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Journalist Markham Hislop interviews leading energy experts from around the world about the energy transition and climate change.
Welcome to episode 335 of the Energy Talks podcast. I'm energy journalist, Markham Hislop. Today, we have a live event with Michael Dunn, automotive analyst and writer of the Dunn Insights newsletter. And the main topic of the interview will be China's electric vehicle industry. Michael and I will chat for 30 minutes, then we'll open it up for questions from the audience.
Markham:So welcome to the interview, Michael.
Michael:Thank you so much for having me, Mark. I've been looking forward to this for
Markham:months. Probably not as much as I have, because I have to tell you, Michael, China really never popped on my radar, in a big way until about 14, 15 months ago. And it became really clear in, say, early 2023 for me that China now has taken out is the leader of the clean energy the energy transition, but the clean energy, industry, both on the supply side and on the on the demand side. And that has all sorts of implications that we'll be talking about, but it also has implications for the auto industry. And I wanna start you off with a quote from Carlos Tavares, CEO of Stellantis, and I'll get you to respond to it.
Markham:So here we go. If the automotive industry doesn't move, the industry will disappear under the offensive of the Chinese industry. The magnitude of the Chinese offensive, the competitiveness that they can demonstrate, and the massive arrival of all of their best carmakers is a significant change. And, Michael, when I read that to to Flavio Volpe, who up in Canada is the head of the automotive parts, association. He said, absolutely.
Markham:That that's exactly how all of the Canadian version the the, you know, Ford and GM and so on in Canada view it. What how would you respond to Carlos' Tavares' argument?
Michael:Up until very recently, what happened in China stayed in China. So it's sort of been off our radar screen. But just as you say, end of 2023, we start to see some gargantuan numbers coming out of China. And then you pause and you think, hang on. What China's put together in terms of an auto industry is unlike anything we've seen in a 100 years.
Michael:It's it's a massive powerful machine. Just to give you a couple numbers. 1 is, China this year will produce 30,000,000 vehicles. That's twice as many as we make in North America. Twice as many.
Michael:China will produce more EVs than all other countries in the world combined. China will export more than any other country, including Japan and Korea to more than a 100 countries, and the list goes on. China dominates the battery industry, the battery supply chain industry. And you think if you're Carlos Tavares, you look around and you say, my goodness. We if we don't get our act together quickly, China could overwhelm our global auto industry just as it has already proven able to do in solar panels, in the shipping industry, in steel, and a number of other businesses.
Michael:So the threat is real. He's right. And it's now. It's not in a couple weeks from now or a couple years from now.
Markham:I've been reading a lot of American analysts, people like, Noah Smith, who's an economics blogger. And and I've also been reading speeches by American politicians like Gina Raimondo, secretary of commerce, Janet Yellen, the, treasury secretary. And what is made abundantly clear like, I will say one thing for Americans, Michael. You guys don't fool around. When you wanna get to a point, you say it bluntly and clearly.
Markham:And the message received is very clear, and that is this is first and foremost a geopolitical struggle. The Americans in the United States sees China as in the cold war 2.0, it is the equivalent of Russia, after the second World War. And, the allies, you know, Europe and and the United States are reshoring manufacturing. They're building their clean energy technology main industry, because they don't wanna be dependent on China. Is that a fair point from your from your point of view?
Michael:Overall, it's an accurate assessment of what's going on. Let me take you back to a little bit of history. I first went to China in 1986 as a graduate student. At that time, China didn't even have the capability of building its own cars. It needed to form joint ventures with Volkswagen and with with Chrysler to make Jeeps and with Peugeot just to put together cars.
Michael:That was in the eighties. But from those early days, and I went on to live in China and other parts of Asia for the next 26 years, I sensed that China had an ambition to one day be as competitive or more than more competitive than any wells on the planet. So in a sense, they've been fighting a battle, if you want, called a war since the eighties to equal or surpass the US, North America, Europe. And up until very recently, that hasn't happened. So for us here in North America, like, oh, there's no real war going on.
Michael:It's not there's no geopolitical tensions, and suddenly there are. So from certain perspective, China's been fighting a war. We've been engaged in a war, but we didn't realize it until very, very recently when it's like a Sputnik 2 moment. Woah. They have got all the weapons, and we don't have what it takes to compete.
Michael:So it's a huge wake up call, and I do believe, yes, I agree. There are geopolitical elements to it as well. It's not purely economic competition.
Markham:One of the most compelling parts of the story around China's electric vehicle industry, and we may as well lump the battery is they 20 years ago, they said, okay. We we want to become, we wanna be on par with the North Americans and the Europeans, the Japanese, the Koreans, and the auto industry. We now recognize we will never catch them in terms of the internal combustion engine vehicle. But we think that electric vehicles have potential, and we're gonna start in we have an industrial strategy to further to build our our EV industry and our battery industry, and we have a variety of policy tools that include subsidies and licenses and all kinds of things. And they very deliberately began building an industry 20 years ago using that policy set with a clear vision and a clear strategy.
Markham:And 20 years later, this is what we're seeing, is they have now emerged as a dominant, player in the automotive industry with the intent of becoming the dominant player. Have I accurately described what's been going on?
