8-2-24 *INTERVIEW* David Steinert Talks Global Vehicle Market, Chinese Impact

Episode Transcript

Speaker 1 (00:00):
You all know that I am a lifelong econ nerd,
technology nerd, fascinated by markets, fascinated by business, and I'm
really looking forward to this conversation today because a converse
something that comes up with some frequency on the show
is electric vehicles and how the market for electric vehicles

(00:22):
is developing or not, and what people want, why they
might be afraid, and on and on and on. So
rather than me foaming at the mouth anymore, I want
to bring in our very very expert guest, David Steinert
is a partner at Alex Partners, and that's Alix Partners,
and they are a global management consulting company and they

(00:45):
do one of the most or maybe the most interesting
and important annual report about the global automotive industry. And
I just want to share with you the headline from
their twenty twenty four Global Automotive Outlook. Bit of a
long headline, but the traditional automotive operating model must change

(01:06):
as China brands poised to capture a third of the
global automotive market by twenty thirty and it goes on
from there. But I want to bring David in right now. David,
thanks for making time for us. Thanks for joining us
on KOA.

Speaker 2 (01:19):
Yeah, Ross, thanks thanks for having me today.

Speaker 3 (01:22):
It's an honor to spend some time with a fellow
technology nerd and appreciate you making the opportunity for us
to talk and have this conversation today.

Speaker 1 (01:31):
Okay, I want to spend most of our time on China,
but I want to start with the US market for
a second.

Speaker 4 (01:37):
I'm gonna I.

Speaker 1 (01:38):
Know enough to be dangerous and not enough to be useful.

Speaker 4 (01:42):
So it has seemed to me, just as a as.

Speaker 1 (01:45):
A diletante, that we had a lot of early adopters
of electric vehicles, people who thought they were cool, and
in fact they are cool. I'm not against electric vehicles
in any way, but people who were perhaps having them
as a second car, people who didn't have some of
the concern that many people have. But once those early
adopters were satisfied, it seems like growth has slowed down.

Speaker 4 (02:07):
So, first, is my perception right?

Speaker 1 (02:09):
And more importantly, how do you view the American market
for evs?

Speaker 4 (02:16):
Yeah?

Speaker 2 (02:16):
I think I think more or less you're you're on
the right path.

Speaker 3 (02:20):
And you know, I myself am am one of those
early adopters, and similar to what you mentioned, it was
a second vehicle for for our household. I'm glad that
you worded it the way you did because often we'll
hear that EV sales are declining, and that's not necessarily true.
EV sales are still growing, but we you know, there

(02:40):
is a obvious slowing of that growth from years past
and with the early adopters maybe getting to a point
of saturation.

Speaker 2 (02:51):
Where they have that first vehicle. We know, where do
we see the market right now?

Speaker 3 (02:57):
Uh, there's a bit of a powertrain puzzle here for
power manufacturers and.

Speaker 2 (03:04):
Consumers.

Speaker 3 (03:06):
You have your traditional internal combustion engine, you have the
plug in hybrid, and you have the battery electric vehicles.
And you know, what we're seeing is that some of
those concerns that people have had around not enough places
to charge, concerned about battery driving range or charging takes

(03:26):
too long, they're inhibiting a little bit of the intention
for growing the market in the US where we see,
you know, there's still quite a few people, if I
think it's north of thirty percent who are considering their
next vehicle to be a battery electric vehicle, but not
as high as what you see in Europe.

Speaker 2 (03:43):
Or in China.

Speaker 3 (03:44):
Where in China, for example, I know you mentioned that's
a market of interest. Almost one hundred percent of the
people say they're considering a battery electric vehicle for their
next vehicle.

Speaker 4 (03:54):
Okay, a lot of stuff to follow up on there.

Speaker 1 (03:57):
So how much of the decline in the rate of
growth of EV sales is due to range anxiety and
or these things are related lack of very fast charging,
Like for me, as I think about this, a little
bit of range anxiety. Although a few hundred miles isn't terrible.

(04:20):
What really kind of keeps me from buying an EV
at this point, and it would be a second car,
is I'm not interested in having to wait forty minutes
somewhere to charge the car versus you know, four minutes
at a gas pump.

