Tech Won't Save Us - How BYD is Upending the EV Market w/ Paolo Gerbaudo

Episode Date: May 16, 2024

Paris Marx is joined by Paolo Gerbaudo to discuss how Chinese electric car maker BYD operates, its growing international success against Tesla, and whether it will be able to move into the North American market.Paolo Gerbaudo is the author of The Digital Party and The Great Recoil. He’s a senior research fellow at the Department of Political History, Theories and Geography of Complutense University in Madrid.Tech Won’t Save Us offers a critical perspective on tech, its worldview, and wider society with the goal of inspiring people to demand better tech and a better world. Support the show on Patreon.The podcast is made in partnership with The Nation. Production is by Eric Wickham. Transcripts are by Brigitte Pawliw-Fry.Also mentioned in this episode:Paolo analyzed the business model of BYD in Phenomenal World.The New York Times wrote an in-depth piece on BYD back in February.Foreign Affairs published an article on the success of the Chinese tech industry in the face of US dominance.After recording, the United States announced a 100% tariff on Chinese-made electric vehicles.In the 1980s, Ronald Reagan put quotas on Japanese car imports, making them more expensive to US consumers to help domestic automakers like GM and Ford.BYD is increasingly challenging on Tesla’s position as top seller of electric vehicles.Support the show

Ultimately, EVs are a superior technology. It's a more efficient technology. It is a more cost-effective technology. And that is going to lead, I think, faster than we think to the entire car industry converting to EVs. Hello and welcome to Tech Won't Save Us, made in partnership with The Nation magazine. I'm your host, Paris Marks, and this week my guest is Paolo Giubbaudo. Paolo is the author of The Digital Party and The Great Recoil. He's also a senior research fellow at the Department of Political History, Theories, and Geography of Compotencia University in Madrid. Now, last week, we talked with Ed Niedermeyer about Tesla

and what has been going on with that electric vehicle company that has received so much attention these past couple decades recently. And obviously, things are not great with the mass layoffs, the failure of the Cybertruck, the difficulty of delivering so many of the other vehicles, and just the general troubles that the company is having lately. But beyond its own internal issues, Tesla is also facing a lot of competition, not just from European and North American automakers, but from Chinese automakers as well, especially in that market, but increasingly internationally too. The main competitor it increasingly faces is BYD. It's a Chinese company that started as a battery manufacturer but has moved into electric vehicles in a very successful way. Indeed,

in recent quarters and over the past year, BYD and Tesla have kind of been fighting for the title of top seller of electric vehicles worldwide. And at this point, BYD is still quite early in its international rollout. Certainly, it operates and sells in China and it offers vehicles in many other countries around the world, but it's just really breaking into the European market, hasn't come into the markets of the United States and Canada yet at all. But in South America, it's increasingly present in Australia, New Zealand, in Africa as well. So it is starting to grow internationally at a time when Tesla's international growth seems to have really peaked. And especially, it doesn't seem

like Tesla is going to be competing with BYD on the lower price categories, which is where BYD is increasingly dominating. Whereas Tesla vehicles tend to be more expensive, BYD has vehicles that are all along the spectrum of prices that vehicles can operate at. They have luxury vehicles, but they also have very affordable mass market vehicles that could make the electric vehicle transition much easier to realize because those vehicles are just much more affordable for people and much more appealing, especially if you have a low price. But then you don't have to pay for fossil fuels over the life of the vehicle as well, which brings down costs significantly. So since we were talking about Tesla last week, I figured it was a good opportunity to learn a bit

more about BYD as well. Because increasingly, I think that this is a company that we're going to be hearing a lot more of, especially as it continues to expand into European and I'm sure eventually the North American market too. Paolo recently wrote a fantastic piece for Phenomenal World digging into the larger business model of BYD and how it actually works and how it differs from a lot of North American and European automakers and even Tesla itself. So we talk about that comparison, but we also talk about what the future might look like for BYD and how BYD's entry into these Western markets has a lot of parallels to when Japanese automakers were doing the same thing in the 1980s.

So this is a really fascinating conversation. I think you're going to really enjoy it. I certainly did. If you do, make sure to leave a five-star review on the podcast platform of your choice. You can also share the show on social media or with any friends or colleagues who you think would learn from it. And if you do want to support the work that goes into making Tech Won't Save Us every single week, to get access to some stickers, a shout out on the show, and access to our ad-free feed as we slowly start to introduce advertising into the podcast. You can join supporters like Beardo from Portland, Stephanie from Los Angeles, Henry from Melbourne, Jono in Jakarta, and Shibi from Sydney, Australia by going to patreon.com slash tech won't save us where you can become a supporter as well.

