April 16, 2025 • 25 mins
On today's episode, we take a look at the impact of how US tariffs are reverberating through the global automotive industry. Ford Motor Company is preparing to raise prices on cars rolling off assembly lines starting next month if President Donald Trump doesn't deliver on the tariff relief he's hinted at for automakers, while Chinese EV maker Xpeng is ramping up its global expansion -- despite the intensifying trade war between Washington and Beijing, and the European Union's punitive tariffs against Chinese cars. We speak with Dr. Stephen Dyer, Head of the Asia Automotive Practice at AlixPartners.
Plus - Warnings from Chair Jerome Powell that trade tensions risk undermining the Federal Reserve's employment and inflation goals whipped up fresh volatility on Wall Street Wednesday, with stocks resuming sharp declines while haven assets like Treasuries and gold surged. We unpack the day's market moves with Shams Afzal, Managing Director at the Carnegie Investment Counsel.
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:02):
Bloomberg Audio Studios, Podcasts, radio News. Welcome to the Bloomberg
Daybreak Asia podcast. I'm Doug Chrisner. On today's episode, we'll
take a look at market action with Shamsavzal, Managing director
at the Carnegie Investment Council. That conversation in a bit first,
(00:23):
the impact of tariff's on the global auto industry. Today
in the States, Ford Motor said it's preparing to raise
prices on cars rolling off assembly lines beginning next month
if President Trump does not deliver on tariff relief that
he's hinted at for the automakers. And at the same
time in China, a report today by the Economic Information
(00:44):
Daily saying Chinese car park producers will suffer from US
tariffs on imports of cars and key parts. Joining me
now for a closer look from Shanghai is doctor Stephen Dyer.
He is head of the Asia Automotive practice at alex
Partners to Die. Are good of you to make time
to chat with us big picture if we can start
right there out of the gate, because I'd like to
(01:05):
begin by getting your thoughts on how tariff policy from
the United States is essentially reshaping the global automotive industry.
Speaker 2 (01:14):
Yeah, thanks, it's a pleasure to be here. The tariff
policies that have been changing rapidly this year have had
a tremendous and.
Speaker 3 (01:25):
Deep impact on the automotive industry.
Speaker 2 (01:28):
From the US Mexico Canada agreement impact as well as
sourcing and manufacturing in low cost countries. This goes and
is pervasive throughout the automotive value chain. It's been twenty
or twenty five years in the making, so it's causing
companies now to reevaluate their long term and short term options.
Speaker 1 (01:53):
So if you had to re engineer any part of
the supply chain, whether it be for auto parts or
vehicles themselves, how long would that take.
Speaker 2 (02:00):
It's not a simple task to even change a supplier
of a component for an automobile. It can take anywhere
from six months to eighteen months to find a new supplier,
negotiate prices, validate the production line of the new part.
A lot of these parts are safety related and so
that's one of the drivers for the longer time to
(02:24):
validate the parts. So this is just for a single component.
Of course, if you want to set up new automotive
assembly somewhere else, whether it be in the US or elsewhere.
It can also take twelve to twenty four months.
Speaker 1 (02:38):
So right now you're speaking to me from Shanghai. The
Chinese automakers really do not have access to the market
in the United States. But Europe is a very big market,
especially for Chinese manufactured evs. Give me a sense of
how what is happening on the trade side could definitely
rearrange the landscape when it comes to kinda accessing the
(03:01):
European market.
Speaker 3 (03:02):
Well, you're right.
Speaker 2 (03:03):
First of all, the US, the China EV makers currently have,
or even prior to the Trump administration, have one hundred
percent tariff on exports to the US.
Speaker 3 (03:15):
However, regular internal.
Speaker 2 (03:17):
Combustion engine gasoline engine vehicles did not have such a tariff,
and so many of the US automakers were producing in
China and exporting to the US. So that now has
the door has closed pretty much on that as well.
Speaking of Europe recently, in the last six months, Europe
(03:39):
instituted new tariffs on certain EV makers in China. Some
of them it will have an inordinate negative impact on
others still have such a cost advantage that it won't
impact their plans. But what we have seen is Chinese
automakers accelerating some of their plans to localize assembly in Europe,
(04:03):
and this is one avenue that they can take to
keep that market open to them.
Speaker 1 (04:08):
Is there anything to be said for the fact that
China seems to be way out in front when it
comes to integrating the interior of the automobile, which is
to say that they have successfully integrated the smartphone and
the automobile, Does that necessarily translate into much of a
competitive advantage right now?
Speaker 2 (04:27):
The development of what we call intelligent technology for the vehicle,
which includes automatic driving, intelligent driving, as well as intelligent cockpit,
voice recognition and connectivity to the rest of your personal
Internet ecosystem, is really an advantage of Chinese automakers right now,
(04:47):
and it's one of the key selling points within China
this intelligent technology, and Chinese consumers have come to expect
that that could and will be a potential competitive advantage
in other markets such as Europe, Southeast Asia, Latin America
and so on, as well as the US. Our recent
surveys said that many young people in the US are
(05:08):
interested in Chinese vehicles if the time comes when they
have access to them, So yes, this will be a
competitive advantage for Chinese automakers, and they're moving very quickly
due to the build up of the artificial intelligent machine
learning ecosystem in China.
