Excellent essay. Total agree that protection may be justified, but only with strict conditions. Tariffs and subsidies should require lower prices, higher investment, management accountability and a credible mass-market EV strategy. Otherwise, Europe will simply protect high-cost incumbents while consumers continue paying for years of underinvestment and strategic failure.
Great post. It still grinds my gears that the US banned China's EV imports without imposing any requirement that the auto industry produce similarly affordable EVs domestically within some reasonable timeframe. Also think the point that financialization in its single-minded pursuit of the highest returns is increasingly disconnecting the economy from real world needs and demands is central and crucial to the global polycrisis. Hopefully, sooner rather than later, it will dawn on democratic forces that large private industry may be the product of technological innovation but at some point it becomes an obstruction to new needed tech innovations. This is why opposing and guarding against the capture of democratic decision making by large private industry is so important and why socializing large public infrastructure so essential to the public good.
The real message is how interconnected individual industry strategies are with overall market structures, and how they influence political choices. It is very hard/impossible to break these apart and start again, barring some major catastrophe. The same phenomena can be seen in the UK and the US. As systems age, like people they become more stuck in their ways and less flexible.
Incredibly interesting. I was unaware of these trends. The question for me is to what extend the trends are (fully) explained by Europe's dominance in the luxury segment where price sensitivity is lower, which means increased shortage-induced pricing power translates to bigger increases in prices and profits. Comparing luxury car profits between US - Europe - Japan would give an indication whether the market failure in Europe is exceptional. Comparison with China is hard and distortive because the Chinese market is failing as well, but in the opposite direction
It's too simple to blame "greedy capitalists". In any market economy, investment flows to the places considered most attractive (sometimes even exuberantly, as now in AI). Apparently, car industry managers didn't reckon their own industry very attractive to invest. The question to be asked is, why? Could it be that regulations play a role?
There is a difference between real investment and mere financial investment. The article mentions the profitability barrier stemming from financialization, itself a function of inequality and excessive savings: if you can get a 10-20% return on financial markets, why should you bother to invest in R&D and new plants for a meager 5%? So, the story is not about "greedy capitalists", but about the end of capitalism (in the sense of accumulation of productive capital) as capitalists have turned into rentiers. As odd as it may sound to some, financial repression aka taming financialization through strong redistribution of primary income and stronger regulation and taxation is the only way to save capitalism.
It's the Keynes joke about digging up holes and filling them back in, except at the very top of the economy. At some point you can't eat a derivative. A complex financial instrument isn't going to fill your gas tank up. Now we're trying to find ever newer frontiers and layers of abstract finance to make the entire edifice more and more top heavy, with capital becoming ever more fictitious and divorced from material reality like crypto. Meanwhile China is endlessly pumping out engineers and building manufacturing capacity. Our best, brightest, and most ambitious go into finance. It's not truly useful, it's not real, and it's going to bite us all in the ass eventually.
Terrific piece. One thought which is seldom discussed is perhaps top management in many cases are not that good at what they do. There is a kind of reverence of top management and board members which in my experience often is unearned.
In 1970, a Datsun 1/2 ton pickup was priced at $1850; a VW bug cost about the same. Today, automobiles are way expensive, the average price around $50,000. And good luck getting it repaired as no mechanic really knows how to do it. The best mechanics I know are all retiring. No fun. Talk to a dealer, and he will tell you the quality is inferior. No worries though, AI will fix it.
In the Netherlands - in 1970 - a midsize car would cost Dlf. 8000. More than half of that amount was "consumption" tax plus 12% VAT (on purchase price and added tax).
I can't help but read these narratives about an industry finding itself backfooted against Chinese ingenuity and a familiar macro picture of misplaced capital and wonder what the story will be 50 years from now wrt capitalism and what its story will be. How will China dominance in forward technologies cause shifts in how states and industry compete and how will China evolve as they become more dominant. What will be the history of capitalism.
In Belgium the last remaining car factory is going to receive state subsidies to allow it to continue to operate at full capacity. This is Volvo so maybe not anymore part of the European car industry as it is now owned by Geely, but it sure is ironic.
And it's even worse in the US. When the Chinese are allowed to start shipping cars here, they are going to eat Detroits lunch. The average selling cost of a vehicle is now over $50K! Its unaffordable.
Excellent essay. Total agree that protection may be justified, but only with strict conditions. Tariffs and subsidies should require lower prices, higher investment, management accountability and a credible mass-market EV strategy. Otherwise, Europe will simply protect high-cost incumbents while consumers continue paying for years of underinvestment and strategic failure.