Michael:You you couldn't have nailed it better. I remember being at a symposium in 2009 when minister Wan Gang, who's known as the father of the electric car in China, not well known in the west, but he was educated in Germany, went back to China. In 2000, he penned a white paper and say, the future for our auto industry is electric. At that time, it was largely ignored because China was a tiny market. It didn't have the industrial capability.
Michael:10 years later, I was at a symposium. He gave a keynote speech. He said in 2010, Look around here. We're the largest car market in the world. We produce more cars than anyone else in the world.
Michael:But if you look at the streets of Beijing and Shanghai and Guangzhou, they're mostly global brands. Where are the Chinese cars? He was clearly frustrated. He made no secret of it, and he said, in order for us to stop this game of forever catch up with the west, we have to pivot away from internal combustion engines to the next gen technology. In this case, just as you say, electric vehicles and batteries.
Michael:So at his talk, it wasn't that well attended. The major automakers weren't there. EVs still weren't getting any traction in China. It was more like a wish, but you could see and you're looking back. That was a moment in time.
Michael:And a few years later, Xi Jinping gathered with his lieutenant in Beidaihe on coast of China and put together that blueprint for made in China 2025. So it didn't come out of nowhere. Just as you say, they've been working toward this goal for the better part of 2 decades. And now that it's gained traction, my goodness. Look out.
Michael:Because they have the largest market and the biggest manufacturing center in the world for cars. That's what we're confronting.
Markham:There there's a point made by a someone I've interviewed a couple times on this podcast, and his name is Mike Andrade. He's the CEO of Solar Morgan. Oh, sorry. Morgan Solar out of Toronto, but he's been in the electronics, manufacturing business for all of his career, I think about 30, 35 years, and he set up factories in China. And one of the things he said is that the when the, when China decided to pivot into electric vehicles, an electric vehicle is essentially an electronic vehicle.
Markham:And China, thanks to all of the offshoring, that started in the 19 eighties, has come to dominate electronics manufacturing in a way that I don't think we imagined it would in in the 19 eighties. That gave the China an enormous advent competitive advantage when they were developing their electric cars. What what what say you, sir?
Michael:Yes. As part of this made in China 2025 blueprint, one of the moves that Xi Jinping made is, hey. We are actually very competitive in electronics and in the Internet. Let's bring some of these geniuses from that sector and infuse our auto industry with innovation and inventiveness and imagination. It's worked out beautifully.
Michael:So I recently got the opportunity to test drive several different Chinese brands, and the overwhelming impression is, yes, fit and finish is great, quality built, great price, but mostly that digital interface, that software is phenomenal. It's as good or better than other automakers around the world. This is what really scares, you know, the people in Detroit and Stuttgart and and Nikola. Like, oh my goodness. They're they're hitting not just a low cost, but a high quality and highly advanced technologically technological vehicle.
Michael:And just as you say, much of it is because they're able to draw on massive infrastructure of industries supporting electronics now moving into cars.
Markham:It's also been, explained to me that the Chinese culture, around cars is very different. China, Chinese consumers tend to be tied to their phones because they, their culture is online. Everything they do is online. Every all of their life essentially runs through their phone and and the various apps that they use to organize their life, and they need to it it's a requirement that just like their banking is an extension of their phone, their car has to be an extension of the phone. They need to be rolling iPhones.
Markham:What role has that played in the, sophistication and development of Chinese, software and and hardware?
Michael:You know, we have to rethink our conception of what a car is just like we did with a phone when the iPhone arrived. It's no longer just a phone. That thing parked in our driveways is so far beyond a car, it's mind blowing. So in your car today, you buy a new car, you've got cameras and microphones and supercomputer processing information at lightning speed, it vacuums up so much information that, well, there are no secrets anymore. So when you come back to China and its ability to compete, it definitely resides in this.
Michael:You know, the Chinese the Chinese consumer is first and foremost a consumer of digital information. And then they happen to be in this car. You know, growing up in North America, it was all about how fast is your car, how well does it handle, what about the braking, performance. No. That takes a second's back seat, a real back seat in China.
Michael:What they're most interested in is how well connected them I do I have any delays? Is it accurate? Is it intuitive? So that's the focus of the Chinese car. Now the question is, will that same love of that interface and the interconnectivity be as important to consumers in the west as it is to consumers in China?
Michael:Right now, the Chinese automakers are confident that it will be. Time will tell.
Markham:Let's talk about the, US automakers in particular. Oh, well, no. Let's include the Europeans as well because but the the issues they're having with software, GM has had software problems, Ford has had software problems. The CEO of of VW pretty much got fired because they couldn't, sort out, the VW, software department that was building, the software for for EVs. How far behind are the, legacy automakers?
Michael:I liken it to you've studied all your life Portuguese, and you're entirely fluent. You can read. You can write. You can recite poetry. You know, the whole history of the language.
Michael:And then tomorrow, you wake up and you go, no. No. No. You need to know Japanese. No.
Michael:I don't know Japanese. I know Portuguese. No. But it's a language too. You just have to start speaking it tomorrow and hurry up.
Michael:Well, it's an impossible mission. So automakers, as they're known, have been really good at manufacturing vehicles for the longest time, Portuguese. And now they're asked to move into this area called software. Oh, my goodness. That is so different from anything that they've done before.
