+++ CHINA overtook Japan as the world’s biggest vehicle exporter last year, data from the Japan Automobile Manufacturers Association showed. The Chinese auto sector has boomed in recent years largely because of massive investments in electric cars, an area where Japanese firms have been more cautious. Japan shipped 4.42 million vehicles in 2023, the JAMA figures showed. That compared with 4.91 million exported by China. China’s customs bureau put the number even higher at 5.22 million, a huge year-on-year rise of 57 percent, with one in three of them fully electric vehicles. China had already been exporting more vehicles than Japan on a monthly basis, but the data confirmed that it was also number-1 for a whole year. Unlike their Chinese counterparts, Japanese automakers including Toyota (reconfirmed on Tuesday as the world’s largest company by unit sales) also make huge volumes of vehicles in other countries. In 2022, vehicle production in Japan excluding motorcycles totalled 7.84 million units, but overseas production was almost 17 million units. Instead of fully electric models, Japanese manufacturers have long bet on hybrids that combine battery power and internal combustion engines, an area they pioneered with the likes of the Toyota Prius. Just 1.7 percent of cars sold in Japan were electric in 2022, compared with around 15 percent in western Europe, 5.3 percent in the United States and nearly 1 in 5 in China. Japanese automakers have vowed to up their game, with Toyota aiming to sell 1.5 million EVs annually by 2026 and 3.5 million by 2030. The company has also invested heavily in battery technology and is banking strongly on being able to mass-produce solid-state batteries. This technology, though unproven so far on a major scale, means batteries will charge faster and give electric cars a much bigger range than conventional ones. Chinese company BYD this month snatched Tesla’s crown for most sales of all-electric vehicles, having capitalized on Beijing’s strong government support for the burgeoning sector. China’s success in electric vehicles has also landed its firms in hot water with regulators in Western markets accusing them of anti-competitive practices like price-dumping. European Commission president Ursula von der Leyen announced in September an investigation into Chinese state subsidies for electric cars. The probe could lead the European Union to impose duties on those cars that it believes are unfairly sold at a lower price, thereby undercutting European competitors. “It’s kind of reminiscent of what happened to Japan in the 1980s, when they started exporting a lot of automotives”, said Christopher Richter, an auto analyst at CLSA. “So the Japanese solved it by starting to build a lot of factories overseas. They build overseas 4 times more than what they export”, Richter said in October. +++
+++ Automakers including Tesla, General Motors, Volkswagen and Toyota are failing to ensure they are not using FORCED LABOR as part of their China supply chains, a report released by Human Rights Watch says. The U.S.-based nonprofit linked some of the world’s largest car manufacturers to aluminum allegedly produced with forced labor by Uyghurs and other ethnic minorities in China’s western Xinjiang region and other parts of the country. China is accused of running labor transfer programs in which Uyghurs and other Turkic minorities are forced to toil in factories as part of a longstanding campaign of assimilation and mass detention. A United Nations report in 2022 found China may have committed crimes against humanity in Xinjiang, where more than 1 million Uyghurs are estimated to have been arbitrarily detained as part of measures the Chinese government said were intended to target terrorism and separatism. The report links aluminum (a material used in dozens of car parts) to the labor transfer programs, where workers reportedly face ideological indoctrination and limited freedom of movement. The report is based on company statements, Chinese government documents and previous research by Human Rights Watch and other organizations. Since 2022, the United States has required importers of any goods produced in Xinjiang to prove they were not made with forced labor to avoid penalties. The Human Rights Watch report argues that when it comes to aluminum from Xinjiang, its origins are difficult to track, especially when it is shipped to other parts of China and made into alloys. More than 15% of China’s aluminum supply and about 9% of the global supply originates in Xinjiang, according to industry reports. The global automotive industry uses it for parts ranging from vehicle frames to wheels and battery foils. China became the world’s largest car exporter last year and is the biggest manufacturer of battery-powered electric cars. The companies listed in the new report also include Chinese electrical vehicle giant BYD. Global demand for aluminum is projected to double between 2019 and 2050, due in part to the growing popularity of electric vehicles, according to the International Aluminum Institute, a U.K.