It is hard for Americans to imagine not being No. 1. The US has been the leading industrial, economic and military power since the end of WWII. But now America confronts a challenger that appears to be bigger, faster and more ambitious. That challenger is China. The PRC now manufactures one third of the world's cars, sixty percent of EVs, seventy percent of batteries and utterly dominates battery supply chains. How did Chinese companies get so powerful so quickly? What can America and the West learn from China's rapid ascendancy? And what can we do to compete going forward? Joining me today on the Driving wWith Dunne podcast is Kyle Chan, author of the widely read and highly respected newsletter, High Capacity. Kyle reveals China's secret superpowers – many of which might appear surprisingly ordinary. But they're not.
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:02):
Where top executives and crazy entrepreneurs gathered to talk about
the future of electric vehicles. This is Driving with Done podcast.
Speaker 2 (00:12):
Hello and welcome to the Driving with Done podcast. I
am your host, Michael Dunn. It is hard for Americans
to imagine not being number one. The US, after all,
has been the leading industrial, economic, and military power ever
since the end of World War Two. But now America
confronts a challenger that appears to be bigger, faster, and
(00:36):
more ambitious. And that challenger is China. The PRC Now
manufacturers get this, one third of the world's cars, sixty
percent of its evs, seventy percent of its batteries, and
it utterly dominates the supply chains that feed those batteries. Furthermore,
China is no longer staying home. It's the number one
(00:57):
exporter of vehicles to markets worldwide, blowing past former champions
Germany and Japan. So how did the Chinese companies get
so powerful so quickly? And what can America and the
West learn from China's rapid assent. What can we do
to compete going forward? These are the questions today. We
(01:20):
have a man with the answers joining me today on
the Driving with Done podcast. Is Kyle Chan, author of
the widely read and highly respected I really recommend this newsletter.
It's called High Capacity. In today's conversation, Kyle has promised
to reveal to us China's secret superpowers. And my bet
(01:42):
is that you will find many of them look pretty ordinary,
but they're not. What do I mean by that? Let's
find out with Kyle Chan on the Driving with Done podcast.
(02:02):
Kyle Chan, thank you very much for joining me today
on the Driving with Done podcast.
Speaker 3 (02:07):
Great to be here.
Speaker 2 (02:09):
Look, every single podcast starts with the same question, and
so I won't make things different this time. Kyle, What
do you drive?
Speaker 3 (02:19):
So? I drive a Honda CRV and yeah, it's a
it's an older model, but it works pretty well. And
I think if there was a little better charging infrastructure
in the area, I would go for an EV. But
at this point this works for my family.
Speaker 2 (02:36):
Who made the decision the chief executive of the household?
Are you or was it joint effort?
Speaker 3 (02:42):
Yes, in consultation with my boss. Yeah, it was a
joint decision.
Speaker 2 (02:47):
Honda CRV, great car, perfect family car. You said EV.
Potentially in the future, if you were to go EV,
what would that be?
Speaker 3 (02:55):
Oh? That's a good question. There's so many options now.
I mean, I hope curious to see what comes out
in a year or so because I know that even
you know, GM and Ford have some things in the
in the cooker. So I think there's gonna be some exciting.
Speaker 4 (03:09):
Things you would buy.
Speaker 3 (03:10):
Your leaning American, I will be open to trying. I
would love to just test drive all the models when
I get around to it.
Speaker 2 (03:17):
More and more choice out there, more and more affordability.
There's great options coming down the pipeline. So yes, a
year from now would be an ideal time to buy.
You better inform the boss that that's in the pipeline.
Speaker 3 (03:28):
That will be an ongoing consultation.
Speaker 4 (03:29):
Okay, great.
Speaker 2 (03:31):
So let's pivot now, Kyle to our main event, and
that is you have written a powerful and provocative essay
that was published in the New York Times just two
days ago. It's created a lot of interest in the
auto industry. And beyond the title of that article is
in the future, China will be dominant, the US will
(03:54):
be irrelevant. That's kind of a scary picture if and
so my first question to you is today, if we
look at China, where is China ahead of us where
is China leading?
Speaker 3 (04:07):
Yeah, so the piece is meant to be a wake
up call or Americans, I think for a lot of
folks in the West who have maybe an older idea
of China, China being the land of cheap goods, cheap toys, clothing,
and that has changed substantially even in just the past
(04:29):
decade or even the past few years in some industries.
So you have areas like auto so the rise of
Chinese evs I'm sure has been a big theme on
the podcast, but also the rise of Chinese consumer electronics, smartphones,
a whole host of personal electronics. You have some of
(04:54):
the older industries now are not so old. They're actually
fairly high tech. We just think of them as older industries,
like ship building or even some aspects of steel and
alumin production. These have gotten sort of a new technological
revamp uh in the time since we've we've probably thought
about them. So some of these are the areas where
(05:15):
China is really trying to push ahead with industrial policy.
And then, of course you have the entire range of
clean energy sectors batteries, solar, wind and within what each
of those you can drill down across the value chain,
whether you're talking about polysilicon solar cells or you're talking
(05:38):
about the parts of the evy and ev battery supply chain,
so you really have quite a lot they're all made
in China, or a lot of it made in China.
So I think that those are some of the areas
where I think we're seeing some of the biggest change
and some of the biggest challenges to the sort of
status quo incumbents out of the US, Germany and Japan,
(05:59):
South Korea, et cetera.
Speaker 2 (06:01):
You make a great point in that for most Americans,
we're looking at Oh yes, China's source of very affordable,
call it cheap products. No more, we will passed that
way past that, and they're dominant in many industries, both
high tech and moderately events technologies. What is their secret
super How did they make this jump?
Speaker 3 (06:22):
Yeah, it's a great question, and some of the answer
is more mundane that people might realize. You know, a
lot of it was long term investment in basic research.
So for example, on solar panels and semiconductors, China has
actually been doing a lot of research for years, if
(06:43):
not decades, on aspects of working with silicon. Basically in
various forms. You have a long standing effort to develop
auto industry expertise, so part of it is the basic research.
Part of it is this use of industrial policy that
combines almost paradoxically, sort of two different time frames or
(07:07):
two different approaches to things. On the one hand, you
have these long term, very persistent goals, say becoming a
major auto manufacturing country or becoming the Domina player in
electric cars. That might be the overarching goal in the
long run, but the actual strategies and tactics to get
(07:29):
there can change pretty dramatically. They can vary a lot
on the ground. Looking at different local government levels, Different
provinces have different strategies and policy tools that they're trying
to use.
Speaker 4 (07:41):
Soast each other.
Speaker 3 (07:43):
Absolutely, and this is really key. This is absolutely key.
I think by the time you see a b O
I D emerge on the global stage, it has gone
through a pretty bruising uh and intense internal battle within
China to get to that level.
Speaker 2 (07:58):
Right, and this just say which is China from state
Korea or Japan. There's a tendency among some in the
West to say, oh, it's a state, it's state capitalism.
People in Beijing set the plan and then everybody sort
of they picked national champions. We're often running it's all clean,
linear and a fade, a compley even before we get there.
(08:19):
But the reality is much more messy, isn't it?
Speaker 3 (08:21):
Absolutely? Absolutely? And you know, one factor that might not
even be talked about as much by Beijing but matters
immensely is the role of foreign companies and foreign expertise
and foreign talent and all of this. So, you know,
I think on the one hand, there's sort of one
wrong image of China of like the place of you know,
(08:43):
cheap stuff and low value manufacturing. There's also another wrong
image that I think is often promoted by Beijing itself
trying to create this very sort of like up by
the bootstraps kind of you know, indigenous and innovation. I
think the reality of the situation is that China has
benefited immensely from these foreign partnerships, going back to obviously
(09:05):
joint ventures with foreign firms, partnerships with universities in Europe
and the US and elsewhere. So I think that that's
something that is part of the secret sauce that goes
into helping Chinese firms become so competitive.