Michael:So their culture their their mindset, their way of thinking has to change if they're gonna compete. And hard for them to do so. Really hard for them to do so. And at at they'll be the first to tell you their biggest struggle is how do you transform the mindset of a company that's been here all of its existence and needs to go over there to survive.
Markham:That's really interesting because I had a an automotive engineer, Sam Abelsomed, who works for, Guidehouse Insights. He worked in the industry for a long time in software, and he said, you know, we know how to do the software that runs a car, that runs the fuel injection system, that runs the ABS, all of that kind of stuff. It's the other stuff we don't know how to do, the infotainment system, the the, connectivity, that we don't know. And is is that the the the problem where where you're seeing that you see with the legacy automakers?
Michael:The the in particular, it then you just even get to software updates and how often they should happen in the cybersecurity aspects. There's it's a whole another universe. And as smart as those engineers are, it it's like learning a the best example, learning a new language and getting it exactly right from day 1 and not messing up. Because you can't afford to make a mistake. And this is what is costing companies like VW 1,000,000,000 of dollars, and then they have to start over again.
Michael:It's really in some ways, it's like a fool's errand. Maybe it's a fool's errand. Can't get there. As my I was recently in a one of the newer cars with my nephew, smart young guy just becoming a doctor. And I described this challenge for global automakers to shift into software, and he said, why would they even try to do that?
Michael:They make cards. They manufacture cards. That's their business. If it goes away, it goes away. Don't try to do something that you aren't.
Michael:So that's 1 person young person's perspective, but there's a lot of truth in that.
Markham:Yeah. Fair enough. And, let's talk about the, tariffs, because the it was about a month or so ago that, then you well, US president Biden, Joe Biden slapped on 100% tariffs on Chinese EVs and cited cybersecurity, cited national security issues, when doing so. And Europe has been squabbling with the the Chinese national government for a while now, and they boosted up their, tariffs not nearly as high, but still they they did boost them. And the what will be the, implications of that?
Markham:That? And will eventually we see Chinese EVs in North America, to the same extent there are already there in Europe?
Michael:Let's take the end of your question first. Yes. I think it's a matter of only a matter of time before we see Chinese cars on American roads. The Chinese want access to North America because it's the most profitable place to sell and service cars in the world. And if they stay at home, they're in a bloodbath of price wars or their margins are dropping, and it's really tough at home.
Michael:So they need access to the US and Canadian and European markets. Now, what about the tariffs? The tariffs are, in my mind, a short term measure to buy time. What I would have loved to see is some standards or some benchmarks that the automakers must meet while those tariffs are in place. So we'll give you 5 years of tariff relief.
Michael:But during those 5 years, you have to hit certain competitive benchmarks or that or those things go away. And I'm concerned that human nature says, oh, we have 5 more years to to to lollygag around and get there in our good no. We need a real sense of urgency, and that's not quite in place today.
Markham:What about and then here you talked in one of your newsletters, about something that I hadn't thought of, and that is China becoming the place where legacy automakers make their their EVs anyway. So you there are already many of them, if not all of them, have joint ventures with Chinese companies because that was required by the Chinese national government a long time ago if you wanted to get into that market. And but now and and we see companies like Tesla that are building, 100 of thousands of vehicles, EVs, in in Chinese factories, but what are the odds that the center of gravity in EV making will shift out of North America, out of Europe, and be really be concentrated in China.
Michael:It's already happened. We just don't know it. Not only the Chinese using it as a manufacturing base, but just as you say, Volkswagen, General Motors, Ford, BMW, Renault, Honda even are turning their factories from service points for the Chinese market and instead manufacturing or export globally. So today, example, GM's is exporting in large numbers to Mexico. In fact, 4 of the 5 best selling Chevys in Mexico, I was there recently, are Chevys that are built in China.
Michael:So hang on. Wait a second. American company building in China with a Chinese partner. Partner gets half their revenues and half their profits. Shipping them back over to Mexico at a profit and taking market share.
Michael:So this is concerning. But in spite some measures, if we didn't have country labels, yeah, everyone in the world would just go to China and build their cars there. Done. Low cost, supply chains, advanced technologies, big whole market, a government that's ready to support and subsidize export. Hey.
Michael:What? What's better than this? So the the un the risk, of course, to us and the rest of the world is our industries and our jobs and our tax rep rep basis get wiped out. That's a real risk. Otherwise, why not let's just all build our cards in China?
Michael:There's a flip side to it, and the west is just awakening to it. That's why we see the tariffs go
Markham:up. Yeah. Noah Smith has made that point that a deindustrializing, Europe and North America is a vulnerable, Europe and North America. And one of the things I wanted to I have a bit of a hypothesis, if you will.
Michael:Let's hear it. Let's hear it.
Markham:I don't think China is all that upset about being shut out of the North American market at the moment, because one of the things that we've seen is them immediately pivot to a greater degree to the emerging economies, the non OECD economies. So you see BYD building a plant in, in Brazil. You see plants going up in Thailand and Vietnam. You see, some, greater numbers of of EVs being exported to places like Africa. And I think, and my touchstone for this, Michael, is the OPEC, World Oil Outlook 2045, which basically said everything out of outside of North America, Europe, and China will remain oil and gas driven.
