US President Donald Trump has threatened tariffs on a number of goods coming into the country, and that's including autos. There's still a lot of uncertainty, but what is threatened so far is twenty five percent tariffs on all cars coming into the US as early as April, and that's in addition to a slow of other charges on Mexico Canada steel and aluminum and more to come.
Tariffs threatened to raise the price of a car in the US by thousands of dollars at a time when US consumer confidence is already weakening and some economists are even seeing the risk of a recession. It also comes at a bad time for American car makers, who are already facing challenges. The tariffs also threatened companies in South Korea and Japan, major suppliers to the US. Meanwhile, China's ev makers continue to gain market share.
We're listening to Asia Centric from Bloomberg Intelligence. I'm John Lee calling in from Hong Kong, and I'm.
Cart Tom Treva, also in Hong Kong.
Today we've got Steve Man, Global Autos and Industrials research manager from Bloomberg Intelligence. He's been a regular on the podcast and he's dialing in from Princeton, New Jersey. Steve, Welcome to the.
Show, Thanks John, Thanks Katia, happy to be here.
Glad to have you on to unpack all this for US. So, President Trump has threatened twenty five percent tariffs on all autos coming into the US. So maybe big picture, if these tariffs were eventually to go through, which is an if in April, what would be sort of the biggest impact that you're looking at in the auto space.
I think this time around, he's really going to implement the tariffs on autos and it's going to impact every automaker as well as the global auto supply chain in a significant way because he really really want to bring some of that manufacturing back into the US. No, he's asking that question. If Tesla can produce cars a profit in the US, why can't the Big three? Right, So, you know a lot of the cars are still built
in Mexico and Canada. As of twenty twenty four, three point six million vehicles that are sold in the US and are built in Mexico and Canada. That's out of sixteen million, So it's a significant chunk. And the terraffs are not only going to be applied to Mexico and Canada, it's going to be applied globally, and that's going to impact half of the auto sales in the US because half of those are are all imported from somewhere else.
Steve, how much will it increase the price of buying a car in the US if these tariffs were to occur.
Yeah, that's a really good question, John, because there's different ways of looking at it. If you just look at the tariff itself, the twenty five percent, we act estimate that it's going to increase prices for the consumer or the automakers will have to absorb, or the auto supplies will have to absorb about thirty five hundred dollars per vehicle. That's significant, especially you know what Katya was saying earlier. The auto market is not that healthy at the moment
in the US. That demand is not that healthy. But if Trump says, oh, you're going to have to bring some of that production back in the US, wow, automakers
in the supply chain will have to spend billions. We dis some quick analysis like if they have to shift just an example, about one hundred and fifty thousand units, that's about the size of a small assembly plant in the US that would cost between six hundred million if you're talking about ev to about a couple of billion dollars if you're building an suv a large pickup truck. So it's a lot of money these automakers have to spend.
You know, that's going to be a huge added costs and an impact on cash flow for the automakers.
So will that actually happen then? I mean, is there a world in which automakers just swallow the cost or raise the price, but don't necessarily go through the work of reconfiguring supply chains and building out plants because of course there's a human component too. I mean, will there even be people to work in these factories?
Yeah? You know, Trump is a pretty dead set about bringing manufacturing back. So there's a one month delay. April second is the day, right, he's going to implement these tariffs,
and that one month's delay. Look, automakers, the global auto supply chain can't really do anything in one month because the globalization of the auto industry really started in nineteen ninety four with the North American Free Trade Agreement NAFTA that was the predecessor to the current free Chair Agreement, which is the United States, Mexico Canada Free Chery Agreement, and so it took many, many decades to actually go global. To unwind all that, it's definitely going to take more
than a month. So I think what Trump is really looking for within this one month is for the automakers in the supply chain to really come back and give them some concrete plans, you know, how to bring some or all manufacturing back into the US. And the plan well likely needs to come with a timeline. I'm pretty sure he probably wants a lot of this done before his term ends, because you know, is in his second term as president.
