Explanation Trifecta EV: Elon / Tesla, EU, and China

Berlin 2.01am (Sept 15) / Beijing 8.01am (Sept 15) / DC 8.01pm (Sept 14)

Bragging by Chief EU Ursula von der Leyen has NO idea what 'subsidies' is to begin with. Those Chinese EV sold in the EU and America and even in Asia are far more expensive than they were sold in China. The 'cost of sales' into the EU and America is already high due to meeting technical regulatory requirements.

Imagine in Indonesia: actually all brands of EV (not only China automakers) are still expensive, but “not too expensive” like in Europe or America. Imagine if Tesla and all brands invest to build factory in Indonesia (*so: not only the GigaFactory of Tesla). One day EV in Indonesia may be just around IDR 42 million (US$3000). 

At least the TRIFECTA side of EV, currently happening, and complicated, and also a very good lesson for every country, especially Indonesia — try to be “Detroit of Southeast Asia.”

First. EU Chief Ursula von der Leyen opened an investigation about “TOO CHEAP” China EV. Europe is opening a probe into China with respect to EVs claiming they are keeping prices artificially low by huge state subsidies. This investigation “lookalike” old song of competition “AIRBUS vs BOEING” for decades: both sides (EU and US) accused received a gigantic subsidy. 

At IAA Mobility 2023 in Munich, traditional German car giants like Volkswagen, Mercedes, and BMW are struggling to catch up in the electric vehicle (EV) market, overshadowed by specialized companies like Tesla and China's BYD. BYD has notably doubled the combined EV sales of the three German brands in the first half of 2023 and is now setting its sights on Europe. European consumer receptivity to BYD remains uncertain due to existing stigmas about Chinese-made cars. BYD number is higher than tesla even.

Even if the EU bans Chinese EVs from the EU, the future growth & profits of Volkswagen, BMW, Mercedes, Peugeot, Volvo, Renault, Citroen etc will forever be impaired as Chinese EVs dominate (currently) the rest of the world. Chinese EV dominant is "lookalike" NOKIA in peak performance 2 decades ago. At some point the EU just won't be able to catch up to BYD unless they accelerate their R&D now. (Again) Finally NOKIA fell from the throne because Samsung, apple, Huawei, pushed gigantic budgets for R&D.

With price of oil now between 89-93 dollar per barrel, of course EV will be more interesting stuff. Brent settled at USD 91.88/bbl, WTI settled at USD 88.52/bbl. A step before 93-94 dollars.

Second. Elon Musk “favors” or “leaning” to the Beijing side, and pushes the narrative that the US and EU (or: entire West) should admit that Taiwan is part of China and not push a (potential) war in / between China - Taiwan. Volkswagen is having a tough time selling enough mostly made-in-Germany electric cars to challenge Tesla Inc.’s global dominance. While Chinese electric-vehicle manufacturers are making some headway in Europe, their sales pale in comparison to market leaders like Volkswagen, Tesla and Stellantis.

One person who already met Elon Musk is (Indonesia) Minister (Retired General Army) Luhut Binsar Pandjaitan, “jack of all trade” for President Joko Widodo. Mr. Pandjaitan mentioned that he recently had a meeting with Tesla CEO Elon Musk to discuss Indonesia’s economic development and the current condition of Tesla Inc. The main focus of the investment appears to be on the manufacturing of materials for lithium batteries, which are crucial components of electric vehicles (EVs).

While it seems that Tesla is not considering a vehicle production facility in Indonesia at this time because Tesla’s plan in Mexico (build Gigafactory) is postponed, plans for a battery materials plant are underway. Meanwhile, Tesla recently filed to implement a US$700 million expansion at Giga Austin.

According to the Elon-Luhut meeting, Elon was really worried about potential (new) war between China - Taiwan, because (war) Russia - Ukraine caused a recession across the globe, and also made it more difficult to sell a Tesla. 28 Hours ago, The United States is set to allocate up to $320 million in additional military support to Taiwan.

Elon Musk drew scathing criticism from the government of Taiwan after he described the self-ruled island as China’s equivalent of Hawaii, with the Taiwanese Foreign Ministry implying the Tesla CEO had sold himself to Beijing.

