May 8, 2025 • 41 mins
Longtime friends Dr. Elizabeth Economy and Michael Dunne sit down to discuss the transformation of the Chinese automobile industry, the roots of electric vehicles in China, the demand for electric vehicles (EV) both in the United States and globally, and how the United States can best compete in a rapidly changing environment. Dunne details the early days of the Chinese EV revolution, a quiet transformation that came to a head at the 2023 Shanghai auto show and has now resulted in China becoming a global leader in EVs. The two also touch on how the conversation around electric autos has shifted from a concern that focuses on climate change on green energy to now one that encompasses national security and critical supply chains. They conclude by discussing how America can best compete in this shifting industry, and how the country must “get out of its comfort zone” in order to do so effectively.
ABOUT THE SPEAKERS
Michael Dunne is the Chief Executive Officer of Dunne Insights LLC, an advisory firm with expertise in global electric vehicle markets and battery supply chains. He is also an LP at Assembly Ventures, a Michigan-based venture capital company. Dunne is the author of the Wall Street Journal acclaimed book, American Wheels, Chinese Roads. Dunne was previously the President of General Motors Indonesia and, before that, the Managing Director of JD Power operations in China. He worked in Asia for 25 years as an entrepreneur and an executive in China, Vietnam, Thailand, and Indonesia.
Elizabeth Economy is the Hargrove Senior Fellow and co-director of the Program on the US, China, and the World at the Hoover Institution. From 2021-2023, she took leave from Hoover to serve as the senior advisor for China to the US Secretary of Commerce. Before joining Hoover, she was the C.V. Starr Senior Fellow and director, Asia Studies at the Council on Foreign Relations. She is the author of four books on China, including most recently The World According to China (Polity, 2021), and the co-editor of two volumes. She serves on the boards of the National Endowment for Democracy and the National Committee on US-China Relations. She is a member of the Aspen Strategy Group and Council on Foreign Relations and serves as a book reviewer for Foreign Affairs.
ABOUT THE SERIES
China Considered with Elizabeth Economy is a Hoover Institution podcast series that features in-depth conversations with leading political figures, scholars, and activists from around the world. The series explores the ideas, events, and forces shaping China’s future and its global relationships, offering high-level expertise, clear-eyed analysis, and valuable insights to demystify China’s evolving dynamics and what they may mean for ordinary citizens and key decision makers across societies, governments, and the private sector.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
>> Elizabeth Economy (00:07):
Welcome to China Considered, a podcast that brings fresh
insights and informed discussion to one ofthe most consequential issues of our time,
how China is changing andchanging the world.
I'm Liz Economy Hargrove, Senior Fellowand Co Director of the Program on us,
China and the World at the HooverInstitution at Stanford University.
Today I have with me Mike Dunne.
He's the CEO of Dunne Insights anda world-class expert on all things auto.
(00:31):
In particular, he has spent more thanthree decades as a consultant and
thought leader focused on what's goingon in the US and Chinese car industries.
He has a new book coming outnext year called Car Wars.
And there's nobody better to help usunderstand the current competitive
landscape.
Welcome, Mike.
>> Michael Dunne (00:48):
So good to see you, Liz.
And I've been looking forwardto this conversation for weeks.
>> Elizabeth Economy (00:53):
Great.
So you have been involved in the Chineseauto industry in one form or
another since we were in graduateschool together in the early 1990s.
Did you ever expect the day wouldcome when China would be the largest
manufacturer andlargest car market in the world?
>> Michael Dunne (01:09):
No, China's rise to global supremacy in cars is
really nothing short of a miracle.
To be honest, what I saw the countrydo in the space of 30 years, it's like,
you know the movie Bad News Bears, LittleLeague players, and they were hopeless.
That was China when I first set foot inBeijing, Jeep's joint venture in 1990.
(01:34):
Today, they're feared by all.
They've transformed into the New YorkYankees, World Series champions,
perennial powerhouse, existentialthreat to global automakers worldwide.
Whoa, how did that happen?
That's just got everybody stunned.
>> Elizabeth Economy (01:53):
Right, and that's what you're gonna tell us.
So who's their coach?
I mean, who coached them from Bad NewsBears to the Yankees in three decades?
Is it the government?
Was it a set of really incredibleChinese entrepreneurs?
Was it the foreigncompanies who came in and
did JVs with their Chinese counterparts?
(02:14):
How did this miracle transformation occur?
>> Michael Dunne (02:18):
Yeah, so government from the very beginning plays that
central role of setting the rules andsetting the ambition.
What are our objectives?
So let me take you back just for
a moment to when I did go to thatBeijing Jeep plant in 1990, what I saw.
The manager was still sleeping on cots,taking their afternoon naps.
(02:40):
The cars were barely creepingalong the final assembly line.
There's a lot of tension betweenthe partners, Chrysler and Beijing Jeep.
Beijing officials from the city.
And I got to together witha friend of mine, Kerry Ivan,
who was the CFO at the time.
And I said,what's it like here operating this JV?
(03:00):
And he said, every day's a battle.
It's quite depressing, in fact, I asked myassistant, Ms. Jung, how are you doing?
Every morning I ask her,how are you doing, Ms. Jung?
And she always replies the same way.
Just waiting to die, Mr.Ivan, just waiting to die.
Okay, so things were the Chinese wereunhappy because they didn't have
the wherewithal to buildtheir own vehicles.
They had to import the parts from Ohio,assemble them in China.
(03:24):
Later that same day,I met the plant manager, and I said,
how do you feel about this?
You're not able to buildyour own Chinese cars.
You're relying on the US for parts.
And he said, you know what?
It's okay for now until we learnhow to do it ourselves and
kick your asses out, really.
>> Elizabeth Economy (03:42):
So even back then, they had that as a motivation.
>> Michael Dunne (03:45):
Even back then, there was that deter.
Quiet determination,like a burning ambition.
We understand we're way behind today,but we.
We know where we wanna take things.
That was then government.
Deng Xiaoping famously went and tooka visit to the United States in Japan,
in the.
When was that?
(04:05):
Gosh, 1980.
And what he came away with is wealthycountries, powerful countries,
have very strong auto industries.
We want that for ourselves.
So he came back and he told hislieutenants, hey, let's do that.
And they said, great, boss, but we don'tknow anything about building cars.
We don't have capital, we don't havethe technology, the management expertise.
(04:25):
He said, okay,you know what we need to do?
Let's form joint ventures.
Let's go out and recruit peoplefrom the West, Americans and
Germans andJapanese to come here to China.
And here are the rules.
They won't be allowedto export into China.
We'll have tariffs of 100% or more.
And if they want accessto the Chinese market,
(04:45):
they'll have to manufacture inside China.
Okay, that's interesting, we have to bringthe capital and the know how inside.
And, by the way, not only do theyhave to manufacture here, but
they have to partner with a Chinesecompany, and that Chinese company will
have at least 50% ownership inevery single one of these JVs.
Wow, okay, so on the one hand,Westerners thought, China's opening up.
(05:10):
We can get into the market.
This is awesome.
But what they failed to see was thatChina was ultimately in control.
They had the ace in the hole,they were in charge.
>> Elizabeth Economy (05:21):
So, Mike, let me interrupt you just for a second.
I mean, did they have a model forthis, or did Deng Xiaoping and
his advisors simply create this idea fora JV structure that would enable
their companies over time to absorbthe technology and the knowledge and
everything else they would need tobecome their own dominant player?
(05:43):
Or was there someone else who haddone this before in this way?
>> Michael Dunne (05:46):
You're absolutely right.
They looked at Japan,they looked at Korea, and the Japanese and
Koreans had formed joint ventureswith Americans primarily and had
successfully learned what they needed tolearn until they could stand on their own.
So there was precedent for it.
The difference might be that,you know, China was insistent,
we're not going to have any imports here.
(06:07):
We're going to manufacture it ourselves,and we have to own at least 50%.
So it really put solid lines in place.
There was the precedent out of Japan andKorea.
So, yes.
So how does that play out from 1990,let's say, until 2010?
It goes spectacularly well for China andfor the global automakers entering
(06:30):
China cuz the market exploded froma few thousand cars a year to,
by 2010, they were buildingmore than 10 million a year,
surpassing the United States in termsof production for the first time.
So I remember attending a summit at thattime and led by a guy named Wan Gang,
a very important character in China.
>> Elizabeth Economy (06:50):
I've met him myself,
I remember Head of the Ministry of Scienceand Technology, former auto guy, right?
>> Michael Dunne (06:55):
Right. >> Elizabeth Economy
So it's in Beijing and he's up in front, he goes,
I have some great news that I have somedisappointing news on the great news side,
we're now the number one manufacturerof vehicles in the world.
We're the biggest market in the world.
We're number one.
This joint venture strategy,actually, we got the capital and
(07:16):
the know how here, he said.
On the other hand, there's two thingsthat I'm really frustrated about.
One is, if you look out in the streets ofShanghai or Guangzhou or Beijing, almost
all those cars are still foreign makes,Mercedes and Hyundai and Toyota and Buick.
Where are the Chinese cars?
Yeah, 20 years later, we're stillnot making a car to call our own.
(07:38):
That was one big frustration.
The second one was, hey, by the way,
we're now the largestimporter of oil in the world.
