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30th Annual Automotive Insights Symposium

This and other transcripts on this site have been provided by a third-party service. The video replay should be considered the definitive record of the event.


KRISTIN DZICZEK: And I'm so happy to be here, too. [LAUGHS] It's my second AIS to run and put the agenda together and gather up all the folks that we need to put this together. And I too want to thank-- we have incredible staff. And I just have to look at them and say, I need this. And it's there. And they're unbelievably supportive folks. So really, really great to have you here. And thank you.

I'm going to start, as now all presentations must start at the Fed, with a disclaimer that everything I'm about to say is my opinion, my opinion only. I am not speaking for Austan Goolsbee, our president, or Jerome Powell or anybody at the Federal Reserve other than myself. So all of my comments, me. Got it? OK. So theme of my presentation is "Are we back to normal?" And I'm going to go through a number of things that we can look at for that.

We're going to look at sales. We're going to look-- and this is a town in our district, Normal, Illinois, also an auto town. We're going to look at sales and production and inventory in our forecast panel. We're going to look at schedules and the EV transition in the supplier panel. EVs and AVs and AI and finance and all that and costs and competition in today's final panel. And tomorrow, we'll look at reshoring, trade implications, the critical questions about critical minerals, and a look at the future of automotive labor from kind of a different perspective than you might expect. So let's get started with reviewing some recent trends.

When I put this together, I said, well, what is normal, really? Like, well, it's certainly before 2020. Before 2020 was somewhat normal. So the most recent normal I chose as a benchmark was the five-year average before 2020, so 2015 to 2019. And I'm comparing light vehicle sales to that red line of the five-year previous average. So sales were 90% of the way back to where we were. Production, almost 90% of the way back to where we were. And inventory, not quite but maybe that's not quite such a bad thing as companies have realized they can live with lower inventories these days.

When you look at manufacturing capacity utilization well below the five-year average, this, of course, fluctuates wildly with recessions and other types of things that happen in our industry. But we've been building new capacity for the period of time going forward. There's big new auto plant going into Tennessee. There's new plants coming up in Georgia. So capacity is going to expand and what will happen with capacity utilization as we do that.

Then we look at some of the things from the BLS, the Bureau of Labor Statistics. So production and non-supervisory employment. Now here, my dark blue is the private sector. The lighter blue is manufacturing. Dark green is motor vehicle manufacturing. And light green is parts. So you can see that on employment, we're back there. On production and non-supervisory real wages, motor vehicle's lagging a little bit. Everybody else is back to 100% of what it was.

Productivity. Again, motor vehicle's lagging just a little bit. And on the average weekly hours, motor vehicles are above where they were before in the past five years, the five years before the pandemic. And then parts are just a little bit lower. And they've had some huge disruptions. The real wages thing is likely to change now that we've got the UAW contract. And that's going to go into effect for the next few years.

And of course, the UAW bump as Shawn Fain calls it, where all the other companies that he is seeking to organize have decided to raise their wages for some reason. So will employment stay high with these rising wages? It's possible if you also have rising productivity and a growing market and growing market share. Or will these rising labor costs increase those moves to labor-saving activities and outsourcing, offshoring, automating, or completely re-engineering how we build vehicles to require less labor? We're going to talk about a lot of that.

In the suppliers section, the schedules have been volatile. And I couldn't find anything that would really show the level of volatility that I'm hearing from suppliers. So this is a month-to-month change-- month-over-month percent change in volume. So some of it is seasonal. It happens that it's lower or higher depending on the time of the year. But some of it is just these swings have been much wider.

And when you get closer and closer to the date, if you're a production company, you're a supplier, usually you get a release that a month or two out, you know what you're going to have to supply in, say, February and March. Folks are telling me that those are changing right up until the week before the month starts. So how do you know how much inputs to get, how many people to hire and have on staff to make the parts that you need to make to meet the next month's production if it's going to swing so wildly month to month, and not very predictable ways?

