You're listening to Asia Centric from Bloomberg Intelligence, the podcast that pulls back the curtain non global business so you can invest better across the Pacific rim. I'm Tom Corbett in Hong Kong.
And I'm John Lee. The glow is fading on the once hot electric vehicle market. Demand is dropping, competition is growing, consumers are skeptical, and the outlook concertain.
Tesla has become the poster child for the industry's struggles, with slowing sales, a tumbling stock price, and China's economic woes all converging into a grim picture. But other EV makers are also struggling and the road ahead could be rough.
Is this just a rough patch for the EV industry? A hybrid cause the answer? And which automakers can take advantage of this trend.
Let's sort it all out with Steve Mann, Global Director of Industrials and Automotive Search at Bloomberg Intelligence. He's been covering the industry for more than twenty years. He joins us from Princeton, New Jersey. Steve, great to have you back on Asia Centric.
Thanks for having me, Steve.
Demand for electric vehicles seems to be weaker than expected in many parts of the world. Do you think there's a consumer backlash against evs, especially in the US.
I think the ship have sailed for EV's. I think evs are here to stay, especially the battery electric vehicles. I'm a little bit more optimistic than the street and a lot of rhetoric you're hearing out there. I think it's the right solution for the long term, but it's gonna take time to get to know the numbers we're seeing in China, where you have twenty five percent penetration, Over the US you only have about seven or eight,
so it's going to take time to get there. If you're talking about the US, there's not as many regulations to push battery EV sales as there is in China. But if you look at the Inflation Reduction Act, it's something that I think will help drive greater affordability and hopefully higher sales, especially in the second half of the decade.
But Stave lots of car companies have spent a lot of money building EV capacity. Do you think there's going to be enough demand to meet all the new v's hitting the market of the next few years.
I think so. I think if you look at some of the trends that we're seeing. EV sales is still growing. It's not dropping, obviously, it's not growing as fast as it used to be. And the main reason for this is affordability. If you look at what BMW's offering, Mercedes offering, all these luxury automakers are offering, the prices are just too high for the mass market. Most of these evs are over fifty thousand. The only ones that are offering cheaper evs is actually Tesla, and that's why you see
their sales much better than other automakers. So if you look into the future just a bit, not too far away into twenty twenty five, twenty twenty six, most automakers are actually rolling out what we call sub thirty thousand, anything that's below thirty thousand US dollar evs, compact ev subcompact EV's that's going to resonate a lot more with the masses. And I think that's when you know we're going to see a cyclical recovery, if I can call it that.
Steve Mann, what the industry is going through right now is kind of a plot twist that really few anticipated how much of the industry's troubles and maybe specifically Tesla's challenges are self inflicted or was all this inevitable?
My point of view is competitive landscape is changing. I want to think Tesla is probably one of the strategy during this downturn is really to squeeze some of their competitors out of the market. I mean, there's different debates arguments around it. You know, you're based in Hong Kong.
I think the folks in that side of world is going to have a different perspective because the competition is so intense in China with buid was jely with a whole host of local automakers rolling out very affordable EV's over there. In the US is quite different. You hear for kind of pulling back investments. GM is kind of delaying some of their rollouts, but they're still maintaining some of the medium termed long term targets of launching these what I call a more affordable, budget friendly evs in
twenty twenty five, twenty twenty six. And also, I want to say the EV supply chain in the US, and I would say in Europe as well, it's actually expanding. This trade spat that's been going on between China and the West is actually having a benefit. There's all these negative rhetoric around trades, bad tariffs going up. I think in the political world we call it geopolitics, but this
is real business competition. What you're seeing actually with this trace bad is the US with the Inflation Reduction Act is actually helping. It's leading to a lot of investments in the US one hundred and sixty billion dollars of investment in the US to actually expand the ev supply chain over time. That's going to drive cost down and make these cars evs more affordable.
Is it just a matter of affordability, Steve? You alluded just a short time ago to the American all wakers scaling back, perhaps limiting their investment in evs. Is there just a skepticism about EV's in the US that doesn't exist in China or in Europe?
There is. If you look at the three regions, you have the Chinese adopting EV's a much faster rate. US is actually on the other side of the spectrum. It's the slowest, and then EUS kind of in the middle. And you can see that by the numbers, twenty five percent penetration rate in China, you got eight percent in the USA. In around low teens thirteen percent in Europe. So I think Tom, you're right, there is right now.