Thanks so much and enjoy this week's conversation. Paolo, welcome to Tech Won't Save Us. Thanks for having me. Very excited to chat with you. You have a fantastic new piece in Phenomenal World digging into BYD and its particular model of automotive production that it has embraced. And this is a company that is becoming increasingly important as we have these discussions about the transition toward electric vehicles and what that is going to look like around the world, right? This is obviously a Chinese company, but for listeners who might not be very familiar with BYD, how would you describe what it is and how it works? BYD may be described as the most important car company

no one knows about, or at least nobody knows about in the West, as indeed it's not very well known until now. I mean, it's now the first time if you go around, say, large, big European cities or North American cities, you start noticing some dealerships or some BYD cars. I mean, some friends of mine know my interest in this have been reporting back to me that they saw these cars and they kind of realized they remember the conversation they were having with me. I mean, a bit in the same way perhaps was the case with Tesla some years ago, right? I mean, nobody knew about this thing, but then suddenly there was a lot of interest on this new brand i mean it's a company that's been around for 15 20 years i mean at the beginning kind of was more in the battery sector and it was founded by these material science is working on chemistry on elements, which proved to be quite convenient. Wang Chuangfu, initially, he was focusing on batteries. So its core business was batteries.

Of course, lithium-ion batteries, which are this key, I mean, revolutionary component, which is now ubiquitous, present in everything we use. We are using it now, right, on our laptops and all our devices. It has become so naturalized that people actually don't realize what a change it has meant when it was introduced in 1991 which was the time if i remember correctly byd started in 1995 its operations so it was precisely the right time say to enter this business but wang chunfu's dream as he reports it in his book, I mean, there is a kind of cottage industry of self-help books in China as well with entrepreneurs writing them. As he describes it, I mean, he always had this big dream of ultimately becoming a car producer.

The coincidence was that ultimately this technology that he started working on at the beginning proved to be what innovation economists, I mean, economists specializing in technical innovation, would call the enabling technology for EVs, for electric vehicles. I mean, initially he acquired a small state-owned car firm, as there are many in China that was going bankrupt. And they started producing internal combustion engine cars, which they did for some time. And they started producing internal combustion engine cars, which they did for some time. And then they used that technological know-how on production of vehicles to then move, as their core business, move to EVs, to electric vehicles.

And so this trajectory is really interesting because it's a rather different trajectory, say, from that of Tesla. I mean, the fact that they started with batteries and then moved to electric vehicles is one of the key factors in their competitive advantage vis-a-vis other firms, Tesla included. Yeah, that's a really interesting way to compare it as well, right? Because you think about Tesla kind of coming out of the tech sector and, you know, these kind of internet sort of companies and building itself on this particular model,

whereas BYD is coming out of, you know, the material sciences and this very different culture to be able to become the large automaker that it is today. And you were talking about the founder's dream. And of course, BYD literally stands for build your dreams, you know, which is what those three letters are supposed to mean in there. And I think you actually see those specific words on the back of some of the cars, not just BYD, but the actual kind of slogan or name of it. Well, apparently that is a more of a postdoc rationalization in the sense that they went initially for this acronym and then they did a kind of reverse engineering of the acronym. They looked for the convenient phrase that would stand for this acronym, and then they did a kind of reverse engineering of the acronym. They looked for a convenient phrase that would stand for that acronym. Well, that's very convenient. It worked very well for them. It captures something about the Chinese dream, right?

Which famously is a centerpiece in Xi Jinping's thought, right? The president of China's ideological vision of a new China, which is about furthering the path of the economic development and crucially moving China from the production of consumption goods, I mean, consumer goods, which are kind of medium technology productions. I mean, household goods, textiles, shoes, plastic goods, the things that Chinese people were famous for like a decade ago. And they were also in a way ridiculed for.

Chinese product was synonym of shoddy quality, cheap but shoddy. And instead, the dream being of scaling up, like moving up the ladder of technology, moving up in terms of technological complexity, which what we know from development economics is a rather challenging path, because in a way you are fighting on two sides at that point, because you're fighting against those below you who have cheaper labor, right? And therefore can have some cost advantages in terms of labor and you're fighting against those above you of course have the advantage of legacy technology we have the

advantage of the very complex know-how the very complex kind of managerial techniques required for such complex production so i think it's also one also needs to understand it in terms of kind of national development national history byd is in terms of national development, national history. BYD is an element of national pride, also because the car industry itself has been, throughout history, very much connected with a sense of national competency and national pride. So it was famously described as the industry of industries because of its extreme complexity. It requires access to very different inputs. It requires an incredibly high level of knowledge and skills, scientists, managers, and so on and so forth. Therefore, indeed, it is in a way an incarnation of this dream of becoming a technological advanced country

that indeed can compete and in certain sectors that say now outcompete Western countries. Yeah. And I think that's a really important thing to recognize, right? Because one of the things you mentioned in the piece, which I've heard before, as I've been following kind of automotive stuff for a long time, is that a country being able to develop a car industry is seen as a very important marker of its stage of development or its ability to kind of pull something like this off, right, in a way that China has. And I was wondering, because when we think about Chinese production and its ability to move up the value scale, I often think back to, say, like Japan and Korea and the way