Same meeting, (according to Luhut) Elso also says that Tesla already built 3 million Teslas but only sold around 1.8 million. Elon tried to make sure Tesla finance was very healthy, not like GM or Ford (was nearing bankruptcy) after oversupply. The specter of a global recession, increased competition from Western and Chinese EV manufacturers, and the brand damage from Elon Musk’s Twitter-related antics do not appear to be a factor in Tesla’s production capacity calculus.

Last January, according to Reuters and Bloomberg, (plan of) Gigafactory in Indonesia to target 1 million unit installed capacity. But this is logical if Elon postponed not only (Gigafactory plan) in Indonesia but also in Mexico, when Elon Musk said that Tesla already built 3 million units but sold only around 1.8 million units.

40-42% of Tesla worldwide sales is in China. And even with a gigantic “market” like this, the price of a Tesla in China is still too expensive. Elon was admitted (on 29 May - 1 June, when meet former Foreign Minister Qin Gang and visited several cities in China) Tesla must work harder to compete with every China automaker in the EV business. Even Elon throws shade that FORD already resigned from the competition of selling EV in China. 

Former Germany Chancellor Angela Dorothea Merkel is from Christian Democratic Union, not from Green Party Germany/Die Gruenen. Merkel is a scientist, pro green. But she is facing a dilemma to boost sales of German automakers after the Volkswagen scandal. Worried about a lot of layoff between automaker cars after the VW scandal (danger for her Chancellor seat), she compromised, made several decisions which ensured German cars kept selling high-number (at home; abroad), preventing a calamity of layoff in the autocar industry.

China was denied joining, or denied entering the ISS (International Space Station), so China makes “own ISS” from scratch. Head NASA and Elon admit, if the US government is “too low (budget)” for spending on space programs, by 2050 or earlier China will surpass the US. 

China got banned on semiconductor, chips, everything about tech stuff from West allies PLUS South Korea - Japan, and since 3 weeks ago already launched a new variant of HUAWEI. In China, a joke circulated that apple just re-set USB type (on the new variant of apple, to fulfill T&C in European soil), in other side Huawei already made a cellphone with “stealth and satellite function”, a stark contrast. 

Imagine after EU Chief Ursula investigating China EV: 

“ah, the West is very jealous with our (Chinese people) ability because we can make an EV with price only US$600, so now we (Chinese people) push harder our capability to make an EV with price US$300 but with more tech function or more sophisticated stuff.”

So, the EV issues in the last 53 hours are actually between three sides: EU - Tesla / Elon Musk - China. 

China is so far ahead in the electric vehicles market that its competitors are trailing in the dust. The complaint that China’s success is down to a multi-decade government-planned effort is both true and slightly academic at this stage.

The country’s accumulated advantages are daunting. It controls two-thirds of global capacity for processing lithium, the raw material for batteries, and dominates every aspect of battery production. It produced 10 times as many battery vehicles last year as Germany. It has a manufacturing cost advantage of perhaps 20 to 25 per cent. Shipping costs (as well as 10 per cent tariffs) have narrowed that gap but will become less important as China’s exports rise, particularly of the affordable mass-market vehicles that face little European competition."

Basically China foresaw the future would be electric cars, and developed a smart industrial strategy around it while Europeans (and Americans) got complacent and rested on their laurels. Instead of being mad at China for being better, or erect trade barriers that'll only reward the complacency and make it persist, the EU should use this competition as a good opportunity to wake up and change its ways.

China has a 25% car import tax to invite foreign car brands to produce locally, which is what most of them do. It isn't to shield themselves from the competition, it's for jobs. Of course, one of them is Tesla, already has a Shanghai - GigaFactory. Imagine if Indonesia get a huge investment, such as GigaFactory and (even) railway station, like in (GigaFactory) Berlin.

When you basically declare the conclusion of your investigation in the tweet that announces it, you just know it's going to be a very fair and unbiased process. "China keeps their EV prices artificially low by huge state subsidies! Today we announce an investigation to see if China keeps their EV prices artificially low by state subsidies". Beyond parody.

The irony is that China doesn't even need to do subsidies since it naturally has huge cost advantages due to cheaper energy prices (we all know why...), and efficiency due to its massive market. Just because Germany faces significant cost increases in its energy intensive industries, China on long term contracts does not have to subsidize companies that are way down their learning costs curves because of a massive domestic market.