The main hurdle is affordability. I think once we have more affordable EV's in a row, it's going to draw a lot more consumers into the space. Another problem is going to show up, for example, charging. You know, I think charging infrastructure needs to catch up as well. There's not a lot of spending on this side of the world for charging, especially from the government.
But Steve, you don't believe in the weather argument there, Like it's okay for early adopters in California with warm weather to buy evs, but if you're sitting in say like Minnesota, cold winters, it's less battery efficient.
Yeah, I think there's a number of issues that the US has to face. The consuming here are probably not used to having EV's. They're not as if I can say, not as educated on how to manage or how to maintain any Look you have for example in Scandinavia, Norway, you know, some of the coldest weather on Earth, but their battery EV penetration rates are in the eighties and
ninety percent. So you know, I think the consumer over time will understand how evs operate and we'll be more educated in keeping ownership of an EV.
So, Steve, sounds like you believe that evs are just hitting a rough patch, but I know your Global Autos team has done quite a few surveys. This seems to be a surprising demand for hybrid cars. Are you surprised by that?
No, I think hybrid is a very good solution to address some of the attitudes. You know, we talked about educating the use of battery evs. I think these plugin EV's is a good transition. I'm based in Princeville. The whole section of the parking lot that's that's electrified. I don't have charging points, and you see a lot of
battery EV's. You see a lot of phgvs plug in hybrid electric vehicles out there, and I think consumer that are buying the PHVs today will actually graduate to battery evs in a few years because I think they need to get used to how to set up their schedule, charge your vehicles for the number of hours that they need, and then have that fit that into their lifestyle.
So if we do see continued demand for hybrid cause at least in the need term, which car makers do you think are best suited? Is it Toyota, because that's who I'm thinking.
Yeah, I think Toyota is the one that's going to be most beneficial to this. And the reason why is they really own the technology. If you look at the number of patents that are out there on hybrid vehicles, most of them are owned by Toyota. They invented hybrid vehicles. It's interesting go back in history a little bit. Hybrid
vehicles actually started with forklift trucks that Toyota made. For the listeners out there, forkliff trucks are actually material handling equipment that are in warehouses, that are in factories, and those typically run on battery plus some kind of fuel. They've been owning that technology for long time now. Just to put it into a greater context, Toyota has twenty four thousand patents on hybrids. Tesla has probably half the number of patents on evs. So you can imagine how
Toyota dominates the hybrid vehicle. So that's why I want to say Toyota is going to be a long term winter and that's also why they're really advocating for hybrid because even though they own the pattern they've opened up the patents for others to use. The supply chain is actually owned by Toyota and Stick.
That's an amazing turnaround in the narrative for Toyota. I remember having you on our podcast one year ago. You weren't criticizing, but there was a lot of analysts really criticizing Toyota management. They're calling them dinosaurs. You know, the CEO had to step down because they weren't as aggressive into making evs. But maybe the big bed on hybrids was the right strategy. Do you think that's the case.
I think if you look at battery EV's today, they're still expensive. If you look at the global auto fleet, it's there going to be a mix. It's not going to be one hundred percent bvs because you know, we've discussed some of the challenges facing the BV market, right, it's not just price, is charging points. I don't think every country is able to build out the infrastructure say China has today, or the US has today, and to a certain extent, the European have a pretty good charging infrastructure.
Not every country is going to get to that point. So I think there's going to be a mix of battery evs, hybrid vehicles, and even the traditional gasoline petrol cars. What I'm saying is that the penetration rate for BV is still low and there's room to grow, and we're just going through a temporary rough patch. And we get more affordable vehicles out there, it's going to attract another group of buyers that the automakers, the EV maker haven't even penetrated.
What about used evs STEVE, both from a depreciation standpoint and from an environmental disposal standpoint, is that a challenge the industry can easily overcome.