And Steve, for the listener out there, how long will it take for an automaker to reshore into the US. So if they have a factory in Canada or Mexico and they decide to move it to the US, are we talking years?
Yeah, it could be years, it could be months. We also looked into that. For example, GM builds the Chevy Silverado, one of the best selling pickup trucks in the US as well as Canada. For GM, you know, the option is maybe shift some of that production back into a plant that builds the Silverado. In the US. You know, if they have capacity to do so, and all they would have to do, you know, they're going to have
to spend money, for sure, hundreds of million dollars. It probably just some of the equipment could be just lifted off the ground in Canada and then transfer it back into US. That could take a few months. Right, But GM's evs, all their evs are actually built in Mexico, new plants, a new assembly line. They don't have any duplication of manufacturing assembly in the US, So for them to shift that back it could take years. If they have to construct a new building, years to get the approvals,
any types of approval. They're gonna have to build the plant. They have to shift the production back, so it will take a couple of year, two three years if that's the case.
Which carmakers do you see being hit the most by these tariffs kind of globally?
I honestly think that Trump is really targeting the Asians and the European autos. Earlier we kind of alluded to Trump may not implement the tariffs as long as they have plans to bring production back. The other thing that we have to be cognizant of is the free trade agreement, the United States Mexico Canada Agreement. This is something that
Trump signed in his first term. It's his baby, right, you know, he's a businessman, and I think he will also keep his word, meaning that if the automakers meet what we call the local content rule within the USMCA. That means that so within the USMCA, as long as the value of the components of the vehicles, you know, with seventy five of the value of the component are built in US, Mexico and Canada, those vehicles are exempt from terroriffs. Obviously, he can bypass that if he really
wants to. But I think that he's going to cut a break for the Big three, especially a Big three, because you know, at the end of the day, they're American automobiles. I can't see why he would disadvantage, right, the American companies. You know, his mantra is really to make America great again, So he think he really wants to have the American automat makers thrive. So I think the terriffs will at the end of the day target
the Japanese, the Koreans, and the Europeans. You know, Hondas built a lot of their cars that are sold in the US and Canada, and they also import a lot. Same thing with Toyota. Toyota actually still imports a lot, especially like Lexus. There's only one model that they built in North America. Every Lexus that they sell in North America are built in Japan in Shandai. Same thing, a lot of the cars are built there in their home
country and Europeans. Volkswagen has a plant here in the US, has a couple of plants in Mexico, but you know, a lot of it is important. And then even more so with the German luxuries, you know, the BMW, Mercedes and Volkswagen. I think those automakers will have to really brace for the cost hit that they're going to experience with the higher tariffs and state.
On a macro front, even excluding these tariffs, there's a lot of news coming out that the US consumer is weakening and some economists are even talking about a recession in the US. Is the auto industry ready for this weakening macro picture?
Yeah, John, the auto industry is already in a recession. Okay, Okay, sales have slowed. Look at Ford Ford's fourth quarter and first quarter sales. It was down in the teens. Part of it is related to some changeover on their popular vehicles. But if you listen to all the conference fourth quarter earnings calls from these companies, they are guiding down earnings. They are facing pricing pressure, and a lot of that is actually due to Stillentistalentis is based in Europe, but
their biggest businesses in the US. You know, they have the Dodge brands, they have the Chrysler, they have the Jeep brands, and they can't sell vehicles. They had even new twenty twenty three models on their dealer floors. They had to cut prices left and right. They cut production just to manage inventory by a third, you know, they cut production by a third and a fourth quarter. So the US auto industry is actually in the cycle of
price cutting and managing inventory and cutting production. I think you will see more of that in twenty twenty five.
So if the auto industry, as you say, is already in such dire straits, you add tariffs on top of that and potentially, as you said, billions of dollars in costs to relocate. So where does that lead us in a year or two could we potentially see some of these companies fail or even more severe issues.