Speaker 1 (05:28):
There's been a lot of criticism about the overcapacity and
the Chinese manufacturing economy, particularly when it comes to electric vehicles,
and that criticism, coming especially from the Europeans, has been
that overcapacity has led to a dumping of evs. So
is over capacity an issue and if it is, are
we likely to see much more in the way of
(05:49):
consolidation among the EV makers on the Chinese mainland.
Speaker 2 (05:53):
China is finishing about twenty years of extremely high growth
in the auto industry and so many auto companies and
the government with government support have added capacity rapidly in
a forward looking way. And so today, indeed, the average
capacity utilization for auto assembly in China is around fifty percent.
(06:15):
To be profitable in China, you need sixty or seventy percent.
So indeed, some companies are looking overseas to as an
outlet for their production capacity in China. However, the companies
that have the lowest production capacity in China now are
sorry the lowest capacity utilization in China right now. Are
(06:37):
actually the foreign brands that have joint ventures in China
because their market in China has dried up substantially over
the last several years, and so they're sometimes faced with
less than twenty percent capacity utilization. So that's why many
of the Detroit automakers have been exporting from China to
the US, which was a win win back in the
(07:01):
But the companies that are leading in exports in China
right now are ironically not the ones with the lowest
capacity utilization. They're the local winners who are now looking
to expand their global markets.
Speaker 1 (07:14):
One of the criticisms of those joint venture projects had
to do with the fact that maybe Chinese firms were
taking intellectual property from either North American producers or European producers.
To what extent have vehicle manufacturers in China kind of
moved beyond that and they are able now to innovate
(07:36):
on their own rather than relying on technology from either
the Americans or the Europeans.
Speaker 2 (07:42):
Right the requirement for foreign automakers to form joint ventures
to produce in China has been a thirty plus year experiment,
and initially it didn't seem like it was working too well.
In terms of transferring knowledge and especially related to new
product development. However, in the last five years, with electric
(08:06):
vehicles and intelligent vehicles, you're absolutely right, the capacity and
capability of Chinese manufacturers to develop vehicles with this intelligent
technology has now one might say, exceeded those in the
West and outside of China in terms of its value
for money value proposition. So we see a lot of
(08:28):
advanced intelligent technology in China that's very inexpensive for the consumer,
and this is going to be a compelling value proposition outside.
So the tables have turned a little bit. We now
see several automakers from outside of China looking to take
advantage of the China product development and technology ecosystem to
develop products for the rest of the world. So examples
(08:51):
of that are Volkswagen and Xpun partnering with Volkswagen investing
in x Punk. Stlantis has invested in Leap Motor and
intends to use Leap Motor as they're part of their
brand portfolio as a low cost ev We've also seen
Renol set up China Advanced Development Center to take advantage
(09:12):
of the China technology ecosystem and the supply base to
develop low cost evs.
Speaker 1 (09:18):
A lot's been made of autonomous driving. I'm curious to
get your take on where China is in that process.
In the evolution of autonomous driving.
Speaker 2 (09:27):
China China companies in China have taken a step wise
approach to autonomous driving. Whereas many years ago, when I
was in the auto industry, as in the corporate world,
we expected full level four autonomous driving to happen by
(09:47):
maybe twenty twenty two, it turned out to be much
more difficult than that, and so instead of a leap
toward full autonomy, the progress has been step by step
level one two, level two plus, level two plus plus.
And so that's what we see in China, just a
gradual improvement in autonomy and the capability for what we
(10:11):
call navigation on autopilot, which means you put in a
destination and the autopilot will help you get to that destination.
So it's very incremental and that seems to be working well,
not only in China, but in the rest of the
world as well.
Speaker 1 (10:26):
I'm interested in one dynamic, in particular byd on one
hand Tesla on the other. Give me your sense of
that rivalry.
Speaker 3 (10:34):
Well, these are the.
Speaker 2 (10:35):
Two highest volume dedicated new energy vehicle or electrified vehicle companies.
Speaker 3 (10:42):
So it's interesting to watch that face off, and.
Speaker 2 (10:49):
I think competition is good, good for everyone, good for
these companies to learn and progress, good for consumers, and
it's actually exciting in.
Speaker 1 (10:58):
Terms of the outlook. I'm wondering whether you're optimistic right now,
maybe more cautiously optimistic. Maybe it's a case of your
enthusiasm being slightly tempered as to what lies ahead for
the automobile industry.
Speaker 2 (11:11):
Well, certainly, the rapid progression of intelligent driving and intelligent
cockpit technology is something that I think gives us a
lot of reason to be enthusiastic and optimistic, both as
a consumer I love driving these vehicles and trying out
their new features, but also as the auto industry evolves
(11:34):
into more of a high tech industry. Sometimes in the
West we use the term software to find vehicle, which
really represents just an increased value of intelligent technology. In China,
they don't use that term because it's just sort of
inherently integrated into the vehicle now, and that's exciting and
(11:55):
cause for optimism about the direction that.