that they were able to do something very similar by protecting their markets and, you know, their automakers and their electronics industry in order to build them up so that they could become competitive globally. Did China learn from them in being able to do that? Or did they take a bit of a different approach from what we saw in those cases in the past? The blueprint of what China is doing, I'd say the most important source for that is the so-called East Asian developmental state that have been discussed a lot, especially in the 80s and 90s. I think now it's coming back to the fore, but that was really the time when the debate started. Famous H.H.Halmers Johnson's book on the Minister of Technology in Japan, the Minister of Ammunition's MITI in Japan,

and the role he played for as a central hub of industrial policy. Vu Cummings' book on the developmental state. These were kind of two very defining books around the time. And to put it in very kind of simple terms, ultimately, what the developmental state is, is a state that is neither completely capitalist in a sense of kind of a liberal capitalist sense with a kind of fiction of a free market where entrepreneurship is left only to kind of private companies, nor it is a socialist system, say again, kind of as two ideal types, extreme ideal types, but is a variety of capitalism.

There is something in between these two things where fundamentally you have an element of strong government disciplining of private actors. You have boards of planning. You have boards of industrial policy that basically tell capitalists what they should do and provides very strong incentives, negative and positive, to channel investment towards strategic sectors,

often also by controlling credit. So the credit is channeled to those sectors that are deemed to be the most strategic, ultimately productive in the long term for a country country and in so doing it compensates for these short-term to long-term disconnects that you have namely that there are investments that are rational in a kind of in the broad sense but in no private company would shoulder as they are too risky and in fact often capitalists are much more risk-averse than people think. And that is basically the model that led Japan to become a world power in automotive, in semiconductors, in electronics,

in many of those areas, and similarly, South Korea, to become a world power. So it's quite curious that in debates online, say typically flameless on Twitter between kind of neoliberals and anti-neoliberals, often these are deemed to be examples of how good capitalism is. For example, like South Korea versus North Korea,

of course, being the same case, but it was a very different model of capitalism from say neoliberal capitalism or for many an idea of free market. It was a model of capitalism that actually often also involves some element of authoritarianism because it also required a very cohesive bureaucracy and a very powerful state apparatus able also to withstand popular pressure and pressure from trade unions in order to push for these long-term missions that their industry started to become competitive with American industry in a way that they've probably not been so happy to see or excited to see in the Chinese case, I think.

Yes, of course. I mean, in the case of the US and Japan, so there was this Japan shock. That's the way it is described, like in the 70s and 80s, when basically there were all these new brands of cars nobody had seen i mean similarly to what is happening now with byd and then with many other brands that we should see i mean ghillie and all the specific brands ghillies and so on so forth so this was a time in the late 70s beginning of the 80s when suddenly europe is basically flooded with toyota and niss Nissan and other Japanese brands. And also around the time, of course, of the oil shocks

and the stagflation crisis of the 70s. So it is a moment of great economic angst and also great psychological angst because in a way kind of Westerners feel challenged for the first time on the terrain of technology. There is a very curious popular culture reference for that in the Gremlins movie, right? Which is around the

beginning, the first one in the beginning of the 80s or mid-80s. There is this famous kind of chauvinist guy who hates Japanese cars and he's constantly kind of grumbling about how bad Japanese cars are. There was also some element of right-wing populism emerging in response to this competitiveness of Japanese cars are. There was also some element of right-wing populism emerging in response to

this competitiveness of Japanese cars. The key element there was that the Japanese shock is very different from the EV shock because Japan was an ally, was a very strong ally, and still is a very loyal ally of the U.S., as South Korea is also a very loyal ally of the U.S. So ultimately, they could square politically economic tensions. And they came to an agreement like the US and the UK and then other European countries in terms of quotas, in terms of how much market they would be allowed. So they found an agreement, which is not going to be the case with China. I mean, China is also a geopolitical adversary.

So it's kind of technically described an economic competitor also a geopolitical adversary. So this cannot technically describe an economic competitor and a geopolitical adversary. Therefore, this is why there is such a big moral economic panic around the emergence of these companies, right? Because they are seen as not just being signals of growing Chinese economic competitiveness, but also of growing Chinese geopolitical projection. Absolutely. And, you know, I think that gives us a really good insight into the larger picture of how this model has arrived to this point. But your piece deals a lot with the specifics of, you know, the business model and the supply chain that BYD has set up. So can you talk to us a bit about its vertical integration and the supply chain that BYD has set up. So can you talk to us a bit about its vertical integration and its approach to that and how it differs from the way that a lot of American automakers and other automakers outside of

China are set up today? Yes. From a point of view of business management logic, which is something that I'm very interested in, the great novelty of this trend is the return of vertical integration in the sector of EVs, and in particular in the case of BYD. So this is something that is present in many other firms in the sector. In fact, Tesla and other Elon Musk's firms were also notable because of this, because of vertical integration.