Speaker 3 (04:36):
Yeah, no, understood, And we hear that from We did
a consumer study earlier this year asking people about their
intentions and concerns. It's hard to pick and say that
a certain percent of the decline is tied to any
one of those things. But the two things that the
two items that were top of mind for concerned wasn't

(04:57):
the highest reasons that they had that they cited the
concern was not enough places to charge and charging takes
too long. And I think what you're seeing is, you know,
like any new technology, you see advancements year over year.
And I think it's maybe the Porsche Tikam just the

(05:18):
new twenty twenty five model with new battery technology, with
new charging technology. You know, you are seeing you're starting
to see the up the ability or possibility to charge
from ten percent to eighty.

Speaker 2 (05:32):
Percent in I think it's just low.

Speaker 3 (05:34):
I think there was around sixteen eighteen minutes, and so
the technology is advancing, and I think it's there's a
little bit of a chicken and egg here ross where
you know, we want the charging network to be strong
enough that we have the confidence to buy the vehicle
we can charge, and the speeds of charging our satisfactory
while we're out there, and so that holds back a

(05:57):
little bit of the buying intentions of consumers. But then
the automakers want to see that intent from consumers before they,
you know, try deeper investments into ev so you know,
they're playing out kind of side by side.

Speaker 4 (06:14):
Okay, uh, let's start talking about China.

Speaker 1 (06:17):
I think a lot of folks can hear from from
me and and other stuff about the domestic market where
like I said, I know enough to be dangerous and
not enough to be helpful.

Speaker 4 (06:25):
But I almost I know almost nothing about.

Speaker 1 (06:27):
China, right, So I know there's a there's a very
vary well there's more than one, but there's one really enormous, dominant,
seemingly dominant Chinese ev company today. Is it b y
D or something like that three letters d U y
D and And it seems to me, if you'll look
at if you look at American policy recently and European
policy recently, seems to me that both continents are a

(06:51):
little bit afraid of B y D and other Chinese
car makers. So my first question to you is, Uh,
there's a repute, a long lived reputation about Chinese products
that they're cheap and not very good, but you buy
them because they're so much cheaper than anything else is.
But but I I the conversation about v y D
doesn't seem to have anything.

Speaker 4 (07:11):
To do with low quality. Can you tell us about
these cars?

Speaker 2 (07:14):
No?

Speaker 3 (07:16):
Yeah, In fact, you know, we'll often hear people have
the conversation around you know, we'll say that they are cheaper,
and what you actually see like the cars some of
these Chinese brands are making you know, b y d.

Speaker 4 (07:35):
Lee Auto.

Speaker 3 (07:35):
There, there's there's some really good they're they're producing some
really good, well designed, well put together vehicles. I think
a better way to talk about these vehicles is not
that they're cheap.

Speaker 2 (07:50):
They're they're good value for.

Speaker 3 (07:52):
Money, right the Chinese, the Chinese automakers and especially the
the the n E the brands and so that NEV
is new energy vehicle and so plug in hybrids and
battery electric a kind of both wrapped up in there.

Speaker 2 (08:05):
But they're new energy vehicles, right.

Speaker 3 (08:07):
So these brands and OEMs UH stood up at a
time where this this technology was growing. They built their
business in this space. And you know what you're seeing
is with a clean sheet similar to Tesla, similar to Rivian.
They weren't you know, they didn't have you know the
quote you some air quotes here, the burdens of legacy

(08:32):
industry development and production.

Speaker 2 (08:34):
And they were they were able to clean sheet.

Speaker 3 (08:35):
How they developed their vehicles. They were able to tree
sheet how they produced their vehicles. And with that they've
they've innovated on the operating model where they bring vehicles
to market twice as fast as what you see a
legacy carmaker twenty months, as short as twenty months versus
an average of like forty months.

Speaker 2 (08:56):
They work their supply chain and.

Speaker 3 (08:59):
How a different philosophy on how they engage with suppliers
and the types of products they buy, resulting.

Speaker 2 (09:05):
In cost advantages.

Speaker 3 (09:07):
It could be upwards of thirty five percent advantaged over
a legacy carmaker. They also tend to be much more
open to risk, right, the more comfortable with risk. And
part of that is that there are over one hundred
and twenty Chinese automakers in China. It's an extremely competitive market.

(09:28):
You have to be the market fast. Consumers have high
expectations of technology and design, and with that competitiveness comes
a more risk tolerant business philosophy ethinic.

