Shenzhen Surprise: China’s Toyota-Like Strategic Opportunity in US Market

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Steve Clemons BYD F3 DM hybrid electric vehicle.jpg
(Washington Note blogger Steve Clemons at BYD Auto Headquarters in Shenzhen, China; photo credit: Peter Pi)
A few months ago, I joined an unusual meeting sponsored in part by the Foundation for the Defense of Democracies.
Don’t have a heart attack (particularly POA), but it included Richard Perle, Clifford May, James Woolsey, Charles Krauthammer and other leading lights of the “next war, please” crowd. This is not the group of Wasingtonians I typically hang out with, but believe it or not, we found common ground.
All of us want to have a federal tax on gasoline that drives the price to levels higher than $4.00 a gallon. At price levels higher than this point, Americans just stop their frivolous driving, highway-related deaths plummet, and the economics of alternative energy development become significantly enhanced.
I think that some of those I mentioned above genuinely want to detach America’s interests from the Middle East — which I don’t think is realistic. On the other hand, I think that there is no climate change remediation strategy that can be shoved on to China or the world when the United States continues to pump out cheap gas and oil to its consumers.
Yesterday at the BYD battery and automotive plant in Shenzhen, China I saw first hand the economic and political cost of America’s cheap energy strategy. Neither the US nor even Japan hold a secure lead in mass market electric car development.
steve clemons byd f6 dual mode.jpgFisker makes a very expensive, very high end electric car — but in a different strategic approach, battery manufacturing powerhouse BYD has gotten into the mass market car business selling 200,000 cars domestically in China last year and planning this year to sell 400,000 cars. Most of these are small, cheap, efficient gas cars — but BYD has now put out to market the F3, which is an electric hybrid with a one-liter engine that plugs in to the wall socket.
BYD’s E6, however, is the car that reminds me of the 21st century version of the Toyota Corolla — the car that first took advantage of the 1970s energy crisis and clobbered American rivals in the US market.
The E6, which is targeted in xpart for California and plans to launch there in 2011, is fully electric — and has a 400 km/250 mile range and goes up to 160 km/100 miles per hour.
I drove one yesterday, and it’s a great vehicle.
Warren Buffett thinks the same — and is now in the process of buying 10% of the company.
I used to listen to American auto executives say that battery cars would never really be developed, that there would be too much static in the engine, that there would be tort liability issues that would preempt development and production.
Well — surprise, surprise — China now has one that will sell for roughly $22,000 and is preparing for mass market sales.
America is addicted to the narcotic of overly subsidized gas and needs to set up new incentives to develop the energy and transportation technologies that are needed for this next century. We just aren’t doing it — and China is.
Thanks to my hosts at BYD for a peek into the future and the test drive — but to my friends in the Obama administration, America will never really move forward on energy alternatives when we are able to get a quick fix on our current addiction to overly cheap gas.
— Steve Clemons

Comments

17 comments on “Shenzhen Surprise: China’s Toyota-Like Strategic Opportunity in US Market

  1. jolene says:

    With taxpayers now 70% plus owners of GM, what kind of ad campaigns are we going to start seeing? Obama doing the “soft Corinthian leather” accents of Ricardo Montelban?
    Maybe the new federal management team will have to combine autos with tanks and other war vehicles to keep the new GM a going concern.
    Maybe just change the name slightly to “Generals Motors” and save us taxpayers a few bucks.

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  2. PissedOffAmerican says:

    “POA, let me try to clarify it for you”
    “Steve merely said that a higher price of fuel would cause Americans to stop this frivolous (not non-frivolous) driving”
    Ply your condescending crap at someone else. Has it escaped your attention that he is not advocating targeting groups of specific types of fuel consumers, but is advocating across the board hikes in fuel taxes? What, you wanna punish me because someone else has a “fifteen ton motor home”?
    Don’t invent asinine arguments just because you want to say something in opposition to my comments. Its stupid and transparent, Don.

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  3. Daniel says:

    Frivolous driving comment aside, I would rather take issue with your statements of America’s addiction to “overly subsidized gas” and what China is doing that the U.S. is not.
    What China has been doing, as well as many other nations, is pumping billions of dollars (estimated at US$40 billion last year) into subsidizing its fuel – keeping the price of gas cheap and removing the incentive to conserve.
    Chinese consumers pay about half of what their American counterparts pay. They do not face the true cost, or market price, of fuel – Americans do.
    Americans respond to the market price of oil by driving less and conserving. Foreign government subsidies keep their drivers from doing the same.

