Can the US turn around its car industry without China? | Transforming Business (2023)

Introduction

Chinese companies are pushing deeper into the global EV market. Now the US wants to supercharge production -- on its own terms. Its $370 billion Inflation Reduction Act aims to boost the share of electric cars on US roadways by relying on production and supply chains across North America -- and excluding China. But can it work? And can automakers and workers handle the transition?

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Video

An electric car, Revolution shaped by trade tensions.

The U.S is losing ground to China in the global EV race to catch up it's pouring money into the car industry.

But only for its closest trading partners.

Now the best chance to clean up U.S auto emissions hinges on car.

Makers, building new local Supply chains, quickly it's good to have goals it's good to be ambitious.

But we really can't lose sight of ground realities in this episode of transforming business we'll, look at the massive U.S subsidy program for EVS the race to build electric vehicles across the continent and how growing trade disputes could actually slow the decarbonization of the U.S and Global car markets.

Our question can North America launch its own electric car Revolution.

And we begin here in Spartanburg South Carolina.

Since the early 1990s home to the largest U.S production facility for German car maker, BMW.

It turns out some 1500 cars daily and that in the middle of a transformation.

A one billion dollar expansion is preparing the factory for New.

Electric, Vehicle, Assembly lines BMW wants half its car sales to be electric by 2030.

it's.

Just one of many car makers announcing big Investments across North, America, four, GM, Toyota and Honda have all pledged billions of dollars on new battery production across the U.S in Mexico.

Meanwhile, Volkswagen Audi Peugeot and Fiat have released expansion plants to their factories.

Tesla.

Meanwhile, says, it's building an entire new facility in Mexico.

Each of those announcements coming after U.S, President, Joe, Biden signed.

The inflation reduction act in summer, 2022 it's, the largest climate legislation in U.S history, offering a staggering 370 billion dollars in subsidies for Renewables energy grid improvements and Mobility.

A transportation is the biggest source of greenhouse gases in the U.S accounting for almost a third of all emissions.

The U.S transition to Electric has slowed.

Meanwhile, both China and the EU have put more electric cars on their roadways in recent years.

And at faster rates the IRA now sets ambitious new goals for electric vehicles, including that they reach 50 market share in the US by 2030.

that's, compared to only eight percent last year.

The Lost Central lever is a clean Vehicle tax credit of seventy five hundred dollars for buyers of qualifying new electric vehicles.

Over the next 10 years, it's, a massive incentive for consumers to buy only those cars that meet the requirements and for producers to adhere closely to sourcing rules.

But more on that in a moment for the North American car industry.

The credit is a real boost.

And it comes at a significant moment.

Recently, it's been Chinese companies that have shown more Tempo in the EV Market, given that it's that signal to the overall EV supply chain.

Here there there's interest, there is excitement so interest, excitement that users investment alone in the first three months of the new law car makers, invested an estimated 33 billion dollars just in the U.S that's, according to the Center for Automotive Research it's investment that builds on a well-established production chain, stretching across North America, the groundwork for which was laid some 30 years ago, that's when the U.S Mexico and Canada signed the North American, Free, Trade Agreement.

The three nations believing that lowering trade barriers would create more prosperity for all of them.

But opposition to the measure was high Auto worker unions in particular were concerned about foreign products, creeping into the supply chain and eroding the domestic production base.

So they push for a sourcing rule.

Some 62 and a half percent of the total value of the vehicle had to be produced in North America NAFTA, essentially created an auto production chain that stretched from one end of the continent to the other and turned Mexico into one of the world's Automotive heavyweights.

The Mexican automotive industry is at the same technological level as the international automotive industry.

In fact, Mexico is the sixth largest automobile producer in the world.

There are 24 plants, assembling cars or components for the major Automotive brands of Mexico.

And all of them are preparing in varying degrees to integrate into production of electric cars.

Um, the controversy over NAFTA led to further changes.

Meanwhile, U.S president Donald Trump, a Critic of the agreement renegotiated it in 2020.

He raised the local sourcing requirements once again, this time to 75 of a car's value.

In other words, despite the skepticism around NAFTA, the latest changes didn't, substantially alter the supply and production chains across the continent.

The new American law of the IRA also has sourcing requirements.

The ones we mentioned earlier, but despite North American Supply chains, having grown closer together of the Decades meeting, the new rules is still going to be a stretch for car makers and that's because of the complexities surrounding battery sourcing and production it's a little complicated.