Markham:And the Chinese are blowing up that model by either exporting, their electric vehicles and their battery or their building plants in some of these countries. What's your view?
Michael:It's tremendous, to see the pace with which, in particular, BYD's building plants overseas. As you said, Brazil, 1. Thailand's a second one. Hungary's a third one. And now just recently, it in announced a $1,000,000,000 investment into Turkey.
Michael:So they're wasting no time in manufacturing format for for those local markets. Now there is a little bit of a we talked a moment ago ago about the possibility that all cars are made in China. If we look closer at the export numbers today, 6,000,000,000 cars China will export this year electrics. Electrics are growing quickly, but China enjoys overwhelming price competitiveness across all powertrains at the time at the moment, which is really kind of frightening when you think about it. Like, what's the answer?
Michael:How do we we don't we're not even that competitive in gasoline against the Chinese.
Markham:So does that mean I I was reading it, I think it was a Bloomberg hyperdrive newsletter today that, it it could, happen that the legacy auto automakers stop manufacturing their own internal combustion engines and instead buy from third parties that are based in China.
Michael:What it it it's a great hollow hollowing out of our industries, and we've seen it happen in other industries. And now we're in autos, and we think, well, that's unthinkable. The Detroit 3 will always be there. Well, maybe not. Maybe not.
Michael:This is if we go back to the top of our conversation, in China, we're faced with an automotive machine, the likes of which we've never seen before. Even recently, it was reported that, get this, Toyota is potentially going to have a manufacturing base in China to build Lexus. Okay. For export. Alright.
Michael:Let's capitulate. I mean, if Toyota is ready to go to China to manufacture export, then who who else? So, I think leaders around the world, in the west in particular, are looking at this and saying it's an existential moment. It's Sputnik moment. We thought that China would be a market of endless growth and profits for us to go into, but we never imagined, at least not this fast, that China would be coming for our lunch.
Michael:It's it's completely thrown. It's like an earthquake for leaders in the industry and in government, and everybody's trying to come to terms with how do we handle this now? How do we handle this?
Markham:This, often comes up in in conversations I have in Alberta where, you know, the oil and gas industry is so dominant, and and, this is not well known. We're we're Canadians. We're we're very self effacing. Unless you're talking about hockey, we're not you know, we don't do a lot of bragging. But it turns out that Canada is actually the 4th largest oil producer in the world, the 5th largest, gas producer, and most of that takes place in Alberta.
Markham:And what doesn't take place in Alberta is controlled by Alberta based companies. So the question, that I have all I get asked all the time is how fast? Because the premier of the the province and all of the, leaders inside the oil and gas industry have explicitly, I mean they can't say it enough times in the media, adopted OPEC's slow energy transition narrative. And so they're looking at, you know, growth of oil demand out to 2045 and a so a long plateau and slow decline. And they they have been completely, completely bamboozled and and shut out of.
Markham:They don't understand what's going on in China. China's now leading this shift over into clean energy technologies, including EVs and batteries, and and the US and and Europe are frantically trying to catch up. It's like a clean energy arms race.
Michael:Mhmm.
Markham:But not all sectors and not all parts of the world, the developed, you know, the west have caught on. Would you agree with that?
Michael:There seems to be a case here of North American exceptionalism when it comes to cars and our behavior with cars. So what does that mean? For electric cars, the ideal usage is you're in the city, short commutes, not high speed, stop and go traffic, perfect for your battery. Batteries love that. What do North Americans, Canadians and Americans, like to do most?
Michael:We like our big vehicles. We like to go long distances at high speeds. We love to tow things. If it's cold weather, we don't wanna be bothered. If it's really hot weather, don't we don't have to worry about it.
Michael:That all plays to the strength of continuing to use gasoline to power our vehicles. Now if you look at the most of the rest of the world, it's different. They have short commutes. They have lower speed. They're not interested in big vehicles.
Michael:So there could be a case where we're we don't get the memo. The rest of the world is moving on, and we're sort of like, yeah. But this this is comfortable and familiar to us. If president if, Donald Trump is elected president of the United States, he he said on day 1, he's gonna kill the EV mandate. So there might be a case where, ironically, the largest and most profitable markets in the world, Canada, the United States, kinda do lag for a while because we can.
Michael:And that's what makes this picture so interesting.
Markham:And that's and that's not unusual with incumbent industries. I mean, that that's often very common. We don't we talk about buggy whip manufacturers, as a symbol of laggards for a very good reason. Ah. And we talk about we talk about Blockbuster.
Markham:We talk about Kodak. And the thing I point out to the Albertans all the time in the context of this conversation is, you know what, gentlemen? You may know oil and gas. Grant you that you know that industry and those markets inside and out. You do not know electricity.
Markham:You don't know the competition. You don't know electric vehicles or battery, wind, and solar. That's your comp your new competition, and you do not know it, and that's what sunk Blockbuster. That's what sunk COVID.
Michael:A great point. I think the single biggest vulnerability of us in North America is that we do not know the competition, and we're not nearly curious enough to go find out about it. We discount it and think that's over there, won't touch us. But let's let's be realistic. If the rest of the if the largest market in the world and the largest manufacturer in the world is going like China is now up to 40% of its new car sales are electric.
