China lays off the brandy

Greetings from London!

The end of summer has brought no shortage of worrying signs for the auto industry.

Trade tensions continue to escalate, with a U.S. announcement on steep tariff hikes for Chinese-made electric cars due any day and leading Republicans pushing for Chinese battery maker CATL to provide a list of firms that allegedly work for the Chinese military.  Plus, recent sales and production numbers have made for grim reading.

Europe’s new car sales stagnated in July, while Britain posted its fifth consecutive month of falling car production and Toyota’s global output declined for the sixth month in a row. August isn’t looking any rosier, as France reported a 24.3% year-on-year drop in new car sales.

And for an industry that craves stability and certainty, two German state election victories by anti-establishment parties, including a first for the far-right Alternative for Germany (AfD), could further weaken the country’s fractious coalition government.

Which brings us to today’s Auto File…

In a fresh twist in rising tensions between the Europe and China, Beijing decided not to impose tariffs on EU brandy for now as it continues to lobby the bloc’s member states ahead of a vote on duties of up to 36.3% on Chinese-made electric cars.

China’s probe into brandy prices is seen aimed squarely at the French, staunch proponents of the EV tariffs and fiercely protective of their own car industry.

French brandy made up 99% of China’s imports last year. China says European distillers have been selling at a dumping margin of between 30.6% and 39%.

Analysts say the move to hold off on tariffs whilst implying Beijing could act later, is a bargaining tactic to persuade the EU to back off on the EV tariffs.  

China has also launched probes into European pork and dairy products, the latter coming just a day after Brussels published its revised tariff plan for Chinese-made EVs.

All this comes as Chinese lobby groups and automakers keep up a steady drumbeat of threats and warnings that the EU’s tariffs are unfair and will have serious consequences for Europe.

VW German factories under threat? REUTERS/Fabian Bimmer.

Volkswagen’s CEO Oliver Blume has decided to try where his predecessors have failed and impose serious cost-cutting measures on the German automaker’s operations, including possibly shutting plants and ending a job security program in place since 1994 that prevents layoffs until 2029.

This brings Blume into direct conflict with Volkswagen’s unions, who wield significant power at the automaker and have thwarted efforts to enact change, including those of previous CEO Herbert Diess just three years ago.

Volkswagen’s problems have been clear for some time and its executives have not been shy about the need to move fast if the company wants to ensure its long-term survival.

The automaker has seen its market share shrink in China and faces a phalanx of upcoming Chinese rivals who can develop EVs far faster, cheaper and with better consumer-facing software than Volkswagen can.

The automaking giant has invested in Chinese automaker Xpeng and U.S. EV maker Rivian to gain access to better software.

But with excess production capacity already in Europe, a clash with Volkswagen’s unions was inevitable sooner or later.

The unions saw off Diess, who sought less-dramatic changes, with relative ease. Can they now defeat Blume?

Model Y, soon big enough for seven — REUTERS/Peter Cziborra 

With an ageing lineup and facing rising pressure from upcoming Chinese rivals, Tesla, according to sources, is planning a six-seater version of its Model Y from late 2025 to help revive its fortunes in China. You can read about it here.

The company has told suppliers to prepare for a double-digit increase in Model Y production in Shanghai. Tesla will launch a five-seater version of the Model Y in China in early 2025.

The Model Y crossover is the best-selling car in China, but BYD’s Seagull sedan is catching up and rivals have unveiled at least four competing models this year, including Nio’s Onvo L60  and Zeekr’s 7X, with roomier interiors and lower prices.

Separately, in a spot of good news for Tesla, it logged its best month for the year so far in August in China, as it benefited from brisk sales in smaller cities, though sales were below the same month last year.

Its main rival BYD, however, saw sales jump 35% in China versus August last year.

Meanwhile, a government source tells my colleague David Ljunggren that prior to a Canadian announcement imposing a 100% tariff on Chinese-made EVs, Tesla approached Ottawa seeking lower duties on the cars it makes in China and imports into Canada. You can read about it here.

Chinese automaker BYD is buying its distributor in Germany as it seeks to shake off a sales slump in that market.

This is an unusual move for an automaker, but the takeover puts BYD in the driving seat for its operations in Germany, Europe’s biggest market, including relations with its dealers.

EV sales have slumped this year in Germany after the government unexpectedly killed an electric car subsidy for consumers in December and BYD’s sales have also taken a big hit.

California’s Department of Motor Vehicles has issued draft regulations on operating autonomous vehicles on highways, which if approved would be a huge win for autonomous trucking startups betting on the technology to grow and advance.

Chinese EV maker Xpeng has priced the first model of its budget sub-brand MONA from $16,813, which will compete with other EVs priced in the 100,000-150,000 yuan ($14,035-$21,052) range, which account for a third of China’s car sales.

A U.S. federal appeals court said General Motors must face a class action lawsuit claiming it violated laws in 26 U.S. states by knowingly selling several hundred thousand cars, trucks and SUVs with faulty transmissions.

Ford will change its diversity, equity and inclusion program, including ending participation in an LGBTQ advocacy group’s ranking system, joining other U.S. companies redefining those programs under pressure from conservative groups.

Hyundai, long the most successful foreign automaker in India, is hoping to regain market share from domestic rivals by launching a series of new SUVs as it gears up for a $3 billion public listing in the country.

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