Speaker 2 (09:21):
Just yesterday's Cgping was quoted. He was on tour and
he said, we used to rely on foreign countries for
our soap and our steel. No more, we manufacture everything ourselves,
and we're the largest manufacturer in the world. He did
leave out the important detail that you just mentioned that
China has benefited from hundreds of billions of dollars of
(09:42):
investment by Europeans, by Americans, buy, Japanese and Koreans into
every industry, and the Chinese has been very smart about this.
Come on in, you can have access to our market,
but by the way, bring your capital, bring your technology,
and train us. So have we reached a point where
China is genuinely getting like self sufficient They no longer
(10:06):
need outside companies.
Speaker 4 (10:07):
What's your view?
Speaker 3 (10:08):
So, to a certain extent, there is a lot of
these supply chains that have been brought into China to
a certain extent, and you can break it down industry right, industry,
So I think you know, again, a topic that probably
comes up a lot is EV's and batteries. Now, some
of the actual critical minerals that go into these products,
they obviously need to be extracted elsewhere, but they might
(10:30):
be refined and processed in China and then turn into
say a cathode or an anode or something like that. Yeah.
The thing though, is China still is reliant and part
of the global trading system. And so I think despite
the rhetoric that I think, the reality is, and especially
you can understand, right, given the international environment that Beijing
(10:57):
is facing, there's going to be some pretty strong nationalist
language saying that China can do it alone. But the
reality is, I think it would be painful and if
not outright impossible for China to really bring all this
stuff in house as it were. So I think it's
a process where part of the world is thinking about
(11:18):
perhaps de risking or at least diversifying some of its
production from China, and China is also trying to diversify
in a sense, and part of that is bringing some
things further in house.
Speaker 4 (11:29):
Yeah.
Speaker 2 (11:30):
Okay, So if we're talking about where China has advantages,
one of the recurring things people talk about are speed
and scale. And I'm reminded of, you know, the sports
analogy speed and space, speed and scale. But in China,
you go to the auto show and it's just like
football fields and football fields and football fields are products
and brands and names and models that are just mind boggling.
(11:53):
And then you can see that if you don't go
down to Guangzhou area and you can drive from miles
and miles and you see nothing but no end of
factories with massive scale. So first time visitors always go,
my goodness, we're seeing a colossus that we've never imagined
possible before.
Speaker 4 (12:09):
Is this in your view?
Speaker 2 (12:11):
Is this a sort of unbeatable advantage that China has?
I mean, how does the West respond when China is
ten times bigger?
Speaker 3 (12:20):
That's a great question. Yeah. I think it's a useful
lens for looking at ourselves and asking ourselves what are
our barriers to really competing effectively. So in China, you know,
I mentioned the role of local governments is really really crucial,
and they play a very different role than I think,
say Americans or Europeans might think of a local government playing. Yes,
(12:43):
they're not.
Speaker 2 (12:44):
More about that. That's so fascinating.
Speaker 3 (12:46):
Yeah, yeah, yeah. So they are not only offering things
like subsidies and other sorts of financial incentives. I think
we're used to that kind of model, but they're very
proactive in going so far as to help develop infrastructure
to build roads or even train connections where it makes sense.
They're very proactive in acquiring land, and that is something
(13:09):
that I think especially Europe UH faces constraints on, but
the US as well, and they're very proactive even in
trying to cut through bureaucratic red tape and obtaining or
helping to get access to certain permits and licenses at
the local level, if not even coordating at a higher level.
And then they might even go so far as to
(13:31):
help with worker recruitment and training in some cases. So
perhaps one of the most famous examples is the city
of junk Jo helping to build the Fox con Factory,
this giant you know, speaking of scale, I mean this
is like one of the largest manufacturing facilities in the world,
building a huge chunk of iPhones that go you know,
(13:55):
export globally. And the Junjo government was very involved in
actually all of this sort of creating this special processing
zone and developing the infrastructure and even even trying to
find the thousands and thousands of workers needed to build
iPhones at scale. So I think the role essent of
the local government is very very crucial and UH and
(14:18):
then they compete against each other, right, so that's you know,
to bring it back to your earlier point. Then you
have each of these local governments trying to build their
local champions, doing everything they can to get there. And
then it's this sort of survival of the fittest within
trying to domestically across these different areas. And then ultimately
(14:38):
perhaps you have, you know, a national champion that might
might take on some of the foreign incumbents.
Speaker 4 (14:45):
The mayors.
Speaker 2 (14:46):
We can almost think it sounds like the mayor's the
CEO of the city.
Speaker 4 (14:50):
Yeah, that city wins.
Speaker 3 (14:53):
That's a very helpful way to think about it. I think.
I think some of the incentives are tightly, maybe even
too tightly aligned between the sort of local level officials
and the commercial success of their local champions. Yeah.
Speaker 2 (15:09):
So we go into this environment as foreigners or Westerners,
and it's an environment of hyper competition, and in many
cases the companies will lose money, but they have employment,
they have the prospect of potentially drawing future investments, so
they stay in the game. And Western automakers right now
are looking at it and saying, we can't go there
on price, we can't get there. This is losing money,
(15:31):
This is a losing proposition, and very few car companies
in China today do make money. Bid is an exception,
but most of them are hurting. So it's hard to
stay in that game when you don't have if you're
a Western automaker, your own CEO of a local province
or city backing you as their horse.
Speaker 3 (15:51):
That's right, that's exactly right. Yeah. I think you even
have what I call structurally induced bubbles where you have
tree that is explicitly called out as a priority sector,
say by Beijing in a plan, say like Made in
China twenty twenty five, for example, and then you have
the local governments piling and trying to try to compete.
(16:13):
You have different companies entering the space trying to capitalize
on what they see as a national priority. But then
you have a flood of capital and resources geared at
ramping up production, but without this sort of coordination that
you might think would help everyone, you know, in the
(16:34):
long run. Right, So everyone's furiously competing, they're also really
destroying each other's bottom lines, and the goal, the hope,
I think for each player is that they're the ones
to emerge from all this at the end. And the
reality is very few, if more than a handful will
really survive this process. So I think along the way
(16:55):
you have sort of a wasteland of uh bankruptcies and
you know, ultimately sort of failed businesses that are maybe
seen as sort of the cost of this whole process
along the way. So, yeah, there's there's some don't much.
Speaker 2 (17:13):
We don't hear much about those. It's like there's no
tears shed for the losers. Too bad you lost, get
out of the way.
Speaker 3 (17:19):
Yeah, you know, it's a it's a pretty brutal system
in terms of how fierce the competition is and how
quickly the system moves on to the you know, to
celebrate the winners, and boy, uh you hope the the
losers can can figure out a different uh be a
different industry altogether.
Speaker 2 (17:38):
All right, That's that's a great inside look at the
scale and the and and the power of local governments.
Let's pivot now to this other s called speed because
a lot of people talk about China speed, but very
few people are able to really put it into some
imagery that people outside.
Speaker 4 (17:55):
Of China can understand.
Speaker 2 (17:56):
So what is your understanding of China's speed and why
are we not able to match it outside of China?
