Tesla's Finally Getting a Manufacturing Foothold in China

Illustration for article titled Tesla's Finally Getting a Manufacturing Foothold in China
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Tesla forges ahead in China, Ford maybe forges ahead with a VW partnership, hot J.B. Hunt trucking news, and much more. This is The Morning Shift for October 17, 2018.


1st Gear: Tesla’s Spending $140 Million to Acquire Land for ‘Gigafactory 3' in China 

The others are in Fremont, California, and Buffalo, New York. But Tesla’s China play is arguably the most important for the company’s long-term ambitions, since the ever-growing Chinese market is Tesla’s second-biggest outside of the U.S.

Tesla announced Wednesday that they had made the agreement to buy over 200 acres in Shanghai, just the start of a broader plan to spend billions building a factory that could manufacture a half-million cars a year. (We’ll believe those numbers when we see it.)

From the Associated Press:

Local production would eliminate risks from tariffs and other import controls. It would help Tesla develop parts suppliers to support after service and make its vehicles more appealing to mainstream Chinese buyers.


Tesla has yet to say how it will pay for the Shanghai factory. The company has yet to give a price tag but the Shanghai government said it would be the biggest foreign investment there to date.

Tesla’s $5 billion Nevada battery factory was financed with help from a $1.6 billion investment by battery maker Panasonic Corp.

Those last couple grafs hint at why you should treat this news with some skepticism, since Tesla’s long-term funding has always been in question. I guess they’re happy to go down swinging, though.

Now as Bloomberg also reports, it’s kind of a rough time for a big China expansion:

But with the first cars from any new factory still years off, Tesla and its billionaire founder and Chief Executive Officer Elon Musk face a Chinese car market poised to shrink for the first time since at least the 1990s. President Donald Trump’s trade war with China has led to higher Chinese tariffs on American imports, stoking concern about an economic slowdown. As competition increases from local players, time isn’t on Tesla’s side.

“They need to do things fast,” said Yale Zhang, managing director of Automotive Foresight Shanghai Co. “In China it’s always the fast fish eats the slow fish, not the big fish eats the small fish.”


But, hey, China’s government is pushing hard for EVs there to counter the country’s horrific air pollution. The market may be rough now, but long term this is a smart move for Tesla.

2nd Gear: Car Sales in Europe Are Plummeting

New car sales aren’t just down in China, either. Registrations are down 23 percent in September, according to Bloomberg, mostly because automakers are having a tough time grappling with new emissions regulations.


Sales are expected to bounce back in the coming months as automakers get used to the Worldwide Harmonised Light Vehicle Test, which has been in the works since long before Dieselgate.

Those regulations have led to delivery short falls as automakers have been forced to comply with regulations by Sept. 1.


Here’s more from Reuters:

Registrations fell to 1.12 million cars in European Union and European Free Trade Association (EFTA) countries last month from 1.47 million in September 2017, Brussels-based ACEA said.

Volkswagen Group sales fell by 47.8 percent, Fiat Chrysler by 31.4 percent and Renault by 26.9 percent, according to the data. The French carmaker’s alliance partner Nissan (7201.T) also recorded a 43.8 percent decline.


From Autocar back in April:

That the tests are complex is not in doubt: engineers at Mercedes-Benz estimate they take twice as long as the previous – and now discredited – New European Driving Cycle (NEDC) test, and that the legislative requirements, including paperwork, are currently “turning jobs that took weeks into ones that take months”.

Discussions about the new regulations began in November 2007 at the United Nations Economic Commission for Europe (UNECE), when concerns at the mismatch between NEDC and achievable real-world figures first hit the headlines. That the new regulations arrive so soon after the Volkswagen-instigated Dieselgate affair is mostly coincidence, but their implementation sped up and industry opposition faded quickly in the face of the scandal.


3rd Gear: Republican Senator Wants to Lift Cap on Electric Vehicle Tax Credit

Five days after it emerged that a different Republican senator, John Barrasso of Wyoming, introduced legislation to end the tax credit, Reuters reports that Dean Heller, Republican of Nevada, has proposed something similar, but with a twist.


