conference fourth quarter
(10:08):
earnings calls from these companies, they are guiding down earnings.
They are facing pricing pressure, and a lot of that
is actually due to Stillentistalentis is based in Europe, but
their biggest businesses in the US. You know, they have
the Dodge brands, they have the Chrysler, they have the
Jeep brands, and they can't sell vehicles. They had even
(10:31):
new twenty twenty three models on their dealer floors. They
had to cut prices left and right. They cut production
just to manage inventory by a third, you know, they
cut production by a third and a fourth quarter. So
the US auto industry is actually in the cycle of
price cutting and managing inventory and cutting production. I think
(10:53):
you will see more of that in twenty twenty five.
Speaker 2 (10:56):
So if the auto industry, as you say, is already
in such dire straits, you add tariffs on top of
that and potentially, as you said, billions of dollars in
costs to relocate. So where does that lead us in
a year or two could we potentially see some of
these companies fail or even more severe issues.
Speaker 3 (11:19):
Well, yeah, I think it's really hard for the automakers
to pass those tariff related costs along with the consumer
right now. You know, maybe Toyota can do it because
if you look at all the brands, Toyota's actually has
the smallest dealer inventory in North America. They have thirty days.
(11:40):
A lot of them are above sixty days, some are
at ninety days. Stialentists I just mentioned earlier. Some models
are over one hundred days. So it'll be really, really
hard for the automakers to actually pass those costs along
to the consumer. And optimistically it's going to take a
couple quarters to actually foolse inventories to wind down, and
(12:03):
that assumes that there's going to be more price cuts
for the consumer.
Speaker 2 (12:08):
Do you think investors know this or are pricing this inot?
Speaker 3 (12:13):
I think some of that has already been priced in.
You've seen the price action on some of these stocks. GM.
They GM just announced very recently accelerated stock buyback program
of two billion after I think they did about ten
billion last year. Really, the stock they didn't even react
to it. I think the investors are reading into it that,
(12:34):
oh maybe they're anticipating lower earnings, and so they pre
empt that by announcing another accelerated stock buy back. So
I think, you know, in the next couple quarters, when
more news come out, I think the Lentis will still
have to cut production. I believe that we're going to
(12:54):
see increasing pricing pressure that's going to have an impact
on earnings for these companies for sure in the next
couple quarters.
Speaker 1 (13:02):
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(13:25):
If you like what you're here, don't forget to subscribe
and share. Steve, what's happening with Tesla. We have to
talk about this stock. The market calap has almost halved
since December, and arguably this is the one company that
should benefit from tariffs, right because they make all their
cars in the US. Tell us what's going on.
Speaker 3 (13:44):
There's a lot of noise around Tesla. It's a love
and hate relationship long short, love and hate relationship with
the stock. Politics aside, I really believe Tesla is at
the cutting edge, right. I think they're really the only
American automaker or Western automaker for that to compete with
(14:05):
the Chinese in terms of not just EV. I mean,
to me, Eve's old technology. I think the buzz is
really on autonomous vehicle and AI. Tesla is at the
forefront in North America, in the Western world, the only
one I think for now be able to effectively compete
with Tesla. But you know, Tesla is going through some
(14:29):
pain h and again politics society. There's a lot of
noise around where Tesla stands in terms of his his
political stance. Uh, you know, what he's doing for the
government has really raised some eyebrows for a lot of people.
Speaker 2 (14:46):
Musk with the Department of Government efficiency.
Speaker 3 (14:51):
That's right, But you know, we're very you know, we're
equity analysts. His political stance does impact the stock. But
you know, I think I think the other thing that
a lot of people don't realize and are not talking
about it is the company is going through a model change.
The model. Why you've probably seen pictures of its redesigned
(15:13):
you know, inside and out, so a lot of it inside,
you know, under the cover we can't really see. But
Tesla is not a GM, they don't have multiple models,
so model why being their best selling model globally of
any type of car. You know, if they have to
shut down plants for a month, they shut down a
plant in China and Shanghai for a month for that changeover,
(15:35):
it's definitely going to impact sex. They stop producing the
old one, and really they don't have another hot selling
car that actually can offset. From a business perspective, I
think the company is going through a model change. I
think the inflection point in terms of sales is actually
in the second quarter. You know, orders from China has
been really good. The other thing, you know, we're talking
(15:57):
about Ton's vehicles. Tesla we started selling their full self
driving autonomous vehicle and software in China for the first time,
and I think if you follow Chinese social media, the
reaction has been very positive. Everybody's been wild and amazing
how well that thing works in China. So second quarter
(16:20):
I think we'll see definitely improvement. Third quarter, definitely improvement
in sales.