Speaker 3 (18:02):
Yeah, It's a really good question, and I think it
really gets the heart of what Americans are sort of
scratching their heads about when it comes to China. Yeah,
I mean part of it is, I do think, at
a fundamental level, a different kind of attitude, a different
set of expectations for what is possible. And it does
(18:22):
help to have some of the startup mentality, even for
larger companies in China that feel his sense, you know
of sort of like the only the paranoid survive and
trying to iterate and say, come out with new ev
models with new features, again driven by this fierce battle
with very very slim to non existent profits, but the
(18:47):
hope of grabbing market share along the way. So I
think part of that is the expectation. Part of it
is also this sort of broader manufacturing ecosystem, which I
think is really crucial. That is, you know, we're used
to designed in California, made in China, and we're used
to doing some of the you know, more high end
(19:08):
design and sort of brain work going into to some
of this, and I think it's a mistake to think
that that we could just outsource all of that and
hope to retain that innovative edge along the way. And
so I think what's happening in China is there's a
bet that making things that actually at least manufacturing some
(19:29):
of the core components right there, Having some of your
key suppliers right around you, sometimes in the same town,
if not the same part of the country is gives
you that kind of nimbleness where you can quickly sort
of pivot and go back to You know, it helps
if you are making evs and you have some of
the largest aluminum producers in the world in your backyard,
(19:50):
to to iterate back and forth with new design specs
and to and and and then to see how the
market responds and go back again to your suppliers. I
think that kind of pace is something that has become
sort of the norm now in China, at least for
some of these more competitive industries.
Speaker 2 (20:08):
You're reminding me that, you know, think about the auto industry.
For decades, automakers directed their suppliers the Boshes of the world,
the leaders, the Denzos, Hey get over here to China.
It's a big market. They then set up camp. Now
the Chinese automakers look around and go we don't have
to go anywhere. We have all the world's finest auto
(20:29):
suppliers right here in our backyard, plus our own innovative
tech companies. It's all right here in close proximity to us.
So that's that's a that's a big change.
Speaker 3 (20:40):
Yeah, absolutely. And one interesting ingredient in all that that
I've been following very closely, and I think it's going
to be an even bigger story going into the future,
is the robotics and industrial automation. And I think you know,
those who are familiar with the auto industry know and
the robotics industry know that the auto sector drives the
robotics and vice versa.
Speaker 2 (21:00):
Uh.
Speaker 3 (21:00):
The two sectors are really tightly interlinked. And it helps
to have a very large auto industry domestically because it
gives you that experience working with industrial robots, and those
some of the same types of robots, some of the
same types of companies in that space are serving other
sectors again, like consumer electronics or even shipbuilding uses some
(21:23):
of the same, uh, some of the same robotics companies
or automation companies. So I think that there is this
extra spillover effect that's happening when you bring in a
key sector like automotive, where yes, it does directly, you know,
produce a lot of jobs, It directly creates a lot
of economic value, but there's actually a lot of technological
(21:43):
spillover that that takes place as a result. So that's
some That's one space that I think, you know, for
for countries that are you know thinking about. You know,
how important is is retaining the auto industry? You know,
do we want these you know, we want to keep
these jobs or is it okay? You know it's it's
very important, not just important, not just for that sector.
Speaker 2 (22:04):
Yeah, yeah, some people right, some people say, well Apple
designed in California.
Speaker 4 (22:09):
But.
Speaker 3 (22:11):
Right, right, exactly.
Speaker 2 (22:13):
Let me ask you from a different perspective. So, so
up until now, China's is like beast of an industrial
manufacturing machine, the likes of which the world hasn't seen before.
So do you detect as you look at this big
picture any weaknesses or vulnerabilities?
Speaker 4 (22:28):
What would they?
Speaker 3 (22:29):
Oh? Yeah, definitely. So it turns out that there is
not an unlimited, infinite export market from all of these goods,
even though Beijing often acts like it, there is such
a thing. And I think there's also this phenomenon where
I think Beijing has a real tenear when it comes
(22:50):
to understanding the concerns of other countries. I think the
idea from China is, look, we're producing really awesome, good
goods at really great prices. What's not to love.
Speaker 4 (23:04):
But we haven't done anything wrong.
Speaker 2 (23:07):
We're doing that's right, a great service here, that's right.
Speaker 3 (23:10):
You know, as they say, they see it as a
win win, and I think the rest of the world
is seeing this as a win win, both wins for
China in many ways. So I think, you know, on
a more serious note there, you know, there are real
jobs at stake, there are real businesses that are affected
by these Chinese exports, and there are political consequences for
(23:32):
for these very real grievances. So I think it's uh,
it's something that Chinese firms are trying to adjust to,
in part by now expanding their own manufacturing outside of China,
perhaps localizing it, building a BID plant in Brazil, trying
to build a c at L plant in Germany or Hungary,
(23:55):
and trying to retain access to those markets while possibly
offering something in return, whether it comes to jobs or revenue,
you know, or even sort of the broader economic spillovers
And I think a big question for me as I
watch all this unfold is how good are these countries
(24:17):
at negotiating and trying to get the best from this partnership,
you know, if they're going to be open possibly to
Chinese investment, right, just like the Chinese did with so
many foreign investors in foreign firms who set up shop
in China. Can other countries again, from Brazil to the
EU and maybe even possibly the United States itself, can
(24:41):
can we get a good deal? Can we make sure
that we're capturing what feels like a fair share of
the value and the jobs and even some of the
technology that's associated with all this, Or.
Speaker 2 (24:53):
Will China come into the United States and play California
against Michigan.
Speaker 3 (24:57):
Against you know, yeah, yeah, yeah, there is a big
coordination question here, absolutely, absolutely yeah. And you can see
where China has been able to do this well. You
see Beijing stepping in sometimes even setting up the joint
ventures directly with say in the high speed real sector,
(25:20):
joint ventures between Chinese domestic manufacturers and the Zeemans and
Alstons of the world. So the you know, the idea
is leverage, right, and if you've got a big market,
but you are competing to gain to get investment at
a local level. If you're not doing it right, you
could end up not being able to take advantage of
(25:42):
what should be a really, really powerful source of leverage.
Speaker 4 (25:45):
That goes right to the heart of the matter.
Speaker 2 (25:47):
Kyle, I mean, I remember when GM and Ford so
many years ago competed against each other for the right
to take their money in capital and invest it in
the city of Chinha. Because that's the Chinese were masterful.
You wanted access to the market. Here are the terms.
You're going to compete against each other. The higher bidder wins.
That means you get to bring more money, more capital,
more technology in and oh, by the way, you'll have
(26:10):
half the business, will be given to a Chinese partner,
and so on. So they did a great job. In contrast,
here in the United States, it tends to be states
competing against each other to attract the investment in. Wow,
so we need some we could That's one thing we
could learn from CHILDA. What else is there to learn
China as we go forward?
Speaker 3 (26:29):
Yeah, yeah, no, this is a This is a great question.
So another area is kind of coming back to this
theme of the value of death for commercialization. You know,
so many great innovations happen here in the United States
or or you know, if we're talking about a European audience,
there's a lot coming out of Germany and specifically in
(26:50):
the Netherlands, and you know, you name it, and somehow
it doesn't take off, and it gets commercialized, and it
does take off in China and suddenly we're buying the
goods and you know, like batteries is such a great
example where lifting the iron phosphate batteries were really sort
of the key technologies were really developed here first, and
(27:11):
now we're the ones hoping that CTL might share some
of their production secrets. So yeah, I think in the
Chinese case, of course, it doesn't always work out well
and there are a lot of problems in the actual implementation,
but you do have this sort of patient capital approach
in some areas where there might be longer term investment.
(27:34):
It could be something as straightforward as a state bank
loan that is not so tied to immediate profitability that
can sort of hang in there for the longer run.
