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Culture War Roundup for the week of March 18, 2024

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It would be one thing if the auto industry was dying a natural death and Trump wanted to prolong it with tariffs. But that's not all that's going on, the Biden administration is actively trying to kill the industry by effectively outlawing gas cars. The EPA issued regulations that would force 60% of new car sales to be electric by 2030*. That's billions of dollars in capital investment not just for the Big 3 but also for their suppliers and for foreign brands with facilities in the US that will all go up in smoke based on a whim of the EPA. One advantage they have over China is experience in working with gas cars and with their existing capital. They aren't losing in a fair competition where consumers decided they want electric cars, they're losing because of regulations that target US manufacturers but not their Chinese competitors.

So it's not just about Trump passing tariffs to protect Detroit. Biden is shutting down one of America's largest industries by fiat and Trump can stop that from happening, at least temporarily.

*There are rumors that the EPA is going to push that target back a little bit but while it's easy to rewrite the regulations every few months it's not easy to reverse decisions to invest in factories that take years to build.

Yes, this is a great point.

If you look at the balance sheet of GM you will see $51 billion of "Property, plant, and equipment". Almost all of this is factories and tooling geared towards making ICE cars. Not only that, but almost all the engineers on their payroll are trained to make ICE cars.

This is a huge body of expertise that is about to be discarded wholesale (and very prematurely) in favor of EV's. And when it comes to making EV's, China will have a huge advantage.

Biden's rules will drown Detroit in a bathtub. Once the market share is gone, it's gone. There is zero chance of recovery. There is no market for American EV's made with Chinese batteries at American wages.

I'm sure they'll provide lots of government handouts to the affected communities.

EVs share a lot of the parts with ICE cars. Structure, doors, windows, seats, trim, suspension, wheels. If you consider hybrid ICEs, which most car manufactures already have a lot of experience with, this grows even more: batteries, electric engines, regen breaking. Moving to EV only does not require starting anew: you just ditch the drivetrain, and replace it with beefed up version of what you already do for hybrids. None of this is easy, but it’s not $51B of assets going down the drain.

This is just wrong. GM hasn't sold a hybrid (outside of a wacky Corvette model) in five years. The Volt was wildly successful, but it uses a now-dated central traction inverter and electrified transaxle design, which isn't a great choice for a full EV compared to per-motor or per-axle in-wheel or in-board hub motors. They might as well be starting anew. Ford at least has modern hybrid models, but they too are all central traction inverters. Meanwhile, SiC traction inverter tech has gone from impractical experiment to just about the only game in town in the last five years, which has completely rewritten the rules on the size, weight, and power tradeoffs required for hub motors. For these US automakers, modern EV tech might as well have fallen out the back of an alien spaceship, and they're clearly blowing billions on R&D trying to play catch-up on problems their competitors have already spent a decade solving and optimizing - just go look at how the F-150 Lightning was priced.

On a different note, most of the last ten years of hybrid battery development has used NiMH for its high reliability and large total cycle count, and this is yet another thing the US domestic auto industry is going to have to discard as they transition to Li-Ion.