-based industry group. “China is a dominant player in the global car industry, and governments need to ensure that companies building cars or sourcing parts in China are not tainted by the government’s repression in Xinjiang”, said Jim Wormington, a senior researcher at Human Rights Watch. “Doing business in China should not mean having to use or benefit from forced labor”. The report alleges that foreign carmakers have buckled under the Chinese government’s pressure and allowed laxer control of their China operations than in other countries, which increases the risk of using forced labor in their supply chains. Most foreign carmakers in China operate as joint ventures with Chinese firms due to government restrictions in key sectors. Toyota said in a statement it would closely review the Human Rights Watch report. The company added that “regard for human rights” is part of its core values. “We expect our suppliers to follow our lead to respect and not infringe upon human rights”, it said. Volkswagen said it has a risk management system in place for due diligence in procuring raw materials and it directly commissions its China suppliers. It added the company immediately investigates any allegations of forced labor and is looking for new solutions to prevent it in its supply chains. Volkswagen operates a plant in Xinjiang as part of a joint venture with Chinese state-owned carmaker SAIC Motor. An audit commissioned by the German carmaker last year found no signs of forced labor at the Xinjiang plant. Tesla owns a factory in Shanghai where it builds cars for both the Chinese and international markets. The company told Human Rights Watch it had tracked its supply chain back to the mining level and had not found evidence of forced labor. However, it did not specify how much of its aluminum came from unknown sources and could be linked to Xinjiang. +++
+++ The HYUNDAI MOTOR GROUP will focus on diversifying their lineups of hybrid and electric vehicles (EV), as part of their key management strategy for 2024, South Korea’s 2 leading automakers (Hyundai and Kia) said in a regulatory filing, after releasing stellar earnings results. Both automakers surprised investors with drastic profit growth last year. They placed their names on the first and second-most profitable firms in terms of operating profit in 2023, respectively, overtaking Samsung Electronics for the first time 14 years. Hyundai said it will carry out a two-track growth strategy by improving the product mix of its value-added SUV and luxury vehicles and expanding lineups for eco-friendly cars to repeat its winning streak in earnings this year. According to the regulatory filing, the nation’s leading automaker generated a record annual operating profit of 15.12 trillion won ($11.3 billion) in 2023, up 54 percent from a year ago, buoyed by its overall auto sales growth and improved profitability from sales of value-added vehicles. The automaker also set a history by reporting sales of 162.66 trillion won, up 14.4 percent, during the same period. Hyundai plans to continue raising the global brand identity of its flagship Ioniq lineup and expanding its hybrid models, with a view to attracting growing demand for eco-friendly vehicles here and abroad, the company said. The automaker will also keep improving profitability by enhancing the market share for its SUVs, such as Tucson, and luxury vehicles sold by its premium brand, Genesis. “We will keep up the growth momentum this year by improving the product mix and driving innovation in production costs, despite lingering external uncertainties triggered by volatile exchange rates, high interest rates and global economic slowdown”, Koo Za-yong, senior vice president and head of investor relations at Hyundai Motor, told investors during a conference call. The automaker also shared plans to expand investments by 3.3 percent this year to 12.4 trillion won to speed up its transition into a software-defined vehicle (SDV) manufacturer. Kia, another auto affiliate of Hyundai Motor Group, also impressed investors with drastic earnings growth. According to its regulatory filing on the same day, the company reported an operating profit of 11.6 