Can Apple make iPhones and its other products in the US? Yes. So, why is the American company making them abroad, in China? To boost its profits. Apple is sitting on a cash pile of over $100 billion at any given time. Actually, it’s closer to $200 billion. It’s so comforting to be so rich you don’t know how rich you really are.
Who does not want to be in that position?
Everyone who raised their hand can be counted on by US President Joe Biden to set up manufacturing units in America.
On May 18, Biden appealed to auto companies to set up production lines for zero-emission vehicles and batteries, emerging sectors that could replace the existing auto ecosystem, in the US instead of abroad. “We need automakers and other companies to keep investing here in America, and not take the benefits of our public investments and expand electric vehicles and battery manufacturing abroad,” Biden said during a visit to Ford Motor Company’s electric vehicle plant in Dearborn, Michigan.
There is simply no way a company like Ford, or any legacy auto company that is into mass production, can afford to produce vehicles in the US. Mainly because they have not added any real value to their product in the last 100 years. They have been thriving on cosmetic changes.
Take a look at the vehicles produced by Ford in the last 100 years. After coming up with an assembly line, the company has not done anything worthwhile in terms of engineering. Over the years, legacy auto companies have been relying entirely on efficiency of the production lines to push their bottom line upwards.
It was inevitable that at some point, they would have to find ways to reduce the cost of their assembly lines. They reduced the cost by shifting assembly lines abroad, to countries where labour rates were cheaper than in the US.
That was their choice vis-à-vis improving their products through research and development.
It is not that legacy auto companies did not have enough scope for improvement in engineering. All legacy auto companies have been using internal combustion engines (ICEs), whose efficiency does not exceed 30%. To put it one way, if you put 1 litre of fuel in your car, you would get to use less than 330 ml.; the rest would go up in smoke, which is the source of all the pollution that we are having to put up with.
That’s how bad ICEs are, which left engineers with a lot of scope for improvement. But, legacy auto companies, such as Ford, did not see it fit to invest in R&D to either improve the efficiency of ICEs or find better alternatives. Instead, they came up with new designs every year and passed them off as new models. Actually, they were just a rehash of the same old crap that legacy auto companies have been producing for over a 100 years.
Interestingly, this was the business model followed by all the legacy auto companies around the world. It was as if a cabal was running the auto business.
At the same time, a lot of financial engineering went into expanding the market for vehicles. As the market kept expanding, along with the size of their balance sheets, legacy auto companies saw even less need to invest in R&D in engineering to come up with a better product, a more efficient engine, or at least one that was less polluting.
The philosophy was: if it ain’t broke, don’t fix it.
As vehicles reached every corner of the Earth, the cost to set up new auto companies to compete with the existing ones kept on increasing. With the barriers for competition rising, complacency set in.
Companies like Ford came up with vehicles that were fuel guzzlers, but no one would say that the emperor had no clothes. With no real innovation to speak of, some companies started gaming the system to get a foothold in new markets.
In 2014-15, Volkswagen was caught manipulating emissions tests in the US. At that time, the German auto giant had launched a huge marketing campaign highlighting the low emissions of its vehicles in a bid to get a slice of the market for diesel cars in the US.
That’s how complacent and blatant auto companies had become.
This was a time when people were already complaining about pollution. And then came the emission scandal. It was just too much.
Since that scandal, several entrepreneurs have set up companies to design and manufacture vehicles that would cause less pollution, or none at all. None at all is not possible, but thanks to them for trying. All of them concluded that electric traction offered the best and most viable alternative to ICEs.
Today, we have hundreds of companies around the world, in nations big and small, coming up with electric vehicles. You should just look at the number of entrepreneurs and companies, and the geographical spread of the emerging EV sector. It is amazing. It is as if anyone with a garage is designing an alternative to ICEs.
They have come up with so many innovations in such a short period that you wonder what were legacy auto companies doing all these years. It is as if the new bunch of entrepreneurs have no regard for the design and engineering standards established and controlled zealously by the legacy auto companies.
The lack of imagination among designers and engineers in legacy auto companies is simply unbelievable. Let me cite one example: the side mirrors. How relevant is a side mirror in this age of rear-bumper cameras? And, even the rear view mirror?
They may no longer be relevant, but the OEMs that manufacture these two products are. They are a part of the existing ecosystem of the auto sector. Removing side mirrors would put several industrial units and jobs at risk. Tomorrow, you might say that number plates are no longer relevant and can be replaced by bar codes, or something like that. Each change is a nail in the coffin for the ecosystem of the legacy auto companies.
One of the ways that legacy auto companies maintained their stranglehold on the market was through the parameters and boundaries they had laid down for new entrants. No one thought about overhauling these parameters or boundaries. Even if they did, they did not go through with it. Thinking-out-of-the-box was just a phrase that was reserved exclusively for garnishing advertisement campaigns.
Legacy auto companies do not want outsiders, even their customers, to tell them that it is time to make some drastic design changes to account for technological advances. They are happy in their bubble, and would like nothing more than for us to keep buying their stupid cars.
If you look at Ford trucks, including the F-150, they are merely monsters. Monsters without brains because the engine is a mere power train without any thought for efficient use of fuel and other resources. They destroy everything in sight, metaphorically, for no apparent reason other than because they can: they guzzle fuel, pollute the environment, monopolise the road, and they don’t care.
This is the kind of monster that Biden wants manufactured in the US. To be fair to the US President, Biden did not say that, or even mean that. He wants to keep and create jobs in the US. But the fact is that legacy auto companies cannot afford to manufacture in the US for the simple reason that they have nothing new that would excite customers enough to pay top dollar.