Rick mentioned the supply chain pressures are kind of coming back down. This is the New York Fed's measure of supply chain pressure. And it's back at the red line, back at 0, which indicates it's normal, like what we would expect. But I was listening to NPR on my way in this morning and hearing about what percentage of shipping is going through the Red Sea.

And of course, that's disrupted by Yemen's Houthi rebels in the Red Sea and how much the prices of shipping have gone up. Taiwan just elected a pro-independence or more independence-related DPP candidate William Lai as president. We've got Europe investigating trade practices with Chinese EVs as they've come to take a more and more of their share of their market and seeking to maybe impose retaliatory tariffs.

China's already put tariffs on French brandy. So a brewing revision or comeback of the trade war that we saw in the last few years and certainly, in the last presidential term. There was a ratcheting up of trade tensions. So supply chains can get all messed up in an instant. And there's a lot of things out there on that water for that duck to run into.

When we look at trade, though, the imports are back up to where they were in the previous five years to the pandemic. Exports are down a little bit on parts, but we're still there on vehicles. And these are in the value of the goods. So if the value of the goods went up, which the prices have all gone up, it may not be in the count of vehicles. And then our balance of trade, our trade deficits have changed.

In most cases gotten worse. More deficits with our major trading partners on automotive products with the exception of Canada, where we now have a slight trade advantage or trade surplus with Canada on vehicles. Inflation on new and used vehicles has been also a major concern for a lot of folks. New vehicles are about 20% higher in November 2023 than they were in 2020. Used vehicles are about 38% higher than they were in 2020 in the last data in November 2023.

So while the rate of change is coming back down to low and not changing very much, the levels are still very high. So we have very high average transaction costs for vehicles. And the University of Michigan's survey on consumer impacts is like, why are you not interested in buying a car? Well, rates are one of those things but price is another. Those have been consistent issues in the U of M survey on why people are staying out of the market or why they think it's a bad time to buy a car. So if we want more sales and more production, some of those things have to resolve.

The incentive share of the average transaction price has started to rise. Of course, it's easier to change your incentives than to change your base price for most automakers. So we're starting to see that come up. It was an average of about 10% of average transaction price before the pandemic. It peaked at 14.2% right in the middle of the pandemic when we thought we might have to juice some sales, I guess, back up to about 5% share of incentives of average transaction price now.

And BEVs have had a very volatile price trajectory, I guess. And you can see when one major EV manufacturer, Tesla, started cutting prices, forcing other automakers to start cutting prices. Also in here comes the IRA implementation and the money on the hood. And even if your vehicle did not qualify for the full IRA incentive, some of those manufacturers were putting money to match those $7,500 credits. So prices have been falling.

Not all of the inputs prices have been falling. Minerals going into batteries have been very volatile. Down for the most part right now. And the index of the cost of what goes into an EV has come down. But again, this can all be disrupted very easily as well. We've all heard that EV sales are slowing. And companies are changing their approach or changing their targets or stretching out their time horizon for when they will get to those goals that they set. But still last year, electrified vehicles, battery electrics, plug-ins, even hybrids were the fastest growing segments of the US market.

Fuel cells are a little bit lower. Down there all the electrified ones are green. Electrified, that's BEVs, plug-in hybrids, and fuel cell is about 9.2% of sales. And if you add in hybrids, we're at about 16% or 17% of sales. So we're getting up there with electrified vehicles. Of course, the president and the Congress have passed some major legislation. You can't read these, but these are the Infrastructure Act, the CHIPS Act, and the IRA all coming in in 2021 and before.

So these are starting to take hold. And you can see some of that in the value of private construction put in place. This is seasonally adjusted. This comes from the Census Bureau. And that big blue thing is everything that's related to computers, electronics, and electrical. So all that battery investment, all those new and probably some of the automotive stuff gets categorized in that as well. But a huge, huge increase.

That computer electronic and electrical grew 5 and 1/2 times larger since the passage of the infrastructure bill and 2.8 times larger since the passage of the CHIPS Act. So did those things spur investment? Well, the investment was getting bigger before then. And certainly, it was growing before the CHIPS Act took hold. But really took off after that. So we're on the cusp of having a lot more electrical, electronic, and battery sorts of plant equipment or plant facilities here in the US.