What is vertical integration? Vertical integration is a logic of organization where you try to control all the different stages of production of a given product, of the end product. So say the most famous case of that, the Ford car company at its inception, say in the 20s, 30s and 40s until the 50s, basically, it's the golden era of vertical integration, was famous because it wanted to control the entire of it, of raw materials from the rubber, famously, of the tires of the Ford, which basically were originated from rubber plantations in the Amazon basin, down to the so-called downstream aspect of the value chain, namely dealerships, maintenance of the car, and so on and so forth. So this led to a gigantism that was very visible in these enormous factories, most famously the River Rouge factory of Ford, where basically the idea is that on the one hand, you add the raw materials entering, then you add metal foundries in the very factory, you add glass production in the very factory for the windows and windshield of the car. And ultimately, at the end, from one gate, to put it in very banal terms and exaggerated

terms, raw materials entered the factory. At the other end, the finished product exited the factory. Of course, it was never as simple as that. There were some intermediate and initial input components that came from other places. Let's say this was the logic. You try to integrate as much as possible of the production in the same company

and sometimes even in the same site. And the idea of this was ultimately that this would give you a number of benefits in terms of control, of course. You would be able to plan and examine and inspect every stage, every tiny detail of the production. It would give you more efficiency. He would apply Taylor's scientific method of production, the assembly line being a kind of famous kind of for this technique, splitting each element of production into tiny and tinier and tinier operations,

therefore making the production more efficient. And also it would allow you to achieve some cost cutting, as you would do away with middlemen that would otherwise basically be wasteful ultimately in a production. So the counterintuitive element of the fact that now companies like byd and tesla partly also are moving back to vertical integration was that during the neoliberal era that model of vertical integration was abandoned companies try to get rid of as many elements of production as possible just keeping those that were at the highest added value, typically assembly, production, and so on and so forth.

And the idea of that was to achieve more flexibility. The idea of that was focusing on core competencies. And the idea of that was this whole new spirit of capitalism. Boltanski and Chiappello famously spoke about that, creating a kind of network system of production where you would exploit as much as possible every drop of blood and milk from your suppliers forcing them in this darwinian environment where they would fight tooth and nail right so basically we are what is that that system is not working for the ev sector this is really interesting

partly because of technology. So in a phase of very fast technological innovation, you need to control as much as possible of your production because you need to accelerate as much as possible your innovation. And you need to coordinate all these different stages in order to do it well. That's so fascinating to hear. And of course, I feel like before BYD and before we got into this conversation about China, it was often talked about how Tesla was kind of setting up its battery plant and how it was controlling its dealerships. And we've, of course, seen them making deals with mineral suppliers in order to ensure that it has the minerals for batteries. And I feel like to a certain degree, we've started to see that with European and American

automakers as well, making deals to ensure supplies of lithium and other minerals that they're going to need for the of the electric vehicle. And what benefits does that actually provide the company when it comes to churning out these electric vehicles? Because one of the things that really stands out about BYD, it feels like in a lot of these conversations, is that its electric vehicles are so much cheaper than so many of the models that are available in Europe and North America right now. Is that a product of vertical integration solely, or is that also just part of the fact that they're producing in China rather than in these more expensive markets like Europe and North America?

I mean, I'd say that partly it is an effect of vertical integration. Tesla is also using vertical integration, but for example, with batteries, it is producing them in partnership with CATL and Panasonic. So I think around two-thirds of its batteries actually come from external suppliers.

While ultimately, if you think about the electric vehicle in a way that the battery is the full tank of the car, but it's the most important component, it accounts for around kind of one-third of the weight of the car and similar share of the actual cost of the car, right? Producing that in-house of course has huge advantages when you scale up and it's called bright low applies meaning that as the scale grows

also the unit price of the product you produce decreases proportionally so there is one element in the case of byd byd basically claims that they only externalize two elements of their cars. These are the windows and kind of windshield glass components of the car and the tires, which for whatever reason, it's all worn onto itself because also very complex regulation connected to tires, insurance, blah, blah. I mean, perhaps that figure is too high, but New York Times report, they looked at the BYD seal, which is one of the most convenient, more economic models that BYD is producing. And they found that three quarters actually of the components in terms of value of the car are produced internally by BYD. Also, there is an important difference there that I've

made for doing this research. I spoke to many automotive experts, and one thing that really seemed important in the industry is the fact that this is not a so-called substitution market, but it's a new introduction market or whatever of technical term is. What that practically means is that up to now, a very small share of the population has EVs. It's like the first time washing machines, say, were sold. I mean, of course, they are substituting partly internal combustion engines, but they are doing so by creating a new market that wasn't there, the market for EVs, which actually also involves very different infrastructure, very different servicing, maintenance, supply compared to

internal combustion engines. So I would say, I mean, going back to your main question, I mean, I would say that in this situation, when you have this new market for new products. Having vertical integration allows to control very finely all this complexity, but also to scale up so quickly so that you can achieve a lower cost per car, as BYD is doing. And indeed, BYD, according to UBS report, the cost lead of Chinese firms, car firms, vis-a-vis their European competitors is something like between 20 and 25 percent. So this just gives you a sense of how competitive they actually are vis-a-vis their Western competitors. Do you like having an ice-warm croissant, a delicious baguette or some fresh pasta without the work involved with making it from scratch? Wild Grain is the first ever bake-from-frozen subscription box for sourdough breads, fresh pastas, and artisanal pastries. Every item bakes from frozen in 25 minutes or less,