Awkward, hours ago, Volkswagen is cutting temporary workers at its main electric-vehicle factory in Germany because of waning orders for its EVs in Europe. "Volkswagen AG is cutting temporary workers at its main electric-vehicle factory in Germany after the phaseout of a subsidy in the country caused demand for its EVs to drop." EV manufacturing is a racket requiring perpetual subsidization. The PBO estimates it will take 20 years for the Ontario provincial and federal government to break-even on the subsidies they gave to Stellantis-LGES and Volkswagen for EV battery plants. The original break-even estimate for the Volkswagen deal was 5 years.

Days before meeting former Chinese FM Qin Gang, Elon Musk decided that Tesla has begun producing in Shanghai Giga-factory a version of the Tesla Model Y to be sold in Canada this year, the first time it will ship cars to North America from China. This is just 3 days after Canada administration PM Justin Trudeau deals with Volkswagen, signing an unprecedented contract with the company to offer up to $13 billion (it was Canadian taxpayer money that bought it) in production subsidies over 10 years especially for VW factory plant in St Thomas Canada, effectively matching the U.S. incentives on offer.  

=========END————

Thank you, as always, for reading. If you have anything like a spark file, or master thought list (spark file sounds so much cooler), let me know how you use it in the comments below.

If you enjoyed this post, please share it.

______________

If a friend sent this to you, you could subscribe here 👇. All content is free, and paid subscriptions are voluntary.

——————————————————————————————————

-prada- Adi Mulia Pradana is a Helper. Former adviser (President Indonesia) Jokowi for mapping 2-times election. I used to get paid to catch all these blunders—now I do it for free. Trying to work out what's going on, what happens next. Arch enemies of the tobacco industry, (still) survive after getting doxed. Now figure out, or, prevent catastrophic situations in the Indonesian administration from outside the government. After his mom was nearly killed by a syndicate, now I do it (catch all these blunders, especially blunders by an asshole syndicates) for free. Writer actually facing 12 years attack-simultaneously (physically terror, cyberattack terror) by his (ex) friend in IR UGM / HI UGM (all of them actually indebted to me, at least get a very cheap book). 2 times, my mom nearly got assassinated by my friend with “komplotan” / weird syndicate. Once assassin, forever is assassin, that I was facing in years. I push myself to be (keep) dovish, pacifist, and you can read my pacifist tone in every note I write. A framing that myself propagated for years.

(Very rare compliment and initiative pledge. Thank you. Yes, even a lot of people associated me PRAVDA, not part of MIUCCIA PRADA. I’m literally asshole on debate, since in college). Especially after heated between Putin and Prigozhin. My note-live blog about Russia - Ukraine already click-read 4 millions.

=======

Thanks for reading Prada’s Newsletter. I was lured, inspired by someone writer, his post in LinkedIn months ago, “Currently after a routine daily writing newsletter in the last 10 years, my subscriber reaches 100,000. Maybe one of my subscribers is your boss.”  After I get followed / subscribed by (literally) prominent AI and prominent Chief Product and Technology of mammoth global media (both: Sir, thank you so much), I try crafting more / better writing.

To get the ones who really appreciate your writing, and now prominent people appreciate my writing, priceless feeling. Prada ungated/no paywall every notes-but thank you for anyone open initiative pledge to me.

(Promoting to more engage in Substack) Seamless to listen to your favorite podcasts on Substack. You can buy a better headset to listen to a podcast here (GST DE352306207).

LIEBLINGSPRODUKTE click here

Listeners on Apple Podcasts, Spotify, Overcast, or Pocket Casts simultaneously. podcasting can transform more of a conversation. Invite listeners to weigh in on episodes directly with you and with each other through discussion threads. At Substack, the process is to build with writers. Podcasts are an amazing feature of the Substack. I wish it had a feature to read the words we have written down without us having to do the speaking. Thanks for reading Prada’s Newsletter.

Wants comfy jogging pants / jogginghose amid scorching summer or (one day) harsh winter like black jogginghose or khaki/beige jogginghose like this? click

Headset and Mic can buy in here, but not including this cat, laptop, and couch / sofa.