Speaker 3 (12:00):
Motive industry will take.
Speaker 2 (12:01):
We also see advancements in battery and battery charging technology
and claims that now you can charge a battery to
give you about two hundred and fifty miles of range
in five minutes. Now, it's still early to validate those claims,
and there's a lot of work yet to do, but
this would resolve the main reason that many people don't
(12:23):
want to buy an electric vehicle, and so that is
exciting as well.
Speaker 3 (12:27):
In room for.
Speaker 1 (12:28):
Optimism, Okay, on the other side, what is your greatest
concern when you look at the industry right now?
Speaker 2 (12:33):
Well, right now, with the advent of China technology and
low cost manufacturing, this represents a direct disruptive impact on
the automotive industry, and so it's important for auto players
from more traditional companies to learn how to do what
(12:54):
is required in this new technology rich environment for the
auto industry, and so players that are less effective at
changing the way they do things to use the new
technology may be under considerable challenge. The other elephant in
the room, if you will, is the current tariff and
trade protection environment. We've now gone through twenty or twenty
(13:17):
five years of globalization. Companies have optimized their supply chains
for this more open global trade scenario and so now
we see tariffs happening and reciprocal tariffs and measures and countermeasures.
So the question is this a negotiating tactic temporarily or
(13:38):
is this a long term protectionist measure or something in between.
So this will definitely disrupt the global supply chain for
the automotive industry and cause companies to rethink how they
set up.
Speaker 1 (13:50):
We'll leave it there, Stephen, Thank you so much, doctor
Stephen Dyer, head of the Asia Automotive practice at Alex Partners,
joining us here on the Daybreak Asia podcast. Welcome back
to the Daybreak Asia Podcast. I'm Doug Chrisner. Today's FED
(14:11):
Speak was hawkish Chair J Powell once again said the
Fed must ensure tariffs do not trigger a more persistent
rise in inflation.
Speaker 4 (14:20):
Trade now is the focus, and the effects of that
are likely to move us away from our goals. So
unemployment is likely to go up as the economy slows
in all likelihood, and inflation is likely to go up
as tariffs find their way, and some part of those
tariffs come to the come to be paid by the public,
that is FED share J Powell speaking at the Economic
(14:41):
Club of Chicago.
Speaker 1 (14:42):
He went on to emphasize the need to keep longer
term inflation expectations well anchored. We also heard today from
the head of the Cleveland Fed, Beth Hammock, and she
suggested the Fed should hold rates steady until there is
more clarity on the impact of tariffs. So their remarks
combined seem to dampen hope for a near term cut
in interest rates. Longer term, though, the swaps market is
(15:04):
holding to the bet for at least three rate cuts
this year. For a closer look at the price action,
I'm joined now by Cham's Asaul Managing Director at the
Carnegie Investment Council. He's on the line from Toledo, Ohio. Chams,
thank you so much for making time to chat with us.
When I hear what Powell had to say today, I'm
thinking that stagflation really is what we're going to be
(15:26):
confronted with in the near term. Is that what you're assuming?
Speaker 5 (15:29):
Yes, certainly. You know, when we think about the ninety
day delay on the reciprocal tariffs on you know, maybe
a trillion dollars worth of trade that's not including the
major partners like China, Mexico, Canada and Europe. You know,
if you do include those numbers back ninety days from now,
then the answer has to be that we're looking at
(15:52):
a sub one percent GDP, and obviously some analysts are
there predicting that we may actually did below zero. So
I mean, that's based dictionary definition of stackflation. Now, you know,
when we think about the market reaction, even including the
last two weeks, it doesn't appear that a good portion
of market participants actually believe that the broad swath of
(16:16):
caraffs that have been announced will actually remain in place
for the duration of the year. Otherwise the market selloff
has to be much more intensive than what we have
seen so far.
Speaker 1 (16:26):
Well, it's interesting that you make that point, because we
learned today that the Trump administration is preparing to pressure
certain nations to curb trade with China. As the White
House negotiates with trading partners on this issue of tariffs,
we know that at least a dozen nations are seeking
either reductions or exemptions, and in exchange for doing so,
we are told that the US is set to ask
(16:48):
them to take steps to limit China's manufacturing might. So
this very much seems to be dynamic and aimed at
trying to strike a negotiation, but the pressure point seems
to be directly focused on China. Is that the way
that you understand it.
Speaker 5 (17:03):
Well, if you ask me tomorrow, am I change my
mind on this? Because you know, ordinarily you would find
that if the goal was to coalesce, you know, an
alliance ultimately to go after China, then you probably would
not have prioritized you know, European tariffs as much as
(17:26):
they have so far, because I think that would be
one of the major counterweights against China. So, you know,
the way we think about this, Out of the three
point two to three point three trillion dollars worth of
trade that the US does, about a trillion of that
comes from you know, roughly fifty or sixty countries that
were part of this reciprocle tariff announcement on Liberation Day.