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slash save us or you can use promo code save us at checkout i was also interested in how you know obviously you're talking about how BYD has really significantly expanded the vertical integration in car production from what we've seen in a very long time, right? Kind of going back to the Fordist model, but many of the automakers operating today are based on that more kind of Toyota model, the outsourcing, all this sort of stuff. In the past few years, we've had a lot of discussions around supply chains and unstable supply chains, particularly during the pandemic, and how that stopped automotive production in a lot of North American automakers and things like that throughout the pandemic, because they weren't

always able to get the components that they needed, because the supply chains that they set up were disrupted. Are we seeing, even beyond the Chinese automakers and beyond Tesla, are we seeing this kind of broader shift back toward vertical integration in a way that we haven't seen in a long time within the automotive sector because of these larger supply chain risks and the expectations from a lot of governments in, say, Europe and North America now, that things should be increasingly reshored and that supply chains need to be dependent on trustworthy allies and things like that. But also just the need to create these EVs and the requirements of that. So are we seeing more of a move back toward vertical integration more broadly? That is actually a very important aspect. In contemporary fashionable terms, we would describe it as resilience,

the ability of any organization, in this case, a company, to navigate uncertainty and deal with unexpected circumstances, with chance, and with emergencies, crises, and all of that. And again, BYD provides a very good example of that,

which is the fact that BYD also produces its own microchips internally. We know that there are very different types of microchips that is now famous. For example, TCMC produces very complex microchips used for any product also the most trivial product in the home right for washing machines for cars and then electronics modules there's a lot of electronics elements in cars these days right and the fact that byd produces internally semiconductors and chips and electronics modules allowed it to cope with the global semiconductor shortage, which began in 2020 around the pandemic, precisely as you were saying, and then has continued after the pandemic because of this geopolitical tussle

between the U.S. and China. And the U.S. really understands that there is a good pressure point that they can use against China. God knows for how long, right? But they realize that for the time being, it's a good pressure point that they can use against China. God knows for how long, right? But they realized that for the time being, it's kind of good pressure point. And therefore, of course, if you produce that component, you're not subject to this pressure, which for other car companies meant that they had to stop production, literally, because they had cars that could not be fitted

with a necessary component. Another interesting element of that is another shortage that has taken place is a shortage in terms of car carrier ships. So to transport cars, you need specific merchant ships. They're called Roro ships. And there's been a shortage of these kind of ships. So BYD has started building up its own fleet of also branded, like BYD, the first one is called Explorer 1. It is already kind of purchasing a farther six to a total of seven.

Each one of these ships will carry, I mean, I figure it's around 5,000, 6,000 cars, and it will be used to ship market closest to China. So around kind of East Asia, Southeast Asia. And then of course, it's also building factories abroad. I mean, it already has 30 industrial parks.

Some of them are really gigantic. In Shenzhen, it has four. Some of them for producing components and some of them for assembly. But it is building now also car factories abroad. One in the region of Bahia in Brazil, for example. In Hungary, it is creating a huge factory.

So in this context, vertical integration is really good also at navigating these very uncertain worlds, this world of polycrisis, as it is sometimes described, compared, of course, with an externalized company where Stellantis, for example, is a very outsourced company, a company that relies a lot on outsourcing, where the OOTs, say, in the Red Sea or a Suez Canal incident or extreme weather events somewhere can cut your supply line and you have basically no resort

to solve the problem quickly. I feel like that export piece is really important as well, right? Because when we think about BYD and say Chinese vehicle manufacturers and Chinese electric vehicles, traditionally we think of those as serving the Chinese market. But in the past number of years, there's been a significant increase in the number of exports from Chinese auto companies as they are sold in other markets, certainly in the global South. As you say, places like Brazil and South America, and I'm sure Africa and places like that as well. But increasingly, they are becoming available in Western markets as well. I was in New Zealand earlier this year and saw BYD dealerships and BYDs being driven on the road down there, which I was surprised to see because I

feel like I hadn't seen them in Canada. But what are we seeing in the move to export and the availability of these vehicles in European and North American markets and the response that that is getting from politicians here? I mean, China was already the largest car producer in the world for some years. I mean, and now it's become the largest exporter of cars, stealing the top place from Japan, which of course was the kind of largest car exporter. They have produced manufacturing capacity that is so big and the projected one that can be absorbed by the Chinese internal consumption. Though the Chinese internal consumption is so huge