It could be also local governments doing something similar. And
the funny thing is in the US we do have
patient capital, and we do have a very vibrant VC ecosystem,
(27:56):
but it's not always for there for the industries that
we need it for. There are certain you know what
I would call and what the Chinese would call, you know,
these sort of strategic industries where they are not only
themselves economically valuable, but they are key inputs to the
rest of our economies. And you know in those cases,
and there are also possibly areas that could be emerging
(28:18):
technology sectors for the future. So, you know, I think
that in the US we might have the attitude of
sort of like let the market do its magic. You know,
some businesses will will thrive and some will fail, and
that's just life. But I think we have to step
back and realize that not only are there certain sectors
that are very important that you know, it's a bit
(28:39):
too risky to let that just sort of happen completely
on its own and go away on its own, but
also we're competing in a world with China in it,
so China is a factor itself in driving sort of
this need to rethink our approach. I think, to you know,
what are the key inputs that go into the auto
industry or to the electronics industry. Where are our dependencies
(29:02):
and where do we have a national interest perhaps in
just trying to help bridge that gap. You know, you
don't want a long term government investor and any of
these areas. I think that's not only politically unpalatable but
just frankly not a great idea. But I do think
that strategically and carefully thought out, there could be you know,
(29:24):
that bridge to help get there and to help bring
these commercial successes into the United States rather than always
have it innovated here and go abroad.
Speaker 2 (29:33):
There's a story of European auto industry one hundred years ago.
The Germans and the French and the British were making
great cars, and then along comes Henry Ford in the
Model T and they're blown away by the scale and
the affordability, and they're at first they're skeptical, like, no,
then Americans don't really know what they're do. Oh, oh,
we're in trouble now today we have to be honest
(29:54):
and looking to go, Oh, there's a bigger kid on
the block with your home market, larger and dust trull
base manufacturing, PROWSS, low cost advanced technologies. That's China's like
the America of one hundred years ago. We better get
our act together.
Speaker 3 (30:10):
I think that's a really great way to put it. Yeah,
And I think that's why, you know, coming back to
that original New York Times piece, this is sort of
a wake up call where I think Americans were used
to being number one in a lot of areas. We've
been number one for a long time, and at a
certain point you start to kind of take it for
granted that the you know, the NVIDIAs and the Googles
(30:31):
of the world will just, you know, naturally prevail. That's right,
And so I think we just need to keep our
edge and you know, stay on our toes and keep
trying to push the envelope in the way that China
is trying to do and a lot of Chinese firms
are trying to do. I mean, they're mentality, like I
mentioned earlier, is a much more sort of like urgent,
(30:54):
you know, need to compete now. I mean, they're trying
to survive in the Chinese domestic market. So they have
that sort of almost existential motivation driving them forward. And
I think checking ourselves a little bit out of a
sense of complacency I think is really crucial here.
Speaker 4 (31:10):
Yes, all right.
Speaker 2 (31:11):
So imagine, Kyle, you get a call tomorrow from the
Trump administration way up there, someone very senior, maybe President
Trump himself, and he says, I've got these tariffs on
Chinese goods. I'm hearing two debating camps. One says, don't
let the Chinese in. The other says, drop the tariffs,
let them in. Let's compete and find a way to
leverage you know the fact that they need our market
(31:32):
access and be smart about that. Where would you go
with your advice.
Speaker 3 (31:37):
That's a great question. I think I would say that
I'm not against tariffs. I think actually they can be
used if done carefully, selectively strategically, they can be used
to help build up enough time and space to really
become competitive. Especially again, you know, we have a big
auto industry, but there's this transition now to evs that
(32:00):
takes investment, and it's also hard to sustain that when
if you are getting if you're having to compete with
major now Chinese players in that space at the same time.
So I think there there's there's a role for tears
to play, and then we have to think very strategically
how to target which parts of the supply chain how
(32:21):
to use that also has leveraged perhaps to bring in
some Chinese investment, and I think we, you know, we'd
be careful to put in safeguards on say the use
of software and other sort of connected services along the way.
I think those are legitimate concerns that we should think
carefully about Europe. We should maybe even work together to
try to understand what are the risks, what are areas
(32:43):
that we can sort of mitigate some of these risks,
and then and then ideally incentivize some of that Chinese
investment to come in to make sure that we're getting
some of that process know how along the way, so
that it's not just you know, a bunch of profits
going back to try enough, but that there is a
sort of mutual gain. And and then this is really crucial,
(33:05):
but there needs to be a timeline. There needs to
be a time frame where the you know, auto auto
firms need to know that they need to make that transition,
and if they don't, they're going to start to get
hit with either shrinking subsidies or shrinking or the tariffs
that we're protecting them in some areas are going to
(33:27):
start to go away. So you want that pressure to
always be there. You don't want it to be a
situation where you know, they expect things to just stay
status quo for the water and they can kind of coast, right.
You want to have that sort of wire under your.
Speaker 2 (33:40):
Feet, some of that Chinese pressure cooker intensity existential, have
to live one more day, find a way exactly.
Speaker 3 (33:48):
Okay, okay, exactly.
Speaker 2 (33:50):
So keep terrors short term by some time, but very importantly,
probably most importantly, build in a timetable and say you
need to hit these benchmarks or else.
Speaker 3 (34:02):
Yeah.
Speaker 4 (34:03):
Yeah.
Speaker 2 (34:03):
The other thing you mentioned is select this very strategically
where we would allow Chinese to invest and make sure
that they transfer that technology.
Speaker 4 (34:11):
That's that's the sort of the formula. So I like
that because.
Speaker 2 (34:14):
It's it's probably not realistic to say no Chinese cars
or batteries here forever.
Speaker 4 (34:19):
I just it's it would I don't know if that's realistic.
Speaker 3 (34:22):
Yeah, and we would be missing out a lot in
terms of understanding the global auto market and changes in
the industry that the rest of the world experience is experiencing.
I think one of the great things about the American
sort of attitude has always been, you know, when has
worked well to look around the world and to try
to get a pulse on what's going on these trends
(34:45):
and to capitalize quickly and respond quickly. I think that's
where we really succeed. I think blocking ourselves off or
trying to shut out the competition altogether is a short
sighted strategy.
Speaker 2 (34:57):
Kyle Chan, author of High Capacity, absolutely highly recommend that
you subscribe Quality every time, smart, relevant, valuable. Thank you,
thank you for joining me today, and let's continue this
conversation because it's a fast moving, fast evolving heist takes
drama that's taking place, and we want to keep an
(35:21):
eye on what's coming around the corner with you.
Speaker 3 (35:23):
Absolutely, thank you so much for having me. This is fantastic.
Speaker 4 (35:26):
All right, Kyle, We'll see you around, see you there
we go.
Speaker 2 (35:38):
Kyle revealed the key ingredients that have transformed China into
an industrial powerhouse. Let's remember at least three of them.
Speaker 4 (35:46):
One.
Speaker 2 (35:47):
China's economy, called state capitalism, runs on two parallel engines. First,
Beijing sets the objectives. Then national, provincial, municipal governments get
actively involved with entrepreneurs to help meet those objectives. This
creates an environment of brutal, doggy dog competition Kyle calls
it structurally induced bubbles with many losers and a few
(36:10):
powerful winners see for example, Huawei or BYD.
Speaker 3 (36:15):
Two.
Speaker 2 (36:16):
Foreign companies and universities have been enormous contributors to China's success.
Make no mistake about it. Just look at how Apple
and China and Tesla in China have each contributed to
an explosion of world class Chinese smartphone and EV companies.
And three, America is still the world's leading innovator, but
(36:36):
China is the master of taking those innovations and turning
them into viable commercial operations. Americans need to regain that
sense of urgency, that scrappiness, that invisible superpower that takes
entrepreneurs from innovation in the lab to making real stuff
at scale. That's just three. I bet you have many
(36:58):
in your own mind. What else can we learn from?
What must America do to keep or win back its
position as number one? What do you think? Send me
a DM I'd love to know your ideas. I am
Michael Dunn. Thank you so much for joining us today.
This is the Driving with Done.
Speaker 1 (37:15):
Podcast where you meet the experts creating the technologies that
will power tomorrow's cars. Electric autonomous software to find This
is a Driving with Done podcast. Thank you for joining
this episode of the Driving With Done podcast. To connect
with Michael Dunn, visit doninsights dot com or find Michael
(37:38):
on x or LinkedIn. This is the Driving With Done
podcast
Where top executives and crazy entrepreneurs gathered to talk about
the future of electric vehicles. This is Driving with Done podcast.