We're becoming increasingly dependenton oil from the Middle East.
We don't wanna find ourselves in the samekind of quagmire that the United States
has found itself in.
So how do we move off this joint venturearrangement to something bigger?
(07:59):
Bigger, yeah?
And so in 2010,we begin to see the seeds planted for,
let's move to electric vehicles.
>> Elizabeth Economy (08:11):
Now.
>> Michael Dunne (08:13):
Of course, they looked across the ocean,
they saw a guy named Elon Musk with Tesla,and, there's some possibility here.
Maybe technology's ready.
So what do they do next?
Do you know the answer?
>> Elizabeth Economy (08:28):
I don't know, did they invite Tesla?
I actually think, though, I seem toremember the story begins a little bit
earlier than 2010 for EVs, right?
I mean, I think they startedthinking about new energy
vehicles as early as the late 1990s.
>> Michael Dunne (08:43):
You're exactly right.
>> Elizabeth Economy (08:44):
They just couldn't get anywhere, right?
And then I do kind of know the story ofthe EVs cuz I looked into it when I was
writing one of my earlier books.
So I know it was a big messof government investment and
local government investment anda lot of other stuff that took place.
But let's hear it from you,cuz I think the world went into collective
(09:05):
shock in 2023 afterthe Shanghai Auto Show, right?
>> Michael Dunne (09:09):
Yeah, totally.
>> Elizabeth Economy (09:10):
It was like, my God,
where did all these Chinese EVsthat are nice to look at,
that are technologically excellent andrun well?
Where did they all come from?
They just did this overnight,but it wasn't overnight.
Okay, so tell us->> Michael Dunne: Seemingly overnight.
Tell us the story was not overnight.
>> Michael Dunne (09:30):
No, you're absolutely right.
Let's go back,2000 Wan Gang comes back from Germany and
he delivers this white paper, the strategypaper, we should actually go electric.
He knew then, 2000.
And then a few years later, Wang Chuanfu,the founder of BYD, battery maker for
cell phones, announced to his board, we'regoing into electric vehicles, that's 2003.
(09:52):
His board says, you're out of your mind.
We won't be competitive.
It's capital intensive.
We don't know anything about cars.
Yes, we're going into cars evenbefore they had wherewithal to build
the batteries to power the car.
So he bought a car company andhe bought Mitsubishi engines for
that car company as a stopcap until he was okay.
>> Elizabeth Economy (10:11):
Yep. >> Michael Dunne
fast forward back to 2010 andwe're gonna get to today pretty quickly.
But in the first few years, what they didis they went to the foreign investors like
GM and Toyota and others and said, we'regoing electric and you need to form new
joint ventures, transfer your electrictechnology, and we'll be off and running.
And the global automaker said,yeah, no, we'll sign up for it, but
(10:35):
nothing's gonna happen.
So for the next five years,there's a lot of wheel spin.
Not much happened untilmade in China 2025,
Xi Jinping gets togetherwith lieutenants and
says, how do we really win the futuretechnologies around EVs and batteries?
We're going to have to do this ourselves.
And they put to it tens of billions bysome measures, hundreds of billions
(10:56):
of capital into charging systems,into batteries and battery supply chains.
And we will have our own brands andwe'll have our own technology.
So that was the beginning of it.
It's kind of like Deng Xiaoping's thingabout crossing the river by feeling
the tone.
Feeling the stones, yes.
>> Michael Dunne (11:16):
That miracle that we've seen has never been a straight line.
So for the next several years,there's a lot of corruption, fraud.
Do customers really want EVs?
Not really,
the manufacturers aren't excited to buildthem cuz they can't make money on them.
The government's pouring billions into it.
It's a lot of question marks,how do we actually get-
>> Elizabeth Economy (11:36):
Absolutely.
>> Michael Dunne (11:37):
Yeah, and as recently as 2019 2019, I met with the CEOs of Chinese
automakers saying,electrics I'm not sure they're the future.
Enter Tesla.
The Chinese government officials hadbeen making visits to California to
talk to the Air Resources Board here,UC Davis, people at UC Davis and Tesla,
(12:01):
and they saw, Tesla's got tractionhere in the us how did that happen?
What if we invited Teslato come into China?
That's exactly what they did.
Starting in 2020,the miracle begins in 2020 when
Tesla begins manufacturingthe Model 3 in Shanghai.
I saw that the customers inChina's perceptions of what
(12:25):
an electric vehicle couldbe completely changed.
In China, where it's all likea school of fish are going here and
then they go, everybody's going there now.
And right out of the gates,red hot demand for Tesla.
And suddenly electrics went from,do we have to do this to wow, I can't get
(12:48):
wait to get my hands on a Tesla or someother cool new brands that are Chinese.
>> Elizabeth Economy (12:53):
Right. >> Michael Dunne
And then we went into Covid Liz,as you said, and everybody kind of okay,
something's going over there in China.
But we didn't really track itclosely until 2023, as you say.
Shanghai Auto show reopens to the west andit's a complete and
utter shock to all the executivesvisiting saying it
(13:16):
used to be the globalbrands took center stage.
Now it's the Chinese brandsthat they've got product,
they've got good lookingquality products at low cost.
How did this transformation happen soquickly?
But it had been building for years and
what ignited demand wasthe presence of Tesla.
(13:38):
It's so interesting, honestly I hadn't realized it.
I do remember that in Shanghai andBeijing that they were
giving advantages like incentivesto people to get electric
cars by making the licenseplates contingent, right?
So there a huge demand for license platesto be able to have a car in Shanghai and
(13:59):
Beijing cuz of the traffic,they didn't want more cars.
But if you had an electric car, right, youcould get a license plate in Shanghai or
Beijing.
So I think there probably were some other
smaller incentives thatthe local governments and
maybe the central government wereputting in place to try to help.
But I take your point on Tesla and Tesla'sa nice looking car, it's got a great ride
(14:24):
and I'm sure that that also helped to sortof change the perception of the Chinese.
>> Michael Dunne (14:30):
Change of perception, you're absolutely right.
Those incentives at the local level inShanghai you got a free license plate
instead of paying 10,000.
Those were in place, but they weregetting expensive for the government.
And then the transformative effect ofTesla wasn't just that it was another
electric car, but it was what wecall a software defined vehicle with
that big center stack screen that allowsTesla to update your car over the air
(14:53):
just like you have updates on your phone.
And this was mind blowing foryour Chinese consumers.
So it wasn't just that itwas battery powered, but
it had all these other cool features.
And then the Chinese automakerwere able to quickly duplicate,
copy, or whatever word you wannacall it and get on that train.
>> Elizabeth Economy (15:13):
So that's the story.
And here we are today,where China now dominates, right?
The largest EV market andalso exporter of EVs globally.
And I think I read recently thatBYD surpassed Tesla as the largest
manufacturer of EVs this last year, 2024.
(15:38):
So Tesla doesn't even hold sortof reigning champ anymore.
Okay, so let me ask you onequestion about Made in China 2025.
A little bit off the topic of cars, but itoccurs to me if you look at solar panels,
you look at wind, you look at EVs,you look at batteries,
all of these also are madein China 2025 technologies.
(16:00):
There are still a lot of Made inChina 2025 technologies yet to come.
Right, we've got semiconductors,we've got new materials, we've got AI.
Should we expect that we're gonna see thissame kind of first Chinese dominance of
the market and then global dominance inall of these industries moving forward?
(16:21):
Is this what we have to look forwardto for the next three to five years?
>> Michael Dunne (16:26):
That's the not so secret master plan that's been developed in
Beijing andthey're hell bent on seeing it through.
That they would dominate all of the above,
from autonomous vehicles to AI,to chips, to batteries, to electrics.
And because I'm closest to cars,it's just we're ten years and
(16:47):
10x behind China when itcomes to electric cars.
They build 10 million a year,we build a million.
They utterly control the batterysupply chains from mining,
to processing, to cell manufacturing,accounting for 70% of,
so, yes, this is the first of manyindustries that China's targeted.
(17:07):
Yes.
>> Elizabeth Economy (17:08):
So what are American car companies,
what are European car companies?
What are they doing at thispoint to try to compete and
are they doing things differently?
I had Jord Butka on podcasta couple of months ago and
he seemed to suggest that the Europeansare adopting a very different
model in terms of thinking abouthow to compete with China.
(17:33):
Much more learning from China and
integrating China intothe European car manufacturing.
So how do you see thiscompetition evolving?
And if we're 10x behind,is there any chance of catching up?
>> Michael Dunne (17:48):
So you're absolutely right,
Europe has taken a different tack fordifferent reasons.
They engage with the Chinese.
So Volkswagen has invested in Xpeng,an electric startup.
Stellantis has invested in Leap Motor,there's a lot of talk with Mercedes trying
to cooperate and do more R&D in China,just as Jorg puts it.
(18:09):
It's like he calls it the fitness gym.
And the Europeans, the Germans inparticular, think we really need to stay
engaged with China and allow them to cometo Europe in order to remain competitive.
So for better or for worse,that's Europe's tack right now.
On the other hand, here inthe United States, we've taken a very,
(18:30):
let's call it timeout, defensive measure,we need tariffs in place.