Speaker 1 (09:43):
Okay, so how about penetration of Chinese automakers outside of China?
You talk about this in your report, and by the way,
for those for those just joining, we're talking with David
Steinard of ALEX Partners and that's al Ix Partners about
their twenty twenty four global Automotive outlook. And as I

(10:05):
mentioned in my overly long introduction, it seems like America
and Europe are afraid of these Chinese vehicles give us
a sense of just how dominant or approaching dominance China
is becoming inevs. Outside of China.

Speaker 3 (10:22):
Yeah, so overall market share, you know, today Chinese brands
have about a twenty one percent share of global automotive sales.
And part of that is that, you know, their home
market is the biggest market in the world. Their home
market today is about twenty six twenty seven million vehicles.
But looking forward over the next five years, you know,

(10:44):
we project that overall they're going to have a global
share of thirty three percent if we you mentioned kind
of outside of China, right, that thirty three percent is
both by the fact that China is a giant market,
but outside of China, we see them having a thirteen
percent share of of of global sales by twenty thirty, right,

(11:07):
and so sporting I think nine million vehicles for various
regions around the world.

Speaker 1 (11:12):
Right, So what I'd say to listeners is, you know,
on the one hand, thirteen percent might not sound like
a very big number, but what we're talking about is
thirteen percent of all the cars sold in the sold
in the world. And I bet most Americans have never
even seen a Chinese electric electric vehicle.

Speaker 4 (11:27):
So what's the what's the average price?

Speaker 2 (11:30):
I could ross real quick.

Speaker 3 (11:32):
What's really what's really interesting about that point you just
made is you know, there are not a lot of
Chinese brands in the US. You know, there are a
couple brands that are owned by Chinese companies, Pull Star
to name one. But the awareness of Chinese brands in
the US is actually quite strong. From our consumer study,

(11:54):
you know, we found that upwards of eighty percent of
younger generation actually no EYD knows.

Speaker 2 (12:03):
A number of.

Speaker 3 (12:03):
These brands, and part of that is potentially attributed to
their exposure on TikTok and the advertising that those companies
were doing on TikTok. So despite the fact that there's
low volume in the US and you don't actually see
them on the road, there is an awareness of those brands.

Speaker 1 (12:17):
Okay, what is an average selling price of a BYD
vehicle before tariffs?

Speaker 3 (12:25):
I think it's the BYD in China. I believe it
is in the high twenties.

Speaker 1 (12:33):
Okay, And again I want to re emphasize these are
these are not junkie vehicles, right, These are vehicles that
have very good reputation from consumers who have them and
drive them. So this is not like an electric version
of a ugo. These are real, These are real, real vehicles.
So now let's just talk briefly. We've got a few
minutes left about why why are the American government and

(12:58):
the EU putting these massive, massive tariffs on Chinese vehicles.
Clearly BYD could make a vehicle that complied with American
safety regulations if they wanted to. Yeah, they caah, right,
And so you see this often when there are major
shifts in industry and when you have you know, competitors

(13:22):
from abroad. We saw similar actions, you know, if not
one hundred percent tariffs, there were actions forty years ago
when the Japanese companies played in Honda.

Speaker 2 (13:32):
Were first venturing into into the US market.

Speaker 3 (13:38):
Part of the reason I think behind you know, if
if you read some of the statements from the administration
ties back to the support that the Chinese government has
provided to the companies. There's been a lot of investment
from the state in supporting and there's a there's a
I guess there's a perspective in the administration that that

(14:00):
has maybe created an unfair advantage for those companies, and
that's what you're seeing as far as the language on
you know, why the tariffs are being put in place.

Speaker 4 (14:10):
Now, what's it?

Speaker 3 (14:11):
What's what's important though, is that these tar tariffs are
usually not long lasting. They are you know there, they're
protectionist obviously, and what they do is they create a
window of opportunity for vocal companies and local manufacturers.

Speaker 2 (14:27):
To change the way they're operating.

Speaker 4 (14:28):
And so what I we.

Speaker 3 (14:29):
Expect to what I would expect longer term is that
eventually these tariffs.

Speaker 2 (14:35):
Probably wind down, maybe go away, and.

Speaker 3 (14:38):
If there is a maybe three to five year window
of opportunity for American and European automakers and suppliers to
really go back to the drawing board and try and
you know, rethink the operating model. Consider what the Chinese
are doing. Uh, they figure outcourage.

Speaker 2 (14:57):
That competitiveness and maybe even beat them.

Speaker 4 (14:59):
Right, but they need to figure out in a hurry.