(17:48):
But you take that one trillion, what's left behind, Essentially
the rest of the two sum trillion is across basically
four or five trading partners. So if you're not getting
those four or five partners on board, but you're getting
the laws and the Cambodias and the Vietnams of the
world on board. I am not sure exactly how much
(18:09):
counterweight you're building up right, so I want to see
more data. I'm not quite there yet. If that is
the ultimate goal, then certainly the order in which the
tariffs have been announced should have been done a little
bit differently. But then again we are not privy to
all the details. And if the today's discussion with the
Japanese counterparts, you know, bear any fruit, then I will
(18:30):
start to feel a little bit better about maybe having
a grand plan behind this. But since April twod you know,
I've been more confused about just the general direction of
much of this then I would have been in December
or January of this year.
Speaker 1 (18:45):
Chams. I want to get your assessment of the risk
of a much more dramatic decoupling between the US and China.
We had a bipartisan House committee today accusing Deep Seek
of posing a profound threat to US national security. Now
we know yesterday that the monthly activity data in China
was above expectations, but those data do not really reflect
(19:08):
the impact of these new tariffs. And I'm wondering whether
or not China, on one side, is particularly vulnerable here,
but from the US side, whether or not the Trump
administration senses that vulnerability and is going to lean more
aggressively into restricting China and in the process maybe allowing
this relationship to further decouple.
Speaker 5 (19:29):
Is that possible, Yes, it certainly is possible. But again,
you know, the deep Seak angle is one thing. I think,
you know, we're dealing with much broader impacts, you know,
within the relationship. I think when it comes to Deep
six specifically, you know, we think that there's a lot
(19:49):
that has been quoted into the system that feels very derivative.
In other words, the model was designed to output, you know,
in a way that seems to have been built on
the output of models like a CHAT GPT. Right, So
I'm not taking any innovation away from what they've been
able to achieve in terms of the computing intensity, et cetera.
(20:13):
But I think the way the model is designed, there
is a lot of there's a derivative aspect to it.
Now the question becomes, if we are American citizens are
using this in a manner not quite understanding where the
quarries are going and how much detail or information we
are willing to share without understanding where you know, what
(20:35):
servers these are going to, where the compute is happening,
then that certainly becomes a bigger problem. Then you might
even say that tiktalk poses today, right, So I think
there is certainly a national security impact that comes to
a bear at that point. But you know, when we
think about other industries, the rare earth minerals is really
(21:00):
where my mind goes to. You know, we have been
given a bit of a reprieve in that, you know,
almost forty percent of Chinese trade, which really deals with
electronics and you know, apple products, et cetera, that has
been given bit of a relief, right, But to the
extent that China is serious about curbing rare earth availability
(21:20):
for the US in general, I think it's going to
end up becoming a bigger problem down the road. Right.
So I think this is going to a head, and
we hope that ultimately, you know, by the end of
next week, we are not looking at a two hundred
and fifty percent tariff, but rather, you know, delegations sort
of you know, meeting and deciding that yes, these are
(21:42):
the targeted tariffs that we likely will never have agreement on,
you know, namely steel, aluminum, et cetera. But there are
a whole bunch of other areas that we should have
agreement on because I think it's not in the US's
interest to bring back textile, right. We should not be
the best manufacturer of handkerchief and underwear or neck ties.
We should focus on other things if you believe on
(22:03):
the concept of comparative advantage. So ultimately I would like
to see a much more targeted way of dealing with China.
But again, things are moving so dramatically that you know,
every forecast that we do make, we know that we
are going to be miles ahead of what the reality
ends up being.
Speaker 1 (22:21):
So we can describe this the relationship right now between
the US and China as a trade war. Some people
don't like to use that terminology. I get that. Bloomberg
Opinion columnist James Travitas, former Navy admiral, was saying today
that he is increasingly concerned about the possibility of a
hot war between the US and China. Does that entry
(22:41):
your thinking at all, that things could get much much
worse and we could be involved in some type of
military conflict.
Speaker 5 (22:48):
I don't believe. So again I would not question you know,
people in the military who have you know, access to
maybe more you know, geopositioning of military assets et cetera.
So I will not question it, but I would say
that between number one and number two economies in the world,
I think there's plenty of sort of you know, delegation
(23:12):
beyond you know, the two of the main characters in
this in this scene where we believe cooler heads will prevail,
because ultimately it is not going to be in in
China's best interest to really ram this up. One thing
is to sort of save face for your own local
population and not be seen as you know, giving away
(23:33):
you know too much, you know, slack to the Trump administration.
But ultimately, I think you know that there are serious
people who understand that it's not something that you would
take lightly. And whatever grand plans that they may have,
you know, cooking up, whether it's related Taiwan or some
of the other Gray Sea Area dominance that they have,
(23:58):
none of that will come to fruition if they get
bogged down on the economic front. Right, So my personal
take would be that we don't see a military conflict here,
but we do see a significant rapping up of dialogue
and maybe trading barbs and things getting slightly worse before
they start to look better.