We don't want any Chinesecompetition in our home market.
That could be the beginning of the end.
So we have these 100% tariffs.
Wait a second, what's today, maybe 240.
>> Elizabeth Economy (18:44):
More, we got more now.
[LAUGH]>> Michael Dunne: Right.
Yes. >> Michael Dunne
145% tariff, yeah.
>> Michael Dunne (18:50):
Yeah, we're really hard lying in the sense that we're
not ready for andwe don't want Chinese competition.
So if you look at the map, the world is interms you mentioned China is the number
one exporter of vehicles globally,surpassing Japan and Germany.
They export to virtually every market inthe world except for the United States and
Canada.
So the US, has said we need to buy time.
(19:13):
Now the question is, how do we becomeonce more globally competitive?
Because the reality is the Detroit Threeare very good at making big pickup
trucks and SUVs.
But step outside of the United States,Southeast Asia, Africa, South America,
we're not competitive anymore.
And that's a huge,huge problem for our industry.
(19:34):
Tesla's the exception, and they'rethe hope, they're competitive globally.
>> Elizabeth Economy (19:39):
They're expensive,
right, compared to whatthe Chinese can produce?
>> Michael Dunne (19:43):
Yes.
The Chinese are able to manufacture EVsat about 25% lower cost than most other
automakers in the world, and they're doingit higher and higher levels of quality.
So it's real when the CEOof Ford Motor Company,
Jim Farley, says it's the nextessential threat, he's not kidding.
Yeah.>> Elizabeth Economy: So
(20:03):
what are we doing aside fromputting the tariffs [LAUGH]
time out looking around the room,okay, what do we do now?
[CROSSTALK] We found ourselves in space,in our market of 400 million people.
Yes. >> Elizabeth Economy
what's the game plan here?
Game plan.
Under the Biden administration,very important moves were put in
(20:27):
place to encourage investmentin our own battery belt.
And in fact, it was quite successful.
Over $100 billion were invested acrossthe southeast United States up into Ohio,
Michigan.
That's big money, that's probablythe biggest industrial investment
the United States hasseen in a generation.
>> Elizabeth Economy (20:45):
And this was private money, public money, I mean,
government money mix.
What was the breakdown here?
>> Michael Dunne (20:51):
There were in the IRA, there were incentives for
manufacturers to invest.
They would get tax breaks andother things, but
it was largely predominantlyprivate money,
joint ventures between,for example, GM, Ford,
Stellantis, Toyota andpartners from Japan and Korea.
(21:12):
So this was a good news, that's huge.
The tougher news is thatwe need demand for EVs.
And just like China struggled with demand,United States finds itself,
well, the average consumerdoesn't really love EVs yet.
Maybe on the coast, maybe some Teslas, but
we don't have the number of offeringsat the right price points to really
(21:36):
generate that demand that any investorin the battery facilities would need.
I'm building batteries,this is great, who's buying them?
And that's where we are todayunder the current administration,
Trump administration, it looks like we'removing away from incentives to buy EVs and
we're stuck at about a millioncars a year that are EVs.
(21:58):
This is a big hurdle for us to clear.
How do we generate demand for EVs, so thatwe can incentivize investment in battery
and battery supply chains, criticalminerals processing and all the rest.
That's where we are.
We're at this juncture wherewe have to figure that out.
>> Elizabeth Economy (22:14):
Right and it seems the Trump administration,
in addition to eliminating,I think there were some subsidies for
people buying EVs as well thatinvolved right in the IRA.
And I think they said they werebooming flows, but I guess they're not
that interested in that sort ofclean tech space writ large, right?
I think this is not somethingthey seem to be committed to.
(22:35):
So does is that just gonna set usback another 10x in terms of our
ability to compete?
I mean, can our car companies,can those nascent battery companies,
can they continue withoutthe subsidies for consumers and
the incentives of the IRA and sowill they be able to move forward?
>> Michael Dunne (22:56):
It's looking tough right now, but
the conversation is shifting from hey,let's do this because it's good for
the environment to let's do this becauseit's essential for national security.
When you think about the futureof our national defense,
from submarines to nightvision to communications to
(23:19):
navigation to drones,all of these are powered by batteries.
And we need to have our own capabilitiesto produce those batteries.
And right now our cupboardis largely empty.
We're totally dependent on China.
That's really strange, it's like touse and now say, Winston Churchill,
(23:41):
1939, the Germans go, we can supplyyou with all kinds of tanks and
cars, whatever you like, you choose.
And we're going, no, butwe should be making our own.
>> Elizabeth Economy (23:51):
[LAUGH].
>> Michael Dunne (23:53):
Right?
>> Elizabeth Economy (23:54):
Okay, that's a really frightening analogy,
Mike, but okay.
>> Michael Dunne (23:56):
That's who I think in a way, if we're really being honest.
That's how vulnerable we are.
The Churchill went in there andhe saw we don't have the capability.
We gotta get our capabilities up.
And that's where the US istoday with regards to we.
Even if you don't like EVs, we need thosebatteries, critical minerals batteries and
(24:18):
those capabilities tosupport our national defense.
>> Elizabeth Economy (24:22):
So in the interim where we don't have batteries and
we're not making our own andwe're reliant on China.
I know there was a lot of discussionin the last administration and
I'm not sure there was any real resolutionabout whether or not we ought to
welcome investment from CATL,which is major Chinese battery maker.
(24:43):
I think has about a thirdof the global market share.
And they were interested, I think, inbuilding companies doing a joint venture
in the United States ina couple different places.
And I think a couple of governorsinitially welcomed the idea.
Then there's a lot of sort ofpolitical consternation around this.
Where do you stand on whether weshould welcome CATL to come in and
(25:06):
if we do welcome them, what kind ofrestrictions or what kind of regulations
should we be putting on them in termsof what do they need to do here?
Do they need to transfer their technology?
Do they need to set up an R&D facility?
All the kinds of things that China madeUS companies do when they went in.
Is that the answer or is it better justto keep them out for the time being?
(25:30):
Because once they're in, they're justgonna end up dominating the market here.
>> Michael Dunne (25:36):
Can we go to the next question?
[LAUGH] That's a great question,goes right to the heart of the matter.
So kind of an easy solution,short term is let's bring them in and
try to duplicate what China did and say,hey, you're here to build, operate,
and transfer within ten years.
You'll have a ten year run,will you make a lot of money,
after ten years we must have the Americanequivalent of what you do, CATL.
(26:00):
That's the goal, everybody understand?
So that looks tempting, butit would require enormous,
what do you call it,tenacity by the American partner to
actually wrest that technology away andstand on its own.
So I'm not sure that would happen.
And then I go to okay, your second option.
(26:21):
Keep them out maybe because ultimately wehave to figure this thing out ourselves.
Let's not use a crutch,let's face reality.
We're way behind.
And the Chinese themselves tried towrest the internal combustion engine
technology from the foreigners fordecades and it didn't work.
So it's not a perfect analogy, but
(26:41):
the point is that we need tobe able to stand on our own.
We were the original inventors of lithiumion batteries, you have the capacity here,
I'm not sure bringing CATL,what does that actually do for
us as opposed to what benefitsit generates for CATL?
On balance, I'd prefer us to work withother partners to get the job done.
>> Elizabeth Economy (27:06):
And other partners would be the South Koreans and
the Japanese,who also have battery technology or
other partners, meaning our owncompanies here in the United States.
And we just need to get moving.
>> Michael Dunne (27:17):
Japanese and Koreans, Koreans in particular,
very strong in this area.
They're not as strong as the Chinesein this chemistry called LFP,
but that can be solved.
And then in the meantime,yes, we want to develop and
cultivate our own supply chains here.
So that's a lot of opportunities forstartups around the country.
(27:38):
Let's do it ourselves.
Let's not be lazy.
>> Elizabeth Economy (27:40):
Okay and
then let's take one step sort offurther down in the supply chain and
sort of all the critical mineralsthat are necessary for EVs.
China doesn't sort of dominatein the mining space entirely,
except with the exceptionmaybe of graphite.
But the processing, they certainly do.
>> Michael Dunne (28:01):
Yes.
>> Elizabeth Economy (28:02):
So where do we stand right now in this world of access to
the sort of critical minerals that weneed for EVs and in the processing,
what's the timeframe that it would takeeither for us or for trusted allies and
partners to get up to speed sothat we're not dependent on China?
Because we can see very clearly,
(28:23):
in the midst of this tariff war thatChina has moved from licensing on
the export of things like some rareearth elements to basically a ban.
So I think we've got some big issues thatwe need to deal with and very quickly.
>> Michael Dunne (28:37):
China's shown it, shown its hand, it's ready to use that leverage,
so let's face it, let's not be naive.
Five years, I think it would takea five year plan, probably seven.
The sourcing the materialsis not the biggest issue.
There's plenty of lithiumaround the world,
including here in the United States.
(28:59):
Rare earths are actually not that rare.
>> Elizabeth Economy (29:01):
Rare, right.
>> Michael Dunne (29:02):
We can find the rare earth materials,
so that's not a showstopper.
Just as you said,the choke point is processing.
So virtually every battery,sooner or later,
all roads lead to China for processing.
How do we get more processing here,we would need to relax regulations
around processing because it's notthe cleanest business in the world.