Speaker 2 (16:26):
So we were just talking about politics and the impact
of politics on the brand. We're hearing about things like
Americans boycotting Tesla as the sale in China has also
been tough just because of the competition Chinese carmakers. How
serious are these kinds of threats to the company.
Speaker 3 (16:46):
Yeah, it's a huge threat, not just for Tesla. If
we're talking about China. Let's talk about China first. The
local brands are very, very strong. They've come up the
curve quite rapidly over the last ten fears fifteen years
on quality, and you know, they understand the consumer very
(17:06):
well over there. If you look at the age of
the consumer base on average, you're talking about thirty something
for car buyers in China versus North America, you're in
the fifties. So the consumer there are much more open
to the tech and that's more important to them. You know,
what are the apps on the vehicles? What can the
vehicles do for me? What are the voice activated apps
(17:28):
that the car can do for me? That's more important
for consumers over there. And the local automakers, you know,
build cars and they're very savvy, very sophisticated now in
terms of building these cars that cater to that age group.
So for automakers, it's really not their fault because their
business have been very global. They can't just build cars
(17:51):
just for China. They have the build cars for everybody
in the world. So because of that, in terms of tech,
in terms of user experience, user interface, they kind of
lagged behind the Chinese and that's why, like going back
to Tesla, you know, that's why they were very urgent
in trying to roll out FSD. They were actually blocked
(18:13):
for some time and rolling out FSD in China because
of data privacy issues, but they were able to clear it.
And I think Tesla still has a cachet in China,
even though from a market share perspective it's shrinking. If
you look at absolute numbers in terms of sales, they
are growing. Okay, they're not grown as fast because of
(18:37):
a lot of the choices that the consumer have there.
But you know, I think Tesla, out of the Western
auto makers again, they're leading the pack in building cars
that cater to the consumer, the younger consumer in China
and I would say probably the rest of the world.
Speaker 1 (18:55):
Steve, you said something surprising. You think that electric vehicle
technology is already legacy. You think it's already old technology.
And now you're talking about ADAS or advanced driver assistance
systems as well as you know, robotaxis. How did the
Chinese automakers compete or how do they fare versus Tesla
in this technology?
Speaker 3 (19:16):
Yeah, you're right. In the EV is old technology. It's
been around since the nineteen hundreds. Interesting point at Google
charging stations in Chicago in the early nineteen hundred you'll
see a bunch of them. It's just never got picked up.
And everybody know internal commustionion engine became the standard. So
(19:38):
automas driving is where the competition is now. It's actually
where companies can generate the most profit building cars ev
gasoline car razor thin margins. You can see Tesla's margin
coming down very sensitive to pricing to demand. Right where
the difference is automas vehicle, cyber cabs be it cyber cabs.
(20:03):
You know Tesla rolling out their own fleet and adopting
the Uber lift d D model. You can see the margins.
I think they're double digits for Uber and Lyft. But
if say companies like Tesla or someone else like Xpunk
for example, down the road, you know they can actually
(20:23):
license the self driving software to other automakers, and those
margins are huge. You're talking about software type margins into
sixties and seventy percent margins. So I think for automakers
to succeed in the long term, they have to shift
that business model to data, to AI, to self driving vehicles,
(20:48):
you know. Staying put as a traditional car manufacturer, I
think it's going to be a tough business. You can
see with Nissan they're going through that right now. Nissan
is having big problems not just on costs, but on
demand for their vehicles.
Speaker 2 (21:08):
Yeah, we had a question here on Nissan and Honda,
but before getting to that, I want to get your
thoughts on how far away we are from that future
that you just laid out. I mean, in the States,
you don't see a lot of you know, robo taxis
or self driving cars yet you know, you do see
them sporadically, But how far away? How many years? Maybe
it's decades, Like when could we have that?
Speaker 3 (21:31):
You know? Let's see. I mean Elon Musk is very ambitious,
right you know, he are announced that he's going to
roll out robotaxis in June. I think it's going to
be in Austin, Texas, and then next one will be
somewhere in California, and then you know his goal. We'll
have to see if it happens. His goal is to
(21:53):
roll out to multiple cities by year end, so it
could be sooner than later. Now, the predominant taxi operator
has been WEMO in the US, so WEAIMO has rolled
out to a few cities around the country, and it
has taken them a few years to get to those
few cities. And there's a reason for that because the
(22:14):
technology that WEIMO us is quite different than Tesla. So
simply put it, Tesla's autonomous vehicle technology allows it to
scale much faster than WEIMO. So Tesla uses what we
call neural network, and then WEIMO still used the traditional algorithm.
So neural network basically is a computer that teaches itself.
(22:39):
As long as you feed it data, it'll learn, and
it also create fictitious hypothetical driving situations that it'll learn.
And so Tesla's vehicles theoretically you can PLoP it anywhere
in the world and it should be able to drive itself.
