Industry Analysis: The Future of the US Car Industry May Depend on 3 EVs You’ve Probably Never Heard Of

Electric vehicles are said to be the next big thing, and the next sure thing in automotive. How will the US fare?

Nissan leads the pack. Tesla is second. We have three startups that show promise. Meanwhile, China is gaining and setting itself up to be an indispensable part of the EV automotive supply chain. Two EV startups here are already dependent on China cash to survive. And two Chinese made EVs are now for sale in the US. Can these three American newcomers survive the race to bring EVs to mass market?

EVs are the future. By some estimates, 60% of vehicles sold by 2040 will be electric compared to just 2% today. Around 26 million EVs will be on the road in 10 years, worldwide. Somebody has to make a lot of cars to get us there.

The first hundred years of the US car industry was powered by GM, Ford, and Chrysler. The next hundred years could be powered by a new set of names.

Tesla is massively successful as a US EV-maker, poised to become the largest company every to join the stock market’s S&P 500 list. With Chrysler essentially foreign owned now, Tesla is part of the Big Three.

Massive disruption in the car industry is afoot.

There is a risk that the future of the mass market EV here will be China models, or be dependent on batteries made there.

The switch over to EVs has serious ramifications for the automotive supply chain. EVs have less parts. UBS analysts compared the Chevrolet Bolt’s engine to a four-cylinder internal-combustion engine and found that the electric motor had three moving parts, compared to the traditional engine’s 113 moving parts.  Most EVs have single-speed transmissions so there will be no need for turbo- or superchargers to provide additional oxygen to the engine or exhaust systems like in a traditional vehicle. Less parts means less manufacturing; and less manufacturing means a smaller labor force will be required to build EVs.

If the key components of an EV – its batteries and its motors – are made elsewhere, it would be the equivalent of more than half the vehicle’s value coming from outside the US. It would be a disaster for the American automotive industry, and American workers. It would mean the industry that made America great would fall to maybe third or fourth place, behind China, Japan, and Germany.

At the moment, Tesla is the leader in American made EVs. Created in 2003 when EVs were a pipedream, Tesla now has over 48,000 employees, though this includes its solar business.

By comparison, Ford had 190,000 employees as of 2019and likely will fall further as EVs need less labor.

Tesla has been hiring over 2,000 people a year for the past 17 years. Ford has cut its workforce by around 40% over the same period.

The three US-based newcomers, Rivian, Lucid Motorsand Lordstown Motors, will all be making battery powered vehicles only. Their manufacturing labor will be in motors, invertors, and battery packs, followed by the chassis and body. As these companies grow, the US needs policies like tariffs, tax subsidies and loan programs that will favor keeping those three key components within North America.

One possibility would be in allowing for tax credits for cars whose key parts are made within the US, or at least the USMCA region, rather than global tax credits which would support batteries or motors made in Asia or Germany. The current tax credit system already disqualifies GM and Tesla from credits because they have reached EV sales limits written into the legislation.

In the next few years, as EV’s rise, we suspect gas powered vehicles will be increasingly made in Mexico while the US focuses on EVs. EVs will be the growth story for US automotive manufacturing jobs for the foreseeable future.

The biggest risk is that companies might focus their attention on chassis, body work and brand promotion, leaving the batteries and other key components to be made elsewhere.

As it is now, Ford is manufacturing the Mustang Mach-E in Mexico. There’s a reason for that. The Ford F-150 electric model will be made in Michigan, as will GM’s battery powered Hummer.  Trucks have a 25% tariff, or what trade economists refer to as the “chicken tax” – which goes back to a retaliatory tariff on European trucks, especially Volkswagen vans, that dates to the 1960s and is still in place. The chicken tax has been remarkably successful in keeping truck production here in the US.

On the battery side, Tesla and GM are developing their own cell tech. China is moving up the battery technology ladder with BYD and China’s Contemporary Amperex Technology Ltd (CATL) and will one day rival South Korea’s LG Chem, SK Innovation and Samsung SDI and Japan’s Panasonic. Tesla is already developing batteries with CATL, so this will clearly help CATL get there. The Japanese and South Koreans are making batteries here. But once battery technology has improved to a point where cells are a cheap commodity, China will be the perfect country to own that market, and China always prefers to manufacture at home.

China’s EV car makers are looking to export cars to the US, led by Nissan Leaf competitor Kandi and the Tesla competitor by Geely called the Polestar.