(29:27):
And then secondly,back to our earlier discussion.
We need the demand for EVs to justifythe investment in processing here.
Otherwise, we've got beautiful processingplants and battery plants, but
without a customer,it's really hard to scale everything up.
Yeah.>> Elizabeth Economy: So that
sounds a little problematic to me,given the current administration.
(29:49):
It's does.
>> Elizabeth Economy (29:49):
Not clear to me that they're gonna do anything to enable
that demand to sort of drive production.
>> Michael Dunne (29:58):
Unless you definitely agree, Liz.
Unfortunately, that's where we are today.
Unless you really start tothink ambitiously and say,
let's reinvent the American auto industryand take it to where it's globally
competitive because there's gonna bedemand for electric vehicles globally.
>> Elizabeth Economy (30:17):
Exactly. >> Michael Dunne
let's get started there.
Let's win in South America, let's winin Southeast Asia, let's win in Europe.
And then the US will come along and
electrics will become more acceptableas charging improves all the rest.
But don't just stop and say, well, wedon't have it here at home, so we're out.
I have to say that' the one puzzling thing I think right
(30:39):
now is just not seeing,even forgetting just about EVs, but
the entire space of clean tech and
clean energy as just an incredibleglobal sort of growth story.
And how we don't want to enableour companies to be not only
competitive to be, butto be best in class and
why we're not putting in sort ofthe enabling features to accomplish that.
(31:05):
I wonder whether there's anyone in thegovernment who's right now who's thinking
in those terms.
I don't know if you've had anyconversations with people that
are currently in the Trump administrationor whether you have a sense for,
a direction where some mightbe pushing in this direction.
>> Michael Dunne (31:22):
Some are, I was in D.C last week at a very important summit
called Safe Summit 2025 thatsecuring America's Future Energy.
A lot of bright people werethere talking about how
we become globally competitive again.
So there are voices,I think the United States
has to get out of its comfortzone of complacency here at home.
(31:43):
So if we take the Detroit Three, forexample, the CEOs of Ford, GM and
Stellantis, they make $30 milliona year by delivering big trucks and
SUVs here in North America,where all the profits are made.
Hey, that's great for them.
I'm looking for a leadership that says wewant to be globally competitive again,
(32:05):
and that's the ingredient we'relooking for to get there.
Right now, the Trump administrationis probably leaning,
hoping for the reincarnation of the 1950s.
>> Elizabeth Economy (32:17):
Right. >> Michael Dunne
In just about every
industry, it seems, maybe.
I don't know.
There are a lot of smartpeople in the administration.
I'm just not quite sure how they'vegot AI, big investments in AI and
talking about that, they've gotsemiconductors, I know on their mind.
But the rest of the innovation field andsort of global leadership,
(32:41):
I haven't heard much coming from them yet.
>> Michael Dunne (32:44):
Does Elon Musk, is he part of the administration or not?
Or he's on the side.
He could be a force.
In particular, just this last week,he said two things.
One is we should have zerotariff relationship with Europe,
which I thought was highly significant forhim, the timing of that.
The second one, he said the factoryis the product of the future.
(33:06):
So he's less focused onthe cars that he makes and
more focused on how does Americabecome the best in manufacturing.
What's implied is as good orbetter than China.
So he has great innovative capabilities,of course.
And we do have that guy on our team.
He's in America,he's building Tesla electric cars.
>> Elizabeth Economy (33:25):
Okay, let's move him out of DOGE and into the innovation space,
how about that?
>> Michael Dunne (33:30):
Yes, perfect.
>> Elizabeth Economy (33:31):
I think, we could probably both agree that his time and
energy and intellect could be very welldeployed in thinking about America's
future innovation strategy.
>> Michael Dunne (33:40):
Absolutely.
>> Elizabeth Economy (33:41):
So let's see if we can't get him to be Mr.
Innovation instead of Mr.Government Efficiency.
Okay and I'm gonna come to what,honestly, though,
listening to you, I'm thinking to myself,
what we really need then is for Mike Dunneto move out of the consulting and
writing business and into the bigthree car maker leader, CEO business.
(34:04):
[LAUGH] Maybe we can find a wayto facilitate that, okay.
>> Michael Dunne (34:09):
What did Mao say?
A revolution's not a tea party.
So the tea party inMichigan would be over.
Would be over.
It's time to break some eggs anddo all that.
>> Elizabeth Economy (34:21):
Yeah, break some eggs, break some glass,
break some China for your tea party.
Okay, all right,last final questions that I ask everybody.
So quick answers.
>> Michael Dunne (34:30):
Yes.
>> Elizabeth Economy (34:30):
What book or article would you recommend on China?
Would you recommend that people read,what's top of mind for you right now?
>> Michael Dunne (34:39):
So many good ones out there.
I would go first of all to,
To Change China by Jonathan Spence.
>> Elizabeth Economy (34:50):
Okay. >> Michael Dunne
he tracks the lives of some overthe last several hundred years.
Really talented Westerners,scientists, politicians,
artists who go to China with really bigambitions to make it a better place.
They're still looking forone of them that might be successful.
So check that out, really good book.
(35:10):
Sounds like a good starting point for anybody, okay.
>> Michael Dunne (35:13):
Okay, so if you're going that way.
>> Elizabeth Economy (35:14):
All right.
>> Michael Dunne (35:15):
Second book, I know we're moving fast here, Liz.
It was published in 2021,The World According to China.
>> Elizabeth Economy (35:22):
All right, Mike.
>> Michael Dunne (35:24):
Yes. >> Elizabeth Economy
And absolutely, why?
>> Elizabeth Economy (35:26):
No, no, no.
>> Michael Dunne (35:27):
Yes, by Elizabeth Economy, why?
Because up until very recently,
figuring out China was How toChange China, Jonathan Spence's book.
Now China's coming at us and it wantsto write the rules and be in charge.
We shouldn't have anyillusions about that and
we're very lucky to have yourbook to point that out to us.
(35:49):
Hey, read Liz's book.
It's right on target.
It's so important andgetting more important by year.
>> Elizabeth Economy (35:56):
Okay, thank you for that unpaid advertisement [LAUGH].
All right, what issue do you thinkwe don't understand about China?
What do we not know enoughabout when it comes to China?
I mean, the universe is vast, I'm sure.
But what really importantissue do you think?
>> Michael Dunne (36:19):
I think that there's an asymmetry.
The Chinese know way more about usthan we know about the Chinese but
people have talked about that before.
I think the more important one,the one that comes to mind,
is Lu Xun's writings 100 years ago.
He wrote, Chinese people seeforeigners either as gods or
(36:39):
barbarians and never as equals.
In my experience, living in China,that has been so true.
So my first year in China in 1986, I'dwalk up to the post office, get in line.
There's a Laowai here,get him to the front of the line.
No lines for them.
My most recent visit to China, 10 Cent.
(37:02):
Yeah, okay, what do you guys got?
You got something?
Cuz we're busy, and almost verging on,
I wouldn't say disdain,but sort of ambivalence.
We're kind of toleratingyou guys at this point.
So why is that important?
Because we like to thinkthat China is becoming.
(37:24):
We're all equals and we're all gonna meet,common ground, but maybe not.
Maybe we have to understandwhere they're coming from.
>> Elizabeth Economy (37:31):
No, I mean, I think that is an incredible insight and
demonstrates a really precipitous fall,frankly for Americans.
And I think actually a reallyimportant insight for
the current administration,which I'm not sure appreciates
the way that China may be lookingat the United States today,
(37:51):
may be radically different from the waythat they think that power balance is.
All right and what about President Trump?
You've offered lots of interestingpieces of advice and thoughts about what
the US should be doing differently,what we could be doing differently.
But if you were sitting right nextto President Trump and had him for
(38:13):
a minute and you wanted to say this iswhat we have to do now, one, two, three.
What would that advice look like?
>> Michael Dunne (38:23):
First off, I don't mind the tariffs.
I don't mind them.
>> Elizabeth Economy (38:26):
Okay. >> Michael Dunne
to buy some time.
And if you look at the most successfulauto industries around the world, Germany,
Korea, Japan, China, they're allheavily protected through tariffs and
non tariff barriers to consolidate powerat home and then become an export machine.
So the tariffs are probably an essential.
(38:47):
No one likes tariffs, cuz they add costs.
May be required, protect the home market.
Then second and harder part is,let's get globally competitive.
Let's pick an area,South America or Southeast Asia.
We're going to dominate thoseauto markets in the future.
That's where the growth will be.
Let's be first in those markets.
(39:09):
And that means designing engineering,developing products that are competitive
globally, not just herein the United States.
That would be the advice, simple.
Okay, smart, okay.
I take it and I think he'd like to hearthat part on the tariffs because all he's
getting is a lot of push back.
>> Michael Dunne (39:24):
That's my strategy, yeah, tariffs.
>> Elizabeth Economy (39:25):
I think that'd be a good way to get him to listen to you.
>> Michael Dunne (39:28):
Awesome, genius.
>> Elizabeth Economy (39:30):
Maybe you can write that up, actually, maybe start with that.
It's not a bad idea.
All right, last question.
What do you think is the likelihoodof sort of Nixon Mao
moment between President Trump andPresident Xi?
