Morgan Stanley analyst and Tesla Inc TSLA bull Adam Jonas said on Thursday that partnerships with each other or with China might be the way ahead for legacy automakers like Ford Motor Co F, General Motors Co GM, and Stellantis NV STLA, given that there cannot be affordable Western EVs without China.
What Happened: In a note on Thursday, Jonas said that mass EV adoption and China are “inextricably linked” and strict trade barriers on the Asian country over industrial and national security concerns will only lower EV adoption in the West.
“Diversification from China comes at a price of cost and time. On-shoring EV and battery supply may take decades and will face a barrage of environmental and permitting impediments,” Jonas said while adding that EV investment will be substantially curtailed if collaboration with China is blocked.
Meanwhile, Mexico stands a chance of serving as a bridge for China, Jonas said. EVs produced in Mexico with Chinese equipment and knowledge will offer a potentially viable path to on-shoring low-cost EVs. Jonas noted reports that Chinese suppliers are seeking to set up plants in Mexico in the hopes of supplying to Tesla when its gigafactory in Mexico is ready. Chinese EV giant BYD Co Ltd is also considering an EV plant in Mexico to export vehicles to the U.S.
According to LatAm Equity Strategist Nikola Lippman, Mexico is currently working with the U.S. and acting as a buffer for China. While BYD and other Chinese manufacturing plants have been delayed for almost two years, Tesla got permits within a month, they noted. However, if Mexico realizes that Detroit will take time to vertically integrate its supply chain, Lipmman said that the country may cease efforts to appease the U.S.
Partnerships are the solution for legacy automakers in the given circumstances to form a strong EV supply chain and subsequently EVs, Jonas said. These partnerships can either be with startups like Lucid or Rivian, with China, Tesla, or with each other.
Why It Matters: Legacy automakers have been flagging concerns about lower-cost EVs from China taking over the U.S. market eventually.
During a panel discussion on disruptive technology earlier this week in Detroit, Ford's EV unit's chief operating officer Marin Gjaja termed Chinese EV makers a "colossal strategic threat," and said that China will eventually get around the heavy tariffs of 25% imposed by the U.S. on EV imports by buying factory space in Mexico.
“We look at that (Chinese EVs) and say, ‘That’s coming here eventually, so we’d better get fit now and better get going on EVs or we don’t have a future as a company," Gjaja said.
Even Tesla CEO Elon Musk earlier this month said if not for trade barriers Chinese EV makers "will pretty much demolish most other car companies in the world.”
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