Speaker 1 (24:19):
Shams will leave it there, thank you so much for
taking the time to talk with the Shamsabsal there, Managing
director at the Carnegie Investment Council, joining from Toledo, Ohio
here on the Daybreak Asia podcast. Thanks for listening to
today's episode of the Bloomberg Daybreak Asia Edition podcast. Each weekday,
(24:39):
we look at the story shaping markets, finance, and geopolitics
in the Asia Pacific. You can find us on Apple, Spotify,
the Bloomberg Podcast YouTube channel, or anywhere else you listen.
Join us again tomorrow for insight on the market moves
from Hong Kong to Singapore and Australia. I'm Doug Chrisner,
and this is Bloomberg
Bloomberg Audio Studios, Podcasts, radio News. Welcome to the Bloomberg
Daybreak Asia podcast. I'm Doug Chrisner. On today's episode, we'll
take a look at market action with Shamsavzal, Managing director
at the Carnegie Investment Council. That conversation in a bit first,
(00:23):
the impact of tariff's on the global auto industry. Today
in the States, Ford Motor said it's preparing to raise
prices on cars rolling off assembly lines beginning next month
if President Trump does not deliver on tariff relief that
he's hinted at for the automakers. And at the same
time in China, a report today by the Economic Information
(00:44):
Daily saying Chinese car park producers will suffer from US
tariffs on imports of cars and key parts. Joining me
now for a closer look from Shanghai is doctor Stephen Dyer.
He is head of the Asia Automotive practice at alex
Partners to Die. Are good of you to make time
to chat with us big picture if we can start
right there out of the gate, because I'd like to
(01:05):
begin by getting your thoughts on how tariff policy from
the United States is essentially reshaping the global automotive industry.
Speaker 2 (01:14):
Yeah, thanks, it's a pleasure to be here. The tariff
policies that have been changing rapidly this year have had
a tremendous and.
Speaker 3 (01:25):
Deep impact on the automotive industry.
Speaker 2 (01:28):
From the US Mexico Canada agreement impact as well as
sourcing and manufacturing in low cost countries. This goes and
is pervasive throughout the automotive value chain. It's been twenty
or twenty five years in the making, so it's causing
companies now to reevaluate their long term and short term options.
Speaker 1 (01:53):
So if you had to re engineer any part of
the supply chain, whether it be for auto parts or
vehicles themselves, how long would that take.
Speaker 2 (02:00):
It's not a simple task to even change a supplier
of a component for an automobile. It can take anywhere
from six months to eighteen months to find a new supplier,
negotiate prices, validate the production line of the new part.
A lot of these parts are safety related and so
that's one of the drivers for the longer time to
(02:24):
validate the parts. So this is just for a single component.
Of course, if you want to set up new automotive
assembly somewhere else, whether it be in the US or elsewhere.
It can also take twelve to twenty four months.
Speaker 1 (02:38):
So right now you're speaking to me from Shanghai. The
Chinese automakers really do not have access to the market
in the United States. But Europe is a very big market,
especially for Chinese manufactured evs. Give me a sense of
how what is happening on the trade side could definitely
rearrange the landscape when it comes to kinda accessing the
(03:01):
European market.
Speaker 3 (03:02):
Well, you're right.
Speaker 2 (03:03):
First of all, the US, the China EV makers currently have,
or even prior to the Trump administration, have one hundred
percent tariff on exports to the US.
Speaker 3 (03:15):
However, regular internal.
Speaker 2 (03:17):
Combustion engine gasoline engine vehicles did not have such a tariff,
and so many of the US automakers were producing in
China and exporting to the US. So that now has
the door has closed pretty much on that as well.
Speaking of Europe recently, in the last six months, Europe
(03:39):
instituted new tariffs on certain EV makers in China. Some
of them it will have an inordinate negative impact on
others still have such a cost advantage that it won't
impact their plans. But what we have seen is Chinese
automakers accelerating some of their plans to localize assembly in Europe,
(04:03):
and this is one avenue that they can take to
keep that market open to them.
Speaker 1 (04:08):
Is there anything to be said for the fact that
China seems to be way out in front when it
comes to integrating the interior of the automobile, which is
to say that they have successfully integrated the smartphone and
the automobile, Does that necessarily translate into much of a
competitive advantage right now?
Speaker 2 (04:27):
The development of what we call intelligent technology for the vehicle,
which includes automatic driving, intelligent driving, as well as intelligent cockpit,
voice recognition and connectivity to the rest of your personal
Internet ecosystem, is really an advantage of Chinese automakers right now,
(04:47):
and it's one of the key selling points within China
this intelligent technology, and Chinese consumers have come to expect
that that could and will be a potential competitive advantage
in other markets such as Europe, Southeast Asia, Latin America
and so on, as well as the US. Our recent
surveys said that many young people in the US are
(05:08):
interested in Chinese vehicles if the time comes when they
have access to them, So yes, this will be a
competitive advantage for Chinese automakers, and they're moving very quickly
due to the build up of the artificial intelligent machine
learning ecosystem in China.
Speaker 1 (05:28):
There's been a lot of criticism about the overcapacity and
the Chinese manufacturing economy, particularly when it comes to electric vehicles,
and that criticism, coming especially from the Europeans, has been
that overcapacity has led to a dumping of evs. So
is over capacity an issue and if it is, are
we likely to see much more in the way of
(05:49):
consolidation among the EV makers on the Chinese mainland.