Speaker 2 (00:12):
Hello and welcome to the Driving with Done podcast. I
am your host, Michael Dunn. It is hard for Americans
to imagine not being number one. The US, after all,
has been the leading industrial, economic, and military power ever
since the end of World War Two. But now America
confronts a challenger that appears to be bigger, faster, and
(00:36):
more ambitious. And that challenger is China. The PRC Now
manufacturers get this, one third of the world's cars, sixty
percent of its evs, seventy percent of its batteries, and
it utterly dominates the supply chains that feed those batteries. Furthermore,
China is no longer staying home. It's the number one
(00:57):
exporter of vehicles to markets worldwide, blowing past former champions
Germany and Japan. So how did the Chinese companies get
so powerful so quickly? And what can America and the
West learn from China's rapid assent. What can we do
to compete going forward? These are the questions today. We
(01:20):
have a man with the answers joining me today on
the Driving with Done podcast. Is Kyle Chan, author of
the widely read and highly respected I really recommend this newsletter.
It's called High Capacity. In today's conversation, Kyle has promised
to reveal to us China's secret superpowers. And my bet
(01:42):
is that you will find many of them look pretty ordinary,
but they're not. What do I mean by that? Let's
find out with Kyle Chan on the Driving with Done podcast.
(02:02):
Kyle Chan, thank you very much for joining me today
on the Driving with Done podcast.
Speaker 3 (02:07):
Great to be here.
Speaker 2 (02:09):
Look, every single podcast starts with the same question, and
so I won't make things different this time. Kyle, What
do you drive?
Speaker 3 (02:19):
So? I drive a Honda CRV and yeah, it's a
it's an older model, but it works pretty well. And
I think if there was a little better charging infrastructure
in the area, I would go for an EV. But
at this point this works for my family.
Speaker 2 (02:36):
Who made the decision the chief executive of the household?
Are you or was it joint effort?
Speaker 3 (02:42):
Yes, in consultation with my boss. Yeah, it was a
joint decision.
Speaker 2 (02:47):
Honda CRV, great car, perfect family car. You said EV.
Potentially in the future, if you were to go EV,
what would that be?
Speaker 3 (02:55):
Oh? That's a good question. There's so many options now.
I mean, I hope curious to see what comes out
in a year or so because I know that even
you know, GM and Ford have some things in the
in the cooker. So I think there's gonna be some exciting.
Speaker 4 (03:09):
Things you would buy.
Speaker 3 (03:10):
Your leaning American, I will be open to trying. I
would love to just test drive all the models when
I get around to it.
Speaker 2 (03:17):
More and more choice out there, more and more affordability.
There's great options coming down the pipeline. So yes, a
year from now would be an ideal time to buy.
You better inform the boss that that's in the pipeline.
Speaker 3 (03:28):
That will be an ongoing consultation.
Speaker 4 (03:29):
Okay, great.
Speaker 2 (03:31):
So let's pivot now, Kyle to our main event, and
that is you have written a powerful and provocative essay
that was published in the New York Times just two
days ago. It's created a lot of interest in the
auto industry. And beyond the title of that article is
in the future, China will be dominant, the US will
(03:54):
be irrelevant. That's kind of a scary picture if and
so my first question to you is today, if we
look at China, where is China ahead of us where
is China leading?
Speaker 3 (04:07):
Yeah, so the piece is meant to be a wake
up call or Americans, I think for a lot of
folks in the West who have maybe an older idea
of China, China being the land of cheap goods, cheap toys, clothing,
and that has changed substantially even in just the past
(04:29):
decade or even the past few years in some industries.
So you have areas like auto so the rise of
Chinese evs I'm sure has been a big theme on
the podcast, but also the rise of Chinese consumer electronics, smartphones,
a whole host of personal electronics. You have some of
(04:54):
the older industries now are not so old. They're actually
fairly high tech. We just think of them as older industries,
like ship building or even some aspects of steel and
alumin production. These have gotten sort of a new technological
revamp uh in the time since we've we've probably thought
about them. So some of these are the areas where
(05:15):
China is really trying to push ahead with industrial policy.
And then, of course you have the entire range of
clean energy sectors batteries, solar, wind and within what each
of those you can drill down across the value chain,
whether you're talking about polysilicon solar cells or you're talking
(05:38):
about the parts of the evy and ev battery supply chain,
so you really have quite a lot they're all made
in China, or a lot of it made in China.
So I think that those are some of the areas
where I think we're seeing some of the biggest change
and some of the biggest challenges to the sort of
status quo incumbents out of the US, Germany and Japan,
(05:59):
South Korea, et cetera.
Speaker 2 (06:01):
You make a great point in that for most Americans,
we're looking at Oh yes, China's source of very affordable,
call it cheap products. No more, we will passed that
way past that, and they're dominant in many industries, both
high tech and moderately events technologies. What is their secret
super How did they make this jump?
Speaker 3 (06:22):
Yeah, it's a great question, and some of the answer
is more mundane that people might realize. You know, a
lot of it was long term investment in basic research.
So for example, on solar panels and semiconductors, China has
actually been doing a lot of research for years, if
(06:43):
not decades, on aspects of working with silicon. Basically in
various forms. You have a long standing effort to develop
auto industry expertise, so part of it is the basic research.
Part of it is this use of industrial policy that
combines almost paradoxically, sort of two different time frames or
(07:07):
two different approaches to things. On the one hand, you
have these long term, very persistent goals, say becoming a
major auto manufacturing country or becoming the Domina player in
electric cars. That might be the overarching goal in the
long run, but the actual strategies and tactics to get
(07:29):
there can change pretty dramatically. They can vary a lot
on the ground. Looking at different local government levels, Different
provinces have different strategies and policy tools that they're trying
to use.
Speaker 4 (07:41):
Soast each other.
Speaker 3 (07:43):
Absolutely, and this is really key. This is absolutely key.
I think by the time you see a b O
I D emerge on the global stage, it has gone
through a pretty bruising uh and intense internal battle within
China to get to that level.
Speaker 2 (07:58):
Right, and this just say which is China from state
Korea or Japan. There's a tendency among some in the
West to say, oh, it's a state, it's state capitalism.
People in Beijing set the plan and then everybody sort
of they picked national champions. We're often running it's all clean,
linear and a fade, a compley even before we get there.
(08:19):
But the reality is much more messy, isn't it?
Speaker 3 (08:21):
Absolutely? Absolutely? And you know, one factor that might not
even be talked about as much by Beijing but matters
immensely is the role of foreign companies and foreign expertise
and foreign talent and all of this. So, you know,
I think on the one hand, there's sort of one
wrong image of China of like the place of you know,
(08:43):
cheap stuff and low value manufacturing. There's also another wrong
image that I think is often promoted by Beijing itself
trying to create this very sort of like up by
the bootstraps kind of you know, indigenous and innovation. I
think the reality of the situation is that China has
benefited immensely from these foreign partnerships, going back to obviously
(09:05):
joint ventures with foreign firms, partnerships with universities in Europe
and the US and elsewhere. So I think that that's
something that is part of the secret sauce that goes
into helping Chinese firms become so competitive.
Speaker 2 (09:21):
Just yesterday's Cgping was quoted. He was on tour and
he said, we used to rely on foreign countries for
our soap and our steel. No more, we manufacture everything ourselves,
and we're the largest manufacturer in the world. He did
leave out the important detail that you just mentioned that
China has benefited from hundreds of billions of dollars of
(09:42):
investment by Europeans, by Americans, buy, Japanese and Koreans into
every industry, and the Chinese has been very smart about this.
Come on in, you can have access to our market,
but by the way, bring your capital, bring your technology,
and train us. So have we reached a point where
China is genuinely getting like self sufficient They no longer
(10:06):
need outside companies.
