AD #4244 – Hidden Destination Fees Cost Car Buyers Billions; Geely Overtakes BYD In China; European Suppliers Warn of Massive Job Cuts

This is Autoline Daily, the show dedicated to enthusiasts of the global automotive industry.

WILL GAS PRICES PUSH BUYERS TOWARD HYBRIDS?
Well, we can’t start today’s show without mentioning the war between the U.S. and Iran. Automakers and suppliers will be keeping a close eye on the price of oil, because if gasoline prices start surging at the pump, it could have a profound impact on the mix of vehicles they sell. The Detroit Three were anticipating they could sell a lot more V8 powered full size trucks and SUVs this year as the Trump Administration eased off fuel efficiency and emissions regulations. But a sudden jump in gasoline prices could push buyers towards fuel-efficient models, especially hybrids. So far, the price of a barrel of oil jumped from $65 last Wednesday to about $72 this morning, or about a 10% increase. Here’s the thing to keep an eye on. If prices at the pump rise slowly, consumers will largely shrug it off. But if they go up quickly, new car sales will slow down fast. And if the price at the pump really goes up, who knows? Maybe EVs will start looking a whole lot more attractive to a lot of buyers?

GEELY OVERTAKES BYD IN CHINESE AUTO MARKET
Speaking of new car sales, the early February numbers out of China look ominous. Some of the largest automakers posted significant declines. BYD was down 41% compared to last year. XPeng was down 50%, Geely was down 11%, and Great Wall fell almost 7%. And yet Nio was up 58%. We’ll have to wait for the China Passenger Car Association to post the full results for the industry to get a feel for the overall market. The Chinese New Year is having an impact, tut even these early numbers are rocking the market because so far this year, Geely has moved past BYD to become the best-selling automaker in China.

HIDDEN DESTINATION FEES COST CAR BUYERS BILLIONS
Destination charges, which are meant to cover the cost of shipping a new vehicle, are going through the roof. In 2017 they averaged about $1,000, but those fees have continued to rise since then and now sit at an average of $1,600. According to data from Edmunds, Americans spent over $26 billion on destination charges last year. Increased fuel and shipping costs have played a role in the rising charges, but tariffs and fear of raising prices because of tariffs are also likely factors. Many manufacturers don’t include the destination charges in their suggested retail prices, so the increases have been less obvious to consumers. 

EUROPEAN SUPPLIERS WARN OF MASSIVE JOB CUTS
Suppliers in Europe are warning they face a crisis due to slower than expected EV adoption, Chinese competition, regulatory pressure and demands from automakers to lower prices. Over the past two years, suppliers have announced 104,000 job cuts. And the European Association of Automotive Suppliers or CLEPA, is warning that 350,000 jobs will be at risk by 2030. It says 50% of suppliers are planning to reduce production in Western Europe over the next five years because of weaker profits. And annual supplier investment is estimated to be about €4 billion less than previous projections, reaching €35.6 billion by 2030. The EU is expected to release a proposal this week that could require 70% of an EVs value to be made in Europe to qualify for incentives. CLEPA says that needs to be increased to 75% and if the policy only focuses on final assembly or certain components and products, “the risk of delocalization through unfair competition cannot be stopped.” And that could lead to all those job cuts.

EXPERTS SKEPTICAL OF DONUT LAB BATTERY CLAIMS
Hyundai wasn’t the only company to cause a sensation at CES, so did Donut Lab with the claims it made about its new solid-state battery. It said they’d hit 400 Wh/kg, charge from 0-100% in 5 minutes, handle 100,000 charging cycles and cost less than lithium batteries. However, battery experts have been quite vocal in their skepticism of Donut, so Donut is trying to win a little credibility by allowing cells to be tested by a respected research center, the VTT of Finland. It’s releasing those results in a series of reports, the first of which focused on charging. While the cell performed well, its energy capacity was lower than Donut’s claims of 400 Wh/kg, its charging time was slower and some others pointed out that one of the charging tests was aborted because the cell hit a temperature threshold of 90-degrees Celsius or 194 degrees Fahrenheit. The newest tests from the VTT focused on high temperature performance, including tests of 80- and 100-degrees Celsius or 176- and 212-degrees Fahrenheit. Donut says the cells showed they had more capacity when really hot than they did at room temperature. However, the cells were only discharged at that higher temp, they were charged at room temp. So, I’m not sure Donut will quiet the skeptics yet. 

GLOBAL RARE EARTH PRODUCTION LAGS BEHIND EV GROWTH
Despite an expected increase in rare earth production outside of China, a new report from Bloomberg Intelligence says the supplies won’t be enough to meet demand by the end of the decade. Governments around the world are trying to lessen reliance on China for the magnets that are needed for electric vehicles, electronics and military uses. This year alone, producers are estimated to raise $10 billion in public funding to mine rare earths. And output from non-Chinese companies is expected to quadruple by 2030. But with demand for rare earths expected to grow 7% annually through the end of the decade, the new output won’t be enough to meet it.

LITHIUM DEMAND SET TO GROW 25 PERCENT 
And speaking of raw materials, lithium producer SQM says global demand for the metal will grow 25% this year. And that could lead to an increase in prices, which have taken a big tumble because of a prolonged period of oversupply. While lithium prices have doubled from a June low, they’re still 70% below their peak in 2022.

AUTOMAKERS USE CLEVER TACTICS TO CUT TARIFFS
The tariffs put in place by the Trump Administration have cost automakers and suppliers tens of billions of dollars. But there are some clever ways they can cut the cost. One way is to lower the value of the imported car or component, which automatically lowers the tariff. That means importers have to dig deeper into their supply chains and find what’s called the “first sale,” that is, the cost of the product when it was made, before any middle-men were involved and before any insurance or shipping costs were added. We suspect that automakers can also play around with transfer prices, where they lower the value of an imported car and pay a lower tariff. Automakers who export cars from the U.S. can also get credits they can apply to lower the tariffs on the cars they import. This is probably the main reason why Honda is going to launch the Acura brand in Japan for the first time ever and start exporting U.S.-made Integra Type S’s as well as Honda Passport Elites. Honda isn’t even bothering to build them with the steering wheel on the right-hand side. It will just export them as is. And we think that’s all got to do with tariffs.    

And that’s a wrap for today’s show. Thanks for making Autoline a part of your day.