California-based Fisker Automotive’s new Ocean SUV will be built be built by contract manufacturers in order to keep them affordable (in the $30k price range before tax incentives). We suspect their 2022 SUV will be assembled in California, but all of the core components will be made elsewhere, including China. The company was acquired by Wanxiang Group in 2014, so China battery makers will likely be picked.

As Fisker is dependent on China money, Lucid Motors is building its factory with the help of $1 billion of Saudi Arabian capital.

The “New Three”

The three newest American car makers are in their early phase of development and are not sure for how long their key parts will be made here once they are finally on the road. But most of them are investing in or building factories domestically.

For the legacy manufacturers, GM has committed to new electric vehicles by 2023, including EVs across Chevrolet, Cadillac, GMC, and its Buick brands. It sold out first year production of its Hummer electric pickup. By mid-decade, GM is aiming to sell a million EVs per year in its two largest markets, North America and China.

Most of their Ultium Drive components, including castings, gears and assemblies, will be built with globally sourced parts on shared, flexible assembly lines worldwide. They are making their own battery cells and are building a factory for this in Lordstown, OH.

Ford’s batteries will be made by LG Chem in Michigan. We don’t know much yet about the motors. The GM and Ford trucks are well into the luxury price range, over $70,000, which makes them more expensive than the Rivian and Lordstown pickups. On price, the new EV truck makers have a shot.

Lucid’s strategy of building six figure cars fit for a Saudi princess means they don’t have to sell a lot of them to make money. They plan on making SUVs and other mass market models later. They say they are in this for the long haul.

They recently finished construction of a 590 acre greenfield automotive plant in Casa Grande, Arizona in November.

Rivian received $5.6 billion in funding from big companies, including Amazon’s investment of $700 million (likely for Amazon delivery trucks) and Ford’s $500 million. This will mainly go into the R1T pickup and the R1S utility vehicle.

Of the “New Three”, Lordstown Motors is the biggest open book in regards to its supply chain.

GM has a $75 million investment in the company. The whole set up has a big picture view of turning Mahoning Valley on the Ohio-Pennsylvania border into “Voltage Valley”.

Located in Lordstown, OH, their Endurance pick-up truck is expected to begin production late next year. They say they have received $1.4 billion in pre-orders from commercial fleet purchasers for a truck priced at $52,500. And on December 7, they were awarded a $33.9 million grant as part of the Ohio Jobs Creation funding program.

For now, they are licensing a lot of their tech from Workhorse, an EV commercial truck manufacturer, in return for 10% ownership.

Their trucks will have four motors hidden in the wheel assemblies rather than under the hood and are the creation of Slovenia based automotive engineering firm Elaphe.

Earlier in 2020, when discussing the 12-year-old federally funded Advanced Technology Vehicles Manufacturing Loan Program, House Representative Tim Ryan, an Ohio Democrat, said Lordstown Motors would position Youngstown and the Mahoning Valley as “a leader in the economy of the future.”

Nissan built its Nissan Leaf, and its battery packs, in Smyrna, TN with the help of that loan, which they repaid in 2017. Tesla used money from that loan for its Model S sedan and repaid it in 2013.

Other than the ATVM program, we know of no other federal program that supports and protects the new EV startups from the ramp-up going on now in China. As of July ATVM loans are now available to battery makers here. This is good for GM, which looks to be the only true US battery manufacturer.

The US is unlikely to dominate the 21^st century EV market like it did the 20^th century car market. But Tesla proved that a startup can get to profitability and build new brands that become large companies.

Rivian, Lucid and Lordstown are making good looking cars that Americans like to drive, but they are not yet mass market. They will face serious competition from the South Korean, Japan, and German EVs. But the affordability threat will come from China, and they do not play by the same rules. They subsidize their industry and rarely allow US carmakers to sell in China unless they participate in joint ventures with Chinese companies, which are a license for the Chinese partner to steal any technology the US company brings to the venture. Tesla is making cars by itself, but its batteries will be made in partnership with CATL, which is co-developing a new battery cell with them.

China’s tax credits and subsidies for its EVs equal $15,000, according to a PwC study titled Merge Ahead, published last year. Earlier this month, the first Polestar was sold in the US.

If the US wants a burgeoning, and thriving, automotive industry for the next 50 years, policy makers will need to provide incentives to the “new three” – based not on nondiscriminatory “green” incentives, but on the domestic manufacturing of the vehicles and the core parts within the supply chain.

The alternative is to watch Asia dominate yet another global economic sector. The auto industry is too important to America to allow that to happen.

*Chart by MarketsAndMarkets Research.