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  4. Don Bacon says:

    POA, let me try to clarify it for you.
    SC: “At price levels higher than this point, Americans just stop their frivolous driving. . .”
    Americans drive their vehicles for all sorts of reasons, some of them important and some of them less important. At the lower end of the importance scale we can surely say that some trips are frivolous. These might include long trips for vacation, recreation, socialization or other frivolities.
    Steve merely said that a higher price of fuel would cause Americans to stop this frivolous (not non-frivolous) driving. While perhaps overstated, “stop” being maybe an exaggeration, that makes complete sense. It is already apparent in the devastated motor home industry, for one example. There is absolutely no need for anyone to drive a fifteen ton motor home to a lakeside campsite, is there?

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  5. PissedOffAmerican says:

    I gotta admit, this “frivolous” bullshit really ticked me off. It seems some are all too willing to forget there is a whole army of Americans out there that spend hours a day sitting in commuter traffic so they can get to their eight hour a day doldrums, struggling to meet mortgages, insurance costs, and the daily financial burdens that have enslaved the working class. Are Steve and Perle really so detached from the real world to realize that these people cannot afford “frivilous” outings, vacations, or rising fuel costs?
    These people must drive no matter WHAT fuel costs are, and shoving higher fuel taxes up their over taxed asses won’t eliminate their need to commute, it will only increase their burden.
    We see, above, this touchy feely response to my initial post, where Bob Morris cheerfully points out if I was to just assume the finacial burden of a new diesel, or wait a few years to buy a hybrid work truck, all will be well in Workingstiff City. Perhaps he’ll donate a diesel to the cause, so I can still afford to maintain health insurance and other essential needs?
    Yeah, by all means, lets jack fuel costs up so we can fuck the little people, who are the ones hurt by such rising costs.
    I have a better idea. Lets stop waging war, subsidizing myurderous regimes like Israel, and use the money to re-install the transit systems these fuckers in Washington and Detroit dismantled so they could addict us to our automobiles and make our economy dependent on fossil fuel consumption.
    I have a lot of respect for Steve. I happen to like the guy too. But this comment he made, this crap about “frivilous driving”, was one of the most digustingly elitist things I have yet read from him. Perle is definitely the right guy to have at your elbow if these are the kinds of policy directions you are going to advocate.

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  6. G.E. Anderson says:

    For how long did you drive the car?
    Did you turn on the air conditioner during your drive?
    I have yet to meet an auto insider here in China who believes the BYD car delivers what it promises. (And I’ve met a lot of them.)
    By the way, did BYD mention that they haven’t sold a single one of these cars to a consumer?
    I applaud their efforts, and I believe they may eventually be successful, but I’m skeptical. Warren Buffet’s record isn’t exactly perfect either.

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  7. Mr.Murder says:

    Forty miles per gallon? We can drive 60mpg on carberated vehicles. You can take a straight block fromt he Detroit heydays and slap a 60mpg carb on it and make those computerized cars cry for gas stops along the way.
    In the 1950s certain oil interests were allowed to buy this patent technology off the market, with the help of Congressional pork and some Texas oil lobbyists.
    Ike’s speech about the “Military Industrial complex” hasd the word “petroleum” removed from it.

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  8. Mr.Murder says:

    We already had battery powered cars with 250 mile range that could get the 160 speed, Porsche styled convertibles that GM recalled to keep them off the streets.
    That reason alone should disqualify them a bailout. The recall from happy lease owners(many of whom went to court to try and keep the cars) occurred in 2000/2001. Guess whose DoJ failed in going to bat for the happy consumers? Guess wich Governator’s backers were part of this effort to call back cleaner quieter, greener energy?
    But then again the charade of democracy dances on. The indentured servitude that is car lease, forceclosures, etc. are part of the American way now.
    Wear it America. It fits all of you. Like a ten gallon hat with “Made in China” on it found at the nearest “price rollbacks” bin of Wal-Mart.