that it provides a very solid base, may the international climate become more protectionist. So this is also a very important correlate of vertical integration at the company level is vertical integration at the national level. BYD and other firms know that in the worst case scenario, they still have this huge Chinese market that they can continue denting away from foreign competitors and substitute foreign competitors there. But of course, they want to export. So in a way, partly the production is being reshored

in china and other and also the u.s is trying that but the sale the trade is still an element of globalization i mean you still need to kind of have global trade to to sell that and in many respects we know that xi jinping has become more a fan of globalization and china generally is these days more a fan of globalization than the u.s or europe though europe still in a way strangely believes in globalization so then the question there that is related to that of course is the response that is going to come from the u.s and the u we know that there've been these panicking headlines on The Economist, on The Port Street Journal, on The Financial Times about this tsunami of Chinese cars.

Even Elon Musk has said that you have unique tariffs, unique barriers. And everyone who looks at global trade says that the kind of the scenario going forward is an even more protectionist climate. I mean, already the climate now is more protectionist definitely than it was in the 90s. And not to speak of the 90s, there is much more industrial policy. The IMF is recognizing that and is worried about that. But we are going towards an even more protectionist climate. So in the US, tariffs on Chinese cars stand at 27% after the change made by Trump. We're probably going to see an increase, perhaps as high as 50%. In Europe, tariffs are very low, 9%. Comparatively,

the European Union is the most open trade area. I'm very proud of that, despite the fact that it's not really working much for the European economy. But we are going to see in Europe, it's very likely we're going to see a move to a similar level as the U.S., 27%. But of course, these beggar-they-neighbor, these protectionist tactics often lead to a retaliation response. So China is going to raise barriers in retaliation against the EU. Germany is really worried about that as it exports a lot to China. So it's a very complex scenario where the general picture is a move away from the illusion of a free trade war, which is probably going to be remembered, the kind of hyper-globalization, as, for example, Danny Roderick describes it,

of the late 90s, early 90s, is going to be remembered in the future as a bleep in history, as a very short period of exceptional geopolitical stability under the government of the US, where there was indeed relatively free trade. Yeah, but it's not the world that we're going to see in the future. And it's going to shape very much the EV industry. It is quite notable, though, like as you described there, that for a long time, it was the United States and the European Union going around the world and saying, you need to open your markets, you need to drop your tariffs, you need to drop your trade barriers, and allow our goods and our companies to flood your markets, even if that means that your kind of domestic competitors cannot be competitive with our kind of major multinational corporations. And now,

of course, that the Chinese are reaching this level where their companies are becoming competitive with the American and European dominant firms or previously dominant firms, all of a sudden, very quickly in the course of a number of years, less than a decade, we've had this very significant reversal where the United States in particular, and as you say, to a lesser degree, Europe are all of a sudden flipping and saying, we're bringing in these protectionist measures. We're hiking the tariffs on these products that are coming in. We're trying to create these kind of blocks of countries that are allied to us that are going to follow similar policies, whether it's on chips or, you know, social media companies or EVs or whatever. What does that tell you about what is actually happening here? And I guess,

how does that make us reflect on these free trade policies and kind of these narratives that we've had for a long time? I mean, this vindicates what economies such as Ha-Joon Chang, the famous South Korean economist, have been saying for a very long time, namely that the free market never exists in practice and it's a discourse that is sold by the leaders of a given market, of a given economy, until now, let's say the US, the UK, and other European countries, Japan, to the laggards, right,

to so-called developing countries. Developing countries are always lectured to be free, open, not to have barriers, to allow free trade, by the very people who use protectionist methods to get where they got in the first place. Because if we go back to the history of early capitalism in the US and the UK, they were very heavy on protectionism,

on industrial policy, on defending their markets, on developing their technology. And then, of course, when they got on top and the free market, say, was working for them, they could use this fiction. So, of course, what people in the U.S. and the EU would tell you is that the Chinese are cheating, that they are using state aid. I mean, recently there was Ursula von der Leyen in the EU. I mean, the EU is really, the consensus is very ideologically against any form of state aid.

But also Biden used similar terms. And of course, I mean, they're referring to the huge subsidies used by the Chinese government, which is a very important aspect that needs discussing to understand the automotive sector. And of course, behind this entrepreneurial miracle, there is a very strong element of state intervention, which takes the form of subsidies, which is the element that is most often criticized. These are very generous. For example, in the Chinese case, they were around double summing them all, what they are with the Inflation Reduction Act, say $14,000 per vehicle instead of the $7,000 you would get in the US.