trillion won last year, up 60.5 percent from the previous year. Its sales also jumped by 15.3 percent to 99.8 trillion won during the same period. The automaker also placed its top management focus on strengthening its hybrid and EV lineups. Sales of eco-friendly cars accounted for 19.9 percent out of the total during the 4th quarter of last year, up 2.9 percentage point from a year earlier. This was driven by robust sales of its key hybrid lineups, such as Sorento and Sportage. Joo Woo-jeong, executive vice president and chief financial officer at Kia, expressed rosy outlook for the hybrid vehicle market. “We have completed hybridization of our mainstream auto lineups, and will continue to turn the remaining models (such as Seltos) into ones powered by hybrid electric vehicles (HEV)”, Joo told investors during the conference call. “Demand for HEVs surpass its supply, so we are making multifarious efforts to satisfy the demand. Hybrid vehicles were once considered ones deteriorating automakers’ profitability, but this is not the case anymore. They contribute a lot to enhancing our profitability and raising the overall market share”. Kia also plans to strengthen its footing in the global EV industry with plans to launch cheaper lineups this year. The automaker is scheduled to launch price-competitive compact EV3 in June. Sales for its EV9 flagship SUV will be in full swing in North America in 2024, so the automaker expected its EV sales this year to rise by 50 percent from the previous year. For this year, the automaker shared its aggressive earnings vision of attaining 1 trillion won in monthly operating profit by pushing ahead with the two-track growth strategy focusing on HEVs and EVs. It also expected its total auto sales to jump by 3.6 percent in 2024 to 3.2 million. +++
+++ KIA has exceeded Hyundai in corporate value for the first time in history, as what has long been considered a smaller carmaker is attracting more attention from investors due to its more evidently promising short-term growth strategies, according to analysts and experts. Data from the Korea Exchange showed that Kia’s market capitalization reached a new high of 41.37 trillion won ($31.04 billion) as of market closing on Wednesday, surpassing that of Hyundai by a margin of around 200 billion won. This surprised investors and market watchers, as Kia was once perceived as a sub-brand of the Hyundai Motor Group. But the paradigm is changing at an alarming pace, as Kia is strengthening its brand identity rapidly with solid earnings and stock growth. Market analysts and experts argued Kia’s stunning rise was driven by what appears to be the firm’s more concrete short-term growth strategy than Hyundai. “Given their surprising earnings result, it is hard to say that shares of Hyundai and Kia are overvalued despite their recent rally”, said Kim Pil-soo, an automotive technology professor at Daelim University College. “Kia looks to have appealed more to investors with its short-term growth strategy focusing on mass production of more price-competitive electric vehicles (EVs) and its expansion into its modular purpose-built vehicles (PBVs)”. Kia’s stock rally is particularly noteworthy in that it has less than half the number of employees as Hyundai, according to Kim. Data from the Hyundai Motor Group showed that the number of Kia’s employees came in at 52.871 as of the end of 2023, while Hyundai had more than 126.000 during the same period. Even if Hyundai hired twice as many workers, the earnings gap between the 2 carmakers would be narrower than expected. According to a recent regulatory filing, Kia reported a record-high operating profit of 11.6 trillion won for 2023, while Hyundai Motor reported 15.13 trillion won. Analysts also argued that Kia will be able to extend its stock momentum this year. “Kia is forecast to maintain its solid earnings momentum with quality growth this year, driven by the planned expansion of its EV lineup here and abroad”, Hana Securities analyst Song Seon-jae said. Kia will also be able to defend itself against any possible sharp stock falls this year, according to the analyst, with its enhanced shareholder return policy of buying back its own shares worth 500 billion won. Nam Joo-shin, an analyst at Kyobo Securities, expressed a similar sentiment, saying that the firm is still attracting investments due to a shareholder-friendly policy and decent sales of its EVs in the United States and Europe. +++