Look at what Tesla is doing for an idea of the scale of changes needed. There is a reason they call their cell assembly plant a "gigafactory": the goal for Giga Nevada was to produce more capacity in 2020 than the entire world produced in 2014 (and on paper, this was achieved, though actual utilization fell short by around 30% for a variety of reasons). These guys crunched the numbers a decade before anyone at Ford or GM made so much as a whisper about fully electric vehicles, and determined they needed to have tens of GWh of vertically-integrated domestic battery production to get cell costs remotely close to viable at a run rate of a few hundred thousand cars a year (an order of magnitude below Ford/GM EV fleet annual expectations). In ten years, starting from nothing, Tesla's up to around 40 GWh total annual production capacity across every plant (more if you factor in grid storage capacity, which is a separate but thoroughly understated can of worms), with another 100 GWh coming online in the next few years. Ford is basically all-in on some CATL LFP partnership, having secured at least 60 GWh for through 2025 (on paper) and several other long-term deals for later; personally I think this is going to go poorly for them, reminiscent of the Foxconn debacle a few years back, but I leave room to be pleasantly surprised. GM appears to be working with LG Chem for high-nickel cathodes but on a significantly delayed schedule from their original plans. In neither case is it clear where the precursor materials are being extracted or refined, but I'd bet dollars to donuts it's mostly China. Best I can tell is these guys each expect around 120-150 GWh of annual production capacity sometime in the next few years. For reference, CATL makes around 30% of global Li-Ion supply and today has about 250 GWh of annual production capacity. I remain deeply skeptical of the US automakers' ability to execute on such lofty goals, particularly if they keep pumping out overpriced stinkers and falling behind on innovation, when their combined expectations for the next few years are to go from practically nothing to double-digit percentages of the global lithium battery supply, and all while buying their precursor materials at no-doubt strategically inflated prices from their primary competitor nation.

I'd estimate this EV investment is something like $35B in capital costs between the two of them. China is selling low-cost EVs to every other low-cost market on Earth, so once the US GHG rules kick in, it's not like Ford/GM can really continue selling ICEs at scale any more - they will be drawing down most of their existing propulsion facilities, which is something like 20% of each of their balance sheets (it's more like 25%, but some ICEs for heavy industry applications will still be required - that capacity will stay mostly unaffected). Sure, it's not $50B down the drain, but $10B and most of your ICE expertise down the drain is nothing to take lightly, let alone on top of another $15-20B in industry-redefining novel (at least to them) technology investment. And the massive capital investment, vertically-integrated manufacturing, and on-shore in-house production of battery components is exactly the opposite direction from where Ford and GM have been headed for the last 40 years.

My point is, don't underestimate the complexity or the expense of the challenges ahead for US automakers.

As an aside: The global readily available lithium supply is sorely inadequate for something as ambitious as the entire US automotive market going full electric by 2030 anyway. The WEF is projecting sixfold increase in lithium demand over 2020 figures, and even with optimistic projections on political and environmental mining and refining operation approvals, we're still talking like 6-8 years for operations to go from "we think there's lithium here" to mining and refining it at any kind of scale. And again that's with everything going right, which it very frequently doesn't: market conditions can delay financing, detailed surveys of lithium deposits can determine midway through that the deposit is economically nonviable to refine, governments can and do regularly inject arbitrary and capricious environmental demands. In practice, it can take over a decade for mining and refining operations to come fully online. Plenty are in-work right now, but it's just nowhere near enough. This fuels a lot of my skepticism regarding the ambitious annual production capacities discussed above.

Meanwhile: China is the recipient of something like 90% of Australian lithium, and between Australia, Chile, and domestic mines, China is consuming something like two-thirds of all lithium extracted on Earth. They follow it up with another 60% of the world's lithium refining capacity. Their domestic battery manufacturing companies are functionally unrivaled - CATL is routinely years ahead of everyone else on the market in metrics like gravimetric energy density, cost per cell, total throughout... China is the 800-pound gorilla of the EV industry, and since most of their cost for EVs is tied up in the battery, as long as China can keep producing better, cheaper batteries than the rest of the world, they'll trivially outcompete an unserious, labor-depleted, heavily outsourced, geriatric American automotive industry. From where I stand, at least, it looks like it will take a radical transformation of all major industry players just to survive the next decade, and without significant assistance from USG in tipping global trade scales to secure strategically valuable lithium assets and construct refineries in friendly jurisdictions, I can't see the US being globally competitive in manufacturing anything that needs a Li-Ion battery in it 20 years from now.

Seems like you know a lot about this stuff. Do you work in the EV industry?

Without getting too specific, I'm in a critical part of the EV supply chain. That said, I'm offering personal speculation based on publicly available information and some napkin math - there's some other stuff that informs my opinion which I can't really talk about, but it doesn't take an insider to see which way the wind is blowing.