Because, and this is something many people don't know about China, China is actually quite a decentralized country. There is a lot of power at province level, the 23 territorial authorities. And these territorial authorities are doing their own industrial policy. So Beijing is giving subsidies,

but then also the provinces are doing subsidies to their local champions, which are both private firms, sometimes state-owned firms. There are many car firms that are state-owned, but state-owned doesn't mean state-owned by the central states. Sometimes it's state-owned by local authorities. So, Psyche Motor, which is the third largest producer or fourth largest producer of EVs after BYD and Tesla, is actually owned by the municipal authority of Shanghai. So, this tells you that there is another very important level of industrial policy, which is not just in terms of subsidizing companies, but literally owning a car company and forcing these car companies to employ people to continue operating in order to guarantee that the local economy continues thriving is heavily politicized the automotive industry and it also suffers from oversupply because of this overcapacity is a very key term because in order to save jobs of companies that perhaps are facing bankruptcy, the central state and local authorities often kind of bail them out or provide them subsidies to allow them to operate in ways that perhaps would not be possible in a kind of idealized complete market system.

But a very important thing to understand there is this weird compenetration of capitalism and planning that happens there. I mean, I sometimes think of it as a Schumpeterian state, as a sort of engineered creative destruction created by the state. So what happens, it's as if the state creates a sort of a rat race between companies and forcing them to fight violently against one another, creating artificially many actors at the beginning that then fight furiously against one another in terms of price, in terms of technology. And then only the fittest survive, only kind of three or four companies survive. But it is a rat race where entrepreneurs fight for life, right?

So perhaps it's not as brutal as the neoliberal rat race. I mean, of course, in neoclassical neoliberal times, it would be seen as very wasteful because some of these companies disappear and only a few of them make it. companies that are already tested by fire and can become export champions because they have managed to achieve incredible levels of efficiency, price efficiency, technological capability. So this happened already with the solar panel sector and now is happening with the EV sector. Yeah. And I feel like when it comes to the solar sector, like we often say, oh, it's so good that, you know, China kind of subsidized the production of solar panels because now they're so cheap and we can roll out renewables so easily.

But when it comes to other sectors, it's like a problem because it's competitive with, you know, firms that are traditionally American or European or Japanese or something like that, you know, one of the like traditional allies, quote unquote. I was wondering what you think about what this tells us about the economic model that the US and Europe have pursued for a long time, because I just saw another story like yesterday. So it's on the front of my mind where they were kind of saying that Europe is uncompetitive because there's too much red tape. And if we just cut the red tape, then Europe will be doing so much better when it seems like, and you know, the policy shifts in Europe and to a greater degree, the United States seem to show this, that the problem is not so much red tape, but the fact that, you know, China is

pursuing this industrial policy that has been so much more successful at, you know, being able to create these competitive industries and competitive firms that can now compete internationally in a way where it feels like European and American companies have been stagnant sort of, or not moving as quickly because of, you know, the set of policies that have been set up to, you know, encourage a particular type of development there. Do you feel like in the United States that is starting to shift with the Inflation Reduction Act and the CHIPS Act and, you know, the recent move against TikTok and these more protectionist measures. Like, what do you make of how Western states are responding to the threat of China? I think that definitely the Chinese economy is really putting Western capitalism to shame as it is, in many respects, a more economically efficient system. I mean, Dengism, basically, revised by Xi Jinping,

this queer hybrid, which really is a hybrid of market socialism. Many people sometimes have these opposite views, that China is a communist, no, China is totally capitalist. No, I mean, the real secret of China, and it's precisely this hybridization of these two models and the way they've mastered something that is quite unique. And it is superior, I think, to neoliberal capitalism, which has become very stagnant in terms of productivity.

I mean, people like Aaron Bannon have shown, I mean, there's been stagnant productivity for a very long time. Because, I mean, when capitalists can revert to rentier type, they would very happily do it. I mean, Italian capitalism is the history of that. I mean, they very much prefer being parasites and wasteful and basically making money with real estate. Amazing.

You don't need to risk anything. It's a secure source of income. And actually, neoliberal capitalism has created a perfect environment for the type of laziness of capitalists to thrive. Now, though, there is this panic. So there are attempts to change model. There is an outspoken desire

to move away from neoliberalism. I mean, Jake Sullivan's famous speech about the new Washington Consensus. I mean, some economic historians or political economists just see it as a lot of empty rhetoric. And I don't think that is the case. I mean, I think that capitalism has come in very different shapes. Neoliberalism is an historical specific form of capitalism that has been prominent right between the 80s and say the beginning of the new century and now it is not working for capitalism on sake and they need something different but that's something

but it would be very hard for them to achieve that and to find legitimacy for the legitimacy for that as there is huge resistance from the capitalist sector to get any raise. I mean, of course, you need huge state resources to do something similar to that. You need taxes, you need taxation. Guess what? Capitalists don't want to be taxed. And of course, the return of vertical integration also carries implications for trade unions. It gives workers and trade unions new pressure points, because that's precisely why they abandoned vertical integration or a very big reason

because you couldn't block anymore the entire cycle of production by blocking one stage of production. So this retreat of globalization creates serious issues of discipline, basically, of the workforce, of political legitimacy, which, I mean, a notarized Italian country as China,