Well, yeah, I think it's really hard for the automakers to pass those tariff related costs along with the consumer right now. You know, maybe Toyota can do it because if you look at all the brands, Toyota's actually has the smallest dealer inventory in North America. They have thirty days. A lot of them are above sixty days, some are at ninety days. Stialentists I just mentioned earlier. Some models
are over one hundred days. So it'll be really, really hard for the automakers to actually pass those costs along to the consumer. And optimistically it's going to take a couple quarters to actually foolse inventories to wind down, and that assumes that there's going to be more price cuts for the consumer.
Do you think investors know this or are pricing this inot?
I think some of that has already been priced in. You've seen the price action on some of these stocks. GM. They GM just announced very recently accelerated stock buyback program of two billion after I think they did about ten billion last year. Really, the stock they didn't even react to it. I think the investors are reading into it that, oh maybe they're anticipating lower earnings, and so they pre
empt that by announcing another accelerated stock buy back. So I think, you know, in the next couple quarters, when more news come out, I think the Lentis will still have to cut production. I believe that we're going to see increasing pricing pressure that's going to have an impact on earnings for these companies for sure in the next couple quarters.
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and share. Steve, what's happening with Tesla. We have to talk about this stock. The market calap has almost halved since December, and arguably this is the one company that should benefit from tariffs, right because they make all their cars in the US. Tell us what's going on.
There's a lot of noise around Tesla. It's a love and hate relationship long short, love and hate relationship with the stock. Politics aside, I really believe Tesla is at the cutting edge, right. I think they're really the only American automaker or Western automaker for that to compete with the Chinese in terms of not just EV. I mean, to me, Eve's old technology. I think the buzz is
really on autonomous vehicle and AI. Tesla is at the forefront in North America, in the Western world, the only one I think for now be able to effectively compete with Tesla. But you know, Tesla is going through some pain h and again politics society. There's a lot of noise around where Tesla stands in terms of his his political stance. Uh, you know, what he's doing for the government has really raised some eyebrows for a lot of people.
Musk with the Department of Government efficiency.
That's right, But you know, we're very you know, we're equity analysts. His political stance does impact the stock. But you know, I think I think the other thing that a lot of people don't realize and are not talking about it is the company is going through a model change. The model. Why you've probably seen pictures of its redesigned you know, inside and out, so a lot of it inside,
you know, under the cover we can't really see. But Tesla is not a GM, they don't have multiple models, so model why being their best selling model globally of any type of car. You know, if they have to shut down plants for a month, they shut down a plant in China and Shanghai for a month for that changeover, it's definitely going to impact sex. They stop producing the old one, and really they don't have another hot selling car that actually can offset. From a business perspective, I
think the company is going through a model change. I think the inflection point in terms of sales is actually in the second quarter. You know, orders from China has been really good. The other thing, you know, we're talking about Ton's vehicles. Tesla we started selling their full self driving autonomous vehicle and software in China for the first time, and I think if you follow Chinese social media, the reaction has been very positive. Everybody's been wild and amazing
how well that thing works in China. So second quarter I think we'll see definitely improvement. Third quarter, definitely improvement in sales.
So we were just talking about politics and the impact of politics on the brand. We're hearing about things like Americans boycotting Tesla as the sale in China has also been tough just because of the competition Chinese carmakers. How serious are these kinds of threats to the company.
Yeah, it's a huge threat, not just for Tesla. If we're talking about China. Let's talk about China first. The local brands are very, very strong. They've come up the curve quite rapidly over the last ten fears fifteen years on quality, and you know, they understand the consumer very well over there. If you look at the age of the consumer base on average, you're talking about thirty something for car buyers in China versus North America, you're in
the fifties. So the consumer there are much more open to the tech and that's more important to them. You know, what are the apps on the vehicles? What can the vehicles do for me? What are the voice activated apps that the car can do for me? That's more important for consumers over there. And the local automakers, you know, build cars and they're very savvy, very sophisticated now in terms of building these cars that cater to that age group.
