A post at the former Tesla PR chief’s personal blog recounts the debate inside Tesla over where to manufacturer the firm’s WhiteStar sedan. Siry describes grappling with the tradeoffs between a reasonable price and skeptical public perceptions of Chinese cars. “The part causing the most conflict,” writes Siry, “was that it was clear in the world of consumer electronics and chip manufacturing that low cost manufacturing had been achieved while also maintaining the highest standards in quality. Why couldn’t this be the same case for automobiles?” After all, he argues, your iPhone is designed in California but built in China—and nobody confuses it with a purely Chinese product. Pointing to the Volt’s projected $40K price point for a Cruze-based compact/mid, Siry argues that cost is too important to phasing EVs into the market to be ignored. And that firms like his former employer will pay the price for not taking advantage of China’s opportunities.
Writes Siry:
“Tesla Motors and Fisker Automotive, both aspirants to the xEV sedan market are targeting price points that are even higher (than the Volt). This is the right business strategy to cover vehicle costs, overhead and distribution, but the total volume of cars at the price points they will compete at is small and dwindling. (Fisker has announced a target price of $87,000 for the Karma, which is to be contract manufactured in Finland by Valmet. Tesla has boldly communicated $57,000 as the price for the Model S as they try to position themselves as a mainstream manufacturer, but in reality I expect that price to be close to where Fisker is when all is said and done. Tesla plans to manufacture the car in the US.)”
The upshot: firms that plan and engineer their products well, carefully manage production and effectively communicate these brand values can take advantage of China’s opportunities without incurring the perception and quality downsides. In short, do everything that allowed Apple to manufacture the iPhone in China for about $173 and sell them for as much as $600.
Siry concludes:
“The car industry is just a few decades behind in taking advantage of this opportunity. While the business environment might drive some innovation in this direction to reduce costs, the political environment may prevent any real progress. Outsourcing car manufacturing will translate into less domestic manufacturing jobs, which will be a very sensitive issue for incumbent automakers being bailed out by US taxpayer dollars. Even the startups have heavy incentives through the DOE ATVM loan program to manufacture domestically. Regardless, the significantly lower cost of Chinese manufacturing is too important a factor to prevent an inevitable shift in that direction. With the added cost pressures of [EVs] and their batteries, perhaps we will see this shift come first in the market for [EVs].”
And this is exactly why our country is in such a mess right now. Companies design a product in the US with a few highly skilled workers, assemble it in China for pennies, then resell it to lower skilled workers in the US at a huge profit. The wealth gets concentrated in the few and sent overseas. We are slowly bankrupting ourselves.
Wow! I’m impressed with Siry’s analytical skills.
Actually though, when you look at the costs of a vehicle in this price range, labor rate (without legacy costs) is minor compared to material and development costs. When you add in the logistical challenges of designing and testing the vehicle in the US and buying parts from various manufacturers around the world and assembling it in China to export back to the US, it doesn’t end up being much cheaper to build cars there.
The best bang for your buck is manufacturing the components in China rather than the whole car.
Some bit of irony… the car (WhiteStar)has the same name as the shipping line that ran the Titanic.
Yeah, since production of those products moved to China, the quality has been great. I have two 30+ year old TVs that works fine, one RCA built here, one Hitachi built in Japan. No Chinese TV has ever lasted me much longer than 10 years. But the price is lower.
dubtee1480 : Some bit of irony… the car (WhiteStar)has the same name as the shipping line that ran the Titanic.
I was trying to remember why that name was familiar to me. It makes you wonder if these names are run by more than one person to get approval.
Perhaps Bertel Schmitt can elaborate on this. But a lot of the Chinese cars that have had abysmal crash tests use designs “borrowed” from Japanese manufacturers. So the problem isn’t an inherently bad Chinese design.
I’m under the impression that the Chinese automakers still hand weld a lot of stuff, very poorly. Automated welding is required for consistent high quality, and automated welding is not really labor dependent.
With monoque chassis assembly cheap peasants cannot effectively displace machines.
Hyundai, with its current and planned US factories, seems to think that robotic welding, followed by component attachment by non-union (i.e. can be laid off, no restrictive work rules and no legacy costs) employees is sometimes better done at the higher labor cost point of consumption.
Assembled automobiles do not fit into shipping containers as efficiently as small rectangular iPhones.
The Chinese cars failing crash tests use some reverse engineering, but they are still not getting the designs 100%. In comparison plenty of vehicles are being produced over there manufactured by joint ventures with GM, VW, and just about everyone else. This would be the same thing, and those cars are just fine. The logic here is sound business.
Now to the other thought that this is somehow bankrupting Mairicuuns, by taking our jooobbbsss, NO they are not. Capitalism works for knowledge based jobs as well, not just manufacturing. Basically, when an industry packs up and moves to another part of the country or another country all together, the people left behind need to move up and move on. There are plenty of opportunities or just reach back to the true American spirit and create your own. Is that tougher than just getting a job down at the factory, yes. Is it better for America and for you as a person, YES!
The Chinese have a well documented record of “borrowing” poorly. A bad copy of a Japanese design will not pass crash tests just because it’s a Japanese design.
Just like melamine is a poor copy of wheat, paint is a poor copy of milk, poor copies of movies, books, medicine, electronics, clothing….
There is a cultural problem at work here that needs to be solved.
One last thing, to the Hyundai way of business. I have always thought that this was the best way to do large scale car manufacturing. Just place your factory near the sources of material and have the robots assemble them.