of course, can navigate them much better than kind of allegedly democratic countries as the US and European countries. Yeah, I think that's a really important piece to understand. And to end off our conversation, I wanted to bring it back to BYD and the question of Tesla in particular, right? Tesla, you know, has really led the charge in EVs over the past couple of decades, has really been the standard bearer for that type of vehicle. And now so many other automakers are running alongside of it. But one of the really notable things about its vehicles and about a lot of at least North American EVs, I'm not as familiar with the European market, is that they're quite expensive to buy. And a lot of these models have remained very expensive. And the suggestions are that Tesla is probably not pursuing a cheaper model, which is what

everyone assumed it would do at one point. Whereas these Chinese automakers are making vehicles that are much less expensive, much more affordable to the broader public. And even though governments in the United States and Europe seem to be planning or using tariffs to try to keep them out, it does feel almost inevitable that these vehicles will arrive and will have lower price points than what the traditional automakers that we have right now are offering. So what do you think the threat is to Tesla from automakers like BYD as they increasingly seek out export markets and seek to move into Western markets? Something very important that many people say when they're talking about EVs is that, I mean, that is the main barrier to people buying EVs. I think that is the upfront

costs, one thing, and the other thing is worrying about how you charge the car. So, the earth of charging points. These are the things that are mostly mentioned. Now, if we look at total costs, I mean, lifetime costs of a vehicle, namely how much it costs charging the vehicle, we'll see that already EVs are on par, if not cheaper, than internal combustion engines because recharging them compared with refueling them costs 50% less. So it's really striking the saving that you can make by using an EV. Of course, up to now, it was basically a luxury section of the market. But what BYD and other Chinese companies are doing is precisely entering this kind of cheaper segment of the car market,

where they will be able to offer cars that are below $30,000, which would appeal to a much broader kind of set of consumers than currently Tesla and similar brands appeal to. So this is going to be a result also of the scaling up of the industry and the scaling up battery production. So as battery production expands and gains more efficiency, it would be much cheaper to produce EVs. And ultimately, I think this is actually a very curious thing of green transition more generally, is that ultimately green transition will prevail in some sectors

because of economic competitiveness than responsibility or concern about the environment, or even, say, taxation or regulations kind of damaging, giving negative incentives against pollution and so on and so forth. Because ultimately, EVs are a superior technology. It's a more efficient technology. It is a more cost-effective technology. And that is going to lead, I think, faster than we think to the entire car industry converting to EVs. I feel like this is where I see the biggest comparison between now and what was happening in the 80s with the Japanese automakers as well, right? Is you had, especially in the United States, automakers making vehicles that were

not really responding to the needs of the consumers that required a lot of gas in order to power them, especially at a time when gas prices were shooting up because of the oil shocks. And so the Japanese manufacturers could move in with these smaller, efficient cars and kind of start to take over the market. And it feels like the Chinese automakers are kind of setting themselves up for a similar kind of move into Western markets where they have these EVs that are much more affordable. And as we're being pushed to make this transition, that's a model that potentially works, right. And as we're being pushed to make this transition, that's a model that potentially works, right? And it's easier to maintain as well.

This is another important aspect because they are less complex in the sense that they have less components because the engine and all the connected apparatuses involve a myriad of components that are not necessary anymore. The heat involving the internal combustion process raises all sorts of issues of maintenance that are eliminated basically altogether in the case of NEV.

So there are many benefits kind of besides the lifetime cost, besides the lower cost of recharging compared to refueling, there are also lower costs in terms of maintenance. And perhaps soon also lower, I mean, there'll be an advantage also in terms of the autonomy of the car. I mean, as batteries improve, they'll get higher ranges. So they'll take, one, we'll have to refuel them, to recharge them less often than it is the case with cars. But of course, up to that point, recharging is also going to be a very significant bottleneck, right? As in many countries. I mean, in China, the state grid, of course, again,

the state intervention created very rapidly many charging points. But in other countries where there is not such a strong state intervention, it will take much longer to provide the same degree of charging points. Yeah, it's a serious bottleneck that needs to be addressed for mass adoption. Paolo, this has been a really fascinating conversation. Thank you so much for taking the time to speak with me about BYD and, you know, the broader kind of geopolitical tensions at play here. I really appreciate it. Thanks so much. Thanks for inviting me. Paolo Giubbaudo is the author of The Digital Party and The Great Recoil. He's also a senior

research fellow at Complutense University in Madrid. Tech Won't Save Us is made in partnership with The Nation magazine and is hosted by me, Paris Marks. Production is by Eric Wickham and transcripts are by Bridget Palou-Fry. Tech Won't Save Us relies on the support of listeners like you to keep providing critical perspectives on the tech industry. You can join hundreds of other supporters by going to patreon.com slash tech won't save us and making a pledge of your own. Thanks for listening and make sure to come back next week. Thank you.