So for automakers, it's really not their fault because their business have been very global. They can't just build cars just for China. They have the build cars for everybody in the world. So because of that, in terms of tech, in terms of user experience, user interface, they kind of lagged behind the Chinese and that's why, like going back to Tesla, you know, that's why they were very urgent
in trying to roll out FSD. They were actually blocked for some time and rolling out FSD in China because of data privacy issues, but they were able to clear it. And I think Tesla still has a cachet in China, even though from a market share perspective it's shrinking. If you look at absolute numbers in terms of sales, they are growing. Okay, they're not grown as fast because of a lot of the choices that the consumer have there.
But you know, I think Tesla, out of the Western auto makers again, they're leading the pack in building cars that cater to the consumer, the younger consumer in China and I would say probably the rest of the world.
Steve, you said something surprising. You think that electric vehicle technology is already legacy. You think it's already old technology. And now you're talking about ADAS or advanced driver assistance systems as well as you know, robotaxis. How did the Chinese automakers compete or how do they fare versus Tesla in this technology?
Yeah, you're right. In the EV is old technology. It's been around since the nineteen hundreds. Interesting point at Google charging stations in Chicago in the early nineteen hundred you'll see a bunch of them. It's just never got picked up. And everybody know internal commustionion engine became the standard. So automas driving is where the competition is now. It's actually where companies can generate the most profit building cars ev gasoline car razor thin margins. You can see Tesla's margin
coming down very sensitive to pricing to demand. Right where the difference is automas vehicle, cyber cabs be it cyber cabs. You know Tesla rolling out their own fleet and adopting the Uber lift d D model. You can see the margins. I think they're double digits for Uber and Lyft. But if say companies like Tesla or someone else like Xpunk for example, down the road, you know they can actually license the self driving software to other automakers, and those
margins are huge. You're talking about software type margins into sixties and seventy percent margins. So I think for automakers to succeed in the long term, they have to shift that business model to data, to AI, to self driving vehicles, you know. Staying put as a traditional car manufacturer, I think it's going to be a tough business. You can see with Nissan they're going through that right now. Nissan is having big problems not just on costs, but on demand for their vehicles.
Yeah, we had a question here on Nissan and Honda, but before getting to that, I want to get your thoughts on how far away we are from that future that you just laid out. I mean, in the States, you don't see a lot of you know, robo taxis or self driving cars yet you know, you do see them sporadically, But how far away? How many years? Maybe it's decades, Like when could we have that?
You know? Let's see. I mean Elon Musk is very ambitious, right you know, he are announced that he's going to roll out robotaxis in June. I think it's going to be in Austin, Texas, and then next one will be somewhere in California, and then you know his goal. We'll have to see if it happens. His goal is to roll out to multiple cities by year end, so it
could be sooner than later. Now, the predominant taxi operator has been WEMO in the US, so WEAIMO has rolled out to a few cities around the country, and it has taken them a few years to get to those few cities. And there's a reason for that because the technology that WEIMO us is quite different than Tesla. So simply put it, Tesla's autonomous vehicle technology allows it to
scale much faster than WEIMO. So Tesla uses what we call neural network, and then WEIMO still used the traditional algorithm. So neural network basically is a computer that teaches itself. As long as you feed it data, it'll learn, and it also create fictitious hypothetical driving situations that it'll learn. And so Tesla's vehicles theoretically you can PLoP it anywhere in the world and it should be able to drive itself.
And actually the China Exams sample we talked about is a good example because Tesla was not able to collect any road data from its Tesla vehicles running in China. The way they taught the car or just to like familiarize the car with Chinese roads, was actually through YouTube videos. But you know, the car, once you PLoP it on a road in China, it's still able to drive itself in a very safe manner based on what I've seen
on social media. Now, Waymo, Waymo's quite different. And Waymo uses algorithm millions and by billions of lines of codes to teach the system and then uses radars instead of a vision system like how you and I drive. So they have to program in, like if they're going to operate in Las Vegas, they have to program in all the road conditions, all the roads that in Las Vegas
for it to operate. So for Weymo to start operating a new city, you basically have to what they call geofence it meaning that it has to learn specifically the roads of that city for it to operate. So to answer your question, if this neural network, which not only Tesla is using to teach cars how to drive, xpunk is doing the same thing. So if neural network works, and you know, maybe robotax is a lot sooner than we think, and.