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  9. Don Bacon says:

    “Cheap gas” is a myth when you factor in all the “defense” costs as well as the social and health costs of suburban sprawl.
    “The cost of a thing is the amount of what I call life which is required to be exchanged for it, immediately or in the long run.”–Henry David Thoreau

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  10. Jolene says:

    A shift to Chinese-made autos selling like hotcakes in the U.S. would really put what’s left of the U.S. auto industry in the auto-wrecking junkyard. Ditto with U.S. dollar being a world currency.
    Apparently U.S. automakers can’t even take the hint to consider buying advanced battery technology from a Chinese source as part of a new Big 3 strategy. So why are we throwing all this money at the Big Three trying to save these critically unthinking executives from their own fate? I know, I know, it’s all the UAW jobs and all the auto industry related jobs. But if the Big Three sit on their hands much longer, won’t these jobs and side industries disappear anyway?
    I fear WalMart will soon become the U.S.A.’s largest auto dealer. Can anyone really separate WalMart from Chinese-made products?
    In less than 10 years, people could be scurrying down to their local WalMarts to buy Chinese-made auto tools, auto floor mats, auto windshield wipers, auto seat covers, auto wax, auto rags, auto parts, auto filters, auto radios, auto tires, auto batteries — hey wait, they’re already buying all this cheap-quality stuff! — and now the piece d’resistance –the whole damn car.
    Hungry Wal Mart shoppers will probably have to get used to Chinese take-out fast food counters, while miniaturized hamburgers and hot dogs will be offered as appetizers only for those feeling nostalgic about the ways things were long ago in America.
    Toot your own horn when leaving the parking lot.

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  11. erichwwk says:

    Nice comment, Zathras!
    “Frivolous” is not the right word, and as you suggest, apt to offend as it implies selfish behavior. Better, perhaps, to think of desires (demand) for energy as being smoothly continuous. At lower prices uses are appropriate that are not appropriate at higher prices. Period. Nowhere on that schedule of uses is there a point where one can claim that uses below that point are needed, required not can one say that uses above that line are unnecessary or frivolous.
    From my perspective (economics)Ronald Reagan ushered in a period where rational thought and sound economics was denigrated in favor of Hollywood make believe and delusion. Rather than recognizing the price and market system what it is – an economical means of conveying to citizens when to use more or less of something, price (and hence deciding who gets how much of what) became something that politicians manipulated to please particular individuals. As a consequence people began to believe that lower prices, rather than truthful prices, are better. (Taking into account,of course, those costs and benefits that are not accounted for in the market process).
    Markets and the price system turned into an ideology. Usually those that asserted they were “pro-market”, “pro-free trade” were actually the markets staunchest opponents. Even now the party that has adopted a resolution claiming the other party is attempting to socialize the economy, when in fact THEY are the ones that have ALREADY socialized the economy, manipulating prices to the extent we no longer have a “market economy” in many major industries.
    Nowhere is that more prevalent than in the discussion of private and public goods. Most politicians are in denial that public goods (see wikipedia, esp Paul Samuelson 1954 for what this means)even exist, in the same way the Russians denied the existence of private goods. The Chinese have no such problem, nor does much of Europe and Canada.
    It is difficult these days to even have a rational discussion of what an optimum solution is. Whether it’s health care (where Obama and Baucus tell us me MUST continue our Pony Express model and cannot consider electron communication), or energy (where we get silly proposals like “let’s build 100 nuclear power plants irrespective of cost”) we always try to hang on to the past (let’s pump in a lot of money and resuscitate asset prices and revive the bubble). Rare is the case that one can suggest the problem is the social contract and the manner in which we use politics and the courts to create a Hollywood fantasy.
    I can’t say it better than you:
    “Americans can exert a measure of control over how energy prices go up and how we protect the most vulnerable parts of our society when that happens, or it can forego that and just hope for the best. That is the course we are on at the moment”
    except to add the fact that the “control” we ought to exert over prices is to aid in the transition to HONEST prices, the tax reflecting the extent to which energy is subsidized (My understanding of the Bingaman energy bill is that prices -and costs and demand- are to be ignored when building nuclear power plants -unlimited subsidies hidden in the fine print and further obfuscated by reference to the repeal of a section limiting funding rather than saying that in plain English.
    Reality eventually rears its head. We can either accept that, act as adults and adjust now, or we can act as children and stick our heads in the sand and fantasize that all is well, and trade a little bit of bliss for a lot more pain later.
    http://www.virtualschool.edu/mon/Economics/HayekUseOfKnowledge.html