Michael:Biggest market gone electric. Europe's that way. Many other countries too. Australia. If the whole world is going electric, and we're not, I don't think they're gonna change their mind because 2 countries decide to, well, let's slow things down.
Michael:No. That's not how the world works.
Markham:One more question before we get to the, the, q and a period, Michael. And I'm really curious what you think about this. I interviewed Tony Seba back in 2017 when he put out that paper that talked about robo taxis were gonna take over the world, and by 2030, 95% of all miles traveled in the US would be by robo taxi. And, of course, it's not hasn't worked out that way. But the Chinese in particular seem to be have a thing for robo taxis and are putting a lot of, resources into it.
Markham:What what can you tell us about that?
Michael:Here's how to think about it. The US US North America universities in Canada and United States continue to be leaders when it comes to r and d. But nobody's a match for the Chinese when it comes to commercializing r and d, whatever the technology. And here we go again with robo taxis. So since 2016, we've seen about a dozen Chinese major cities say, we're going to have geofencing in certain areas of our cities and begin testing robo taxis.
Michael:And now they're beginning to commercialize routes in those cities. So they're the first to market. They're the first to find out how to commercialize. And very importantly, regulators in China want success. How what can we do to make robo taxi successful?
Michael:Regulators in North America tend to say, where's the risk? I don't want anything to go wrong on my watch. I like to keep my job. If there's any hint of a problem, let's shut it down. So North America and China may be equal in terms of r and d and capability.
Michael:But once it comes to commercializing, the Chinese have a decisive advantage because their regulators want to make a success, and they're doing everything they can to make it one. That's the difference.
Markham:But, a quick anecdote here. In 2018, I interviewed the city of Calgary's tranny transportation planners, and we talked about the advent of robo taxis and autonomous driving, in in Calgary, and they said, we've talked to the manufacturers, and and I said, okay, great. Is there gonna be geofencing? And they said, no. The manufacturers that we're talking to have asked us specifically not to, that the, that the robo taxis have to be able to operate in the built environment within the environmental conditions, rain and snow and pedestrians and all of that stuff.
Markham:They have to be able to maneuver that, and they don't want geofencing. And now we've turned that on its head. Everybody's trying to build geofencing infrastructure. China seems to be way ahead. We're only just now starting.
Michael:Right. The Chinese, at the end of the day, very pragmatic people understand. So they they they'd understand, yes. We wanna have testing of all conditions, but let's walk before we run. Let's geofence some areas, learn.
Michael:You know, the key to autonomy people ask when will we see full autonomy or robotaxis. The better question is always where will we see it. So we'll see it at ports. We'll see it at geofence. Learning as we go and then expanding that where over time, is when is when is how things are going to develop.
Michael:And China's gotta jump on us in that regard for sure.
Markham:Well, let's, start the the q and a. So, we'll, if you've got a question for Michael, please go down to the reactions, icon at the bottom of your Zoom screen and click on that and then click on the the hand and that'll raise a hand, and I'll call on you to, to give you the mic, and you can ask your question to mic. Please keep it short. With these we tend to get a lot of speeches, during the questions, but if you wouldn't mind, keep it short, and we'll get as many as we can, ask of Michael before we end in 30 minutes ish. So, Jim Williams, your hand is up.
Markham:You've got the mic, sir.
Speaker 3:Hi, Mike. Thank you very much. Great talk. The question is just, as you point out, China's done this in a lot of other industries, not just auto. And they've been producing 5 year plans and blueprints for how they're gonna take over the renewable energy space for decades.
Michael:Mhmm.
Speaker 3:How can we be so asleep at the switch in in the west? I don't know whether there's a good answer for that, but you do wonder, like, why does it take the Sputnik moment for people?
Michael:Alright. Great great point. I I could only I think the best way I could answer that is just my own personal experience living in China for so many years. If you've lived there or been there, for a period of time, you understand it. It's like a, pressure cooker.
Michael:There's frantic competition among Chinese companies. There's a lot of uncertainty. There's a lot of risk, and everyone's hustling all the time just to survive. Then I moved several years ago back here after 26 years in Asia with my family to California, San Diego, and things are very comfortable here. I mean, everyone's working hard, but things are generally comfortable.
Michael:And comfortable leads to complacency, and complacency leads to do we really need to worry about that? That's what I see big picture. Until we have, like, a Pearl Harbor moment or a Sputnik and go, oh my god. We're getting our butts kicked. Oh my what?
Michael:And that's sort of the tradition in North America is to to bumble along and then suddenly we're called to action, and that's where we are today. Just waking up to this new reality. Now to bring it closer to home, one more point briefly is global suppliers also went into China starting 20, 25 years ago, and they're now the bedrock of China's automotive industry. So in a sense, we fed the beast. We are in there with our capital and our know how, and then we so in a way we should be look.
Michael:We built this kinda helped build this thing, and yet we're alarmed and shocked when it's coming out.
Markham:I have a little anecdote I wanna add in here, Michael. About, 4 or 5 years ago, I interviewed a fellow named Val Jensen, and he used to be a vice president with a utility in Chicago. And for years years years, now he's a he's a consultant. And we were talking about some of the issues around, you know, renewables in the US, and he said something I'll never forget. He said, do not ever put utilities in charge or make have allow them to dominate processes because incumbents will always gatekeep.