Speaker 4 (10:07):
What's your view?
Speaker 3 (10:08):
So, to a certain extent, there is a lot of
these supply chains that have been brought into China to
a certain extent, and you can break it down industry right, industry,
So I think you know, again, a topic that probably
comes up a lot is EV's and batteries. Now, some
of the actual critical minerals that go into these products,
they obviously need to be extracted elsewhere, but they might
(10:30):
be refined and processed in China and then turn into
say a cathode or an anode or something like that. Yeah.
The thing though, is China still is reliant and part
of the global trading system. And so I think despite
the rhetoric that I think, the reality is, and especially
you can understand, right, given the international environment that Beijing
(10:57):
is facing, there's going to be some pretty strong nationalist
language saying that China can do it alone. But the
reality is, I think it would be painful and if
not outright impossible for China to really bring all this
stuff in house as it were. So I think it's
a process where part of the world is thinking about
(11:18):
perhaps de risking or at least diversifying some of its
production from China, and China is also trying to diversify
in a sense, and part of that is bringing some
things further in house.
Speaker 4 (11:29):
Yeah.
Speaker 2 (11:30):
Okay, So if we're talking about where China has advantages,
one of the recurring things people talk about are speed
and scale. And I'm reminded of, you know, the sports
analogy speed and space, speed and scale. But in China,
you go to the auto show and it's just like
football fields and football fields and football fields are products
and brands and names and models that are just mind boggling.
(11:53):
And then you can see that if you don't go
down to Guangzhou area and you can drive from miles
and miles and you see nothing but no end of
factories with massive scale. So first time visitors always go,
my goodness, we're seeing a colossus that we've never imagined
possible before.
Speaker 4 (12:09):
Is this in your view?
Speaker 2 (12:11):
Is this a sort of unbeatable advantage that China has?
I mean, how does the West respond when China is
ten times bigger?
Speaker 3 (12:20):
That's a great question. Yeah. I think it's a useful
lens for looking at ourselves and asking ourselves what are
our barriers to really competing effectively. So in China, you know,
I mentioned the role of local governments is really really crucial,
and they play a very different role than I think,
say Americans or Europeans might think of a local government playing. Yes,
(12:43):
they're not.
Speaker 2 (12:44):
More about that. That's so fascinating.
Speaker 3 (12:46):
Yeah, yeah, yeah. So they are not only offering things
like subsidies and other sorts of financial incentives. I think
we're used to that kind of model, but they're very
proactive in going so far as to help develop infrastructure
to build roads or even train connections where it makes sense.
They're very proactive in acquiring land, and that is something
(13:09):
that I think especially Europe UH faces constraints on, but
the US as well, and they're very proactive even in
trying to cut through bureaucratic red tape and obtaining or
helping to get access to certain permits and licenses at
the local level, if not even coordating at a higher level.
And then they might even go so far as to
(13:31):
help with worker recruitment and training in some cases. So
perhaps one of the most famous examples is the city
of junk Jo helping to build the Fox con Factory,
this giant you know, speaking of scale, I mean this
is like one of the largest manufacturing facilities in the world,
building a huge chunk of iPhones that go you know,
(13:55):
export globally. And the Junjo government was very involved in
actually all of this sort of creating this special processing
zone and developing the infrastructure and even even trying to
find the thousands and thousands of workers needed to build
iPhones at scale. So I think the role essent of
the local government is very very crucial and UH and
(14:18):
then they compete against each other, right, so that's you know,
to bring it back to your earlier point. Then you
have each of these local governments trying to build their
local champions, doing everything they can to get there. And
then it's this sort of survival of the fittest within
trying to domestically across these different areas. And then ultimately
(14:38):
perhaps you have, you know, a national champion that might
might take on some of the foreign incumbents.
Speaker 4 (14:45):
The mayors.
Speaker 2 (14:46):
We can almost think it sounds like the mayor's the
CEO of the city.
Speaker 4 (14:50):
Yeah, that city wins.
Speaker 3 (14:53):
That's a very helpful way to think about it. I think.
I think some of the incentives are tightly, maybe even
too tightly aligned between the sort of local level officials
and the commercial success of their local champions. Yeah.
Speaker 2 (15:09):
So we go into this environment as foreigners or Westerners,
and it's an environment of hyper competition, and in many
cases the companies will lose money, but they have employment,
they have the prospect of potentially drawing future investments, so
they stay in the game. And Western automakers right now
are looking at it and saying, we can't go there
on price, we can't get there. This is losing money,
(15:31):
This is a losing proposition, and very few car companies
in China today do make money. Bid is an exception,
but most of them are hurting. So it's hard to
stay in that game when you don't have if you're
a Western automaker, your own CEO of a local province
or city backing you as their horse.
Speaker 3 (15:51):
That's right, that's exactly right. Yeah. I think you even
have what I call structurally induced bubbles where you have
tree that is explicitly called out as a priority sector,
say by Beijing in a plan, say like Made in
China twenty twenty five, for example, and then you have
the local governments piling and trying to try to compete.
(16:13):
You have different companies entering the space trying to capitalize
on what they see as a national priority. But then
you have a flood of capital and resources geared at
ramping up production, but without this sort of coordination that
you might think would help everyone, you know, in the
(16:34):
long run. Right, So everyone's furiously competing, they're also really
destroying each other's bottom lines, and the goal, the hope,
I think for each player is that they're the ones
to emerge from all this at the end. And the
reality is very few, if more than a handful will
really survive this process. So I think along the way
(16:55):
you have sort of a wasteland of uh bankruptcies and
you know, ultimately sort of failed businesses that are maybe
seen as sort of the cost of this whole process
along the way. So, yeah, there's there's some don't much.
Speaker 2 (17:13):
We don't hear much about those. It's like there's no
tears shed for the losers. Too bad you lost, get
out of the way.
Speaker 3 (17:19):
Yeah, you know, it's a it's a pretty brutal system
in terms of how fierce the competition is and how
quickly the system moves on to the you know, to
celebrate the winners, and boy, uh you hope the the
losers can can figure out a different uh be a
different industry altogether.
Speaker 2 (17:38):
All right, That's that's a great inside look at the
scale and the and and the power of local governments.
Let's pivot now to this other s called speed because
a lot of people talk about China speed, but very
few people are able to really put it into some
imagery that people outside.
Speaker 4 (17:55):
Of China can understand.
Speaker 2 (17:56):
So what is your understanding of China's speed and why
are we not able to match it outside of China?
Speaker 3 (18:02):
Yeah, It's a really good question, and I think it
really gets the heart of what Americans are sort of
scratching their heads about when it comes to China. Yeah,
I mean part of it is, I do think, at
a fundamental level, a different kind of attitude, a different
set of expectations for what is possible. And it does
(18:22):
help to have some of the startup mentality, even for
larger companies in China that feel his sense, you know
of sort of like the only the paranoid survive and
trying to iterate and say, come out with new ev
models with new features, again driven by this fierce battle
with very very slim to non existent profits, but the
(18:47):
hope of grabbing market share along the way. So I
think part of that is the expectation. Part of it
is also this sort of broader manufacturing ecosystem, which I
think is really crucial. That is, you know, we're used
to designed in California, made in China, and we're used
to doing some of the you know, more high end
(19:08):
design and sort of brain work going into to some
of this, and I think it's a mistake to think
that that we could just outsource all of that and
hope to retain that innovative edge along the way. And
so I think what's happening in China is there's a
bet that making things that actually at least manufacturing some
(19:29):
of the core components right there, Having some of your
key suppliers right around you, sometimes in the same town,
if not the same part of the country is gives
you that kind of nimbleness where you can quickly sort
of pivot and go back to You know, it helps
if you are making evs and you have some of
the largest aluminum producers in the world in your backyard,
(19:50):
to to iterate back and forth with new design specs
and to and and and then to see how the
market responds and go back again to your suppliers. I
think that kind of pace is something that has become
sort of the norm now in China, at least for
some of these more competitive industries.
