The EV engine "oops"

There is quietly a major shakeup underway in the traditional auto industry. Two Japanese heavyweights--Nissan and Honda--are reportedly mulling a merger, according to local press. Shares of Nissan are soaring nearly 25% today for their best day in at least fifty years.

This would have been unimaginable twenty years ago. But the entrance of Chinese electrical vehicles has upended the global auto market. The Japanese auto makers have been caught flat-footed. They were surpassed by China last year as the world's biggest exporter of vehicles. Same with Germany, where Volkswagen--their biggest manufacturer--is poised to close factories for the first time in its 87-year history, and cut thousands of jobs.?

China's ascendance is owed, ironically, to the western world's embrace of EVs for the purpose of reducing fossil fuels. That created a huge entry point for the Chinese, who had long struggled to make high-quality car engines. In fact, Germany's prowess in complicated diesel engines, which can have thousands of parts and are literally named after the German (Rudolf Diesel) who developed them, was long a point of national pride.?

Now, the game has changed. Traditional engine production is no longer holding China back. In fact, China has quickly vaulted to the forefront of EV manufacturing.?

At Europe's largest motor show, back in October, cutting-edge Chinese EVs were the star attraction. BYD showed off seven new models, including one that can charge in 24 minutes and an SUV that can float on water. Another model comes with a drone that can scout out traffic down the road for you. BYD thinks it will be Europe's largest EV maker by 2030. No wonder BMW's CEO told a reporter on the sidelines that the traditional European carmakers were "trending toward pessimism."

And this is with tariffs of upwards of 35% in Europe on Chinese EVs! In fact, Europe is still planning to ban?gas-powered vehicles in the continent by 2035. Perhaps it should have readied its own automakers, first. "Europe is not the leader anymore," the head of Renault lamented at the event. "The center of gravity is now in China."

At the same event, Stellantis, the owner of Jeep and Fiat, said that they had opted to partner with a Chinese automaker, Leapmotor. CEO Carlos Tavares explained that "for us, the best way to compete immediately with the Chinese was to hop on their train, rather than letting it run us over." Two months later, Tavares was out of a job.?

And while the U.S. may be trying to pivot away from heavily subsidizing EVs under incoming President Trump, it may not be enough to shore up our own struggling carmakers. Adam Jonas of Morgan Stanley downgraded Ford, GM, and even EV upstart Rivian back in September because of China's growing global market share.?

"China produces nine million more cars than it buys, upsetting the competitive balance in the West," he wrote. "Even if these units don't end up directly on U.S. shores...lost share and profit by key U.S. players adds pressure here at home." Side note: Ford's own CEO drives a Xiaomi SUV.?

And yes, thankfully, we have Tesla. But Tesla cars are expensive, and there are only two real options for buyers (the sedan or the SUV). If this single manufacturer is to fight back against multiple cheaper and more cutting-edge Chinese producers, it will have to get the so-called "Model Q" compact car to market quickly.?

The genie is out of the bottle now, and the era where traditional carmakers--and their engines--dominated the globe is history. There will likely be much more upheaval ahead.?