Heller’s legislation would lift the cap on electric vehicle tax credits for now, while ending it altogether in 2022. That would mean that Tesla, GM, and others could keep selling cars eligible for the credit in the meantime. Tesla said last week that only orders taken before Monday would be eligible under current law.

From Reuters:

Both GM and Tesla have lobbied Congress on the issue, according to federal disclosure reports and interviews with lawmakers. Tesla declined to comment.

GM declined to comment on the Heller bill but said it is important “to provide a federal tax credit for consumers to help make electric vehicles more affordable for all customers.” GM Chief Executive Mary Barra has called for lifting the cap.

Other automakers are split over whether to back the effort. Some automakers think the credit should be limited to vehicles below a certain price, while others argue Heller’s bill would penalize automakers that have not started selling EVs in big numbers.


It’s a good move. But the year 2022 is still pretty aggressive to phase out the tax credit altogether, since, for most OEMs, that’s about when their full electrification plans will begin to be realized.

4th Gear: Huh, If You Pay Workers More, They Become More Interested in Working for You

The U.S.’s largest trucking company was facing a driver shortage when it decided to increase driver wages by around ten percent. Shockingly, their plan worked.


From Bloomberg:

“We have been recruiting drivers very well in this difficult market because of the pay that we’ve been able to price into our deals for our drivers,” Nicholas Hobbs, president of the contract-services business, said Monday on a conference call following the Lowell, Arkansas-based company’s third-quarter earnings release.

The comments add to anecdotal signs that wages and perks in the industry are picking up as customers seek shipping services to meet solid demand amid the lowest unemployment since 1960s.


Let this be a lesson to every company looking for a creative solution to solve their staffing crises.

5th Gear: Ford and Volkswagen Might Team Up Soon on Something Big

The two companies signed a memorandum of understanding in June to let the companies further explore a possible partnership, and, according to The Detroit Free Press, it makes a lot of sense. On paper, any partnership is almost a no-brainer, since Ford is strong in the States but not as much anywhere else, while Volkswagen has the opposite problem.


From the Freep:

VW is talking to Ford “about various projects” with a “clear focus on light commercial vehicles,” [Thomas Sedran, the new chairman of the board of management of Volkswagen Commercial Vehicles] has said. “Although Volkswagen is the largest car manufacturer in the world, we still don’t have the scale in certain areas to achieve optimal cost positions.”

Asked if VW Commercial Vehicles and Ford would “carry out production together,” Sedran responded, “All this is part of the talks. I must ask for some patience here.”

Together, the iconic German and American companies could dominate the industry.

Ford makes nearly 40 percent of all full-size pickup trucks sold in the United States. And VW sells nearly 15 percent of the vehicles purchased in China, the largest auto market in the world.


Light commercial vehicles could just be the beginning, though. You can read more at the Freep about all the possibilities, but I’ll just note that Ford, historically, has not played well with others.

Remember when Ford owned Volvo and Jaguar? Oh, also, most of Mazda? Those didn’t end in success, exactly.


Reverse: It Was All Just Beginning


Neutral: What Does Ford Look Like in 10 Years?

I genuinely wonder.

News Editor at Jalopnik. 2008 Honda Fit Sport.


4th Gear - I’ve had this exact conversation with my FIL everytime he complains about how hard it is to find workers. He’ll then argue that they’re paid enough and that the people they find are just lazy. Its basic economic theory. If there’s a tight labor pool, you need to pay more to get better workers, ie. “you get the workers you’re willing to pay for”. That may mean you need to pay more than the competition to lure away their workers.

My company is going through something like this at the moment. Some of the junior people realized that instead of traveling half the week, they can go to work for companies outside our industry for 20% more. The ones who stayed realized that they’re being underpaid as a result, and now management is scrambling. Not sure what the outcome will be, but they seem to be taking it seriously.