Speaker 1 (15:02):
I mean, Ford in their EV division has improved their
results so much that they only lost forty five thousand
dollars per electric vehicle in the last quarter, right, and
that was a huge improvement over losing sixty thousand dollars
per vehicle in the previous quarter or previous year.

Speaker 4 (15:18):
Is pretty nuts.

Speaker 1 (15:19):
All right, we got a few minutes left, and I
got some listener questions, So give me some quick quick
answers to some listener questions. Why isn't there more conversation broadly,
not just you and me about hybrids because I'm a fan,
by the way, I like the hybrid.

Speaker 3 (15:36):
Yeah, hybrids are Hybrids serve a purpose I think long
term if you think about you know, not just the
consumer use, but where where where regions want to go
From an environmental perspective, you know, hybrids don't necessarily reach

(15:58):
those climate goals that we have in the next you know,
five to ten years, and so I think part of
the reason that you see more discussion on battery electric
vehicles of our hybrids is that they advance those objectives faster.
But hybrids are hybrids are a very interesting solution and
have a place in the market. I don't think that

(16:20):
we will end up necessarily one hundred percent be easy.
In the future, there will be a place for plug
in hybrids is going to be a segment of the marketing.

Speaker 1 (16:29):
I guess part of the reason that I personally like
hybrids is I don't have any climate goals and I
don't care about any of that, and you know it
gets rid of the of the range anxiety. But I
get your point. One other listener question, though, that relates
to what we're to the environmental thing you're talking about.

Speaker 4 (16:46):
There's a there's a lot of talk, especially in the US.

Speaker 1 (16:48):
I don't know if they talk about it in Europe,
about some of the environmental impacts of what it takes
to produce evs, right, all the mining that and and
quote unquot slave labor, and I don't know how much
of that is true. Can you give a quick comment
on whether some of these environmental concerns about the production

(17:09):
of an EV could be an actual impediment to developing
the market.

Speaker 3 (17:17):
I think potentially, But most of the companies that you know,
most companies that that that we work with, the most
companies I know, they have bickup policies in place to
try and limit that. The there's obviously a lot of
energy that goes into extracting raw materials, refining those raw materials,

(17:41):
and getting.

Speaker 2 (17:42):
Them to production.

Speaker 3 (17:46):
I don't think in the long term those those I
think I think those are valid concerns, but in the
long term, I don't think those are impedients to the
growth of battery electric vehicles, all.

Speaker 1 (17:56):
Right, and last quick listener question. This is a very practical,
hands on kinds of kind of question. It is there
for an e V the functional equivalent of.

Speaker 4 (18:05):
A gas can.

Speaker 1 (18:06):
Right, you run out of gas, you just get a
one gallon two gallon gas can, go fill it up,
bring it to your car, and you can get going
again and get to a.

Speaker 4 (18:13):
Place where you you know, a gas station.

Speaker 1 (18:15):
Is there anything like that for evs H.

Speaker 2 (18:22):
I don't know of anything.

Speaker 3 (18:23):
This is a this is an area of the market
I don't have.

Speaker 2 (18:27):
I don't know a ton on. I think there are
some start up.

Speaker 3 (18:32):
Companies out there that are doing some mobile charging, nothing
widespread yet, so not.

Speaker 2 (18:41):
Like I said, I think there's.

Speaker 3 (18:42):
Some some ideas bubbling up, some startup companies doing things
in that space. Unfortunately at ZIA, I just don't know
that deeply.

Speaker 2 (18:52):
I don't have it.

Speaker 4 (18:53):
I don't have a name. That's right.

Speaker 1 (18:54):
I mean, it's an interesting approach to range anxiety. That's
a lot cheaper than billions and billions of dollars on
charging stations everywhere.

Speaker 4 (19:03):
Anyway, there's so much more to talk about.

Speaker 1 (19:05):
We'll probably talk some more in the future, but David
Steinard is a partner at Alex Partners.

Speaker 4 (19:08):
That's Alix.

Speaker 1 (19:10):
We're talking about their twenty twenty four global automotive outlook,
and the stuff in this report about about China in
particular is incredibly fascinating. David, thanks so much for your
time today. I kept you longer than I said I
was going to, but I enjoyed the conversation very much
and have a tremendous weekend.

Speaker 2 (19:28):
Bross, thank you so much. I appreciate the oppering to
be on you as well and enjoying your day today.