China Cries Foul On Tariffs

Greetings from London!

It’s June and while many Europeans are focused on the Euro 2024 soccer tournament, on goals scored and fouls missed, and whether their team can make it into the knockout rounds, there are other bigger winner-take-all competitions looming on the horizon the auto industry has eyes on.

Over the next two weeks voters in Britain and France will go to the polls.

While the UK election will matter for automakers looking to influence government mandates for electric vehicle sales (more on that below) in particular, the French election could impact auto policy both at home and in the European Union, especially if the far-right performs well.

All this as China ups its rhetoric over a possible trade war over EU tariffs on Chinese-made EVs (more on that below)

And while most Americans are getting ready for grilling and fireworks next week when they celebrate their independence, market research firm Cox Automotive released research today showing that three-quarters of the car shoppers and 81% of dealers it polled expect the presidential election in November to impact the U.S. economy.

Though it’s months away, the election looms large and raises big questions about policies that affect automakers, especially when it comes to EVs.

Cox says the industry is entering a “season of uncertainty,” as 60% of consumers said the election will affect their next vehicle purchase and 78% told Cox they expect the election to influence their decision-making when it comes to making a big-ticket purchase other than a car.

“This new research reminds us that elections breed uncertainty, and when big-ticket purchases like automobiles are on the line, uncertainty is the enemy,” said Vanessa Ton, Cox’s senior manager for research and market intelligence.

All that while the industry struggles with a cyber-attack that comes at a delicate time for U.S. dealers.

It looks like it’s going to be a long summer.

Which brings us to today’s Auto File…

China continues to press the European Union on provisional duties the European Commission plans to impose on EVs made in China ranging from 17.4% to 38.1%, on top of its standard 10% tariff for car imports.

The Chinese government’s efforts to up the pressure include threatening that the tariffs could cause a trade war and that it may impose provisional anti-dumping measures on pork from the EU.

China’s Premier Li Qiang used a speech at a World Economic Forum meeting in Dalian to hit back at U.S. and EU accusations that Chinese firms benefit from unfair subsidies. All this while complaining that the Commission sought unprecedented amounts of information on Chinese automakers’ supply chains.

After both sides agreed to negotiate a compromise, China said the EU should scrap tariff plans by July 4. 

There is little chance of that happening while haggling continues over the formation of the next European Commission following European parliamentary elections last week.

July 4 also happens to be the date the Commission should publish a lengthy document detailing the ongoing investigation into Chinese EV subsidies and its findings. The provisional duties should then apply the following day.

The pressure from China appears more focused on EU members, as a qualified majority of 15 EU countries representing 65% of the bloc’s population can block the tariffs once the Commission makes its definitive proposal later this year.

Germany in particular has been reluctant to risk a trade war with China that could hurt its own automakers. While visiting China at the weekend, Germany’s economy minister insisted that the tariffs were not a “punishment.”

In the meantime, Canada joined the fray, saying it was considering imposing tariffs on Chinese-made EVs as it seeks to align itself with allies. 

Does anyone have a pen? – REUTERS/Dado Ruvic.

Hack sends U.S. dealers back to the Paper Age

At this time of the year, America’s car dealers are busy trying to get vehicles out the door to hit end-of-quarter and half-year targets, with one eye focused on July 4 sales – what screams independence louder than a new set of wheels, after all?

But hackers have chosen their timing carefully in targeting U.S. dealers with a cyber-attack on car industry technology provider CDK that has affected more than 15,000 dealer locations across the United States.

That hack has forced some dealers to resort to the mountains of paperwork rendered obsolete by the digital age, as CDK’s dealer management system is used to complete deals, track store profitability and monitor employee compensation.

This has “significantly slowed down” the U.S. auto retail industry, Cliff Steinhauer, an official at The National Cybersecurity Alliance, told Reuters.

An intelligence analyst at security firm Recorded Future says a hacking group called BlackSuit is behind the cyber-attack, but CDK has not confirmed that. Bloomberg  reported that a group of hackers claiming responsibility for the attack has demanded millions of dollars in ransom to end the hack.

While market research firm Cox Automotive said the hack’s impact could be less than feared and most of sales would likely bounce back in July, major dealer groups including AutoNation, Peer Lithia Motors, Asbury Automotive all said it would have a negative impact on business until CDK’s systems were fully restored.

The cyber-attack highlights the risk to an industry that has so far got off lightly when it comes to hacks, with firms far beyond CDK likely scrambling to bolster their defenses, especially if there is a ransom and it gets paid. The prospect of payouts worth millions of dollars will not go unnoticed.

In conversation with reporters on Tuesday, Cox’s chief economist Jonathan Smoke said the hack also “adds to the uncertainty” for U.S. consumers ahead of the election in November.

Bye bye, Stellantis UK production? — REUTERS/Phil Noble 

Britain’s singular approach to the EV transition has left Stellantis threatening to axe its UK production unless the next government does more to help spur consumer demand or find ways to offset expensive mandates.

The European Union has set targets for CO2 emission reduction that are easier to hit because they allow automakers to rely on a mixture of fully electric cars, hybrids and more fuel-efficient fossil-fuel cars.

The UK government has instead set ambitious EV sales targets – what it calls the “ZEV mandate” – which entail heavy fines of around $19,000 per non-compliant car. The government mandates that EVs make up 22% of automakers’ sales this year, while only around 16% of new cars sold this year qualify.

Those mandates ramp up steadily to 80% by 2030.

But the auto industry complains that while the UK government has applied plenty of stick, there is no carrot for consumers because subsidies for private buyers have all been phased out.

Stellantis argues that demand for EVs is not there and the UK’s next government needs to do more to spur consumer demand, or allow it to count the electric vans it makes in the country toward its targets even if those vans are exported.

The automaker’s UK managing director Maria Grazia Davino says Stellantis wants to keep its production in the country, but that if there is no movement on the mandate the company will decide on the future of its two British plants in under a year.

In the meantime, to meet the targets, Stellantis will likely import fewer fossil-fuel models, which Grazia Davino said will hurt dealers.

The UK general election will be held next week, so the timing of Grazia Davino’s comments is no accident and the message to the next government is clear: this isn’t working.

Sales of new fully-electric cars in the European Union dropped 12% in May from a year earlier, led by a 30% plunge in Germany, data from Europe’s auto industry body showed.

EV maker Rivian’s push to cut costs and turn its first profit has removed over 100 steps from the battery-making process, 52 pieces of equipment from the body shop and over 500 parts from the design of its flagship SUVs and pickups, the company told Reuters. Cutting costs is critical for Rivian and other EV startups as high interest rates have turned some potential customers off EVs that are typically more expensive to buy than their gasoline-powered counterparts.

EV startup Fisker, which failed in its own battle to cut costs and minimize cash burn, is headed towards liquidation, attorneys said in U.S. bankruptcy court, as two creditor factions previewed a battle over which group will be paid first.

EV sales are surging in Southeast Asia, led by China’s BYD  and Vietnam’s VinFast , eating into the internal combustion engine car market dominated by Japanese and Korean firms, Counterpoint Research said.

Honda has been accused by the U.S. National Labor Relations Board of violating the rights of workers at a Greensburg, Indiana factory by illegally cracking down on union organizing.

A fire at a lithium battery factory in South Korea caused by exploding batteries killed 22 workers on Monday, most of them Chinese nationals.

Tesla and opponents of Elon Musk’s compensation clashed on Friday over ways to resolve the legal quagmire that has engulfed the CEO’s $56 billion pay package and billions of dollars in potential legal fees generated by the case.

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