Great post. It still grinds my gears that the US banned China's EV imports without imposing any requirement that the auto industry produce similarly affordable EVs domestically within some reasonable timeframe. Also think the point that financialization in its single-minded pursuit of the highest returns is increasingly disconnecting the economy from real world needs and demands is central and crucial to the global polycrisis. Hopefully, sooner rather than later, it will dawn on democratic forces that large private industry may be the product of technological innovation but at some point it becomes an obstruction to new needed tech innovations. This is why opposing and guarding against the capture of democratic decision making by large private industry is so important and why socializing large public infrastructure so essential to the public good.
The real message is how interconnected individual industry strategies are with overall market structures, and how they influence political choices. It is very hard/impossible to break these apart and start again, barring some major catastrophe. The same phenomena can be seen in the UK and the US. As systems age, like people they become more stuck in their ways and less flexible.
20,000 Europeans dead this summer due to stroke induced by a lack of air conditioning.
Incredibly interesting. I was unaware of these trends. The question for me is to what extend the trends are (fully) explained by Europe's dominance in the luxury segment where price sensitivity is lower, which means increased shortage-induced pricing power translates to bigger increases in prices and profits. Comparing luxury car profits between US - Europe - Japan would give an indication whether the market failure in Europe is exceptional. Comparison with China is hard and distortive because the Chinese market is failing as well, but in the opposite direction
It's too simple to blame "greedy capitalists". In any market economy, investment flows to the places considered most attractive (sometimes even exuberantly, as now in AI). Apparently, car industry managers didn't reckon their own industry very attractive to invest. The question to be asked is, why? Could it be that regulations play a role?
There is a difference between real investment and mere financial investment. The article mentions the profitability barrier stemming from financialization, itself a function of inequality and excessive savings: if you can get a 10-20% return on financial markets, why should you bother to invest in R&D and new plants for a meager 5%? So, the story is not about "greedy capitalists", but about the end of capitalism (in the sense of accumulation of productive capital) as capitalists have turned into rentiers. As odd as it may sound to some, financial repression aka taming financialization through strong redistribution of primary income and stronger regulation and taxation is the only way to save capitalism.
It's the Keynes joke about digging up holes and filling them back in, except at the very top of the economy. At some point you can't eat a derivative. A complex financial instrument isn't going to fill your gas tank up. Now we're trying to find ever newer frontiers and layers of abstract finance to make the entire edifice more and more top heavy, with capital becoming ever more fictitious and divorced from material reality like crypto. Meanwhile China is endlessly pumping out engineers and building manufacturing capacity. Our best, brightest, and most ambitious go into finance. It's not truly useful, it's not real, and it's going to bite us all in the ass eventually.
Thoughtful comment. This essay stirs many of these ponderings.
“Could it be that regulations play a role?”
Sure do — all the way back to SEC Rule 10b-18 …
Terrific piece. One thought which is seldom discussed is perhaps top management in many cases are not that good at what they do. There is a kind of reverence of top management and board members which in my experience often is unearned.
In 1970, a Datsun 1/2 ton pickup was priced at $1850; a VW bug cost about the same. Today, automobiles are way expensive, the average price around $50,000. And good luck getting it repaired as no mechanic really knows how to do it. The best mechanics I know are all retiring. No fun. Talk to a dealer, and he will tell you the quality is inferior. No worries though, AI will fix it.
In the Netherlands - in 1970 - a midsize car would cost Dlf. 8000. More than half of that amount was "consumption" tax plus 12% VAT (on purchase price and added tax).
I can't help but read these narratives about an industry finding itself backfooted against Chinese ingenuity and a familiar macro picture of misplaced capital and wonder what the story will be 50 years from now wrt capitalism and what its story will be. How will China dominance in forward technologies cause shifts in how states and industry compete and how will China evolve as they become more dominant. What will be the history of capitalism.
In Belgium the last remaining car factory is going to receive state subsidies to allow it to continue to operate at full capacity. This is Volvo so maybe not anymore part of the European car industry as it is now owned by Geely, but it sure is ironic.
Excellent analysis, thank you Adam
the conclusion is a quite credible prediction
And it's even worse in the US. When the Chinese are allowed to start shipping cars here, they are going to eat Detroits lunch. The average selling cost of a vehicle is now over $50K! Its unaffordable.
terrific piece: mercentilist germany out-mrcantiled!
And not a word about europe losing its source of cheap energy.
the charts show margins, which are net of costs. he is showing that they're making more in spite of that
The low-cost car makers sure are affected.
It’s a pleasure to see Adam eschewing his usual extreme caution to give a swift, richly deserved kick up the backside of European corporate elites … 🤨