One of the things that the Infrastructure Act was to put in place was that robust fast-charging network that we need, that consumers want to rely on. And finally, last November, or December actually, Ohio opened the first EV fast-charging station funded by the National Electric Vehicle Infrastructure Program, or NEVI. So that passed a year or so ago, and it took a little while for the money to get out to the states. The states get their programs, and for these charging stations to come up. So it's coming. There's a lot of money devoted to it. But it's going to take a little while.

And when we look at where our batteries are going to come from-- so we're building a lot of battery factories. So hopefully, we're going to source more batteries for US production. So US-produced vehicles are going to increasingly rapidly shift to US-sourced cells. These start with the year 2022 in red and go to the year 2029 in the purple. So it's just a steep ramp up of the amount of installation of US-built battery cells in US-built vehicles.

So there's still about 2-- I looked, about 200 BEVs, plug-in hybrids, and fuel-cell vehicles will be built in North America, expected to be built in North America by then and about 70% or so in the US. We're going to dig into the IRA incentives a little bit when they've just started to bite. First of the year last year is when they went into place. And there were 43 models and variants that qualified, most for the full $7,500.

The difference here on the green is battery electric. And the blue is plug-in hybrids. And then in April, they cut some of the regulations in place for how we were going to count critical minerals and components. And there's a requirement for 40% critical minerals from US or free-trade partners and 50% North American components. So when those started to bite, you see still 43 models and variants qualify but fewer for the full $7,500.

They have more of them shift into the $3,750 category. So they're missing one or the other of those two categories. Just this year at the beginning of January, some more things kind of bit in. And January 1, there are now 19 models and variants that qualify. They have to meet 50% critical minerals content from US or free-trade partners, 60% North American-sourced components. And new can have no components from companies or countries that are foreign entities of concern.

Read China and Russia and North Korea and all those, but they don't make so much in the way of battery components for us. Russia, nickel, but that's another thing. Also, the point of sale incentives begin. So if you go and buy a car, you can get the full credit on the spot from your dealer if your dealer is participating in the program. So next year, these all ratchet up, and a new 0 comes in.

So next year, we get 60% of minerals, 60% of components. No components from foreign entities of concern and no critical minerals from foreign entities of concern. This is going to bite really hard. China dominates these supply chains, and it won't be easy to wean ourselves from this China dependency. The problem, Benchmark Mineral estimates that less than 20% of nickel and cobalt in the world will be compliant by 2030.

And we need it to have none of that in our cars. So either we don't use cobalt or nickel at all, or we get other sources. And we're not the only country or region of the world that's trying to secure non-China sourcing of these minerals and components or rapidly change to new technologies that don't require them. So the other interesting part was there's this new red block on the IRA on the fueleconomy.gov that says, these are the models that qualify, but not every one of the vehicles will qualify. So your specific one might not.

So please exercise caution and make sure that your vehicle, when you go to the dealer, is in the qualifying. So they have to qualify at the VIN level, the vehicle identification number level. So our sale is about to run out of charge. More than 200 models coming, billions of investment riding on this transition. A lot of momentum not just here in North America but globally on decarbonizing our transportation. It's unlikely that we're running out of charge. We might just be going a little slower.

Now many of you have seen this before, the Rogers technology adoption life cycle. This comes from work by Everett Rogers in the early 1960s as he distinguished groups of consumers based on their purchasing behaviors. So in the beginning, you have innovators. Those are the first people who buy your product. Then you get early adopters. They are the next ones in there, like, tech geeks and easily adapt to new things. There's the early majority. There's the late majority. And there's the laggards.

And he assigned percentages to these-- 2.5% to the innovators, 13.5% to the early adopters, 34% for early and late majority each, and about 16% of people being laggards. In the early 1990s, another-- a management expert, who is from Michigan actually, he expanded this work of Everett Rogers in something called Crossing the Chasm.