And actually the China Exams sample we talked about is
(23:01):
a good example because Tesla was not able to collect
any road data from its Tesla vehicles running in China.
The way they taught the car or just to like
familiarize the car with Chinese roads, was actually through YouTube videos.
But you know, the car, once you PLoP it on
(23:22):
a road in China, it's still able to drive itself
in a very safe manner based on what I've seen
on social media. Now, Waymo, Waymo's quite different. And Waymo
uses algorithm millions and by billions of lines of codes
to teach the system and then uses radars instead of
a vision system like how you and I drive. So
(23:43):
they have to program in, like if they're going to
operate in Las Vegas, they have to program in all
the road conditions, all the roads that in Las Vegas
for it to operate. So for Weymo to start operating
a new city, you basically have to what they call
geofence it meaning that it has to learn specifically the
(24:04):
roads of that city for it to operate. So to
answer your question, if this neural network, which not only
Tesla is using to teach cars how to drive, xpunk
is doing the same thing. So if neural network works,
and you know, maybe robotax is a lot sooner than
we think, and.
Speaker 1 (24:24):
It sounds like robotaxi technology. It's a pretty much a
two horse race between China and the US, Is that right?
Speaker 3 (24:31):
Stave yes, But you know, Mercedes have been doing a
lot of work around self driving. They're rolling out what
we call Level three plus, so it's basically autonomous driving,
and I think their vehicles can only operate autonomously on highways.
It's more controlled, there's less variation than you see in
(24:53):
city driving. But I think the leaders are really the
US in China at the moment.
Speaker 2 (25:00):
And going back to Honda and Nissan, so you'll forget
what's the latest on that. There were kind of talks
of merging, Nissan merging with Honda, discussions fell through. What
are kind of some of the issues there?
Speaker 3 (25:15):
Yeah, I think based on the fact that you know,
they switched out the CEO, they may be making an
attempt to kind of fix things on their own. But
all the stuff we just talked about, how fierce of
competition is in the auto industry, not just in the
US now globally. Right with China, you know, not only
(25:36):
out selling foreign automakers, foreign brands in their home turf,
they're actually going global and there's not that much room
for that many players in the market. So Nissan, they
haven't updated their vehicles for a while. At the same time,
they've been cutting prices because they're not selling very well,
(25:58):
they're cutting production. They're really in a spiral at the moment.
They really need a cash injection at some point, so
cost cutting alone is not going to help. It's more urgent,
I think than a lot of people think. So they're
going to need some kind of cash injection. And if
(26:18):
Honda is not the one, I wouldn't be surprised if
they're looking for other suitors at the moment.
Speaker 1 (26:24):
Are we going to get a big shakeout in the
auto industry, especially for the legacy players because you mentioned
this new technology and you need a lot of capex
to spend on AI autonomous driving robotaxis. At the same time,
you mentioned that Chinese automakers are gaining market share around
the world, probably not the US, but outside the US.
What's going to happen to all these legacy guys.
Speaker 3 (26:47):
I think the legacy automakers are I would say they're
on notice because the competition for autos, the profit centers
for autos, is not building cars. It's really about the
Autonoa's vehicles. So it's not the hardware, it's really the software.
Now going forward, I think it's just a matter of
(27:08):
time that we're going to see more and more consolidation
and then the industry especially like I said earlier, the
Chinese are looking abroad, you know, looking at overseas, and
they have very compelling product for emerging markets. That's why
you see them in Southeast Asia, you see them in
South America. You'll see them in countries that you know,
(27:33):
don't have an auto industry, so they're open to Chinese,
like Australia. You know, some of the best selling cars
in Australia's are Chinese, the Great Wall, the Byds, you know.
Typically the emerging markets in some of the other developed
markets like Australia, the dominant players have been the Japanese,
(27:54):
have been the Koreans, you know, and the Chinese are
bringing in vehicles that are very jazzy. They have really
cool technology that can wow consumers, can entice consumer to
actually buy their vehicles. So I think the traditional automaker
of walking, they need to start running instead of driving
(28:18):
fifty kilometers per hour, they need to be start driving.
They step on the accelerator driving one hundred kilometers per hour,
and so to me, it's like it was really interesting GM, right,
And I just saw the news GM exited Cruise. They
basically shut down that operation. Cruise was actually their autonomous
vehicle subsidiary. You know, that's where they put in a
(28:41):
lot of money to develop technology. And there was an
accident out west of the US a couple of years
back and they set them back to a point where
they just shut it down. And you know, I don't
know if that's the best strategy going forward. And that's
why Tesla has a higher valuation, by the way, because
they're spending so much cash on that future growth and
(29:03):
where the profit centers are for the future auto industry
and for company like GM. Through pullbag tells us a
lot about the longevity I'll do these companies and white
Tesla and others with technologies getting higher e valuation.
