AAH #809 - China, Canada and Cars

SPEAKER_1 (0:00)

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Gary Vasilash (0:22)

Hey, everybody. Thanks for joining us today.

I'm going to do something a little bit different. We talk a lot on this show about China and China's speed, and so we're actually going to have someone on the show who can break it all down for us and give us a better understanding. So I want to bring back Edgar Faler, who has been on the show before. He's with the Center of Automotive Research. He's the principal mobility analyst. Then oddly, they have EnStrategy in your title. I don't understand how that works, but never mind that. My favorite guest, Doron Levin, who is with Seeking Alpha among many other things. The man is just a jack of all trades and master of all.

Doron Levin (1:07)

Thank you, Gary. Thank you for being on the show.

Gary Vasilash (1:10)

All right.

So, Edgar, you and your team out at Carr did research into why China is so successful in the auto industry. So give us some insights into this.

Edgar Faler (1:24)

Thank you, Gary. Thanks for the opportunity to talk today.

So we were getting a lot of requests from industry for facts about China. And so we set about trying to look at at China because there's so many different things happening and really trying to understand that success and trying to break it down because as we're doing the analysis, you quickly realize it's a very complex issue. And there's a number of sort of success factors that contribute to how they compete and their success of late. So we set about looking at all of them. We published a white paper which folks can find on our website. There's about 300 PowerPoint slides behind that. And we tried to break it down as succinctly as we could into some of those factors. So some of those we mentioned are setup, what's the history of the industry. Because when you look, maybe folks are surprised at the speed and how the success of late, but you can go back five decades to really look at how that ecosystem has evolved over time. It's just maybe perhaps of late that folks are a little surprised at how successful it's been of late and some of that. We looked at the supply chain, where do they have deliberate strategies around this strong planning and you can go online, you can find some of the strategic plans that the Chinese government has put forward and long-term view.

So we were looking at where are some of those strategic choke points in the supply chain, what makes them so successful, where do they have leverage and that we looked at speed, which is often talked about a great deal in the industry. How fast really are they?

And they're fast, but and some folks talk about an 18 to 20 month development product cycle. And yes, it can happen, but we were looking at what's your starting point. Is that truly 18 to 20 months? Is that a top hat, a refresh? Is that a full vehicle design? We looked at sort of the, is our CEO Elizabeth Creer called saturation. It's no secret that they have a lot of excess capacity. And what role does that play globally? Subsidies.

What do those look like? What's the state support? And then some of the sales success they've had. You can look just south of us to Mexico and look at how successful they've gone from nothing to capturing as much as 14% of that market in a very, very short amount of time. So we try to think about it because we think it's very complex. We think it's really driven by at the provincial level, not necessarily just the national. Looks like to talk about it as the national government and that. But so that was sort of the foundation of the research and that's how we've been looking at China.

Gary Vasilash (4:36)

So if we take these and walk through them, okay. So in terms of the setup, I mean, you mentioned that there's a long history there. So in your report, which you can, as you mentioned, is cargroup.org.

Edgar Faler (4:49)

Yeah.

Gary Vasilash (4:50)

So you guys are right. Between 1980 and 2000, foreign automakers entered the Chinese market through restrictive joint ventures that limited foreign partners' ownership to 50%.

Technology transfer was an explicit requirement. Engineering expertise, manufacturing know-how, quality improvement systems, product development processes, and best practices were transferred to the Chinese domestic partners. So basically, the Western automakers went in and said, hey, this is how you do it.