One to ten, how likely are weto see a real breakthrough
in the US-China relationshipin the next couple of years?
>> Michael Dunne (39:54):
One to ten, I'd go a negative two.
>> Elizabeth Economy (39:57):
Okay then, [LAUGH].
>> Michael Dunne (39:58):
Yeah, I just don't see them coming together.
I think they both wannabe the guy in charge.
>> Elizabeth Economy (40:05):
Yeah.
>> Michael Dunne (40:06):
Uh-huh.
>> Elizabeth Economy (40:08):
Okay, on that not terribly optimistic note,
let me thank you fortaking the time to speak with me.
I mean, always engaging,always insightful.
Really, you are best in class [LAUGH].
So really appreciate your taking the time,Mike, and
hope that the administration doeslisten to what you have to say.
(40:31):
Because I think it's reallyimportant that we get this right.
And this is, I think,the inflection point.
And if we don't get it right now, we maybe out of the game for decades to come.
So thanks very much for coming.
And if you enjoyed this podcast andwant to hear more reasoned discourse and
debate on China, I encourage youto subscribe to China Considered
(40:53):
via The Hoover Institution YouTube channelor podcast platform of your choice.
[MUSIC]
Welcome to China Considered, a podcast that brings fresh
insights and informed discussion to one ofthe most consequential issues of our time,
how China is changing andchanging the world.
I'm Liz Economy Hargrove, Senior Fellowand Co Director of the Program on us,
China and the World at the HooverInstitution at Stanford University.
Today I have with me Mike Dunne.
He's the CEO of Dunne Insights anda world-class expert on all things auto.
(00:31):
In particular, he has spent more thanthree decades as a consultant and
thought leader focused on what's goingon in the US and Chinese car industries.
He has a new book coming outnext year called Car Wars.
And there's nobody better to help usunderstand the current competitive
landscape.
Welcome, Mike.
>> Michael Dunne (00:48):
So good to see you, Liz.
And I've been looking forwardto this conversation for weeks.
>> Elizabeth Economy (00:53):
Great.
So you have been involved in the Chineseauto industry in one form or
another since we were in graduateschool together in the early 1990s.
Did you ever expect the day wouldcome when China would be the largest
manufacturer andlargest car market in the world?
>> Michael Dunne (01:09):
No, China's rise to global supremacy in cars is
really nothing short of a miracle.
To be honest, what I saw the countrydo in the space of 30 years, it's like,
you know the movie Bad News Bears, LittleLeague players, and they were hopeless.
That was China when I first set foot inBeijing, Jeep's joint venture in 1990.
(01:34):
Today, they're feared by all.
They've transformed into the New YorkYankees, World Series champions,
perennial powerhouse, existentialthreat to global automakers worldwide.
Whoa, how did that happen?
That's just got everybody stunned.
>> Elizabeth Economy (01:53):
Right, and that's what you're gonna tell us.
So who's their coach?
I mean, who coached them from Bad NewsBears to the Yankees in three decades?
Is it the government?
Was it a set of really incredibleChinese entrepreneurs?
Was it the foreigncompanies who came in and
did JVs with their Chinese counterparts?
(02:14):
How did this miracle transformation occur?
>> Michael Dunne (02:18):
Yeah, so government from the very beginning plays that
central role of setting the rules andsetting the ambition.
What are our objectives?
So let me take you back just for
a moment to when I did go to thatBeijing Jeep plant in 1990, what I saw.
The manager was still sleeping on cots,taking their afternoon naps.
(02:40):
The cars were barely creepingalong the final assembly line.
There's a lot of tension betweenthe partners, Chrysler and Beijing Jeep.
Beijing officials from the city.
And I got to together witha friend of mine, Kerry Ivan,
who was the CFO at the time.
And I said,what's it like here operating this JV?
(03:00):
And he said, every day's a battle.
It's quite depressing, in fact, I asked myassistant, Ms. Jung, how are you doing?
Every morning I ask her,how are you doing, Ms. Jung?
And she always replies the same way.
Just waiting to die, Mr.Ivan, just waiting to die.
Okay, so things were the Chinese wereunhappy because they didn't have
the wherewithal to buildtheir own vehicles.
They had to import the parts from Ohio,assemble them in China.
(03:24):
Later that same day,I met the plant manager, and I said,
how do you feel about this?
You're not able to buildyour own Chinese cars.
You're relying on the US for parts.
And he said, you know what?
It's okay for now until we learnhow to do it ourselves and
kick your asses out, really.
>> Elizabeth Economy (03:42):
So even back then, they had that as a motivation.
>> Michael Dunne (03:45):
Even back then, there was that deter.
Quiet determination,like a burning ambition.
We understand we're way behind today,but we.
We know where we wanna take things.
That was then government.
Deng Xiaoping famously went and tooka visit to the United States in Japan,
in the.
When was that?
(04:05):
Gosh, 1980.
And what he came away with is wealthycountries, powerful countries,
have very strong auto industries.
We want that for ourselves.
So he came back and he told hislieutenants, hey, let's do that.
And they said, great, boss, but we don'tknow anything about building cars.
We don't have capital, we don't havethe technology, the management expertise.
(04:25):
He said, okay,you know what we need to do?
Let's form joint ventures.
Let's go out and recruit peoplefrom the West, Americans and
Germans andJapanese to come here to China.
And here are the rules.
They won't be allowedto export into China.
We'll have tariffs of 100% or more.
And if they want accessto the Chinese market,
(04:45):
they'll have to manufacture inside China.
Okay, that's interesting, we have to bringthe capital and the know how inside.
And, by the way, not only do theyhave to manufacture here, but
they have to partner with a Chinesecompany, and that Chinese company will
have at least 50% ownership inevery single one of these JVs.
Wow, okay, so on the one hand,Westerners thought, China's opening up.
(05:10):
We can get into the market.
This is awesome.
But what they failed to see was thatChina was ultimately in control.
They had the ace in the hole,they were in charge.
>> Elizabeth Economy (05:21):
So, Mike, let me interrupt you just for a second.
I mean, did they have a model forthis, or did Deng Xiaoping and
his advisors simply create this idea fora JV structure that would enable
their companies over time to absorbthe technology and the knowledge and
everything else they would need tobecome their own dominant player?
(05:43):
Or was there someone else who haddone this before in this way?
>> Michael Dunne (05:46):
You're absolutely right.
They looked at Japan,they looked at Korea, and the Japanese and
Koreans had formed joint ventureswith Americans primarily and had
successfully learned what they needed tolearn until they could stand on their own.
So there was precedent for it.
The difference might be that,you know, China was insistent,
we're not going to have any imports here.
(06:07):
We're going to manufacture it ourselves,and we have to own at least 50%.
So it really put solid lines in place.
There was the precedent out of Japan andKorea.
So, yes.
So how does that play out from 1990,let's say, until 2010?
It goes spectacularly well for China andfor the global automakers entering
(06:30):
China cuz the market exploded froma few thousand cars a year to,
by 2010, they were buildingmore than 10 million a year,
surpassing the United States in termsof production for the first time.
So I remember attending a summit at thattime and led by a guy named Wan Gang,
a very important character in China.
>> Elizabeth Economy (06:50):
I've met him myself,
I remember Head of the Ministry of Scienceand Technology, former auto guy, right?
>> Michael Dunne (06:55):
Right. >> Elizabeth Economy
So it's in Beijing and he's up in front, he goes,
I have some great news that I have somedisappointing news on the great news side,
we're now the number one manufacturerof vehicles in the world.
We're the biggest market in the world.
We're number one.
This joint venture strategy,actually, we got the capital and
(07:16):
the know how here, he said.
On the other hand, there's two thingsthat I'm really frustrated about.
One is, if you look out in the streets ofShanghai or Guangzhou or Beijing, almost
all those cars are still foreign makes,Mercedes and Hyundai and Toyota and Buick.
Where are the Chinese cars?
Yeah, 20 years later, we're stillnot making a car to call our own.
(07:38):
That was one big frustration.
The second one was, hey, by the way,
we're now the largestimporter of oil in the world.
We're becoming increasingly dependenton oil from the Middle East.
We don't wanna find ourselves in the samekind of quagmire that the United States
has found itself in.
So how do we move off this joint venturearrangement to something bigger?
(07:59):
Bigger, yeah?
And so in 2010,we begin to see the seeds planted for,
let's move to electric vehicles.
>> Elizabeth Economy (08:11):
Now.
>> Michael Dunne (08:13):
Of course, they looked across the ocean,
they saw a guy named Elon Musk with Tesla,and, there's some possibility here.
Maybe technology's ready.
So what do they do next?
Do you know the answer?
>> Elizabeth Economy (08:28):
I don't know, did they invite Tesla?
I actually think, though, I seem toremember the story begins a little bit
earlier than 2010 for EVs, right?
I mean, I think they startedthinking about new energy
vehicles as early as the late 1990s.
>> Michael Dunne (08:43):
You're exactly right.
>> Elizabeth Economy (08:44):
They just couldn't get anywhere, right?
And then I do kind of know the story ofthe EVs cuz I looked into it when I was
writing one of my earlier books.
So I know it was a big messof government investment and
local government investment anda lot of other stuff that took place.