Speaker 1 (29:19):
Okay, so automakers have to hit on the accelerator, Steve,
that's a great way to end the podcast. Thanks for
coming on.
Speaker 3 (29:25):
Oh anytime. Very interesting discussion.
Speaker 1 (29:28):
You've been listening to Age Eccentric from Bloomberg Intelligence. I'm
John Lee in Hong Kong and.
Speaker 2 (29:33):
I'm card digm True but also in Hong Kong.
Speaker 1 (29:36):
You can find us on Apple Podcasts, Spotify, or wherever
you get your podcasts. His podcast was also produced and
edited by Clara Chen and thanks for listening.
US President Donald Trump has threatened tariffs on a number
of goods coming into the country, and that's including autos.
There's still a lot of uncertainty, but what is threatened
so far is twenty five percent tariffs on all cars
coming into the US as early as April, and that's
in addition to a slow of other charges on Mexico
Canada steel and aluminum and more to come.
Speaker 2 (00:25):
Tariffs threatened to raise the price of a car in
the US by thousands of dollars at a time when
US consumer confidence is already weakening and some economists are
even seeing the risk of a recession. It also comes
at a bad time for American car makers, who are
already facing challenges. The tariffs also threatened companies in South
(00:47):
Korea and Japan, major suppliers to the US. Meanwhile, China's
ev makers continue to gain market share.
Speaker 1 (00:58):
We're listening to Asia Centric from Bloomberg Intelligence. I'm John
Lee calling in from Hong Kong, and I'm.
Speaker 2 (01:04):
Cart Tom Treva, also in Hong Kong.
Speaker 1 (01:06):
Today we've got Steve Man, Global Autos and Industrials research
manager from Bloomberg Intelligence. He's been a regular on the
podcast and he's dialing in from Princeton, New Jersey. Steve,
Welcome to the.
Speaker 3 (01:18):
Show, Thanks John, Thanks Katia, happy to be here.
Speaker 2 (01:22):
Glad to have you on to unpack all this for US. So,
President Trump has threatened twenty five percent tariffs on all
autos coming into the US. So maybe big picture, if
these tariffs were eventually to go through, which is an
if in April, what would be sort of the biggest
impact that you're looking at in the auto space.
Speaker 3 (01:45):
I think this time around, he's really going to implement
the tariffs on autos and it's going to impact every
automaker as well as the global auto supply chain in
a significant way because he really really want to bring
some of that manufacturing back into the US. No, he's
asking that question. If Tesla can produce cars a profit
(02:08):
in the US, why can't the Big three? Right, So,
you know a lot of the cars are still built
in Mexico and Canada. As of twenty twenty four, three
point six million vehicles that are sold in the US
and are built in Mexico and Canada. That's out of
sixteen million, So it's a significant chunk. And the terraffs
(02:29):
are not only going to be applied to Mexico and Canada,
it's going to be applied globally, and that's going to
impact half of the auto sales in the US because
half of those are are all imported from somewhere else.
Speaker 1 (02:43):
Steve, how much will it increase the price of buying
a car in the US if these tariffs were to occur.
Speaker 3 (02:49):
Yeah, that's a really good question, John, because there's different
ways of looking at it. If you just look at
the tariff itself, the twenty five percent, we act estimate
that it's going to increase prices for the consumer or
the automakers will have to absorb, or the auto supplies
will have to absorb about thirty five hundred dollars per vehicle.
(03:12):
That's significant, especially you know what Katya was saying earlier.
The auto market is not that healthy at the moment
in the US. That demand is not that healthy. But
if Trump says, oh, you're going to have to bring
some of that production back in the US, wow, automakers
in the supply chain will have to spend billions. We
(03:33):
dis some quick analysis like if they have to shift
just an example, about one hundred and fifty thousand units,
that's about the size of a small assembly plant in
the US that would cost between six hundred million if
you're talking about ev to about a couple of billion
(03:53):
dollars if you're building an suv a large pickup truck.
So it's a lot of money these automakers have to spend.
You know, that's going to be a huge added costs
and an impact on cash flow for the automakers.
Speaker 2 (04:07):
So will that actually happen then? I mean, is there
a world in which automakers just swallow the cost or
raise the price, but don't necessarily go through the work
of reconfiguring supply chains and building out plants because of
course there's a human component too. I mean, will there
even be people to work in these factories?
Speaker 3 (04:26):
Yeah? You know, Trump is a pretty dead set about
bringing manufacturing back. So there's a one month delay. April
second is the day, right, he's going to implement these tariffs,
and that one month's delay. Look, automakers, the global auto
supply chain can't really do anything in one month because
the globalization of the auto industry really started in nineteen
(04:49):
ninety four with the North American Free Trade Agreement NAFTA
that was the predecessor to the current free Chair Agreement,
which is the United States, Mexico Canada Free Chery Agreement,
and so it took many, many decades to actually go global.