Speaker 2 (05:53):
China is finishing about twenty years of extremely high growth
in the auto industry and so many auto companies and
the government with government support have added capacity rapidly in
a forward looking way. And so today, indeed, the average
capacity utilization for auto assembly in China is around fifty percent.
(06:15):
To be profitable in China, you need sixty or seventy percent.
So indeed, some companies are looking overseas to as an
outlet for their production capacity in China. However, the companies
that have the lowest production capacity in China now are
sorry the lowest capacity utilization in China right now. Are
(06:37):
actually the foreign brands that have joint ventures in China
because their market in China has dried up substantially over
the last several years, and so they're sometimes faced with
less than twenty percent capacity utilization. So that's why many
of the Detroit automakers have been exporting from China to
the US, which was a win win back in the
(07:01):
But the companies that are leading in exports in China
right now are ironically not the ones with the lowest
capacity utilization. They're the local winners who are now looking
to expand their global markets.
Speaker 1 (07:14):
One of the criticisms of those joint venture projects had
to do with the fact that maybe Chinese firms were
taking intellectual property from either North American producers or European producers.
To what extent have vehicle manufacturers in China kind of
moved beyond that and they are able now to innovate
(07:36):
on their own rather than relying on technology from either
the Americans or the Europeans.
Speaker 2 (07:42):
Right the requirement for foreign automakers to form joint ventures
to produce in China has been a thirty plus year experiment,
and initially it didn't seem like it was working too well.
In terms of transferring knowledge and especially related to new
product development. However, in the last five years, with electric
(08:06):
vehicles and intelligent vehicles, you're absolutely right, the capacity and
capability of Chinese manufacturers to develop vehicles with this intelligent
technology has now one might say, exceeded those in the
West and outside of China in terms of its value
for money value proposition. So we see a lot of
(08:28):
advanced intelligent technology in China that's very inexpensive for the consumer,
and this is going to be a compelling value proposition outside.
So the tables have turned a little bit. We now
see several automakers from outside of China looking to take
advantage of the China product development and technology ecosystem to
develop products for the rest of the world. So examples
(08:51):
of that are Volkswagen and Xpun partnering with Volkswagen investing
in x Punk. Stlantis has invested in Leap Motor and
intends to use Leap Motor as they're part of their
brand portfolio as a low cost ev We've also seen
Renol set up China Advanced Development Center to take advantage
(09:12):
of the China technology ecosystem and the supply base to
develop low cost evs.
Speaker 1 (09:18):
A lot's been made of autonomous driving. I'm curious to
get your take on where China is in that process.
In the evolution of autonomous driving.
Speaker 2 (09:27):
China China companies in China have taken a step wise
approach to autonomous driving. Whereas many years ago, when I
was in the auto industry, as in the corporate world,
we expected full level four autonomous driving to happen by
(09:47):
maybe twenty twenty two, it turned out to be much
more difficult than that, and so instead of a leap
toward full autonomy, the progress has been step by step
level one two, level two plus, level two plus plus.
And so that's what we see in China, just a
gradual improvement in autonomy and the capability for what we
(10:11):
call navigation on autopilot, which means you put in a
destination and the autopilot will help you get to that destination.
So it's very incremental and that seems to be working well,
not only in China, but in the rest of the
world as well.
Speaker 1 (10:26):
I'm interested in one dynamic, in particular byd on one
hand Tesla on the other. Give me your sense of
that rivalry.
Speaker 3 (10:34):
Well, these are the.
Speaker 2 (10:35):
Two highest volume dedicated new energy vehicle or electrified vehicle companies.
Speaker 3 (10:42):
So it's interesting to watch that face off, and.
Speaker 2 (10:49):
I think competition is good, good for everyone, good for
these companies to learn and progress, good for consumers, and
it's actually exciting in.
Speaker 1 (10:58):
Terms of the outlook. I'm wondering whether you're optimistic right now,
maybe more cautiously optimistic. Maybe it's a case of your
enthusiasm being slightly tempered as to what lies ahead for
the automobile industry.
Speaker 2 (11:11):
Well, certainly, the rapid progression of intelligent driving and intelligent
cockpit technology is something that I think gives us a
lot of reason to be enthusiastic and optimistic, both as
a consumer I love driving these vehicles and trying out
their new features, but also as the auto industry evolves
(11:34):
into more of a high tech industry. Sometimes in the
West we use the term software to find vehicle, which
really represents just an increased value of intelligent technology. In China,
they don't use that term because it's just sort of
inherently integrated into the vehicle now, and that's exciting and
(11:55):
cause for optimism about the direction that.
Speaker 3 (12:00):
Motive industry will take.
Speaker 2 (12:01):
We also see advancements in battery and battery charging technology
and claims that now you can charge a battery to
give you about two hundred and fifty miles of range
in five minutes. Now, it's still early to validate those claims,
and there's a lot of work yet to do, but
this would resolve the main reason that many people don't
(12:23):
want to buy an electric vehicle, and so that is
exciting as well.