But let's hear it from you,cuz I think the world went into collective
(09:05):
shock in 2023 afterthe Shanghai Auto Show, right?
>> Michael Dunne (09:09):
Yeah, totally.
>> Elizabeth Economy (09:10):
It was like, my God,
where did all these Chinese EVsthat are nice to look at,
that are technologically excellent andrun well?
Where did they all come from?
They just did this overnight,but it wasn't overnight.
Okay, so tell us->> Michael Dunne: Seemingly overnight.
Tell us the story was not overnight.
>> Michael Dunne (09:30):
No, you're absolutely right.
Let's go back,2000 Wan Gang comes back from Germany and
he delivers this white paper, the strategypaper, we should actually go electric.
He knew then, 2000.
And then a few years later, Wang Chuanfu,the founder of BYD, battery maker for
cell phones, announced to his board, we'regoing into electric vehicles, that's 2003.
(09:52):
His board says, you're out of your mind.
We won't be competitive.
It's capital intensive.
We don't know anything about cars.
Yes, we're going into cars evenbefore they had wherewithal to build
the batteries to power the car.
So he bought a car company andhe bought Mitsubishi engines for
that car company as a stopcap until he was okay.
>> Elizabeth Economy (10:11):
Yep. >> Michael Dunne
fast forward back to 2010 andwe're gonna get to today pretty quickly.
But in the first few years, what they didis they went to the foreign investors like
GM and Toyota and others and said, we'regoing electric and you need to form new
joint ventures, transfer your electrictechnology, and we'll be off and running.
And the global automaker said,yeah, no, we'll sign up for it, but
(10:35):
nothing's gonna happen.
So for the next five years,there's a lot of wheel spin.
Not much happened untilmade in China 2025,
Xi Jinping gets togetherwith lieutenants and
says, how do we really win the futuretechnologies around EVs and batteries?
We're going to have to do this ourselves.
And they put to it tens of billions bysome measures, hundreds of billions
(10:56):
of capital into charging systems,into batteries and battery supply chains.
And we will have our own brands andwe'll have our own technology.
So that was the beginning of it.
It's kind of like Deng Xiaoping's thingabout crossing the river by feeling
the tone.
Feeling the stones, yes.
>> Michael Dunne (11:16):
That miracle that we've seen has never been a straight line.
So for the next several years,there's a lot of corruption, fraud.
Do customers really want EVs?
Not really,
the manufacturers aren't excited to buildthem cuz they can't make money on them.
The government's pouring billions into it.
It's a lot of question marks,how do we actually get-
>> Elizabeth Economy (11:36):
Absolutely.
>> Michael Dunne (11:37):
Yeah, and as recently as 2019 2019, I met with the CEOs of Chinese
automakers saying,electrics I'm not sure they're the future.
Enter Tesla.
The Chinese government officials hadbeen making visits to California to
talk to the Air Resources Board here,UC Davis, people at UC Davis and Tesla,
(12:01):
and they saw, Tesla's got tractionhere in the us how did that happen?
What if we invited Teslato come into China?
That's exactly what they did.
Starting in 2020,the miracle begins in 2020 when
Tesla begins manufacturingthe Model 3 in Shanghai.
I saw that the customers inChina's perceptions of what
(12:25):
an electric vehicle couldbe completely changed.
In China, where it's all likea school of fish are going here and
then they go, everybody's going there now.
And right out of the gates,red hot demand for Tesla.
And suddenly electrics went from,do we have to do this to wow, I can't get
(12:48):
wait to get my hands on a Tesla or someother cool new brands that are Chinese.
>> Elizabeth Economy (12:53):
Right. >> Michael Dunne
And then we went into Covid Liz,as you said, and everybody kind of okay,
something's going over there in China.
But we didn't really track itclosely until 2023, as you say.
Shanghai Auto show reopens to the west andit's a complete and
utter shock to all the executivesvisiting saying it
(13:16):
used to be the globalbrands took center stage.
Now it's the Chinese brandsthat they've got product,
they've got good lookingquality products at low cost.
How did this transformation happen soquickly?
But it had been building for years and
what ignited demand wasthe presence of Tesla.
(13:38):
It's so interesting, honestly I hadn't realized it.
I do remember that in Shanghai andBeijing that they were
giving advantages like incentivesto people to get electric
cars by making the licenseplates contingent, right?
So there a huge demand for license platesto be able to have a car in Shanghai and
(13:59):
Beijing cuz of the traffic,they didn't want more cars.
But if you had an electric car, right, youcould get a license plate in Shanghai or
Beijing.
So I think there probably were some other
smaller incentives thatthe local governments and
maybe the central government wereputting in place to try to help.
But I take your point on Tesla and Tesla'sa nice looking car, it's got a great ride
(14:24):
and I'm sure that that also helped to sortof change the perception of the Chinese.
>> Michael Dunne (14:30):
Change of perception, you're absolutely right.
Those incentives at the local level inShanghai you got a free license plate
instead of paying 10,000.
Those were in place, but they weregetting expensive for the government.
And then the transformative effect ofTesla wasn't just that it was another
electric car, but it was what wecall a software defined vehicle with
that big center stack screen that allowsTesla to update your car over the air
(14:53):
just like you have updates on your phone.
And this was mind blowing foryour Chinese consumers.
So it wasn't just that itwas battery powered, but
it had all these other cool features.
And then the Chinese automakerwere able to quickly duplicate,
copy, or whatever word you wannacall it and get on that train.
>> Elizabeth Economy (15:13):
So that's the story.
And here we are today,where China now dominates, right?
The largest EV market andalso exporter of EVs globally.
And I think I read recently thatBYD surpassed Tesla as the largest
manufacturer of EVs this last year, 2024.
(15:38):
So Tesla doesn't even hold sortof reigning champ anymore.
Okay, so let me ask you onequestion about Made in China 2025.
A little bit off the topic of cars, but itoccurs to me if you look at solar panels,
you look at wind, you look at EVs,you look at batteries,
all of these also are madein China 2025 technologies.
(16:00):
There are still a lot of Made inChina 2025 technologies yet to come.
Right, we've got semiconductors,we've got new materials, we've got AI.
Should we expect that we're gonna see thissame kind of first Chinese dominance of
the market and then global dominance inall of these industries moving forward?
(16:21):
Is this what we have to look forwardto for the next three to five years?
>> Michael Dunne (16:26):
That's the not so secret master plan that's been developed in
Beijing andthey're hell bent on seeing it through.
That they would dominate all of the above,
from autonomous vehicles to AI,to chips, to batteries, to electrics.
And because I'm closest to cars,it's just we're ten years and
(16:47):
10x behind China when itcomes to electric cars.
They build 10 million a year,we build a million.
They utterly control the batterysupply chains from mining,
to processing, to cell manufacturing,accounting for 70% of,
so, yes, this is the first of manyindustries that China's targeted.
(17:07):
Yes.
>> Elizabeth Economy (17:08):
So what are American car companies,
what are European car companies?
What are they doing at thispoint to try to compete and
are they doing things differently?
I had Jord Butka on podcasta couple of months ago and
he seemed to suggest that the Europeansare adopting a very different
model in terms of thinking abouthow to compete with China.
(17:33):
Much more learning from China and
integrating China intothe European car manufacturing.
So how do you see thiscompetition evolving?
And if we're 10x behind,is there any chance of catching up?
>> Michael Dunne (17:48):
So you're absolutely right,
Europe has taken a different tack fordifferent reasons.
They engage with the Chinese.
So Volkswagen has invested in Xpeng,an electric startup.
Stellantis has invested in Leap Motor,there's a lot of talk with Mercedes trying
to cooperate and do more R&D in China,just as Jorg puts it.
(18:09):
It's like he calls it the fitness gym.
And the Europeans, the Germans inparticular, think we really need to stay
engaged with China and allow them to cometo Europe in order to remain competitive.
So for better or for worse,that's Europe's tack right now.
On the other hand, here inthe United States, we've taken a very,
(18:30):
let's call it timeout, defensive measure,we need tariffs in place.
We don't want any Chinesecompetition in our home market.
That could be the beginning of the end.
So we have these 100% tariffs.
Wait a second, what's today, maybe 240.
>> Elizabeth Economy (18:44):
More, we got more now.
[LAUGH]>> Michael Dunne: Right.
Yes. >> Michael Dunne
145% tariff, yeah.
>> Michael Dunne (18:50):
Yeah, we're really hard lying in the sense that we're
not ready for andwe don't want Chinese competition.
So if you look at the map, the world is interms you mentioned China is the number
one exporter of vehicles globally,surpassing Japan and Germany.
They export to virtually every market inthe world except for the United States and
Canada.
So the US, has said we need to buy time.
(19:13):
Now the question is, how do we becomeonce more globally competitive?
Because the reality is the Detroit Threeare very good at making big pickup
trucks and SUVs.
But step outside of the United States,Southeast Asia, Africa, South America,
we're not competitive anymore.
And that's a huge,huge problem for our industry.
(19:34):
Tesla's the exception, and they'rethe hope, they're competitive globally.
>> Elizabeth Economy (19:39):
They're expensive,
right, compared to whatthe Chinese can produce?
>> Michael Dunne (19:43):
Yes.