And his version of this looks exactly the same with some new names. So now they're called tech enthusiasts and visionaries, but then there's a gap. And when you go from the tech enthusiasts and the visionaries to the pragmatists, it's not a smooth transition. So where are we? We're at 16% electrified vehicles, roughly. Where are we? We're in this chiasm where we have to make this leap to the pragmatists.

And what Moore says about these pragmatists is they need to focus on their user experience. You need to target them individually and have products that are specified for them and help them understand the user experience. So tech enthusiasts and visionaries are going to put up with wonky charging experiences. Pragmatists won't. They won't have much patience for inconveniences associated with the technology. It needs to work and make their life better at a reasonable cost.

So is it any question or reason why we're here? 16% or so of the market is electrified, and we're in this chiasm. Then you get the conservatives. He labels themselves and skeptics. I've been saying all along when we have these targets of 50% EVs in the US, you can't get 50% of Americans to agree on anything. Is the sun shining today? I don't know if I can get 50% of Americans to agree on that than some days. It's really quite amazing.

So to think that that is a goal at such a quick period of time when we are still building the infrastructure, trying to build a separate supply chain from China. So how to convince these pragmatists. Give them a good user experience. So that ubiquitous fast charging that works, which is coming through NAVI, hopefully, and other private investment. But it's not here yet.

And make them affordable. And there's been a lot of talk amongst executives about the $25,000 EV that everybody would love to have. Has a decent range and doesn't cost a whole lot of money. The average EVs cost about $50,000 now. So we're going to cut the price of EVs in half. And that's going to convince pragmatists. Well, how are we going to cut the price of EVs in half?

China's already done it. The Economist last week had an article about "Chinese EV Onslaught." I recommend that you take a look at that. But last year, China was the number one vehicle exporting nation, reversing their trade deficit that they had as recently as 2021 to a trade surplus. They had the number one global electric vehicle brand in 2023 with BYD outselling Tesla. They gained an 8% share in the EU's EV market, prompting the European Commission trade investigation.

Chinese-built light vehicles, primarily ICE-- there's no EVs-- went from 0% of the Mexican market to 20% in six years. They make up about 1% of Mexico's foreign direct investment, but it's the fastest growing source of FDI in Mexico right now since 2016. The Chinese market at home is becoming more Chinese. Lower market share for the joint venture and import brands. And so you're used to hearing General Motors sells more cars in China than in the US. That's not true anymore.

And that's also not true for our suppliers as many of the Chinese brands are relying more on a domestic supply chain. And they've started to impose export restraints on critical inputs such as natural graphite. And I always mispronounce neon, neodymium magnets. But these are critical inputs to motors and batteries. And right now, it's export restraints. And they can pull this back. And they can manipulate the price of these critical imports that we need to make batteries.

Mexico is the second largest market for Chinese cars after Russia. And the Financial Times reports that brands MG, BYD and Chery plus an unnamed battery company, which I have a suspicion of who it is but I can't say out loud, are all scouting locations in Mexico. So they're going to be on our shores in Mexico in the not too distant future. There are already two Chinese-built vehicles in the US market with the Polestar 2 built by Geely Volvo. Geely bought Volvo. That's a Chinese company, and the Buick Envision.

Together, all of these vehicles only make up about 0.33% of the US market. But the value of US BEV passenger vehicle imports by country have been expanding. China is down there at the bottom. It's the dark, dark blue down at the bottom. There was only one Chinese-built passenger EV, the Polestar 2. But EVs are making up about 9% of the value of passenger vehicle imports to the US. China's just 0.17% of those right now.

It's going to change. And partly, I was thinking last night a lot about the cars that we used to see at the Auto Show in like the late 2000s. 2006 was the first Chinese automaker to exhibit in North America. Here in Detroit, it was Geely with a car called the 7151 CK. Those numbers and letter things are great when you're trying to export cars because it doesn't matter what the name means or if people can pronounce it. But weird strings of letters and numbers are how we're going to name cars.

