China — EU — Tesla — VW

In 2040, the most common car on Czech roads will be BYD.

It doesn't even have an official presence here today.

VW and ŠKODA will cease to exist by 2050.

That's a strong claim, so let's look at the strategic situation. EV = electric vehicle, that is, in the sense of this article, a personal electric car.

I had fun last year at the N-Conference in Zurich with representatives of a large car rental company & a large subcontractor in the automotive industry. Both Germans.

I asked them, “Is there any difference between BYD & VW? “

Significant subka: “Producing for VW means negotiating for 2 years. Certification. Standards. Checks. It takes 2 months to establish cooperation with BYD. They just check your quality and work. “

Giant car rental company: “If I want 100 passenger EVs from VW, they'll deliver them to me in a year or two. They don't seem to want to sell them to me. BYD will deliver them in the order of weeks. “

How did we get here?

China

Around 2000, China's ruling class realized that it would not break through internationally in the field of conventional cars. In 2001, China put money into EV research as State Priority (!).

In 2009, it began to significantly support EV manufacturers through subsidies and lower taxes. The state was buying a bunch of EV buses, taxis and cars, so they had manufacturers for EV outlets. Plus, he gave companies data from road tests of EVs. (source)

Tesla

An American pioneer in EVs who had clear plan as early as 2006. In this, they met China in time. After all, China has not only supported Chinese EV manufacturers. She supported foreign ones as well. And some high-ranking Chinese loved Tesla.

After some time, China and Tesla agreed to manufacture Tesla in China. Tesla built during 2019 (!) at the Shanghai Gigafactory and today produces half of all cars globally there.

Gigafactory employs Chinese, so willy-nilly gradually passing know-how to other EV automakers in China. Just like European automakers do from the point of view of car design in general. You can't expect people to forget what they've learned just because they walk out of the factory, or give notice. The Chinese are learning.

Today, Tesla is so intertwined with China that it is impossible for it to leave. And most importantly, it would no longer be of any use.

Europe

Europe pioneered electric cars. The first was created in France in 1881. And that's about it. Volkswagen, ŠKODA AUTO a.s., Mercedes-Benz AG, BMW Group... have completely sample inertia. We've been making money on internal combustion engines for 100 years, so we're going to do it endlessly. Or at least as long as I'm the manager.

China changed strategy in 2001. Europe did not react. Today, we are more comfortable with them.

The EU wants to reach 2035 prohibit sale of new cars with internal combustion engines. European automakers are probably counting on a reprieve. So it will be 2045. Possibly. I'm just not sure it's going to help them.

You should know one more thing about inertia. Inertia kills companies.

BID

China's leading automaker. The car company that I think you will see most often on Czech roads in 2040.

BYD is playing a strategy game The Last Man Standing. Innovate → Increase efficiency → Reduce prices.

It works like this. You deploy high prices so that demand matches your production capabilities and that competitors don't care about their own efficiency. Sir you invest all the profit in your efficiency, reduce prices and demand will rise. Competition is suddenly a problem.

Innovate → Increase efficiency → Reduce prices. And again. A car for a million. A car for half a million. A car for a quarter of a million...

If you look at Tesla's strategy paper from 2006, you will find that Tesla wants to play Last Man Standing!

1. Build a sports car
2. Use that money to build an affordable car
3. Use that money to build an even more affordable car

Innovate → Increase efficiency → Reduce prices. It just looks like it didn't work out for her. He doesn't have a state behind him that wants to be the global number one in EV. He's getting Chinese support! It's not enough.

Tesla is not going to get lost. It will just go to the higher segment EV and stay there as well. If he manages to make a real autonomous vehicle and put it as a software superstructure for all Tesla owners, he'll make a fabulous amount of money. And in the coming decades, it will be a dream car for its fans.

At the same time, globally it will not be in the top ten of passenger car manufacturers. There will only be Chinese automakers. Most of the world doesn't have money for an upper middle class.

“Frankly, I think, if there are no trade barriers established, Chinese car companies will pretty much demolish most other companies in the world. “
‍---- Elon Musk, May 2024

Which brings us back to BYD. Europe has imposed tariffs on Chinese EVs. It's the result of lobbying by local automakers who are absolutely appalled at China's strategic game. They can't handle it.

The next round will be directly in the EU. Tesla already has a Gigafactory in Germany. BYD is building a passenger EV factory in Hungary.

🇨🇳 A CZK 450,000 passenger EV will come out of BYD's European factory with a tax that will be of better quality than comparable cars from European automakers. The price of Dacia. Interior, technology, safety Mercedes. I'm exaggerating... not much at the same time.

🇪🇺 VW develops and introduces ID.2 for brother 500,000 CZK with all discounts. Interior and technology on a similar or worse level than BYD.

🇨🇳 BYD will reduce the price to CZK 380,000. What will European customers do?

Innovate → Increase efficiency → Reduce prices. The Chinese have a reputation problem (so shunty!). Europeans have a technological-economic problem. As long as BYD is able to deliver higher quality at about 20% less price... then people will buy BYD. In all segments.

How does BYD do this? There will be more aspects. Increasing the efficiency of the entire production. Lower costs in China. Own production of cheaper batteries (LFP). Direct sales to end customers (DTC). Lower margins. If you are interested in this, you need to analyze their value chain in detail.