To unwind all that, it's definitely going to take more
than a month. So I think what Trump is really
(05:09):
looking for within this one month is for the automakers
in the supply chain to really come back and give
them some concrete plans, you know, how to bring some
or all manufacturing back into the US. And the plan
well likely needs to come with a timeline. I'm pretty
sure he probably wants a lot of this done before
(05:31):
his term ends, because you know, is in his second
term as president.
Speaker 1 (05:36):
And Steve, for the listener out there, how long will
it take for an automaker to reshore into the US.
So if they have a factory in Canada or Mexico
and they decide to move it to the US, are
we talking years?
Speaker 3 (05:50):
Yeah, it could be years, it could be months. We
also looked into that. For example, GM builds the Chevy Silverado,
one of the best selling pickup trucks in the US
as well as Canada. For GM, you know, the option
is maybe shift some of that production back into a
plant that builds the Silverado. In the US. You know,
(06:12):
if they have capacity to do so, and all they
would have to do, you know, they're going to have
to spend money, for sure, hundreds of million dollars. It
probably just some of the equipment could be just lifted
off the ground in Canada and then transfer it back
into US. That could take a few months. Right, But
GM's evs, all their evs are actually built in Mexico,
(06:34):
new plants, a new assembly line. They don't have any
duplication of manufacturing assembly in the US, So for them
to shift that back it could take years. If they
have to construct a new building, years to get the approvals,
any types of approval. They're gonna have to build the plant.
(06:55):
They have to shift the production back, so it will
take a couple of year, two three years if that's
the case.
Speaker 2 (07:02):
Which carmakers do you see being hit the most by
these tariffs kind of globally?
Speaker 3 (07:09):
I honestly think that Trump is really targeting the Asians
and the European autos. Earlier we kind of alluded to
Trump may not implement the tariffs as long as they
have plans to bring production back. The other thing that
we have to be cognizant of is the free trade agreement,
the United States Mexico Canada Agreement. This is something that
(07:31):
Trump signed in his first term. It's his baby, right,
you know, he's a businessman, and I think he will
also keep his word, meaning that if the automakers meet
what we call the local content rule within the USMCA.
That means that so within the USMCA, as long as
(07:54):
the value of the components of the vehicles, you know,
with seventy five of the value of the component are
built in US, Mexico and Canada, those vehicles are exempt
from terroriffs. Obviously, he can bypass that if he really
wants to. But I think that he's going to cut
a break for the Big three, especially a Big three,
because you know, at the end of the day, they're
(08:15):
American automobiles. I can't see why he would disadvantage, right,
the American companies. You know, his mantra is really to
make America great again, So he think he really wants
to have the American automat makers thrive. So I think
the terriffs will at the end of the day target
(08:36):
the Japanese, the Koreans, and the Europeans. You know, Hondas
built a lot of their cars that are sold in
the US and Canada, and they also import a lot.
Same thing with Toyota. Toyota actually still imports a lot,
especially like Lexus. There's only one model that they built
in North America. Every Lexus that they sell in North
America are built in Japan in Shandai. Same thing, a
(09:01):
lot of the cars are built there in their home
country and Europeans. Volkswagen has a plant here in the US,
has a couple of plants in Mexico, but you know,
a lot of it is important. And then even more
so with the German luxuries, you know, the BMW, Mercedes
and Volkswagen. I think those automakers will have to really
(09:23):
brace for the cost hit that they're going to experience
with the higher tariffs and state.
Speaker 1 (09:29):
On a macro front, even excluding these tariffs, there's a
lot of news coming out that the US consumer is
weakening and some economists are even talking about a recession
in the US. Is the auto industry ready for this
weakening macro picture?
Speaker 3 (09:45):
Yeah, John, the auto industry is already in a recession. Okay, Okay,
sales have slowed. Look at Ford Ford's fourth quarter and
first quarter sales. It was down in the teens. Part
of it is related to some changeover on their popular vehicles.
But if you listen to all the conference fourth quarter
(10:08):
earnings calls from these companies, they are guiding down earnings.
They are facing pricing pressure, and a lot of that
is actually due to Stillentistalentis is based in Europe, but
their biggest businesses in the US. You know, they have
the Dodge brands, they have the Chrysler, they have the
Jeep brands, and they can't sell vehicles. They had even
(10:31):
new twenty twenty three models on their dealer floors. They
had to cut prices left and right. They cut production
just to manage inventory by a third, you know, they
cut production by a third and a fourth quarter. So
the US auto industry is actually in the cycle of
price cutting and managing inventory and cutting production. I think
(10:53):
you will see more of that in twenty twenty five.