But listen to this to qualify for the full 7, 500 subsidy.

Fifty percent of the vehicle's battery components.

Think of the battery cell or the collection of anodes and cathodes must come from North America or one of the other 20 countries with which the US has a free trade agreement that percentage then Rises each year by 10 percent until reaching 100 by 2029., the other part of the vehicle credit depends on the critical minerals that make up those components, the copper nickel, graphite and Cobalt.

For example, this year 40 must originate from North America or again, other free trade countries.

And that figure Also Rises by 10 annually before topping out at 80 percent.

Another challenge for automakers final assembly of all vehicles must take place in North America or in another free trade partner of the US and then beginning in 2025, the new law prohibits sourcing components and minerals from China altogether and that's.

A problem China is the world leader in lithium-ion battery manufacturing accounting for 79 of total production capacity, the US pales in comparison and that's.

Just lithium finding alternative sources.

Won't be easy.

The US has some critical mineral deposits as do free trade, Partners like Canada, Australia and Chile.

But experts say most nations are still at the earliest stages of extracting and refining and it's a process, that's actually quite dirty and complicated.

So we're, not looking at any quick solution for this key element in the whole, um battery process.

If we simultaneously, insist we're not going to do business with China car makers in the European Union in Japan, neither of which has a free trade agreement with the U.S are especially critical of the assembly and sourcing requirements, but all car makers are likely to struggle with the rules, the electric vehicle industry, it's it's vast.

It has a lot of stakeholders involved.

And you need all of those stakeholders all hands on the table as they say, right for a transition.

So in that respect, once you get a more complicated credit, it's, it's tougher to to see how fast that transition can go companies are dealing with more than just sourcing problems retraining entire workforces and finding new workers while still meeting Ira timelines is going to be difficult at the BMW plant in Spartanburg training is a central part of the transition to Electric last year.

The car maker opened a 20 million dollar facility for Hands-On courses in robotics and electrification.

The switch from internal combustion engines to Electric drives, isn't a small change experts say, touching virtually every aspect of the vehicle and production.

The vehicle is designed differently.

It's built differently.

All the things about how the vehicle is is built all the way through the process, even handling the different components.

What required is in order to handle them.

So we also have training for our Logistics colleagues for everybody that touches a piece of the car that could be impacted by the change from internal combustion to high voltage all the way through to the operation of the vehicle, the testing of the vehicle from Japan to India and the US getting workers like these ready in time is a massive challenge, especially if companies want to get the most out of the IRA I think it is very very urgent.

If um, if there's something that I think cannot be disputed it's, how fast the transition has accelerated in the past couple of years.

And especially last year as I mentioned, there are huge policy pieces, such as the inflation reduction reduction act.

But also in Europe in other places around the world, a lot of policies really pushing for electrification of the industry across segments.

So that means that over the next three to five years companies really need to do everything in their power to be able to fulfill production targets that they have set up set out.

And for that again, they need the people a larger question Looms in the background, fewer workers are ultimately needed in the production process for an electric car, compared to a traditional car.

Even as companies retrain many current workers, there likely won't be enough jobs for the same Workforce in the future.

Studies vary on exactly what that will mean for the current Workforce.

And whether that transition will happen through normal turnover, or if it will be more abrupt depends on how fast electric vehicles come in, but will the shrinkage take place to what I would say, normal retirement and exit, or will it be so fast that you're going to have? You know, real layoffs, whether automakers in North America can truly supercharge electric production will hinge on questions like labor and sourcing and that in turn will determine how quickly the U.S can decarbonize its Auto sector, The Independent, Center for Automotive Research, warned that the IRA May, in fact, hinder the EV Market, citing supply chain and regulations.

In other words, the best chance yet for the US to transform its Auto sector might be undermined by the very design of the program and it's, no accident that those rules are there.

The U.S like many other nations is racing to support its own Industries driven by changing Technologies Global competition.

And of course, domestic politics today, if you want an electric vehicle with a long range, you can buy one made in America.

If you want one at charges quickly, buy America, you want one that's fast in the quarter mile by American.

But at a time, when every electric auto is important, limiting Choice comes with consequences.

This is just another brand of buy America first it's, more costly than the evidence on that is very strong.

And secondly, the delays and in this particular area, I think the delays will be significant.

So that fights against the decarbonization aspect of this whole Ira Initiative for car makers.

The new Push by Washington is simply good business, North America, a good investment.

But it's also an example of how the political priorities in one country can conflict with broader climate goals.