VW

VW, meanwhile, is comforting itself by being able to push through some tariffs with its might, shift some of that deadline, etc. It doesn't have power in an EV. It has it in internal combustion engines.

VW's EV production efficiency is tragic relative to BYD. Even with Tesla. You can see it on the price differences of cars at a glance. On the VW website you can find the ID.3 for 800 000 CZK. We can talk about car classes and how much who is ahead and behind. I didn't get the lead from VW.

Unlike China, the EU doesn't have a coordinated set of decisions in which to support EVs or even those damn diesels! We could have been a diesel superpower. It won't work now, diesels have a reputation problem. EV + solar panel = minimum operating emissions. Maybe some ultra-thrifty diesel has a better lifespan as well as the total amount of emissions. But I'm not making that up here. I'm not an expert on cars or emissions.

The EU does not have a strategy. The EU has regulations. Regulation is NOT a strategy. Regulations can be a consequence of strategy. The EU only has regulations.

So VW is completely lost. They make expensive EVs that no one wants. That went in 2010. In 2024? It closes factories and loses even more money.

Story in conclusion. An acquaintance makes a middle manager in Škodovka. I gave him my theory with BYD. He turned pale. He didn't want to talk about it at all. He was afraid. He was terribly afraid. He was worried about his mortgage and a well-paid place. Fear is not a strategy either.

In 2040, the most common car on Czech roads will be BYD.

It doesn't even have an official presence here today.

VW and SKODA will cease to exist by 2050.

Two major issues and one topic.

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1 ️ ⃣ What now?

👩💼 Are you a manager at Škodovka and have 10 years or less to retire? Ignore it. It doesn't concern you. Dump out what you can. In Mallorca, you will remember nostalgically what it was like when cars still smelled. Neglect yourself. It's going to be good.

👩💼 Are you a manager at Škodovka and have more than 10 years to retire? It's going to hurt. Škodovka pays great. It's not going to be good.

👩💼 Are you the owner of Škodovka? You want people who are going to hurt and therefore fight. Lay off the others. Rejuvenate top management. Create a new real strategy. Scare Strasbourg. Focus all resources on EV or other strategic areas that will still be there after 2035.

🇨🇿 Are you the government of the Czech Republic? Do everything possible to ensure that the Chinese produce with us. 10% of GDP in automotive is fatal to any future budget. Show in yourself a piece of unselfish statesman and get in their ass. We, as a state, will need it. Why is BYD in Hungary and not in our country? Who will attract the rest of China's EV makers here at least?

🇨🇿 If we don't kick China's ass anymore, what strategic decisions will we make this year to have that 10% of GDP elsewhere in 2045? As you can see from the example of China, it takes a while to turn the rudder. Users of the forum dz fjůčr need to be very clear about the market situation and where he wants to win and HOW he will do it. And then they have to pour tens of billions of dollars into it efficiently and purposefully. The Chinese made it. What about us?

👩💼 Are you a top VW manager who wants to do something about the situation? Beating BYD and other Chinese automakers at their game will be pretty much impossible today. It means completely turning a pile of things around. Increase efficiency, knock down margins, start to actually struggle. With a lot of employees who are used to luxury. It's going to hurt.

🇪🇺 Are you in charge of the EU? It is time to make a clear strategy for the EU. Regulation is not a strategy. We wouldn't have addressed any of this if the Chinese hadn't made a set of strategic decisions 25 years ago. And we didn't let them drive them out. If you're under the impression that this only happened in automotive... it didn't.

🇪🇺 Cars are wealth. We're probably not going to save them. What will you support in a coordinated manner? What are the EU's key value chains for the future, when our car companies are replaced by China?

🇪🇺 In what other areas have we underestimated China? What other industries are going to cut us off? Planes? 3D printing? Biotechnology? Sure, they are a dictatorship, the EU has a democracy. We have the “moral high ground”. They may not have our morals... at the same time they have a strategy. And that strategy, at least in the case of EVs, worked economically at number one.

Are we really just going to be an open-air museum anymore?

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2 ️ ⃣ Where am I wrong?

This is my interpretation of reality. We can have fun over her. You can contradict my worldview. Therein lies the beauty of strategic work. A complex issue isn't sprouting a CEO somewhere in a corner. We need to discuss! Let's discuss.

Chances are, I'm wrong about a lot of things. I'll be glad to be wrongBecause 10% of Czech GDP is directly linked to automotive and I want to live here. Without that 10%, it's going to be hard.

The fact is that VW will succeed and closing EV factories is just a cover maneuver. I'm outside of automotive, I don't see a lot of things logically.

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3 ️ ⃣ Last Man Standing

Last Man Standing is a strategic move known for at least 20 years, described by Simon Wardley. You can defend against it especially by not falling asleep on your laurels and continuously increasing your effectiveness. By following the competition and having a detailed idea of what is happening in the market. Catching up is very difficult.

Strategic moves are higher tens.

Last Man Standing complements the counterposing nicely. VW has estimated that EV margins will never be like those of internal combustion engines, so it doesn't actually want to go into EVs. They don't want to shrink today's dairy cow. This only reinforces their inertia. Inertia kills companies.

Behind this newsletter is a set of considerations based on strategic frameworks. Reading the news, I wouldn't really make it up. We teach this and other strategic frameworks at Strategic thinking. We have 4 vacancies in the fall.

“Stratégia como un acte de shortening el odds de los bets que puede. “‍
‍-- Roger L. Martin

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