In the 2010s right after the bankruptcy of the two major automakers here in Detroit, we had a row of what looked like golf carts. And it was called Electric Avenue. And these were mostly Chinese-built vehicles. My son Evan was really happy about this because there was the eVan. So there was a car named after him. And I'm going to stay on Evan for a minute. Evan and I had the great privilege to go to China in 2018 to an Auto Show.

He was a car nut at the time. And I took him-- he was out looking at the floor while I was doing other things. And my colleague Brett Smith here was with us in China then. And Evan was out taking pictures of the cars. And he knew what was wrong with cars. "Mom, look at the panel gaps. Mom, look at the orange peel paint. Mom, look at this. This doesn't match up. This is crazy."

And he loved the little exhibits that they had at the shows of people dancing wearing mirrored suits or weird-- it was a weird experience all the way around. But those are not the cars we're talking about. These are not the cars with the shag carpet on the dashboard and the basement of the Auto Show in the late 2000s. This is a car that scares me.

It's a tiny car. This is the BYD Seagull. It has 192 to 250 miles of range. It starts at $11,400. Even with a 27.5% tariff that we have now on Chinese-imported vehicles, you can bring this vehicle to the market at less than $15,000. And they make a profit. This is not yet in Europe, but it's going to be. A number of other bid models are available there. And BYD is the biggest right now, but there's others coming.

They're advertising in Europe is this. We are BYD. You've probably never heard of us. But hey, we know you just want to drive a great electric car. This is how they're gaining market share. So we're a long way from that Geely in the lobby and the fish tanks and the armrests and all the other crazy things we saw. So real cars, real quality, and really low prices.

And as their population shrinks, their focus turns outward to export for their huge amount of capacity that they have. You may wonder why I have a box that just opens up. So in January, I saw a presentation from one of our presenters, Matthew Vachaparampil at a finance conference about how we're going to make cars differently.

In the spring, Tesla talked about this unboxed way of making cars. Now I'm a Tesla skeptic sometimes. And they say they're going to do things. And like, yeah, yeah. I'm going to believe that when I see it. Or we're going to totally change how we make cars, and we're going to build an assembly line in the parking lot. Or we're going to automate and have production hell and all these things. They've learned a lot, though.

And this unbox that we're going to examine in the last session today, what really caught my eye is at the end of the year these news stories like "Lexus and Toyota to Adopt Tesla Production Method for EVs." "GM Snatches Next Tesla Giga Casting Supplier." We're moving toward this. And it is absolutely a lower cost way to build cars, a lower investment way to build factories and something that we need to keep an eye on. So that's why it's part of our program.

Tesla also had plans to build their first unboxed factory in Mexico. But it's on hold for macroeconomic headwinds. So are those macroeconomic headwinds, or are we going to have some smooth sailing? We'll look at a couple of other things here really quickly. Trade in 2024 and beyond? We need to develop these non-China sources. Some in Congress are talking about raising our trade barriers.

And EVs are, of course, going to be a focus during this election year. They already have been with the presidential candidates coming in on one side or the other on the EVs and of course, the China content part of that. Labor in 2024 and beyond? We've got to look at the impact of these labor costs. And UAW labor and production labor writ large is not a Veblen good. It is not something when it costs more, you buy more of it.

So companies are right now going through these things about how are we going to make vehicles profitably and competitively with these higher labor costs? Now I will argue in the labor session tomorrow that some of this labor raises that the UAW won were catch-up. That they were not getting raises for a long, long time. So they kind of caught up.

But the success of the UAW and organizing the sector in the US is going to help determine whether that's competitive for US and North American production. There may be longer term consequences of these contracts that we haven't seen yet or don't what they will be. And my colleagues at the Chicago Fed-- and there's an article and I can share it with you-- have found that in some places, rising wages may be a lagging inflation indicator, not wages drive prices but prices drive wages.

So think about that. And I'm going to end with a couple of things. Inflation, which is what the Fed spends a lot of time on, has been coming down. This is the core, personal consumption expenditures. That's what we mainly look at the Fed. So we're looking at bringing inflation down and hopefully, not seeing higher unemployment as a result. Something my boss, Austan Goolsbee, calls the Golden Path frequently and often.