Markham:And if you look at the power sector in in the in the US and Canada, and you look at the automotive sector, the incumbents have gate kept their their gatekeeping, and we're allowing them to because we're comfortable. Right?
Michael:Definitely. Everyone everybody comfortable. It reminds me I'm from Detroit originally. Growing up in Detroit, the big three, making record numbers of cars and profits, and then the UAW got very comfortable too, and it was also cozy. Hey.
Michael:Anything wrong here? No. This is great. I got a cottage up north, couple boats. Everything's good.
Michael:And then the Japanese came. Oh, oh, what's going on there? And then the Koreans came and but this time, make no mistake. I mean, China is a order of magnitude, like, 10 x what we experienced with the in terms of competition with Japan and Korea. Yeah.
Markham:Let's, Jeff Jeff Kramer. You're up next, so you've got the mic, sir.
Speaker 4:K. So my question has to do with China's population issues. So, apparently, they've been overestimating their population. They've overestimated to the tune of about a 100,000,000 more than, than what they actually have. And, according to Peter Zayen and and some others.
Speaker 4:And the question is, do you see there being a problem in terms of not they don't have enough children to keep up all the manufacturing and and stuff. And in that sense, they're gonna cease to be a threat, in the next few years, like 10 years or so.
Michael:That demographic issue is real, and it has their leadership extremely concerned. They've taken action in their recent years. It used to be 1 child policy. Now they're making it 2 pot 2. Let's have 3.
Michael:How can we have you guys make more babies? So they're aware of it. It is a serious concern, and it could if you talk to some people, it could say, no. The China's done. They have a window of about 5 years after that they're done.
Michael:I just like to add a little bit of caution to that. Living in China, the Chinese have this expression called chirku, means eating bitter. They they they don't mind grinding it out. So whatever the odds are, if their demic demographics are against them, they still have this strong national identity. We will overcome.
Michael:So I don't see a collapse or a, China going away. I think they'll they'll find a way to deal with it. One of the things you see in today's factories, they're highly automated. China has more robotics robotics in its factory than anybody else in the world. It's not even close.
Michael:So they're aware and they're adjusting. I wouldn't underestimate China's ability to deal with it. They're not blindsided. Oh, what what's happening? They know, and they're taking steps right now to compensate for that.
Markham:Michael, I've got a question that that I've I've read that the, Chinese population that's in the urban centers, that has been, you know, lifted out of that grinding poverty from the sixties seventies, right, the number's about 400,000,000, maybe 500,000,000, but the population could be 1,300,000,000, and still out in the rural areas. And might we see a rural depopulation of the kind that we've seen in North America and Europe where if, okay, there's a shortage of of, workers in the coastal cities, okay, then the rural areas, workers migrate to the cities and fill those possessions. Is that a
Michael:possibility? That's definitely a possibility. That's definitely part of what has happened even over the last 20 years. It could accelerate. One of the one of the catches, and this is where the west has some leverage, is China's domestic economy for years was nothing but 7, 8, 10% growth and great profits for everybody.
Michael:That's those days are over. And the domestic economy is actually struggling. People aren't spending money. People are saving, worry about the future. So for China to continue to grow, it definitely needs to export.
Michael:And that means having access to North America and Europe and other markets. So it's a one way street with the Chinese. They're not importing as much as they used to. They wanna export everything. Their domestic economy is weak.
Michael:So they they may have be able to find the workers. But if they don't have access to these export markets, then the whole thing could collect like, a pressure cooker could could overwhelm them at home. Too much capacity, too much competition at home, no access to local to export markets, then they'll then things get very dicey in a hurry.
Markham:Now, Sean has got his, hand up, and, it's a symbol, but I if I remember our last meetup correctly, that is Sean behind the symbol. So you have the, you have the mic, sir.
Speaker 5:Thank you. Yes. It's Sean. That's my name in Canadian Standardized Syllabics. My question thank you, Michael, for the talk.
Speaker 5:So given our history in Canada, especially Western Canada of not manufacturing and to borrow a phrase, I hear Markham say a lot that we're the dryers of water and hewer of hewers of wood. What in your opinion would be should we continue to chase after the United States and wait for them to push our our legged politicians into doing something about it? Or would there be an advantage to us to turn towards China and maybe say, okay. You can't export directly to the United States, but maybe we'll trade you. If you buy your nickel and your steel from us, then we'll bring in some cars and we'll get them built in Vancouver or Ottawa or Ontario.
Michael:Mhmm.
Speaker 5:What's your opinion on that? Should we just kinda stick to our conservative wait for for the USA to force us to do what we're gonna do, or should we turn towards China?
Michael:Well, you you you have your leverage. You have your resources. Use them. Yeah? And say China needs these.
Michael:Let's do a trade. Maybe even a step further is we don't just wanna import your cars If once you manufacture once you bring some money and some know how, we too wanna build electric vehicles. We wanna be globally competitive. So in exchange for our wealth of resources, which you need, China, we want you to invest 1,000,000,000 to manufacture here and build up supply chains too. That I think that would be a good deal.
Michael:If it's strictly export trade, I'm concerned that Canada longer term might become vulnerable as China looks elsewhere. They're always thinking of leverage. And if once the door is open to them exporting cars to Canada, that won't stop. And then at the same time, they'll be shopping around for other places to source, their ingredients for their for their machine.