They merely have products that they need to sell to keep the ball rolling and prevent the topline from shrinking; it’s a buyer’s market. The buyer has no real need for the vehicles that legacy auto companies are trying to sell. The existing auto market, which is dominated by legacy companies, survives only on looks. Keep changing the look of the car every year. But, how many times would a customer change a car merely to get a new look?
In the recent past, car ownership has been seeing a downward trend. People are preferring services of cab companies like Uber, Ola and Lyft, or opting to rent vehicles from companies, like Splend, when they need them. From the highs of a luxury item and a lifestyle statement, cars are being reduced to a utility. A kind of a necessary evil.
The only way to turn potential buyers into customers is to make an offer they can’t refuse: a discount, which is possible only by cutting production cost, which is why American legacy auto majors want to manufacture vehicles abroad where labour cost is lower.
If you take a look at the specs of Ford’s F-150 Lightning, there is nothing new. Every feature is on offer either by Tesla or some other electric vehicle manufacturer. Ford’s engineers seemed to have done a nice copy-and-paste job. It sure looks like Ford believes it can milk some more dollars out of the F-150 fans.
I won’t say Ford is going down, but it sure won’t be the major player it has been so far in the auto market. In Dearborn, on the home turf of Ford Motor Company, Biden pointed out that the United States is falling behind China in sale of EVs.
This is what he said: “The future of the auto industry is electric. There’s no turning back. The question is whether we will lead or we will fall behind in the race to the future.”
Tesla is the only saving grace for the US. Other stars will emerge in due course, but the legacy auto companies have no clue what is going on in people’s minds. Or, were not bothered, till Tesla burst on the scene in 2003 and then came up with its Roadster electric car in 2008.
No need for incentives
Tesla’s growth, based on delivery of new and better cars, was fuelled by the desire of auto fans for something better than an ICE. Yes, the threshold of expectation was really low. But, over the years, Tesla has single-handedly been raising the bar. Now, the bar has been raised so high that entrepreneurs are getting a lot of space below the top end to come up with more affordable models, and are finding takers. Such as the Nexon EV by Tata Motors in India.
And, we have not even discussed any Chinese car yet. This is where I remind you again of what Biden said in Dearborn: the United States is falling behind China in sale of EVs.
As the President of the US, he should know. We can safely assume that there is a huge market of EVs in China. If the Chinese companies have not offered their EVs to the rest of the world yet, you must put it down to the size of their market. China is the world’s most populous nation, and it will take any company some time to cater to the demand there. Until then, the rest of the world can either come up with their own EVs, or wait for the Chinese companies to show up with theirs.
Either way, customers are ready to buy EVs. Governments do not even have to offer any incentive. If anything, governments could invest in EV charging infrastructure. But, I would say, even that won’t be necessary.
A multitude of companies are working furiously to come up with either products or infrastructure to tackle range anxiety, which I reckon is the biggest impediment to purchase of an EV.
If you think cost is a factor, just take a look at the prices being quoted by legacy auto companies for their EV line-up. Ford wants you to pay $39,974 for the F-150 Lightning.
You will come across some people saying it’s relatively cheap. Sure, it is cheap at the more expensive end of the segment. You will find a lot of EVs costing even less.
You can choose from a range of EVs at multiple price points. The starting price of the Nexon EV sold by Tata Motors in India is $23,000. So, there is a lot of room to play.
These cheaper EVs are not necessarily being manufactured in the US. If you stick to making electric vehicles in the US, your competition could eat into your market share with cheaper EVs, especially if the best you can offer is a copy-and-paste product.
But, if are someone like EV maker Tesla, that is innovating furiously, you can demand top dollar and also have a long queue outside the showroom for products that are manufactured in the US.
You get the feeling that legacy auto companies do not see Tesla as a trend-setter; they see the EV maker as an upstart. An outsider. Unfortunately for them, this outsider is doing a fabulous job. Maybe, we needed an outsider to show us just how much better our automobiles could be.
Legacy auto companies have to get back in tune with the mood of the people. People do not want polluting ICEs; they want EVs. Legacy auto companies like Ford will have to get used to chasing the leaders in EVs. Even for that, the oldies would need a lot of stamina because the new EV companies are introducing so many features that the oldies will have to spend a lot of time just picking the ones they want to copy-and-paste on their jaded products.
The auto sector is no longer the hegemony of a few. Tesla has emerged as the most valuable auto company in the world. All in a matter of less than 20 years. Other entrepreneurs are emerging as contenders for the top slots in the auto sector.
The legacy auto companies could reclaim the top slots by using their financial muscle to buy emerging companies in the EV sector. But, right now, there are just too many entrepreneurs, and each is catering to a small segment of the huge auto market that has developed around the world. It will be way too difficult for the legacy auto companies to decide which ones to buy and which ones to compete with, especially with their copy-and-paste products.
As customers turn to emerging EV companies, that is where the cash will flow. This will strain the financials of auto legacy companies, who will not be able to compete unless they come up with some innovative products of their own. Having ignored genuine R&D to favour cosmetic changes, legacy auto companies will need a lot of time and some really smart hires to come up with drastic changes to their vehicles.
All this will require a lot of investment, which is another reason why legacy auto companies like Ford cannot afford to bring manufacturing units back to the US. Biden’s appeal to bring jobs in the auto sector back to the US may have come from the heart, but he is fighting for a lost cause.
The US President, I feel, was appealing to the wrong audience. He has a better chance of success if he were to look beyond legacy auto companies, like Ford, at EV entrepreneurs around the world, and invite them to set up R&D facilities and manufacturing lines in the US.