It sounds like robotaxi technology. It's a pretty much a two horse race between China and the US, Is that right?
Stave yes, But you know, Mercedes have been doing a lot of work around self driving. They're rolling out what we call Level three plus, so it's basically autonomous driving, and I think their vehicles can only operate autonomously on highways. It's more controlled, there's less variation than you see in city driving. But I think the leaders are really the US in China at the moment.
And going back to Honda and Nissan, so you'll forget what's the latest on that. There were kind of talks of merging, Nissan merging with Honda, discussions fell through. What are kind of some of the issues there?
Yeah, I think based on the fact that you know, they switched out the CEO, they may be making an attempt to kind of fix things on their own. But all the stuff we just talked about, how fierce of competition is in the auto industry, not just in the US now globally. Right with China, you know, not only out selling foreign automakers, foreign brands in their home turf, they're actually going global and there's not that much room for that many players in the market. So Nissan, they
haven't updated their vehicles for a while. At the same time, they've been cutting prices because they're not selling very well, they're cutting production. They're really in a spiral at the moment. They really need a cash injection at some point, so cost cutting alone is not going to help. It's more urgent, I think than a lot of people think. So they're
going to need some kind of cash injection. And if Honda is not the one, I wouldn't be surprised if they're looking for other suitors at the moment.
Are we going to get a big shakeout in the auto industry, especially for the legacy players because you mentioned this new technology and you need a lot of capex to spend on AI autonomous driving robotaxis. At the same time, you mentioned that Chinese automakers are gaining market share around the world, probably not the US, but outside the US. What's going to happen to all these legacy guys.
I think the legacy automakers are I would say they're on notice because the competition for autos, the profit centers for autos, is not building cars. It's really about the Autonoa's vehicles. So it's not the hardware, it's really the software. Now going forward, I think it's just a matter of time that we're going to see more and more consolidation and then the industry especially like I said earlier, the Chinese are looking abroad, you know, looking at overseas, and
they have very compelling product for emerging markets. That's why you see them in Southeast Asia, you see them in South America. You'll see them in countries that you know, don't have an auto industry, so they're open to Chinese, like Australia. You know, some of the best selling cars in Australia's are Chinese, the Great Wall, the Byds, you know.
Typically the emerging markets in some of the other developed markets like Australia, the dominant players have been the Japanese, have been the Koreans, you know, and the Chinese are bringing in vehicles that are very jazzy. They have really cool technology that can wow consumers, can entice consumer to actually buy their vehicles. So I think the traditional automaker of walking, they need to start running instead of driving fifty kilometers per hour, they need to be start driving.
They step on the accelerator driving one hundred kilometers per hour, and so to me, it's like it was really interesting GM, right, And I just saw the news GM exited Cruise. They basically shut down that operation. Cruise was actually their autonomous vehicle subsidiary. You know, that's where they put in a lot of money to develop technology. And there was an accident out west of the US a couple of years back and they set them back to a point where they just shut it down. And you know, I don't
know if that's the best strategy going forward. And that's why Tesla has a higher valuation, by the way, because they're spending so much cash on that future growth and where the profit centers are for the future auto industry and for company like GM. Through pullbag tells us a lot about the longevity I'll do these companies and white Tesla and others with technologies getting higher e valuation.
Okay, so automakers have to hit on the accelerator, Steve, that's a great way to end the podcast. Thanks for coming on.
Oh anytime. Very interesting discussion.
You've been listening to Age Eccentric from Bloomberg Intelligence. I'm John Lee in Hong Kong and.
I'm card digm True but also in Hong Kong.
You can find us on Apple Podcasts, Spotify, or wherever you get your podcasts. His podcast was also produced and edited by Clara Chen and thanks for listening.