Markham:I I I wanna have a jump into this one because I kind of had counterargument, Michael. Mhmm. I I think that given the geopolitical, national security concerns around this, the US would look very dimly on Canada taking a an independent role. Now that gets our hack Canadian hackles up. You know, we like to think of ourselves as an independent middle power, But let's face it.
Markham:75% of our exports go to the US. We are essentially the hinterland to the US metropolis. But given the fact that on all of the clean energy technologies, and I'm talking about wind turbines, solar panels, batteries, electric vehicles, heat pumps, electrolyzers, and on and on, and all of their supply chains, these are woefully underdeveloped in the US. They're just thanks to the IRA and the Infrastructure Act and CHIPS Act beginning to be built. Uh-huh.
Markham:There is an opportunity, a window here if Canada were really aggressive that it could say, jump in there and say, hey. Hey. Hey. Hang on a second. You're building supply chains.
Markham:We wanna be a big part of those supply chains. And here, we're gonna we're gonna put up the capital. We're gonna put you know, we're gonna do all of these policy measures to encourage this thing because we're not getting left behind this time. We're not just gonna give you raw oil or raw nickel or raw anything. We want as much processed as possible.
Markham:And we could actually tie our wagon even tighter to the Americans, but do it in a way that brings a lot more value added manufacturing Value added. Yeah.
Michael:That's right.
Markham:That that would I think that that would be a a good other option.
Michael:Absolutely. And especially if you think probably many countries around the world, including Canada, will sooner or later in the next couple of years probably have to make that decision. Are we tying ourselves to the United States and the West, or are we tying ourselves to China and its allies? That's that's a big call. And and the reality is China is probably 5 to 10 years ahead on batteries and battery supply chains.
Michael:You the North America needs them. It seems like the greater upside and the opportunity and national security reasons, stay at home and invest in higher value and is tough.
Markham:Sean, you have a follow-up question?
Speaker 5:Yeah. I guess just to for both of you, I guess, to follow that up, then, I guess I'd just like to hear someone. What what if we just played the USA and China off each other
Michael:and say, you know,
Speaker 5:promise them both and and see if we can get the move?
Michael:That's a smart that's a smart take. Why not? You you know, they're the 2 of them are the only thing that concerns the United States is if you're getting tighter with China and vice versa. So, yeah, why not?
Markham:Oh, I I okay. I'll I'll address that. First of all, the potential of Donald Trump as president, that'd be one. We would be the Canadian we'd be we'd be punished again just like we were in the free trade agreement when he reopened that, when he was president the first time. The the second thing is that, we really I don't I think the Americans, frankly, Michael, I think you guys are at that point.
Markham:They are not screwing around anymore. I I think that this, you know, this we're complacent and, you know, yeah, we're, you know, we're the world's policeman, but that kinda went by the by. They the rise of China has reinvigorated the American leadership and to rise to the challenge. And I and I and I think that that the smaller countries like Canada that have any ambitions to play China and and the US off against each other will very quickly be disabused of that notion.
Michael:I can share that in recent months, I have had the opportunity to brief people at the pretty high levels of government in DC. They are extreme acutely aware of the risks, and they're taking them very seriously and saying, you know, Henry Kissinger used to say we're in the footholds foothills of a cold war, then the mountain pass of a cold war. And then just before he passed, he said, well, basically, yeah, we're in a cold war. The shots haven't been fired, but across the board, if you look closely, there's tension on all fronts. So, yeah, it's almost time to pick your your teams.
Michael:It looks like it's history. Doesn't history doesn't repeat itself, but it sure does rhyme. Who said that? Twain Twain? Here we go.
Markham:Yeah. Well, you know, Canada Canada picked that, made that decision a long time ago, at least by 1988 when we entered into the free trade agreement Mhmm. When, Reagan was still present. So, anyway, be that as it may, let's not beat that dead horse anymore. Mike Klein, you're up next, sir.
Speaker 6:There we go. Okay. I am gonna beat that horse a tiny bit. We, this is I mean, we've always had this opportunity, but now maybe we have actually the motivation to mobilize ourselves. We might actually have enough fear set in.
Speaker 6:So, that, we'll actually say, okay. Look at what China's doing and could be competitive in the world marketplace. Look what the US is doing to be competitive in the world marketplace. Let's also be competitive in the world marketplace. Find our niches, work on our niches, build our supply chains from from digging to to final user, you know, all of that stuff.
Speaker 6:I think we really can have a motivation. I think it it behooves us to just get on that horse and do it. The second thing is, I a long time ago, 20 years ago, I was talking to a fellow who was working at a bank in in China, and he had just left that bank, and, he was moving on to a different future. And I said, so what do you you know, what what's your sense? So you've been in China for a while, and we haven't talked much for a long time.
Speaker 6:What's your sense of what's going on in China? And you're in the banking industry, which should be the blood of China, and he said, world domination. And, and I said, world domination. Okay. I'll make a note of that.
Speaker 6:Alright. And then I'm talking to a Chinese friend who is consulting to Chinese companies, and I told him this. And he said, no. No. No.