Speaker 2 (10:56):
So if the auto industry, as you say, is already
in such dire straits, you add tariffs on top of
that and potentially, as you said, billions of dollars in
costs to relocate. So where does that lead us in
a year or two could we potentially see some of
these companies fail or even more severe issues.
Speaker 3 (11:19):
Well, yeah, I think it's really hard for the automakers
to pass those tariff related costs along with the consumer
right now. You know, maybe Toyota can do it because
if you look at all the brands, Toyota's actually has
the smallest dealer inventory in North America. They have thirty days.
(11:40):
A lot of them are above sixty days, some are
at ninety days. Stialentists I just mentioned earlier. Some models
are over one hundred days. So it'll be really, really
hard for the automakers to actually pass those costs along
to the consumer. And optimistically it's going to take a
couple quarters to actually foolse inventories to wind down, and
(12:03):
that assumes that there's going to be more price cuts
for the consumer.
Speaker 2 (12:08):
Do you think investors know this or are pricing this inot?
Speaker 3 (12:13):
I think some of that has already been priced in.
You've seen the price action on some of these stocks. GM.
They GM just announced very recently accelerated stock buyback program
of two billion after I think they did about ten
billion last year. Really, the stock they didn't even react
to it. I think the investors are reading into it that,
(12:34):
oh maybe they're anticipating lower earnings, and so they pre
empt that by announcing another accelerated stock buy back. So
I think, you know, in the next couple quarters, when
more news come out, I think the Lentis will still
have to cut production. I believe that we're going to
(12:54):
see increasing pricing pressure that's going to have an impact
on earnings for these companies for sure in the next
couple quarters.
Speaker 1 (13:02):
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(13:25):
If you like what you're here, don't forget to subscribe
and share. Steve, what's happening with Tesla. We have to
talk about this stock. The market calap has almost halved
since December, and arguably this is the one company that
should benefit from tariffs, right because they make all their
cars in the US. Tell us what's going on.
Speaker 3 (13:44):
There's a lot of noise around Tesla. It's a love
and hate relationship long short, love and hate relationship with
the stock. Politics aside, I really believe Tesla is at
the cutting edge, right. I think they're really the only
American automaker or Western automaker for that to compete with
(14:05):
the Chinese in terms of not just EV. I mean,
to me, Eve's old technology. I think the buzz is
really on autonomous vehicle and AI. Tesla is at the
forefront in North America, in the Western world, the only
one I think for now be able to effectively compete
with Tesla. But you know, Tesla is going through some
(14:29):
pain h and again politics society. There's a lot of
noise around where Tesla stands in terms of his his
political stance. Uh, you know, what he's doing for the
government has really raised some eyebrows for a lot of people.
Speaker 2 (14:46):
Musk with the Department of Government efficiency.
Speaker 3 (14:51):
That's right, But you know, we're very you know, we're
equity analysts. His political stance does impact the stock. But
you know, I think I think the other thing that
a lot of people don't realize and are not talking
about it is the company is going through a model change.
The model. Why you've probably seen pictures of its redesigned
(15:13):
you know, inside and out, so a lot of it inside,
you know, under the cover we can't really see. But
Tesla is not a GM, they don't have multiple models,
so model why being their best selling model globally of
any type of car. You know, if they have to
shut down plants for a month, they shut down a
plant in China and Shanghai for a month for that changeover,
(15:35):
it's definitely going to impact sex. They stop producing the
old one, and really they don't have another hot selling
car that actually can offset. From a business perspective, I
think the company is going through a model change. I
think the inflection point in terms of sales is actually
in the second quarter. You know, orders from China has
been really good. The other thing, you know, we're talking
(15:57):
about Ton's vehicles. Tesla we started selling their full self
driving autonomous vehicle and software in China for the first time,
and I think if you follow Chinese social media, the
reaction has been very positive. Everybody's been wild and amazing
how well that thing works in China. So second quarter
(16:20):
I think we'll see definitely improvement. Third quarter, definitely improvement
in sales.
Speaker 2 (16:26):
So we were just talking about politics and the impact
of politics on the brand. We're hearing about things like
Americans boycotting Tesla as the sale in China has also
been tough just because of the competition Chinese carmakers. How
serious are these kinds of threats to the company.
Speaker 3 (16:46):
Yeah, it's a huge threat, not just for Tesla. If
we're talking about China. Let's talk about China first. The
local brands are very, very strong. They've come up the
curve quite rapidly over the last ten fears fifteen years
on quality, and you know, they understand the consumer very
(17:06):
well over there. If you look at the age of
the consumer base on average, you're talking about thirty something
for car buyers in China versus North America, you're in
the fifties. So the consumer there are much more open
to the tech and that's more important to them. You know,
what are the apps on the vehicles? What can the
vehicles do for me? What are the voice activated apps
(17:28):
that the car can do for me? That's more important
for consumers over there. And the local automakers, you know,
build cars and they're very savvy, very sophisticated now in
terms of building these cars that cater to that age group.