I am directly involved with Chinese manufacturing. Labor is their greatest asset, so that’s what they throw at any problem…literally thousands of workers, rather than complex machinery that is expensive and often imported from Germany, Japan, US or Korea. Therefore the Japanese designs are likely hand welded rather than machine welded, and so on throughout the production process. The results speak for themselves.
You know those billions of CFL lightbulbs we are now changing to over incandescents? All made in china, all twisted by hand.
And all
For your reading pleasure:
http://www.gasgoo.com/auto-news/1009504/Quality-a-shared-responsibility-for-now.html
http://www.gasgoo.com/auto-news/1009598/Manageable-quality-is-measurable-quality.html
Yes, they let me write this in China.
iPhones are a disposable commodity with a real world expected lifespan of two to three years.
With all of the automation in use, how much more would it really cost Apple to make the iPhone in one of the lower cost parts of the US?
Everything is cheaper in China, not just the labor: benefits for the workers, liability insurance, energy cost, environmental cost, raw material etc. The cost of shipping products across the Pacific Ocean is probably less than moving things from Detroit to New York (the destination fee is around $500 per car).
Regarding safety, Brilliance sold one thousand cars in Germany in 2008. It was a small step for the company, but a huge step for the reputation of Chinese made cars, considering that the infamous youtube video was made in Germany.
dwford :
March 12th, 2009 at 11:45 am
And this is exactly why our country is in such a mess right now. Companies design a product in the US with a few highly skilled workers, assemble it in China for pennies, then resell it to lower skilled workers in the US at a huge profit. The wealth gets concentrated in the few and sent overseas. We are slowly bankrupting ourselves.
The notion of “we”, IMHO, is a communist propaganda. In a capitalist free world, you are you and I am me. You and me have different interests, but you and me coexist based on a balance of power (i.e. I cannot beat you and you cannot beat me.)
A communist regime typically emphasize the “we” part. So you had better align your actions with the party officials’. If your interest is in conflict with the party officials (or UAW), then you are against the common good.
I was born in China and stayed 17 years there. I saw this too often.
It’s heartbreaking to see the US becoming a communist regime.
Now no one dares to say: WHY F*CKING SAVE THE JOBS?
If I am a business owner, why can’t I profit more from laying off more people?
If I am a car buyer, why can’t I wait for a GM liquidation to get a super deal?
I am not saying jobs should be cut. I am saying jobs should be created or cut as the employers like for their profits, as long as no existing contracts are broken.
If a worker is laid off, go find another one. Still can’t? Lower your wage expectations.
It’s not a government’s concern to create or cut jobs. A government should focus more on enforcing existing laws. Why isn’t the president that illegally spied on citizen impeached? Why a Madoff scheme could last several decades, and which government auditors should go to jail with him?
Where has the American spirit gone?
The “government” has plenty of existing “laws” aimed at creating and protecting jobs. Without tax revenue there is no government. An unfortunate byproduct of being a first world nation is that you have to pay your workers first world wages. You don’t get to stay a first world nation very long if no one has a job. So an important part of real world capitalism is protectionism. Communism works perfectly in theory, falls on it’s face in practice. So does your black and white ideal of capitalism.
“The notion of “we”, IMHO, is a communist propaganda.”
Contrary to what some people think, the US didn’t become a world power by every individual simply maximizing their take of the booty and ignoring the consequences for others. Heck, we could have signed a treaty with Japan and Germany and let ’em have the rest of the world if that was the US’ way of doing things.
Consider this: The US military relies on volunteers, most of whom enlist at least in part out of a feeling of patriotic duty. Very few people would sign up for military service if all they cared about was getting as much for themselves as possible.
Another example: Henry Ford famously boosted the wages of his workers because a) His company was profitable enough to do so and b) He knew that by raising the income of blue collar workers he would in turn raise demand for his product and fuel further growth. At the time many of Henry’s CEO peers jeered at him, but the idea worked. Social Darwinism was all the rage amongst the ruling class in those days.
Human beings are a highly interdependent group of beings. I’m not for communism, but that doesn’t mean that the only other choice is raw dog eat dog hyper-capitalism. Ayn Rand got it wrong.
John Horner :
March 13th, 2009 at 12:36 am
Contrary to what some people think, the US didn’t become a world power by every individual simply maximizing their take of the booty and ignoring the consequences for others.
Did I ever say “ignoring the consequences for others?”
I said maximizing one’s own interest. If my interest is served by serving your interest, then yes I will. If not, then not. The point is, I decide. Not the government.
Consider this: The US military relies on volunteers, most of whom enlist at least in part out of a feeling of patriotic duty. Very few people would sign up for military service if all they cared about was getting as much for themselves as possible.
Well, how about the large number who fled to Canada when drafted?
Another example: Henry Ford famously boosted the wages of his workers
Well, that’s what I said. A capitalist can hire or fire, increase or decrease wages, for the capitalist’s own profit.
Human beings are a highly interdependent group of beings. I’m not for communism, but that doesn’t mean that the only other choice is raw dog eat dog hyper-capitalism. Ayn Rand got it wrong.
Capitalism is not about dog eat dog. Capitalism is about dog A eats or feeds dog B, if that good for dog A. Exactly which way depends on dog A’s judgment. Communism is about dog leader A tells dog B-Z, give your bones to me for the common good (aka UAW).