The Chinese are able to manufacture EVsat about 25% lower cost than most other
automakers in the world, and they're doingit higher and higher levels of quality.
So it's real when the CEOof Ford Motor Company,
Jim Farley, says it's the nextessential threat, he's not kidding.
Yeah.>> Elizabeth Economy: So
(20:03):
what are we doing aside fromputting the tariffs [LAUGH]
time out looking around the room,okay, what do we do now?
[CROSSTALK] We found ourselves in space,in our market of 400 million people.
Yes. >> Elizabeth Economy
what's the game plan here?
Game plan.
Under the Biden administration,very important moves were put in
(20:27):
place to encourage investmentin our own battery belt.
And in fact, it was quite successful.
Over $100 billion were invested acrossthe southeast United States up into Ohio,
Michigan.
That's big money, that's probablythe biggest industrial investment
the United States hasseen in a generation.
>> Elizabeth Economy (20:45):
And this was private money, public money, I mean,
government money mix.
What was the breakdown here?
>> Michael Dunne (20:51):
There were in the IRA, there were incentives for
manufacturers to invest.
They would get tax breaks andother things, but
it was largely predominantlyprivate money,
joint ventures between,for example, GM, Ford,
Stellantis, Toyota andpartners from Japan and Korea.
(21:12):
So this was a good news, that's huge.
The tougher news is thatwe need demand for EVs.
And just like China struggled with demand,United States finds itself,
well, the average consumerdoesn't really love EVs yet.
Maybe on the coast, maybe some Teslas, but
we don't have the number of offeringsat the right price points to really
(21:36):
generate that demand that any investorin the battery facilities would need.
I'm building batteries,this is great, who's buying them?
And that's where we are todayunder the current administration,
Trump administration, it looks like we'removing away from incentives to buy EVs and
we're stuck at about a millioncars a year that are EVs.
(21:58):
This is a big hurdle for us to clear.
How do we generate demand for EVs, so thatwe can incentivize investment in battery
and battery supply chains, criticalminerals processing and all the rest.
That's where we are.
We're at this juncture wherewe have to figure that out.
>> Elizabeth Economy (22:14):
Right and it seems the Trump administration,
in addition to eliminating,I think there were some subsidies for
people buying EVs as well thatinvolved right in the IRA.
And I think they said they werebooming flows, but I guess they're not
that interested in that sort ofclean tech space writ large, right?
I think this is not somethingthey seem to be committed to.
(22:35):
So does is that just gonna set usback another 10x in terms of our
ability to compete?
I mean, can our car companies,can those nascent battery companies,
can they continue withoutthe subsidies for consumers and
the incentives of the IRA and sowill they be able to move forward?
>> Michael Dunne (22:56):
It's looking tough right now, but
the conversation is shifting from hey,let's do this because it's good for
the environment to let's do this becauseit's essential for national security.
When you think about the futureof our national defense,
from submarines to nightvision to communications to
(23:19):
navigation to drones,all of these are powered by batteries.
And we need to have our own capabilitiesto produce those batteries.
And right now our cupboardis largely empty.
We're totally dependent on China.
That's really strange, it's like touse and now say, Winston Churchill,
(23:41):
1939, the Germans go, we can supplyyou with all kinds of tanks and
cars, whatever you like, you choose.
And we're going, no, butwe should be making our own.
>> Elizabeth Economy (23:51):
[LAUGH].
>> Michael Dunne (23:53):
Right?
>> Elizabeth Economy (23:54):
Okay, that's a really frightening analogy,
Mike, but okay.
>> Michael Dunne (23:56):
That's who I think in a way, if we're really being honest.
That's how vulnerable we are.
The Churchill went in there andhe saw we don't have the capability.
We gotta get our capabilities up.
And that's where the US istoday with regards to we.
Even if you don't like EVs, we need thosebatteries, critical minerals batteries and
(24:18):
those capabilities tosupport our national defense.
>> Elizabeth Economy (24:22):
So in the interim where we don't have batteries and
we're not making our own andwe're reliant on China.
I know there was a lot of discussionin the last administration and
I'm not sure there was any real resolutionabout whether or not we ought to
welcome investment from CATL,which is major Chinese battery maker.
(24:43):
I think has about a thirdof the global market share.
And they were interested, I think, inbuilding companies doing a joint venture
in the United States ina couple different places.
And I think a couple of governorsinitially welcomed the idea.
Then there's a lot of sort ofpolitical consternation around this.
Where do you stand on whether weshould welcome CATL to come in and
(25:06):
if we do welcome them, what kind ofrestrictions or what kind of regulations
should we be putting on them in termsof what do they need to do here?
Do they need to transfer their technology?
Do they need to set up an R&D facility?
All the kinds of things that China madeUS companies do when they went in.
Is that the answer or is it better justto keep them out for the time being?
(25:30):
Because once they're in, they're justgonna end up dominating the market here.
>> Michael Dunne (25:36):
Can we go to the next question?
[LAUGH] That's a great question,goes right to the heart of the matter.
So kind of an easy solution,short term is let's bring them in and
try to duplicate what China did and say,hey, you're here to build, operate,
and transfer within ten years.
You'll have a ten year run,will you make a lot of money,
after ten years we must have the Americanequivalent of what you do, CATL.
(26:00):
That's the goal, everybody understand?
So that looks tempting, butit would require enormous,
what do you call it,tenacity by the American partner to
actually wrest that technology away andstand on its own.
So I'm not sure that would happen.
And then I go to okay, your second option.
(26:21):
Keep them out maybe because ultimately wehave to figure this thing out ourselves.
Let's not use a crutch,let's face reality.
We're way behind.
And the Chinese themselves tried towrest the internal combustion engine
technology from the foreigners fordecades and it didn't work.
So it's not a perfect analogy, but
(26:41):
the point is that we need tobe able to stand on our own.
We were the original inventors of lithiumion batteries, you have the capacity here,
I'm not sure bringing CATL,what does that actually do for
us as opposed to what benefitsit generates for CATL?
On balance, I'd prefer us to work withother partners to get the job done.
>> Elizabeth Economy (27:06):
And other partners would be the South Koreans and
the Japanese,who also have battery technology or
other partners, meaning our owncompanies here in the United States.
And we just need to get moving.
>> Michael Dunne (27:17):
Japanese and Koreans, Koreans in particular,
very strong in this area.
They're not as strong as the Chinesein this chemistry called LFP,
but that can be solved.
And then in the meantime,yes, we want to develop and
cultivate our own supply chains here.
So that's a lot of opportunities forstartups around the country.
(27:38):
Let's do it ourselves.
Let's not be lazy.
>> Elizabeth Economy (27:40):
Okay and
then let's take one step sort offurther down in the supply chain and
sort of all the critical mineralsthat are necessary for EVs.
China doesn't sort of dominatein the mining space entirely,
except with the exceptionmaybe of graphite.
But the processing, they certainly do.
>> Michael Dunne (28:01):
Yes.
>> Elizabeth Economy (28:02):
So where do we stand right now in this world of access to
the sort of critical minerals that weneed for EVs and in the processing,
what's the timeframe that it would takeeither for us or for trusted allies and
partners to get up to speed sothat we're not dependent on China?
Because we can see very clearly,
(28:23):
in the midst of this tariff war thatChina has moved from licensing on
the export of things like some rareearth elements to basically a ban.
So I think we've got some big issues thatwe need to deal with and very quickly.
>> Michael Dunne (28:37):
China's shown it, shown its hand, it's ready to use that leverage,
so let's face it, let's not be naive.
Five years, I think it would takea five year plan, probably seven.
The sourcing the materialsis not the biggest issue.
There's plenty of lithiumaround the world,
including here in the United States.
(28:59):
Rare earths are actually not that rare.
>> Elizabeth Economy (29:01):
Rare, right.
>> Michael Dunne (29:02):
We can find the rare earth materials,
so that's not a showstopper.
Just as you said,the choke point is processing.
So virtually every battery,sooner or later,
all roads lead to China for processing.
How do we get more processing here,we would need to relax regulations
around processing because it's notthe cleanest business in the world.
(29:27):
And then secondly,back to our earlier discussion.
We need the demand for EVs to justifythe investment in processing here.
Otherwise, we've got beautiful processingplants and battery plants, but
without a customer,it's really hard to scale everything up.
Yeah.>> Elizabeth Economy: So that
sounds a little problematic to me,given the current administration.
(29:49):
It's does.
>> Elizabeth Economy (29:49):
Not clear to me that they're gonna do anything to enable
that demand to sort of drive production.
>> Michael Dunne (29:58):
Unless you definitely agree, Liz.
Unfortunately, that's where we are today.
Unless you really start tothink ambitiously and say,
let's reinvent the American auto industryand take it to where it's globally
competitive because there's gonna bedemand for electric vehicles globally.
>> Elizabeth Economy (30:17):
Exactly. >> Michael Dunne
let's get started there.
Let's win in South America, let's winin Southeast Asia, let's win in Europe.
And then the US will come along and
electrics will become more acceptableas charging improves all the rest.
But don't just stop and say, well, wedon't have it here at home, so we're out.
I have to say that' the one puzzling thing I think right
(30:39):
now is just not seeing,even forgetting just about EVs, but
the entire space of clean tech and
clean energy as just an incredibleglobal sort of growth story.