So for automakers, it's really not their fault because their
business have been very global. They can't just build cars
(17:51):
just for China. They have the build cars for everybody
in the world. So because of that, in terms of tech,
in terms of user experience, user interface, they kind of
lagged behind the Chinese and that's why, like going back
to Tesla, you know, that's why they were very urgent
in trying to roll out FSD. They were actually blocked
(18:13):
for some time and rolling out FSD in China because
of data privacy issues, but they were able to clear it.
And I think Tesla still has a cachet in China,
even though from a market share perspective it's shrinking. If
you look at absolute numbers in terms of sales, they
are growing. Okay, they're not grown as fast because of
(18:37):
a lot of the choices that the consumer have there.
But you know, I think Tesla, out of the Western
auto makers again, they're leading the pack in building cars
that cater to the consumer, the younger consumer in China
and I would say probably the rest of the world.
Speaker 1 (18:55):
Steve, you said something surprising. You think that electric vehicle
technology is already legacy. You think it's already old technology.
And now you're talking about ADAS or advanced driver assistance
systems as well as you know, robotaxis. How did the
Chinese automakers compete or how do they fare versus Tesla
in this technology?
Speaker 3 (19:16):
Yeah, you're right. In the EV is old technology. It's
been around since the nineteen hundreds. Interesting point at Google
charging stations in Chicago in the early nineteen hundred you'll
see a bunch of them. It's just never got picked up.
And everybody know internal commustionion engine became the standard. So
(19:38):
automas driving is where the competition is now. It's actually
where companies can generate the most profit building cars ev
gasoline car razor thin margins. You can see Tesla's margin
coming down very sensitive to pricing to demand. Right where
the difference is automas vehicle, cyber cabs be it cyber cabs.
(20:03):
You know Tesla rolling out their own fleet and adopting
the Uber lift d D model. You can see the margins.
I think they're double digits for Uber and Lyft. But
if say companies like Tesla or someone else like Xpunk
for example, down the road, you know they can actually
(20:23):
license the self driving software to other automakers, and those
margins are huge. You're talking about software type margins into
sixties and seventy percent margins. So I think for automakers
to succeed in the long term, they have to shift
that business model to data, to AI, to self driving vehicles,
(20:48):
you know. Staying put as a traditional car manufacturer, I
think it's going to be a tough business. You can
see with Nissan they're going through that right now. Nissan
is having big problems not just on costs, but on
demand for their vehicles.
Speaker 2 (21:08):
Yeah, we had a question here on Nissan and Honda,
but before getting to that, I want to get your
thoughts on how far away we are from that future
that you just laid out. I mean, in the States,
you don't see a lot of you know, robo taxis
or self driving cars yet you know, you do see
them sporadically, But how far away? How many years? Maybe
it's decades, Like when could we have that?
Speaker 3 (21:31):
You know? Let's see. I mean Elon Musk is very ambitious,
right you know, he are announced that he's going to
roll out robotaxis in June. I think it's going to
be in Austin, Texas, and then next one will be
somewhere in California, and then you know his goal. We'll
have to see if it happens. His goal is to
(21:53):
roll out to multiple cities by year end, so it
could be sooner than later. Now, the predominant taxi operator
has been WEMO in the US, so WEAIMO has rolled
out to a few cities around the country, and it
has taken them a few years to get to those
few cities. And there's a reason for that because the
(22:14):
technology that WEIMO us is quite different than Tesla. So
simply put it, Tesla's autonomous vehicle technology allows it to
scale much faster than WEIMO. So Tesla uses what we
call neural network, and then WEIMO still used the traditional algorithm.
So neural network basically is a computer that teaches itself.
(22:39):
As long as you feed it data, it'll learn, and
it also create fictitious hypothetical driving situations that it'll learn.
And so Tesla's vehicles theoretically you can PLoP it anywhere
in the world and it should be able to drive itself.
And actually the China Exams sample we talked about is
(23:01):
a good example because Tesla was not able to collect
any road data from its Tesla vehicles running in China.
The way they taught the car or just to like
familiarize the car with Chinese roads, was actually through YouTube videos.
But you know, the car, once you PLoP it on
(23:22):
a road in China, it's still able to drive itself
in a very safe manner based on what I've seen
on social media. Now, Waymo, Waymo's quite different. And Waymo
uses algorithm millions and by billions of lines of codes
to teach the system and then uses radars instead of
a vision system like how you and I drive. So
(23:43):
they have to program in, like if they're going to
operate in Las Vegas, they have to program in all
the road conditions, all the roads that in Las Vegas
for it to operate. So for Weymo to start operating
a new city, you basically have to what they call
geofence it meaning that it has to learn specifically the
(24:04):
roads of that city for it to operate. So to
answer your question, if this neural network, which not only
Tesla is using to teach cars how to drive, xpunk
is doing the same thing. So if neural network works,
and you know, maybe robotax is a lot sooner than
we think, and.