Speaker 3 (12:27):
In room for.
Speaker 1 (12:28):
Optimism, Okay, on the other side, what is your greatest
concern when you look at the industry right now?
Speaker 2 (12:33):
Well, right now, with the advent of China technology and
low cost manufacturing, this represents a direct disruptive impact on
the automotive industry, and so it's important for auto players
from more traditional companies to learn how to do what
(12:54):
is required in this new technology rich environment for the
auto industry, and so players that are less effective at
changing the way they do things to use the new
technology may be under considerable challenge. The other elephant in
the room, if you will, is the current tariff and
trade protection environment. We've now gone through twenty or twenty
(13:17):
five years of globalization. Companies have optimized their supply chains
for this more open global trade scenario and so now
we see tariffs happening and reciprocal tariffs and measures and countermeasures.
So the question is this a negotiating tactic temporarily or
(13:38):
is this a long term protectionist measure or something in between.
So this will definitely disrupt the global supply chain for
the automotive industry and cause companies to rethink how they
set up.
Speaker 1 (13:50):
We'll leave it there, Stephen, Thank you so much, doctor
Stephen Dyer, head of the Asia Automotive practice at Alex Partners,
joining us here on the Daybreak Asia podcast. Welcome back
to the Daybreak Asia Podcast. I'm Doug Chrisner. Today's FED
(14:11):
Speak was hawkish Chair J Powell once again said the
Fed must ensure tariffs do not trigger a more persistent
rise in inflation.
Speaker 4 (14:20):
Trade now is the focus, and the effects of that
are likely to move us away from our goals. So
unemployment is likely to go up as the economy slows
in all likelihood, and inflation is likely to go up
as tariffs find their way, and some part of those
tariffs come to the come to be paid by the public,
that is FED share J Powell speaking at the Economic
(14:41):
Club of Chicago.
Speaker 1 (14:42):
He went on to emphasize the need to keep longer
term inflation expectations well anchored. We also heard today from
the head of the Cleveland Fed, Beth Hammock, and she
suggested the Fed should hold rates steady until there is
more clarity on the impact of tariffs. So their remarks
combined seem to dampen hope for a near term cut
in interest rates. Longer term, though, the swaps market is
(15:04):
holding to the bet for at least three rate cuts
this year. For a closer look at the price action,
I'm joined now by Cham's Asaul Managing Director at the
Carnegie Investment Council. He's on the line from Toledo, Ohio. Chams,
thank you so much for making time to chat with us.
When I hear what Powell had to say today, I'm
thinking that stagflation really is what we're going to be
(15:26):
confronted with in the near term. Is that what you're assuming?
Speaker 5 (15:29):
Yes, certainly. You know, when we think about the ninety
day delay on the reciprocal tariffs on you know, maybe
a trillion dollars worth of trade that's not including the
major partners like China, Mexico, Canada and Europe. You know,
if you do include those numbers back ninety days from now,
then the answer has to be that we're looking at
(15:52):
a sub one percent GDP, and obviously some analysts are
there predicting that we may actually did below zero. So
I mean, that's based dictionary definition of stackflation. Now, you know,
when we think about the market reaction, even including the
last two weeks, it doesn't appear that a good portion
of market participants actually believe that the broad swath of
(16:16):
caraffs that have been announced will actually remain in place
for the duration of the year. Otherwise the market selloff
has to be much more intensive than what we have
seen so far.
Speaker 1 (16:26):
Well, it's interesting that you make that point, because we
learned today that the Trump administration is preparing to pressure
certain nations to curb trade with China. As the White
House negotiates with trading partners on this issue of tariffs,
we know that at least a dozen nations are seeking
either reductions or exemptions, and in exchange for doing so,
we are told that the US is set to ask
(16:48):
them to take steps to limit China's manufacturing might. So
this very much seems to be dynamic and aimed at
trying to strike a negotiation, but the pressure point seems
to be directly focused on China. Is that the way
that you understand it.
Speaker 5 (17:03):
Well, if you ask me tomorrow, am I change my
mind on this? Because you know, ordinarily you would find
that if the goal was to coalesce, you know, an
alliance ultimately to go after China, then you probably would
not have prioritized you know, European tariffs as much as
(17:26):
they have so far, because I think that would be
one of the major counterweights against China. So, you know,
the way we think about this, Out of the three
point two to three point three trillion dollars worth of
trade that the US does, about a trillion of that
comes from you know, roughly fifty or sixty countries that
were part of this reciprocle tariff announcement on Liberation Day.
(17:48):
But you take that one trillion, what's left behind, Essentially
the rest of the two sum trillion is across basically
four or five trading partners. So if you're not getting
those four or five partners on board, but you're getting
the laws and the Cambodias and the Vietnams of the
world on board. I am not sure exactly how much
(18:09):
counterweight you're building up right, so I want to see
more data. I'm not quite there yet. If that is
the ultimate goal, then certainly the order in which the
tariffs have been announced should have been done a little
bit differently. But then again we are not privy to
all the details. And if the today's discussion with the
Japanese counterparts, you know, bear any fruit, then I will
(18:30):
start to feel a little bit better about maybe having
a grand plan behind this. But since April twod you know,
I've been more confused about just the general direction of
much of this then I would have been in December
or January of this year.