And how we don't want to enableour companies to be not only
competitive to be, butto be best in class and
why we're not putting in sort ofthe enabling features to accomplish that.
(31:05):
I wonder whether there's anyone in thegovernment who's right now who's thinking
in those terms.
I don't know if you've had anyconversations with people that
are currently in the Trump administrationor whether you have a sense for,
a direction where some mightbe pushing in this direction.
>> Michael Dunne (31:22):
Some are, I was in D.C last week at a very important summit
called Safe Summit 2025 thatsecuring America's Future Energy.
A lot of bright people werethere talking about how
we become globally competitive again.
So there are voices,I think the United States
has to get out of its comfortzone of complacency here at home.
(31:43):
So if we take the Detroit Three, forexample, the CEOs of Ford, GM and
Stellantis, they make $30 milliona year by delivering big trucks and
SUVs here in North America,where all the profits are made.
Hey, that's great for them.
I'm looking for a leadership that says wewant to be globally competitive again,
(32:05):
and that's the ingredient we'relooking for to get there.
Right now, the Trump administrationis probably leaning,
hoping for the reincarnation of the 1950s.
>> Elizabeth Economy (32:17):
Right. >> Michael Dunne
In just about every
industry, it seems, maybe.
I don't know.
There are a lot of smartpeople in the administration.
I'm just not quite sure how they'vegot AI, big investments in AI and
talking about that, they've gotsemiconductors, I know on their mind.
But the rest of the innovation field andsort of global leadership,
(32:41):
I haven't heard much coming from them yet.
>> Michael Dunne (32:44):
Does Elon Musk, is he part of the administration or not?
Or he's on the side.
He could be a force.
In particular, just this last week,he said two things.
One is we should have zerotariff relationship with Europe,
which I thought was highly significant forhim, the timing of that.
The second one, he said the factoryis the product of the future.
(33:06):
So he's less focused onthe cars that he makes and
more focused on how does Americabecome the best in manufacturing.
What's implied is as good orbetter than China.
So he has great innovative capabilities,of course.
And we do have that guy on our team.
He's in America,he's building Tesla electric cars.
>> Elizabeth Economy (33:25):
Okay, let's move him out of DOGE and into the innovation space,
how about that?
>> Michael Dunne (33:30):
Yes, perfect.
>> Elizabeth Economy (33:31):
I think, we could probably both agree that his time and
energy and intellect could be very welldeployed in thinking about America's
future innovation strategy.
>> Michael Dunne (33:40):
Absolutely.
>> Elizabeth Economy (33:41):
So let's see if we can't get him to be Mr.
Innovation instead of Mr.Government Efficiency.
Okay and I'm gonna come to what,honestly, though,
listening to you, I'm thinking to myself,
what we really need then is for Mike Dunneto move out of the consulting and
writing business and into the bigthree car maker leader, CEO business.
(34:04):
[LAUGH] Maybe we can find a wayto facilitate that, okay.
>> Michael Dunne (34:09):
What did Mao say?
A revolution's not a tea party.
So the tea party inMichigan would be over.
Would be over.
It's time to break some eggs anddo all that.
>> Elizabeth Economy (34:21):
Yeah, break some eggs, break some glass,
break some China for your tea party.
Okay, all right,last final questions that I ask everybody.
So quick answers.
>> Michael Dunne (34:30):
Yes.
>> Elizabeth Economy (34:30):
What book or article would you recommend on China?
Would you recommend that people read,what's top of mind for you right now?
>> Michael Dunne (34:39):
So many good ones out there.
I would go first of all to,
To Change China by Jonathan Spence.
>> Elizabeth Economy (34:50):
Okay. >> Michael Dunne
he tracks the lives of some overthe last several hundred years.
Really talented Westerners,scientists, politicians,
artists who go to China with really bigambitions to make it a better place.
They're still looking forone of them that might be successful.
So check that out, really good book.
(35:10):
Sounds like a good starting point for anybody, okay.
>> Michael Dunne (35:13):
Okay, so if you're going that way.
>> Elizabeth Economy (35:14):
All right.
>> Michael Dunne (35:15):
Second book, I know we're moving fast here, Liz.
It was published in 2021,The World According to China.
>> Elizabeth Economy (35:22):
All right, Mike.
>> Michael Dunne (35:24):
Yes. >> Elizabeth Economy
And absolutely, why?
>> Elizabeth Economy (35:26):
No, no, no.
>> Michael Dunne (35:27):
Yes, by Elizabeth Economy, why?
Because up until very recently,
figuring out China was How toChange China, Jonathan Spence's book.
Now China's coming at us and it wantsto write the rules and be in charge.
We shouldn't have anyillusions about that and
we're very lucky to have yourbook to point that out to us.
(35:49):
Hey, read Liz's book.
It's right on target.
It's so important andgetting more important by year.
>> Elizabeth Economy (35:56):
Okay, thank you for that unpaid advertisement [LAUGH].
All right, what issue do you thinkwe don't understand about China?
What do we not know enoughabout when it comes to China?
I mean, the universe is vast, I'm sure.
But what really importantissue do you think?
>> Michael Dunne (36:19):
I think that there's an asymmetry.
The Chinese know way more about usthan we know about the Chinese but
people have talked about that before.
I think the more important one,the one that comes to mind,
is Lu Xun's writings 100 years ago.
He wrote, Chinese people seeforeigners either as gods or
(36:39):
barbarians and never as equals.
In my experience, living in China,that has been so true.
So my first year in China in 1986, I'dwalk up to the post office, get in line.
There's a Laowai here,get him to the front of the line.
No lines for them.
My most recent visit to China, 10 Cent.
(37:02):
Yeah, okay, what do you guys got?
You got something?
Cuz we're busy, and almost verging on,
I wouldn't say disdain,but sort of ambivalence.
We're kind of toleratingyou guys at this point.
So why is that important?
Because we like to thinkthat China is becoming.
(37:24):
We're all equals and we're all gonna meet,common ground, but maybe not.
Maybe we have to understandwhere they're coming from.
>> Elizabeth Economy (37:31):
No, I mean, I think that is an incredible insight and
demonstrates a really precipitous fall,frankly for Americans.
And I think actually a reallyimportant insight for
the current administration,which I'm not sure appreciates
the way that China may be lookingat the United States today,
(37:51):
may be radically different from the waythat they think that power balance is.
All right and what about President Trump?
You've offered lots of interestingpieces of advice and thoughts about what
the US should be doing differently,what we could be doing differently.
But if you were sitting right nextto President Trump and had him for
(38:13):
a minute and you wanted to say this iswhat we have to do now, one, two, three.
What would that advice look like?
>> Michael Dunne (38:23):
First off, I don't mind the tariffs.
I don't mind them.
>> Elizabeth Economy (38:26):
Okay. >> Michael Dunne
to buy some time.
And if you look at the most successfulauto industries around the world, Germany,
Korea, Japan, China, they're allheavily protected through tariffs and
non tariff barriers to consolidate powerat home and then become an export machine.
So the tariffs are probably an essential.
(38:47):
No one likes tariffs, cuz they add costs.
May be required, protect the home market.
Then second and harder part is,let's get globally competitive.
Let's pick an area,South America or Southeast Asia.
We're going to dominate thoseauto markets in the future.
That's where the growth will be.
Let's be first in those markets.
(39:09):
And that means designing engineering,developing products that are competitive
globally, not just herein the United States.
That would be the advice, simple.
Okay, smart, okay.
I take it and I think he'd like to hearthat part on the tariffs because all he's
getting is a lot of push back.
>> Michael Dunne (39:24):
That's my strategy, yeah, tariffs.
>> Elizabeth Economy (39:25):
I think that'd be a good way to get him to listen to you.
>> Michael Dunne (39:28):
Awesome, genius.
>> Elizabeth Economy (39:30):
Maybe you can write that up, actually, maybe start with that.
It's not a bad idea.
All right, last question.
What do you think is the likelihoodof sort of Nixon Mao
moment between President Trump andPresident Xi?
One to ten, how likely are weto see a real breakthrough
in the US-China relationshipin the next couple of years?
>> Michael Dunne (39:54):
One to ten, I'd go a negative two.
>> Elizabeth Economy (39:57):
Okay then, [LAUGH].
>> Michael Dunne (39:58):
Yeah, I just don't see them coming together.
I think they both wannabe the guy in charge.
>> Elizabeth Economy (40:05):
Yeah.
>> Michael Dunne (40:06):
Uh-huh.
>> Elizabeth Economy (40:08):
Okay, on that not terribly optimistic note,
let me thank you fortaking the time to speak with me.
I mean, always engaging,always insightful.
Really, you are best in class [LAUGH].
So really appreciate your taking the time,Mike, and
hope that the administration doeslisten to what you have to say.
(40:31):
Because I think it's reallyimportant that we get this right.
And this is, I think,the inflection point.
And if we don't get it right now, we maybe out of the game for decades to come.
So thanks very much for coming.
And if you enjoyed this podcast andwant to hear more reasoned discourse and
debate on China, I encourage youto subscribe to China Considered
(40:53):
via The Hoover Institution YouTube channelor podcast platform of your choice.
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