Speaker 6:No. That's when I was convinced that, in fact, he
Michael:was correct. Uh-huh. Thank
Markham:you. Michael,
Speaker 6:thank you. Michael. That's great. Thank you.
Markham:Michael, are are you go yeah. Are you gonna Yes.
Michael:I'm just, taking it in. Yes. It's no secret. I'll just tell you a story. When I was my very first company in the 19 nineties, I had a director there, very smart guy.
Michael:Had got great degrees and smart and experience. And I said, what do you think of the joint ventures between global automakers and Chinese automakers where you have 5050 and ownership? What's what's going on there? He said, well, we're making use of it until we kick your asses out. I said, okay.
Michael:That's pretty clear. Okay. So then subsequent to that, in certain private moments, my Chinese friends will say, yeah. It's Xi Jinping. It's our time to take center stage, the US's history.
Michael:It's our time to lead the world. And, it's pretty clear to me that that's our ambition. Let's just be let's just be realistic about it.
Markham:I I wanna address the Canadian context, Michael, because, you know, I was trained as a historian, low those many years ago when I was in university. And one of the things I learned was that when there are critical moments in a country's history, leadership really counts. It it counts immensely. And we're at one of those inflection points in history right now because of the rise of of China. And I look around, and and to Mike's point, if I had my brothers in a best, case scenario, I would, love Canada to be look after its own development and be more independent and take a more, not be so dependent on the US.
Markham:I look around the national fabric here. I don't see a single leader with a vision that would counter, the forces that we're talking about here. Everyone from the prime minister to the ministers to the opposition parties to the premiers are all about making the most of, you know, our relationship with the US and just milking the cow that we've already bet we've already bet on. There's no other vision to compete against them. And if you don't have those that kind of leadership, unless somebody wants to make me prime minister tomorrow, there then we'll just continue on the same road that we are on today.
Michael:Churchill made all the difference. Made all the difference. Made all the difference. Uh-huh.
Markham:And and, actually, Canada has had a few prime ministers who made a difference. But we Mhmm. The one we got now ain't gonna do it, and the one that's standing in the wings ain't gonna do it. So we the status quo is more or less going to prevail.
Michael:You're making me feel better as an American looking at the coming elections here.
Markham:Yeah. Well, no. Don't go that far, Michael, because one of your candidates is still gonna be Donald Trump. Well, look. Jeff, if you can't, you have the, floor, and this will be the whole for the final question.
Markham:We'll have to wrap it up and let Michael go. So, Jeff, if you would ask your question and keep it brief, please.
Speaker 4:Yeah. So, it's more of an observation, and and that is that, to the previous point, Canada or China hasn't proven itself to be a great trading partner. When, political things take over, like, for instance, when that Huawei executive was being held, our company was being penalized. We were importing stuff from China, but they were holding it at the ports because of this political issue that was going on. And, of course, it it was across the board.
Speaker 4:I know in agriculture, people were experiencing the same thing. So, even though we got a bit of a beating with Donald Trump last time with the the free trade agreement
Michael:Uh-huh.
Speaker 4:Really, overall, not a a whole lot changed. And, you know, hopefully, he doesn't if he gets elected, he's not gonna open that can of worms again. But, you know, what was insulting in that situation was when the Americans were saying, oh, well, we're gonna put tariffs on your aluminum and steel because you're not considered to be a a decent ally or something along those lines. It's like, get real here. And and so, you know, if the Americans want to, they can play that game.
Speaker 4:Traditionally, they haven't. They've been good partners. But we also have to keep in mind the Monroe doctrine. Right? They basically look at the western hemisphere as their playground, and they expect everyone to play by their rules.
Speaker 4:So
Michael:you know, I'm yeah. Recalling just briefly Donald Trump 2016, 20 70. He was the first president in the modern era to speak directly about China and call it out and put the tariffs in place and say, no. China needs to be answered. So, and then so I was cheered by that because I thought it was appropriate and timely.
Michael:And then in the next phrase, he said something like, in Canada, then you see it. What? No, don't don't add anything about Canada here. We're focused. They focus on China.
Michael:So a lot of it is kind of like unnecessary piling on with with no value added, but he does it. And I think overall, he understands So That's how he operates So That's how he operates.
Markham:I'm we're gonna wrap up now. And but, the mention of the Monroe doctrine, I have to point out since we have an American guest, that the, Canada basically burned the White House during the war of 18/12. And then when the Fenians, invaded from the US into Ontario in 1866, we kicked their ass out of the country. Uh-huh. So the the the the lesson here, Michael, is is, we can be tough if we need to be.
Michael:Great. I love to hear that. Love
Markham:Look. Thank you very much. This has been fascinating. Really interested. We're gonna we've recorded this, so we'll be putting it up on, on our podcast, of course, and we'll be spreading it around, our, social media.
Markham:So, Michael, thank you very much for this. We'll look forward to the next one.
Michael:Thank you. And if you want more information about China, about Asia, autos, electrics, batteries, Welcome to visit dun insights.com. You'll see the newsletter, the podcast, everything's there.
Markham:My mistake for not promoting that because I'm there all the time reading it, and it is very good. I I highly recommend it.
Michael:Thank you so much. Thank you for having me.
Markham:And thank you for for, for coming in and speaking to us, Michael. Alright,
Michael:guys.