China = Cars
China is now the worlds largest car manufacturer
Recently while hitting some balls at my local golf driving range, I noticed that there were several brands of cars I didn’t recognise. Then I started seeing them everywhere. SAIC, Changan, Geely, Great Wall Motors, Chery, FAW, Dongfeng, BYD (Build Your Dreams), Omoda, Cupra. It’s fairly obvious that 80% of these new brands are Chinese.
Being the curious type, I decided to do some research and try and find out whether this was a special adventure into the New Zealand market, were we being singled out for Chinese domination?
Well it turns out, no - It’s not just New Zealand. In fact, over the last 3 years, while everyone else was busy with COVID, China somehow managed to PENTUPLE their car output, and is now the largest car manufacturing country in the world.
Also, the vast majority of these cars are electric. Technological shifts make it easier for new entrants to displace incumbents , and China seems to be riding the wave of electric car adoption to market dominance. When these shifts occur, they are often permanent, so the world should probably get used to China being number one in cars for the foreseeable future.
So where did China get all this electric car tech? Well, the most likely answer is that they “expropriated” it from Tesla, whether through having spies in the Tesla Chinese factory, or reverse engineering Tesla’s on the road. Once China wants something, they tend to take it, and they don’t much care about intellectual property rights.
The Chinese strategy is the following
Western company raises capital and develops and idea
Western company manufactures in China
Chinese companies expropriate the technology and scale up
The western company is squeezed out or banned from the Chinese market
Chinese companies take on western companies in their own countries.
Tesla went to make electric cars in China. Now, using technology Tesla invented, China is outcompeting Tesla not only in China, but globally.
Now, it’s not that Chinese people can’t invent anything. It’s simply that because of corruption and weak property rights, it’s hard to build something from scratch in China and protect it. Western companies have very good legal, IP. and capital raising strategies, and if you have an idea, the place to get it funded is Silicon Valley or the USA in general.
Unfortunately, the west can’t survive on mature capital markets and ideas alone. With most manufacturing in the west now gone, China can take IP and leverage their manufacturing prowess. If the west wants manufacturing back, it’s going to be a long hard road.
Would I be worried if I was a Tesla shareholder? Perhaps, but I see Tesla as having good options with their self-driving software, Charging network, power technology and humanoid robotics technologies. If I was Elon, I’d probably be thinking about making Tesla a software company, and simply licensing self-driving tech to every car manufacturer on the planet - in much the same way that Apple Car play is now in just about every new car.
The lesson in summary ? Go to China if you want to manufacture something, but be very, very careful with your Intellectual property.