That's interesting, Tom, because that hasn't been really discussed a lot in the industry because there isn't that many EV's battery EV's out there anyway. But there are discussions and one of the things that the industry is exploring, especially when these EV's get to be ten, fifteen, maybe even
twenty years old, these batteries are decommissioned. One of the ideas out there is really to use those batteries for distributed power generation, meaning they can use those batteries, deploy them in various geographies near the power grids, and what these batteries can do is actually during peak hours they will release power to the grid, supplementing the grid, and during non peak hours, which is typically during nighttime, they
can actually store electricity that keeps power plants more efficient, you know, no waste energy because power plants needs to produce at the same level of power twenty four to seven.
So Steve Fu could bring the conversation to China. There seems to be a massive EV price war going on. You know, some of the Chinese EV makers are cutting prices by about thirty to forty percent. I hear that some evs are even cheaper than the traditional internal combustion engine cars. Are you worried about what's going on there?
I am very worried because you can't spiral out into losses. I think, you know, what we're seeing today in the auto industry has happened before in previous cycles where you have price wars. But I actually do see a light at the end of the time over here. If you look at lithium prices, it's starting to tick up. And I'm hoping that lithium prices coming back to a little bit more reality because right now lithium prices are pretty much at all time low. I haven't seen this low
in the past. Now liftium prices is coming back, lithium carbonate supply is drinking around the world, So I think that's going to be a catalyst for the automakers actually to stop price cuts. But you brought up an interesting point like if you look at Tesla, prices have been cut by twenty five percent over the past eighteen months, and a lot of that is driven by China.
Because the start of the price cuts, right.
Yeah, Yeah, Like I said earlier, I think one of the strategy that it's not talked a lot about is one of the strategy that Tesla is doing. It's probably trying to squeeze out some of the competitor during a cyclical downturn on evs. But that's another conversation. I think, John, You're bringing up these price cuts and how these some of these companies are still able to make some profit is actually pretty amazing. You know, Vertical integration is something
we actually need to discuss here. Vertical integration in the auto industry actually hasn't been used. You know, that type of strategy in manufacturing and auto production hasn't been used since Henry Ford over one hundred years ago. And if you look at how Tesla and even the Chinese automakers are doing. They're actually taking a page out of Henry Fort's Vertical Integration manual. And because this is a newer technology, EV is still relative of newer technology compared to gasoline cars.
And a lot of these automakers are building evs are actually extending to improve connectivity of the vehicle, to improve the consumer experience in the vehicles using various connectivity tools, right streaming music, streaming videos, personal assistance in the vehicles. So these are really relatively higher tech for the auto industry back you know, in the late eighteen hundred, petrol
cars gasoline car at that time were new technology. And what Henry Ford understood was he need to manage a whole supply chain to cut costs, to be flexible enough to change to consumer demand when we see new technology coming into the market. That vertical integration at the end of the day will help companies maintain costs and react and it just costs much quicker. And that's what the Chinese automakers have done, and that's what Tesla has done.
And your friend to BYD.
Yeah, yeah, especially BYD. They built their own batteries. They pretty much built a lot of the motors and verters in house. That's exactly what Tesla is doing. But if you look at the legacy automakers, they're still using the old approach. You know, I'm going to farm out different systems, different components, and I'm going to outsource those and I'm just going to bring it in the house and assemble them.
So when there's a change in taste from the consumer's perspective, when they want to cut costs quickly to compete with Tesla, they have to go through multiple layers to get there, right, they have to talk to the suppliers, tier one supplier, Tier two supplier, Tier three suppliers, they have to talk to their shipper, etc. So there's multiple layers they have
to get to just to bring costs down. And that's why it's really hard for the legacy automakers to compete today with Tesla, because Tesla, with twenty five percent price cuts, they're still booking profits at the bottom line. They're booking mid teens gross margin, which is the same margins that the legacy automakers are making today. I think that's one of the reason why Tesla's valuation is higher than their peer group.
Steve Man, We've talked about China, We've talked about the US and their respective electric vehicle markets. What do you think it will take to get Americans to buy a Chinese made electric vehicle A BYD or do you see that not happening.
I don't see it happening. We actually had research out there. I think gasoline car is going to be really difficult. First of all, gasoline cars from China probably not going to come into the US. You know, there's debate out there if Chinese EV should be sold in the US. I really don't think so. You know, if you look at the Inflation Reduction Act, it really spurred that one hundred and sixty billion dollars investments in the EV supply chain, and I don't think the government is going to go
out there and undercut that investment. Given the geopolitical situation between the US and China, I think the US is really focused on first of all, building supply chain for evs, and then the next step is how to innovate the automotive market, the EV market so that they can compete. I would say the US is a little bit behind China, especially if you look at the battery technology. I think the US really needs to catch up to be relevant in the global automotive market.