Speaker 2 (20:08):
You're reminding me that, you know, think about the auto industry.
For decades, automakers directed their suppliers the Boshes of the world,
the leaders, the Denzos, Hey get over here to China.
It's a big market. They then set up camp. Now
the Chinese automakers look around and go we don't have
to go anywhere. We have all the world's finest auto
(20:29):
suppliers right here in our backyard, plus our own innovative
tech companies. It's all right here in close proximity to us.
So that's that's a that's a big change.
Speaker 3 (20:40):
Yeah, absolutely. And one interesting ingredient in all that that
I've been following very closely, and I think it's going
to be an even bigger story going into the future,
is the robotics and industrial automation. And I think you know,
those who are familiar with the auto industry know and
the robotics industry know that the auto sector drives the
robotics and vice versa.
Speaker 2 (21:00):
Uh.
Speaker 3 (21:00):
The two sectors are really tightly interlinked. And it helps
to have a very large auto industry domestically because it
gives you that experience working with industrial robots, and those
some of the same types of robots, some of the
same types of companies in that space are serving other
sectors again, like consumer electronics or even shipbuilding uses some
(21:23):
of the same, uh, some of the same robotics companies
or automation companies. So I think that there is this
extra spillover effect that's happening when you bring in a
key sector like automotive, where yes, it does directly, you know,
produce a lot of jobs, It directly creates a lot
of economic value, but there's actually a lot of technological
(21:43):
spillover that that takes place as a result. So that's
some That's one space that I think, you know, for
for countries that are you know thinking about. You know,
how important is is retaining the auto industry? You know,
do we want these you know, we want to keep
these jobs or is it okay? You know it's it's
very important, not just important, not just for that sector.
Speaker 2 (22:04):
Yeah, yeah, some people right, some people say, well Apple
designed in California.
Speaker 4 (22:09):
But.
Speaker 3 (22:11):
Right, right, exactly.
Speaker 2 (22:13):
Let me ask you from a different perspective. So, so
up until now, China's is like beast of an industrial
manufacturing machine, the likes of which the world hasn't seen before.
So do you detect as you look at this big
picture any weaknesses or vulnerabilities?
Speaker 4 (22:28):
What would they?
Speaker 3 (22:29):
Oh? Yeah, definitely. So it turns out that there is
not an unlimited, infinite export market from all of these goods,
even though Beijing often acts like it, there is such
a thing. And I think there's also this phenomenon where
I think Beijing has a real tenear when it comes
(22:50):
to understanding the concerns of other countries. I think the
idea from China is, look, we're producing really awesome, good
goods at really great prices. What's not to love.
Speaker 4 (23:04):
But we haven't done anything wrong.
Speaker 2 (23:07):
We're doing that's right, a great service here, that's right.
Speaker 3 (23:10):
You know, as they say, they see it as a
win win, and I think the rest of the world
is seeing this as a win win, both wins for
China in many ways. So I think, you know, on
a more serious note there, you know, there are real
jobs at stake, there are real businesses that are affected
by these Chinese exports, and there are political consequences for
(23:32):
for these very real grievances. So I think it's uh,
it's something that Chinese firms are trying to adjust to,
in part by now expanding their own manufacturing outside of China,
perhaps localizing it, building a BID plant in Brazil, trying
to build a c at L plant in Germany or Hungary,
(23:55):
and trying to retain access to those markets while possibly
offering something in return, whether it comes to jobs or revenue,
you know, or even sort of the broader economic spillovers
And I think a big question for me as I
watch all this unfold is how good are these countries
(24:17):
at negotiating and trying to get the best from this partnership,
you know, if they're going to be open possibly to
Chinese investment, right, just like the Chinese did with so
many foreign investors in foreign firms who set up shop
in China. Can other countries again, from Brazil to the
EU and maybe even possibly the United States itself, can
(24:41):
can we get a good deal? Can we make sure
that we're capturing what feels like a fair share of
the value and the jobs and even some of the
technology that's associated with all this, Or.
Speaker 2 (24:53):
Will China come into the United States and play California
against Michigan.
Speaker 3 (24:57):
Against you know, yeah, yeah, yeah, there is a big
coordination question here, absolutely, absolutely yeah. And you can see
where China has been able to do this well. You
see Beijing stepping in sometimes even setting up the joint
ventures directly with say in the high speed real sector,
(25:20):
joint ventures between Chinese domestic manufacturers and the Zeemans and
Alstons of the world. So the you know, the idea
is leverage, right, and if you've got a big market,
but you are competing to gain to get investment at
a local level. If you're not doing it right, you
could end up not being able to take advantage of
(25:42):
what should be a really, really powerful source of leverage.
Speaker 4 (25:45):
That goes right to the heart of the matter.
Speaker 2 (25:47):
Kyle, I mean, I remember when GM and Ford so
many years ago competed against each other for the right
to take their money in capital and invest it in
the city of Chinha. Because that's the Chinese were masterful.
You wanted access to the market. Here are the terms.
You're going to compete against each other. The higher bidder wins.
That means you get to bring more money, more capital,
more technology in and oh, by the way, you'll have
(26:10):
half the business, will be given to a Chinese partner,
and so on. So they did a great job. In contrast,
here in the United States, it tends to be states
competing against each other to attract the investment in. Wow,
so we need some we could That's one thing we
could learn from CHILDA. What else is there to learn
China as we go forward?
Speaker 3 (26:29):
Yeah, yeah, no, this is a This is a great question.
So another area is kind of coming back to this
theme of the value of death for commercialization. You know,
so many great innovations happen here in the United States
or or you know, if we're talking about a European audience,
there's a lot coming out of Germany and specifically in
(26:50):
the Netherlands, and you know, you name it, and somehow
it doesn't take off, and it gets commercialized, and it
does take off in China and suddenly we're buying the
goods and you know, like batteries is such a great
example where lifting the iron phosphate batteries were really sort
of the key technologies were really developed here first, and
(27:11):
now we're the ones hoping that CTL might share some
of their production secrets. So yeah, I think in the
Chinese case, of course, it doesn't always work out well
and there are a lot of problems in the actual implementation,
but you do have this sort of patient capital approach
in some areas where there might be longer term investment.
(27:34):
It could be something as straightforward as a state bank
loan that is not so tied to immediate profitability that
can sort of hang in there for the longer run.
It could be also local governments doing something similar. And
the funny thing is in the US we do have
patient capital, and we do have a very vibrant VC ecosystem,
(27:56):
but it's not always for there for the industries that
we need it for. There are certain you know what
I would call and what the Chinese would call, you know,
these sort of strategic industries where they are not only
themselves economically valuable, but they are key inputs to the
rest of our economies. And you know in those cases,
and there are also possibly areas that could be emerging
(28:18):
technology sectors for the future. So, you know, I think
that in the US we might have the attitude of
sort of like let the market do its magic. You know,
some businesses will will thrive and some will fail, and
that's just life. But I think we have to step
back and realize that not only are there certain sectors
that are very important that you know, it's a bit
(28:39):
too risky to let that just sort of happen completely
on its own and go away on its own, but
also we're competing in a world with China in it,
so China is a factor itself in driving sort of
this need to rethink our approach. I think, to you know,
what are the key inputs that go into the auto
industry or to the electronics industry. Where are our dependencies
(29:02):
and where do we have a national interest perhaps in
just trying to help bridge that gap. You know, you
don't want a long term government investor and any of
these areas. I think that's not only politically unpalatable but
just frankly not a great idea. But I do think
that strategically and carefully thought out, there could be you know,
(29:24):
that bridge to help get there and to help bring
these commercial successes into the United States rather than always
have it innovated here and go abroad.