Speaker 1 (24:24):
It sounds like robotaxi technology. It's a pretty much a
two horse race between China and the US, Is that right?
Speaker 3 (24:31):
Stave yes, But you know, Mercedes have been doing a
lot of work around self driving. They're rolling out what
we call Level three plus, so it's basically autonomous driving,
and I think their vehicles can only operate autonomously on highways.
It's more controlled, there's less variation than you see in
(24:53):
city driving. But I think the leaders are really the
US in China at the moment.
Speaker 2 (25:00):
And going back to Honda and Nissan, so you'll forget
what's the latest on that. There were kind of talks
of merging, Nissan merging with Honda, discussions fell through. What
are kind of some of the issues there?
Speaker 3 (25:15):
Yeah, I think based on the fact that you know,
they switched out the CEO, they may be making an
attempt to kind of fix things on their own. But
all the stuff we just talked about, how fierce of
competition is in the auto industry, not just in the
US now globally. Right with China, you know, not only
(25:36):
out selling foreign automakers, foreign brands in their home turf,
they're actually going global and there's not that much room
for that many players in the market. So Nissan, they
haven't updated their vehicles for a while. At the same time,
they've been cutting prices because they're not selling very well,
(25:58):
they're cutting production. They're really in a spiral at the moment.
They really need a cash injection at some point, so
cost cutting alone is not going to help. It's more urgent,
I think than a lot of people think. So they're
going to need some kind of cash injection. And if
(26:18):
Honda is not the one, I wouldn't be surprised if
they're looking for other suitors at the moment.
Speaker 1 (26:24):
Are we going to get a big shakeout in the
auto industry, especially for the legacy players because you mentioned
this new technology and you need a lot of capex
to spend on AI autonomous driving robotaxis. At the same time,
you mentioned that Chinese automakers are gaining market share around
the world, probably not the US, but outside the US.
What's going to happen to all these legacy guys.
Speaker 3 (26:47):
I think the legacy automakers are I would say they're
on notice because the competition for autos, the profit centers
for autos, is not building cars. It's really about the
Autonoa's vehicles. So it's not the hardware, it's really the software.
Now going forward, I think it's just a matter of
(27:08):
time that we're going to see more and more consolidation
and then the industry especially like I said earlier, the
Chinese are looking abroad, you know, looking at overseas, and
they have very compelling product for emerging markets. That's why
you see them in Southeast Asia, you see them in
South America. You'll see them in countries that you know,
(27:33):
don't have an auto industry, so they're open to Chinese,
like Australia. You know, some of the best selling cars
in Australia's are Chinese, the Great Wall, the Byds, you know.
Typically the emerging markets in some of the other developed
markets like Australia, the dominant players have been the Japanese,
(27:54):
have been the Koreans, you know, and the Chinese are
bringing in vehicles that are very jazzy. They have really
cool technology that can wow consumers, can entice consumer to
actually buy their vehicles. So I think the traditional automaker
of walking, they need to start running instead of driving
(28:18):
fifty kilometers per hour, they need to be start driving.
They step on the accelerator driving one hundred kilometers per hour,
and so to me, it's like it was really interesting GM, right,
And I just saw the news GM exited Cruise. They
basically shut down that operation. Cruise was actually their autonomous
vehicle subsidiary. You know, that's where they put in a
(28:41):
lot of money to develop technology. And there was an
accident out west of the US a couple of years
back and they set them back to a point where
they just shut it down. And you know, I don't
know if that's the best strategy going forward. And that's
why Tesla has a higher valuation, by the way, because
they're spending so much cash on that future growth and
(29:03):
where the profit centers are for the future auto industry
and for company like GM. Through pullbag tells us a
lot about the longevity I'll do these companies and white
Tesla and others with technologies getting higher e valuation.
Speaker 1 (29:19):
Okay, so automakers have to hit on the accelerator, Steve,
that's a great way to end the podcast. Thanks for
coming on.
Speaker 3 (29:25):
Oh anytime. Very interesting discussion.
Speaker 1 (29:28):
You've been listening to Age Eccentric from Bloomberg Intelligence. I'm
John Lee in Hong Kong and.
Speaker 2 (29:33):
I'm card digm True but also in Hong Kong.
Speaker 1 (29:36):
You can find us on Apple Podcasts, Spotify, or wherever
you get your podcasts. His podcast was also produced and
edited by Clara Chen and thanks for listening.
Hosts And Creators
John Lee
Tom Corbett
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