+++ A Delaware judge tossed out Elon MUSK ’s record-breaking $56 billion Tesla pay package, calling the compensation granted by the electric vehicle maker’s board “an unfathomable sum” that was unfair to shareholders. Shares of Tesla fell 2.2% and some investors seized on the ruling in hopes it might prompt Tesla to overhaul its governance. The Tesla board has been criticized as failing to provide oversight of its combative, headline-making CEO, who has fought regulators and led several other companies at the same time. What’s the case about? An investor named Richard Tornetta sued Musk and several Tesla directors in 2018, claiming Musk’s pay package was unfair. While Tornetta held just nine Tesla shares, the deal had also been criticized by major pension fund California State Teachers’ Retirement System (CalSTRS) and proxy advisory firms, who viewed the deal as too large. Musk’s 2018 pay package gave him stock grants worth around 1% of Tesla’s equity each time the company achieved one of 12 tranches of escalating operational and financial goals. Tornetta argued that shareholders were not told how easily the goals would be achieved when they voted on the package. Tornetta claimed the pay was not necessary to incentivize Musk to achieve success for Tesla, as Musk already owned around 22% of the automaker’s stock. Even without the pay package, Musk benefited from his 22% ownership share of Tesla’s stock at the time the package was adopted in 2018. Since then, Tesla’s stock has risen about 10-fold, raising the value of his stake by more than $100 billion. What was the outcome? The Delaware judge, Chancellor Kathaleen McCormick rescinded Elon Musk’s record $56 billion compensation from Tesla. The ruling, which can be appealed, nullifies the largest pay package in corporate America. The judge found the share-based compensation was negotiated by directors who appeared beholden to Musk, currently ranked by Forbes magazine as the world’s richest person. “Swept up by the rhetoric of ‘all upside,’ or perhaps starry eyed by Musk’s superstar appeal, the board never asked the $55.8 billion question: Was the plan even necessary for Tesla to retain Musk and achieve its goals?” wrote McCormick. “The incredible size of the biggest compensation plan ever (an unfathomable sum) seems to have been calibrated to help Musk achieve what he believed would make ‘a good future for humanity’ “, she said in her 201-page opinion. McCormick wrote that many of the directors on Tesla’s board, including current members Kimbal Musk, Elon Musk’s brother, and James Murdoch, son of media tycoon Rupert Murdoch, lacked independence because of their close personal ties with the CEO. 2 of Tesla’s other current directors, Robyn Denholm and Ira Ehrenpreis, showed a lack of independence in the pay decision, she said. The ruling comes as Tesla is preparing another round of compensation negotiations with Musk. Ross Gerber, president and CEO at Gerber Kawasaki Wealth & Investment Management and a Tesla investor, told the ruling showed the company needed to replace at least 3 directors with independent board members before it can negotiate a new pay package for Musk. +++
+++ The future of SEAT as a car maker has been called into question in recent years, thanks to the rise of its more premium sibling, Cupra. But while Volkswagen Group bosses had started referring to Seat as a ‘mobility brand’ rather than a conventional car manufacturer, it seems there may yet be hope for Spain’s oldest automotive business. Marcus Gossen, brand director for Seat and Cupra in the United Kingdom, confirmed that Seat will be selling cars until at least the end of the decade. And he also provided me with a strong hint about how its product line-up will be positioned in the market. “Seat has to be accessible”, Gossen told me. “It should be the entry level to the group. We have exciting news coming for Seat”. Gossen was quick to dismiss any suggestion that Seat could be developed into a cut-price value brand, as the Renault Group has done with Dacia. And that’s likely to mean that Seat could tap into VW’s ambitious project to develop an affordable all-electric model that can be sold for less than €23,000 in the Netherlands. The plan could be confirmed as soon as March, when Seat and Cupra hold their annual press conference. While the VW Group already has the likes of the Volkswagen ID.2 and Cupra Raval in the works (with projected price tags of around €26.500 in the Netherlands, there is a further development unit aiming to deliver another zero-emissions car that can match the likes of the Skoda Fabia and Seat Ibiza for value. The project is being led by Skoda, which has a history of ‘owning’ base-level technical solutions within the group, such as the 1.0-litre MPI engine that powered cars including the