Speaker 1 (18:45):
Chams. I want to get your assessment of the risk
of a much more dramatic decoupling between the US and China.
We had a bipartisan House committee today accusing Deep Seek
of posing a profound threat to US national security. Now
we know yesterday that the monthly activity data in China
was above expectations, but those data do not really reflect
(19:08):
the impact of these new tariffs. And I'm wondering whether
or not China, on one side, is particularly vulnerable here,
but from the US side, whether or not the Trump
administration senses that vulnerability and is going to lean more
aggressively into restricting China and in the process maybe allowing
this relationship to further decouple.
Speaker 5 (19:29):
Is that possible, Yes, it certainly is possible. But again,
you know, the deep Seak angle is one thing. I think,
you know, we're dealing with much broader impacts, you know,
within the relationship. I think when it comes to Deep
six specifically, you know, we think that there's a lot
(19:49):
that has been quoted into the system that feels very derivative.
In other words, the model was designed to output, you know,
in a way that seems to have been built on
the output of models like a CHAT GPT. Right, So
I'm not taking any innovation away from what they've been
able to achieve in terms of the computing intensity, et cetera.
(20:13):
But I think the way the model is designed, there
is a lot of there's a derivative aspect to it.
Now the question becomes, if we are American citizens are
using this in a manner not quite understanding where the
quarries are going and how much detail or information we
are willing to share without understanding where you know, what
(20:35):
servers these are going to, where the compute is happening,
then that certainly becomes a bigger problem. Then you might
even say that tiktalk poses today, right, So I think
there is certainly a national security impact that comes to
a bear at that point. But you know, when we
think about other industries, the rare earth minerals is really
(21:00):
where my mind goes to. You know, we have been
given a bit of a reprieve in that, you know,
almost forty percent of Chinese trade, which really deals with
electronics and you know, apple products, et cetera, that has
been given bit of a relief, right, But to the
extent that China is serious about curbing rare earth availability
(21:20):
for the US in general, I think it's going to
end up becoming a bigger problem down the road. Right.
So I think this is going to a head, and
we hope that ultimately, you know, by the end of
next week, we are not looking at a two hundred
and fifty percent tariff, but rather, you know, delegations sort
of you know, meeting and deciding that yes, these are
(21:42):
the targeted tariffs that we likely will never have agreement on,
you know, namely steel, aluminum, et cetera. But there are
a whole bunch of other areas that we should have
agreement on because I think it's not in the US's
interest to bring back textile, right. We should not be
the best manufacturer of handkerchief and underwear or neck ties.
We should focus on other things if you believe on
(22:03):
the concept of comparative advantage. So ultimately I would like
to see a much more targeted way of dealing with China.
But again, things are moving so dramatically that you know,
every forecast that we do make, we know that we
are going to be miles ahead of what the reality
ends up being.
Speaker 1 (22:21):
So we can describe this the relationship right now between
the US and China as a trade war. Some people
don't like to use that terminology. I get that. Bloomberg
Opinion columnist James Travitas, former Navy admiral, was saying today
that he is increasingly concerned about the possibility of a
hot war between the US and China. Does that entry
(22:41):
your thinking at all, that things could get much much
worse and we could be involved in some type of
military conflict.
Speaker 5 (22:48):
I don't believe. So again I would not question you know,
people in the military who have you know, access to
maybe more you know, geopositioning of military assets et cetera.
So I will not question it, but I would say
that between number one and number two economies in the world,
I think there's plenty of sort of you know, delegation
(23:12):
beyond you know, the two of the main characters in
this in this scene where we believe cooler heads will prevail,
because ultimately it is not going to be in in
China's best interest to really ram this up. One thing
is to sort of save face for your own local
population and not be seen as you know, giving away
(23:33):
you know too much, you know, slack to the Trump administration.
But ultimately, I think you know that there are serious
people who understand that it's not something that you would
take lightly. And whatever grand plans that they may have,
you know, cooking up, whether it's related Taiwan or some
of the other Gray Sea Area dominance that they have,
(23:58):
none of that will come to fruition if they get
bogged down on the economic front. Right, So my personal
take would be that we don't see a military conflict here,
but we do see a significant rapping up of dialogue
and maybe trading barbs and things getting slightly worse before
they start to look better.
Speaker 1 (24:19):
Shams will leave it there, thank you so much for
taking the time to talk with the Shamsabsal there, Managing
director at the Carnegie Investment Council, joining from Toledo, Ohio
here on the Daybreak Asia podcast. Thanks for listening to
today's episode of the Bloomberg Daybreak Asia Edition podcast. Each weekday,
(24:39):
we look at the story shaping markets, finance, and geopolitics
in the Asia Pacific. You can find us on Apple, Spotify,
the Bloomberg Podcast YouTube channel, or anywhere else you listen.
Join us again tomorrow for insight on the market moves
from Hong Kong to Singapore and Australia. I'm Doug Chrisner,
and this is Bloomberg
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