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  12. JohnH says:

    I want one! Actually, I want a cheaper one with a limited driving range for use around town. (Why can’t Detroit make second cars for commuters who just want to drive 40-50 miles a day?)
    The Chinese have a big advantage in future car markets–they are not beholden to Big Oil, or trapped by the old ways of doing things. Their companies are free to innovate.
    Battery power is but one part of the calculus. The other, predicted by Amory Lovins, is the use of ultra-light weight, high strength materials, such as carbon fiber. Today most gasoline is used to propel the weight of the car. Relatively little goes to moving the person in the car, the supposed goal of the product (unless you work for Big Oil.)
    Lovings predicted years ago that the Chinese would be the ones to seize this opportunity, putting an end to obese American dinosaur-mobiles. None of this has been a secret. Detroit had to have seen the handwriting on the wall but has been hamstrung by its own constraints and lack of imagination.
    And, as Dan Kervick comments, “politicians’ fanatical ideological opposition to planning and publicly organized economic investment” stifles development of new technologies (except those that DARPA sponsors for killing people.)

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  13. non-hater says:

    Well said, Zathras. Unfortunately, arguments like yours have been falling on deaf ears for the past 36 years (yep, it’s been 36 years since the first oil crisis). The ugly truth is that America will not improve its energy policy by a meaningful amount until it hits the wall.

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  14. Dan Kervick says:

    Are there any other examples of a product for which Americans have accepted a tax on a widely used product, where the sheer purpose of the tax was to make that product more expensive? I doubt it. If you want to sell such a tax, you can’t just pitch it as a paternalistic price-booster. You need to make it clear that the revenue from the tax will be dedicated of some important purpose for which there is very broad and intense support.
    I also doubt most of the driving Americans do is “frivolous”. Nor do I understand what economic sense can be made out of the claim that gas is “overly cheap”. Is gas production being subsidized in a way that reduces its price below the natural market price? I don’t think so. So the price reflects current levels of supply and demand.
    Yet, there are good long-term environmental reasons to switch to alternate fuels and engine types. It also seems clear that, given the way the US economy is structured and fragmented, and organized around short-run time frames, market incentives alone are not proving sufficient to organize and capitalize the long-term research and development investment that the country needs to be competitive in what will obviously be a key industry of the future.
    So why not do what many other countries do? When we identify a technology that is obviously going to be vital in the future global economy, and in which any country that wants to be at the top of the economic heap must be competitive, but for which ordinary incentives are not getting the job done, let’s invest in a national project to get the job done.
    Create a publicly owned firm to develop highly efficient alternate energy vehicles. Tell Americans that we are undertaking a national project to dominate the energy economy of the future, a sort of energy “war effort”. Then use revenues from gas taxes to capitalize this project. That would be an exciting way to concentrate the energies of the nation on a project vital to the national interest. And asking Americans to pony up for a tangible project with a big payoff sure beats asking them to swallow a paternalistic behavior-modification tax with the revenue just going to the general fund. Once the firm is viable, we can privatize it by auctioning off its parts.
    Of course these kinds of ideas make conservatives and neoliberals wet their pants and pull out their hair. But if the United States does not overcome its fanatical ideological opposition to planning and publicly organized economic investment of every kind, and insists on clinging to its absurd faith in the sufficiency of market incentives, private firms and private capital, despite repeated experience of empirical evidence to the contrary, then we are going to get buried by our competitors.
    Obama should have done something like this in his first week. The stimulus package subsidies good, but are not enough. Something more coordinated is needed.

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  15. Zathras says:

    This is actually an important point. Americans who think we ought to have a different energy policy are prone to dismiss energy usage that is higher than they think it ought to be as “frivolous,” or even as evidence of a moral failing. Not their own moral failing, of course. But somebody’s.
    Since much of my own professional life is connected to an industry — agriculture — that uses vast quantities of energy in several forms, I have perhaps a clearer view than most of how unproductive a tack this is. Just try persuading a guy who has been farming land his family has owned for over a hundred years that he uses energy frivolously or doesn’t care enough about the environment. The message he will get is that you don’t value what he does; since what he does is a large part of what he is, this message means you’ve wasted your breath. Farmers are not the only people who react in this way.
    What Americans (and other people) who use large amounts of inexpensive energy are doing is responding rationally to an economic incentive. Everyone does this every day, in many different ways, and most of the time the result isn’t anything the government needs to concern itself with. From several points of view, energy is different — whether one’s point of concern is America’s trade balance, or the extent of our involvement in the Middle East, or the changes wrought by greenhouse gas emissions on the planet’s climate, government can’t remain uninvolved (of course it hasn’t up to now. Most of its efforts have been devoted to making energy as cheap as possible).
    If any or all of the reasons Americans need to use less energy are thought valid, the economic incentive has to change. The most direct and effective means of doing this is through taxation. The key to how much energy Americans use is price. It has always been price; it will never be anything but price. It goes without saying that increasing energy prices through taxation would be unpopular; it would drive growth in alternative energy production and energy conservation technologies more effectively than any other policy, but it would also make a plethora of things more expensive and require many Americans to change the way they make their living.
    Ideas known to be unpopular — even ideas suspected of being potentially unpopular — are anathema to the political class in this country, but Americans have accepted such ideas before once they understood the lack of better alternatives. There are no better alternatives right now; diminishing world supplies of and accelerating demand for fossil fuels will impose higher gasoline and other energy prices on us, probably within a few years. Raising energy taxes now won’t stop that from happening, but it would help us adjust when it does happen.
    There are any number of ways we can distract ourselves, if delaying action is our objective. We can insist that hard-working Americans (and is there any other kind?) already pay enough for gas and electricity. We can argue that we can “fix the problem” by screwing the right people. The current vogue in Washington is to avoid rocking the boat by building a bigger one — regulating the whole economy’s carbon emissions, encouraging trading of artificial government quotas. The great advantage of “cap-and-trade” is thought to be that Americans upset at the higher energy prices it would produce would not blame elected officials for them. This thought is wrong, incidentally, and a major reason why cap-and-trade will get stuck in the legislative mud later this year.
    However, the single best way to make sure nothing happens with respect to energy taxes is to avoid addressing the price of energy at all. I have to confess that the advocacy of the gentlemen Steve Clemons mentions in this post of higher gas taxes has escaped my notice. In fact, outside of a few newspaper columnists and economists — most economists, actually, for what that’s worth — raising energy taxes is an idea greeted by awkward silences by people who make their living in the public policy field. Such silences could well prevent any action in this area until declining Saudi oil production and increasing Chinese and Indian demand do to the price Americans pay for energy what we ought to do now.
    Americans can exert a measure of control over how energy prices go up and how we protect the most vulnerable parts of our society when that happens, or it can forego that and just hope for the best. That is the course we are on at the moment.

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  16. Bob Morris says:

    In a few years there will by hybrid trucks selling for what any truck sells for now. You’ll be able to make those 168 drives maybe getting 40 miles per gallon, not the 15-20 you get now.
    There will be any number of different kind of cars on the road soon, no one is suggesting a 250 mile range EV for commercial work in the country.
    But you will save money with a hybrid truck or current generation diesel (they also get great mileage) over what you have now.

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  17. PissedOffAmerican says:

    “All of us want to have a federal tax on gasoline that drives the price to levels higher than $4.00 a gallon. At price levels higher than this point, Americans just stop their frivolous driving…..”
    I’ll remember that, Steve, the next house I do in the almond orchards outside of Shafter. We do high end homes there, and the typical home we do requires an on the average time expenditure, on my part, of about two months of 84 mile commute, daily, ONE WAY. Thats 168 miles of “frivolous” driving a day, in a work-truck loaded with tools and materials. So while you and that murderous schmuck Perle are working to make my trade unprofitable, are you going to raise my wages commiserate to your gas price hike? And, uh, what do we do, pass that hike onto the home buyer?
    I’ve got a strong heart, Steve.
    What I don’t have is patience for think tank brainstorms that screw the little guy. Not all of us fly hither and yon on someone else’s dime to make a living.
    And uh, I’d be interested in your opinion about what products and services WON’T suffer a rise in expense due to your and Perle’s flight of genius.
    Tell ya what, why don’t you go after the car manufacturers and these elitist piece of shit politicians to use the available technologies to do the right thing?? After all, Washington encouraged this SUV insanity, has fought tooth and nail against CAFE standards, and was complicit in the fifties dismantlement of our urban mass transit systems. Screw them to your heart’s content, but keep your mitts outta my livelyhood, ok??

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