Volkswagen Up, Skoda Citigo and Seat Mii city car siblings. Skoda boss Klaus Zellmer told me at the time, “We’re tasked to find the right solution for the easiest access into the VW Group”. No technical details are available yet, but the expectation is that the car will be a B-segment hatchback with a small battery, instead of a circa 3.7 meter long city car; not least because this will allow engineers to tap into the economies of scale from models such as the ID.2. A slightly larger platform will allow the car to be fitted with a battery pack of around 38 kWh, using less energy-dense but cheaper-to-produce lithium-iron phosphate chemistry. At last year’s Seat and Cupra conference, global boss Wayne Griffiths said: “We can’t electrify both brands at once. Seat and Cupra complement each other during the transition phase”. He insisted: “We don’t need to decide the future of Seat today”. Despite reports of Seat’s demise, the maker posted strong sales in 2023. It isn’t expected that Cupra sales will overtake those of Seat, instead balancing out at “about 50:50” in 2024. Aside from the possibility of an entry-level EV, there are currently no plans for any other new Seat models to be launched. Instead the company will continue to focus on the existing range of petrol and plug-in hybrid models: the Ibiza, Leon, Arona, Ateca and Tarraco. Cupra, on the other hand, will be adding new models to its line-up this year, with the full-electric Tavascan and Terramar plug-in hybrid, both set to join the range in 2024. +++
+++ A recent survey released by Encar, the largest used car platform in SOUTH KOREA , has revealed a shift in consumer preferences toward gasoline vehicles for new car purchases in 2024, with them regaining prominence over hybrids and electric vehicles, which were the top choices in 2022. The survey, titled “What’s Your Next Car in 2024?” and conducted over a week in mid-January, involved 2.090 participants. 65.3 percent of these car owners plan to sell their current vehicles, primarily sedans and SUVs, this year. About half of these existing vehicles are gasoline-powered, with diesel engines accounting for 37 percent. On the buying front, an overwhelming majority, 80 percent, said they were eyeing a new vehicle purchase in 2024. Gasoline engines are the top choice for nearly half of these potential buyers at 47.9 percent, a notable resurgence since 2022. Hybrids maintain a relatively stable appeal at 25.8 percent, but electric vehicles have seen a considerable drop in popularity, now at just 6.8 percent. This is a significant change from Encar’s 2022 survey, where hybrids and EVs topped the fuel preference ranking at 31.7 percent and 28.2 percent, respectively. Encar attributed the decline to several environmental factors, including the still-developing electric vehicle charging infrastructure in South Korea. SUVs and recreational vehicles are the most sought-after vehicle types for new purchases, capturing the interest of nearly half (47.1 percent) of prospective buyers. Sedans also remain a favored option, with nearly 40 percent considering them. Other vehicle types like light cars, hatchbacks, coupes and trucks collectively attract less than 15 percent of buyers’ interest. Diverse motivations drive these new purchases. Lifestyle changes influence 32.7 percent of buyers, while 27.6 percent seek a different vehicle size. For 18.5 percent, it’s simply a change of heart, and 12 percent are motivated by their current vehicle’s frequent breakdowns. On purchasing channels, digital platforms emerge as the go-to choice, with approximately two-thirds (67.2 percent) of potential buyers opting for online used car trading apps and sites. +++
+++ TESLA is recalling nearly all of the vehicles it has sold in the U.S. because some warning lights on the instrument panel are too small. Documents posted Friday by U.S. safety regulators say the recall will be done with an online software update. It covers the 2012 through 2023 Model S, the 2016 through 2023 Model X, the 2017 through 2023 Model 3, the 2019 through 2024 Model Y and the 2024 Cybertruck. The agency says that the brake, park and antilock brake warning lights have a smaller font size than required by federal safety standards. That can make critical safety information hard to read, increasing the risk of a crash. Tesla has already started releasing the software update, and owners will be notified by letter starting March 30. NHTSA says it found the problem in a routine safety compliance audit on January 8. Tesla has identified 3 warranty claims potentially related to the problem, but has no reports of crashes or injuries. +++