Steve we talked a lot about Tesla, and Tom alluded to the fact that the share price has been really weak. It's down almost sixty percent from its all time highs now. Tesla is part of a group of you know, well known stocks called the Magnificent Seven. I think it's the smallest one. Some analysts now are starting to call it the Magnificent six or the Magnificent five. They want to exclude Tesla from this group. What does Tesla need to do to get investors excited again?
I think, you know, I'm positive on the battery electric vehicle market, the BEV market. The winner and loser is still a toss up. I think Tesla has an advantage right now during a down cycle. You know, they're able to cut prices make their cars more affordable to the masses. But their biggest risk is execution. They're trying to do a lot right. They're cutting costs. They're trying to push
out a new model. They dubbed it the Model to They may call it something else, but it's a compact vehicle that's going to be priced around twenty five thousand dollars. They're actually looking to start building that in Texas and then breaking ground on a new plant in Mexico. At the same time, they're trying to ramp up cyber truck. If you've seen the truck, it's not the easiest thing to build. And at the same time they're really aggressive
in building out their full self driving apparatus. This is the autonomous vehicle software that supposedly, when it's complete, you can plot any Tesla at any points in the world and it's going to be able to drive itself. They're making a lot of investments in that. So there's a lot of things going on with Tesla. So execution is the risk. And I said earlier Tesla's taking advantage of the situation. Right now. They're the only EV makers that's still able to make profit in the downturn, but the
rivals are catching up. GM is actually rolling out like half a dozen evs this year and next year. Some of them will be affordable. Some of them are like the Blazer EV, the new Bolt, the best selling EV for GM. They discontinued it at the end of twenty twenty three. They're totally redesigning the thing so that it's cheaper to bill that's actually coming out in twenty twenty five,
twenty twenty six. You have Rivian. You know they're gonna need cash at some point, but they're also aggressively pulling their schedule ahead to roll out some of these cheaper evs. So Tesla's gonna face a few more competition, bigger competitors in twenty twenty six, twenty twenty seven. So that's why you know the winner loser, You can't really call it at the moment. Tesla actually, at this moment looks better,
but we don't know a right. There's going a lot more affordable EV's rolling out that's going to be priced at the same level as Tesla, so consumer benefits, they're gonna have a lot more choices, and I think we'll see there are risks. Even though I'm very optimistic about EV market, Tesla is not the only player in town.
Steve, before I let you go, I asked this question to you last year, and you didn't give me a straight answer. I asked you last year, what car did you drive. You did mention you'd used to drive a German car. I'm assuming that was a sports car. Then you did profess your respect for Japanese cars. Now you're in Princeton, did you buy American muscle? What are you driving now?
So for the audience out there, I just relocated back to the US. You know, I've been in age of fifteen years. I didn't really have to own a car, but I did own a car. I own a BMW in Hong Kong and then now back in the US. We actually have two vehicles. One is an American car, a Chevrolet, a very nice car. Actually, my wife's been converted. She was not very much in tune on a Chevrolet, but after she drove it, loved at first drive, if
you want to call it that way. It's a good question because I actually was thinking of buying a Prius, the plug in hybrid Prius.
John oh Norius.
It's a family.
Yeah.
Gas is not cheap, hair gas is expensive, fear, and the commutes are long. But I couldn't get one because the wait time is a year long for the Toyota Prius. So I decided to own a Mercedes. Now it's a mile hybrid. It gets around twenty two miles per the gallon, which is considered not bad not bad so that's what I drive today.
Grand answer.
We've been talking EV, Tesla, shine Up, and all things automotive with Steve Mann, Global Director of Industrials and Automotive Research at Bloomberg Intelligence. He has been with us from his offices in Princeton, New Jersey. Steve, exciting times, some would say, interesting times in evs and in global business. Always good to see you, a pleasure to have you back on the program, and we look forward to staying in touch.
Nice to be here.
I'm Tom Corbett in Hong Kong.
And I'm John Lee. This podcast was produced by Clara Chan and you've been listening to the Asia Centric podcast