Speaker 2 (29:33):
There's a story of European auto industry one hundred years ago.
The Germans and the French and the British were making
great cars, and then along comes Henry Ford in the
Model T and they're blown away by the scale and
the affordability, and they're at first they're skeptical, like, no,
then Americans don't really know what they're do. Oh, oh,
we're in trouble now today we have to be honest
(29:54):
and looking to go, Oh, there's a bigger kid on
the block with your home market, larger and dust trull
base manufacturing, PROWSS, low cost advanced technologies. That's China's like
the America of one hundred years ago. We better get
our act together.
Speaker 3 (30:10):
I think that's a really great way to put it. Yeah,
And I think that's why, you know, coming back to
that original New York Times piece, this is sort of
a wake up call where I think Americans were used
to being number one in a lot of areas. We've
been number one for a long time, and at a
certain point you start to kind of take it for
granted that the you know, the NVIDIAs and the Googles
(30:31):
of the world will just, you know, naturally prevail. That's right,
And so I think we just need to keep our
edge and you know, stay on our toes and keep
trying to push the envelope in the way that China
is trying to do and a lot of Chinese firms
are trying to do. I mean, they're mentality, like I
mentioned earlier, is a much more sort of like urgent,
(30:54):
you know, need to compete now. I mean, they're trying
to survive in the Chinese domestic market. So they have
that sort of almost existential motivation driving them forward. And
I think checking ourselves a little bit out of a
sense of complacency I think is really crucial here.
Speaker 4 (31:10):
Yes, all right.
Speaker 2 (31:11):
So imagine, Kyle, you get a call tomorrow from the
Trump administration way up there, someone very senior, maybe President
Trump himself, and he says, I've got these tariffs on
Chinese goods. I'm hearing two debating camps. One says, don't
let the Chinese in. The other says, drop the tariffs,
let them in. Let's compete and find a way to
leverage you know the fact that they need our market
(31:32):
access and be smart about that. Where would you go
with your advice.
Speaker 3 (31:37):
That's a great question. I think I would say that
I'm not against tariffs. I think actually they can be
used if done carefully, selectively strategically, they can be used
to help build up enough time and space to really
become competitive. Especially again, you know, we have a big
auto industry, but there's this transition now to evs that
(32:00):
takes investment, and it's also hard to sustain that when
if you are getting if you're having to compete with
major now Chinese players in that space at the same time.
So I think there there's there's a role for tears
to play, and then we have to think very strategically
how to target which parts of the supply chain how
(32:21):
to use that also has leveraged perhaps to bring in
some Chinese investment, and I think we, you know, we'd
be careful to put in safeguards on say the use
of software and other sort of connected services along the way.
I think those are legitimate concerns that we should think
carefully about Europe. We should maybe even work together to
try to understand what are the risks, what are areas
(32:43):
that we can sort of mitigate some of these risks,
and then and then ideally incentivize some of that Chinese
investment to come in to make sure that we're getting
some of that process know how along the way, so
that it's not just you know, a bunch of profits
going back to try enough, but that there is a
sort of mutual gain. And and then this is really crucial,
(33:05):
but there needs to be a timeline. There needs to
be a time frame where the you know, auto auto
firms need to know that they need to make that transition,
and if they don't, they're going to start to get
hit with either shrinking subsidies or shrinking or the tariffs
that we're protecting them in some areas are going to
(33:27):
start to go away. So you want that pressure to
always be there. You don't want it to be a
situation where you know, they expect things to just stay
status quo for the water and they can kind of coast, right.
You want to have that sort of wire under your.
Speaker 2 (33:40):
Feet, some of that Chinese pressure cooker intensity existential, have
to live one more day, find a way exactly.
Speaker 3 (33:48):
Okay, okay, exactly.
Speaker 2 (33:50):
So keep terrors short term by some time, but very importantly,
probably most importantly, build in a timetable and say you
need to hit these benchmarks or else.
Speaker 3 (34:02):
Yeah.
Speaker 4 (34:03):
Yeah.
Speaker 2 (34:03):
The other thing you mentioned is select this very strategically
where we would allow Chinese to invest and make sure
that they transfer that technology.
Speaker 4 (34:11):
That's that's the sort of the formula. So I like
that because.
Speaker 2 (34:14):
It's it's probably not realistic to say no Chinese cars
or batteries here forever.
Speaker 4 (34:19):
I just it's it would I don't know if that's realistic.
Speaker 3 (34:22):
Yeah, and we would be missing out a lot in
terms of understanding the global auto market and changes in
the industry that the rest of the world experience is experiencing.
I think one of the great things about the American
sort of attitude has always been, you know, when has
worked well to look around the world and to try
to get a pulse on what's going on these trends
(34:45):
and to capitalize quickly and respond quickly. I think that's
where we really succeed. I think blocking ourselves off or
trying to shut out the competition altogether is a short
sighted strategy.
Speaker 2 (34:57):
Kyle Chan, author of High Capacity, absolutely highly recommend that
you subscribe Quality every time, smart, relevant, valuable. Thank you,
thank you for joining me today, and let's continue this
conversation because it's a fast moving, fast evolving heist takes
drama that's taking place, and we want to keep an
(35:21):
eye on what's coming around the corner with you.
Speaker 3 (35:23):
Absolutely, thank you so much for having me. This is fantastic.
Speaker 4 (35:26):
All right, Kyle, We'll see you around, see you there
we go.
Speaker 2 (35:38):
Kyle revealed the key ingredients that have transformed China into
an industrial powerhouse. Let's remember at least three of them.
Speaker 4 (35:46):
One.
Speaker 2 (35:47):
China's economy, called state capitalism, runs on two parallel engines. First,
Beijing sets the objectives. Then national, provincial, municipal governments get
actively involved with entrepreneurs to help meet those objectives. This
creates an environment of brutal, doggy dog competition Kyle calls
it structurally induced bubbles with many losers and a few
(36:10):
powerful winners see for example, Huawei or BYD.
Speaker 3 (36:15):
Two.
Speaker 2 (36:16):
Foreign companies and universities have been enormous contributors to China's success.
Make no mistake about it. Just look at how Apple
and China and Tesla in China have each contributed to
an explosion of world class Chinese smartphone and EV companies.
And three, America is still the world's leading innovator, but
(36:36):
China is the master of taking those innovations and turning
them into viable commercial operations. Americans need to regain that
sense of urgency, that scrappiness, that invisible superpower that takes
entrepreneurs from innovation in the lab to making real stuff
at scale. That's just three. I bet you have many
(36:58):
in your own mind. What else can we learn from?
What must America do to keep or win back its
position as number one? What do you think? Send me
a DM I'd love to know your ideas. I am
Michael Dunn. Thank you so much for joining us today.
This is the Driving with Done.
Speaker 1 (37:15):
Podcast where you meet the experts creating the technologies that
will power tomorrow's cars. Electric autonomous software to find This
is a Driving with Done podcast. Thank you for joining
this episode of the Driving With Done podcast. To connect
with Michael Dunn, visit doninsights dot com or find Michael
(37:38):
on x or LinkedIn. This is the Driving With Done
podcast
Popular Podcasts
Stuff You Should Know
If you've ever wanted to know about champagne, satanism, the Stonewall Uprising, chaos theory, LSD, El Nino, true crime and Rosa Parks, then look no further. Josh and Chuck have you covered.
Dateline NBC
Current and classic episodes, featuring compelling true-crime mysteries, powerful documentaries and in-depth investigations. Follow now to get the latest episodes of Dateline NBC completely free, or subscribe to Dateline Premium for ad-free listening and exclusive bonus content: DatelinePremium.com
The Breakfast Club
The World's Most Dangerous Morning Show, The Breakfast Club, With DJ Envy, Jess Hilarious, And Charlamagne Tha God!