And in December the Fed put out their summary of economic projections. Now this is every Fed president and the governors in the room by themselves come up with what they think the future is going to look like. And then they sum them all up and put them out in the public. And what's critical about this is on the dot plot and on the line, there are no raises of the Fed rate in the projections at this time. And nobody was projecting a higher rate going forward.

They're all predicting different rates of lowering the rate. And Jerome Powell said in-- he was asked about the word "any" in a statement on determining the extent of any additional policy firming or raising rates. He said, we added that word "any" as an acknowledgment that we are likely at or near the peak for this cycle. So maybe they're done raising rates, wages-- raising rates, but I can't say that for certain. But their public pronouncements seem to go that way.

So to wrap up, let's look at are we back to normal sales, almost production, almost inventory? Maybe we'll never get back there. Trade looks pretty normal. Employment looks pretty normal. Supply chains look kind of steady now. Real wages is a bit of a mixed bag. Working hours is a little bit lower in parts than in vehicle manufacturing. Productivity is not back. BEV prices are lowering. But what's normal for BEV prices? We don't yet know.

Incentives aren't normal. New vehicle inflation and used vehicle inflation is back down to lower rates of inflation but still very high rates. It's very high levels of price. And inflation is almost back to normal. So when we add it all up on my pretty colorful abacus, I think we're almost back to normal. But lots of reasons to be concerned. And I think we're going to take a couple of questions briefly. Sorry. If you have questions, use your Pigeonhole app because that's how you can get them up to us.

RICK MATTOON: Yes. So we are receiving some good questions through Pigeonhole. So please continue to send them in. And please join me in thanking Kristin for a great presentation to get us started.


So I'll take my prerogative as the moderator for this particular session to first ask Kristin to weigh in a little on the labor issues that we saw last year. As probably everybody knows, Kristin has long, deep expertise in sort of labor negotiations. And so obviously, last year was a sort of a record milestone year in terms of the negotiations and the structure of them. Were they surprises that you saw that came out of that-- I mean, what insights would you want to share with people about what occurred, how it was different from the past, and what we should learn from that?

KRISTIN DZICZEK: Well, it was very different from the past. I mean, in the past, we pick one company, go there, set a pattern. Go to the next company. Maybe strike each one but do them sequentially. Going all at once to all three companies, trying to get a contract wherever they could. It sort of flipped the script and made it that the companies had to be competing for who would go first rather than the UAW picking a target company.

So you nominate yourself for who wants to go and be the first company. That was really different. The demands were very lofty, but that's not new. There have been years where the UAW-- one of the things this year was the 32-hour workweek. That was a demand in this 1976 strike at Ford was a 32-hour workweek. So a lot of these demands are recurrent.

So the demands weren't different. But the fact that they got so many of them, and especially bringing back cola that the company swore they would never do. And getting a right to strike over closed plants. I think those two factors in these new contracts were the most significant that I didn't expect to see happen. So that's what surprised me.

RICK MATTOON: Thanks, Kristin. Not surprisingly, we're getting a lot of questions having to do with supply chain issues, particularly around critical minerals, batteries, all the EV issues that are around. So I'm just going to turn to some of them that are coming in. So the first is, what's the market, do you think, for a small BEV in the US?

KRISTIN DZICZEK: Well, some of you have gray hair like me. Do you remember--

RICK MATTOON: At least you have hair.

KRISTIN DZICZEK: I do have hair. I almost didn't after yesterday where we had to pre-arrange today's program. People were asking me, how are you doing? And I'm like, I still have hair. I didn't pull it all out. So back in the early '70s, companies like the Japanese when they came to our shores with their products, Honda started with motorcycles and very small cars, Toyota as well, Volkswagen with the Beetle in the '60s even with very small affordable cars and get people hooked.

When Hyundai and Kia came, they came with small cars and a 10-year warranty. Take a chance on us. And if something goes bad in 10 years or 100,000 miles, we'll fix it. And they were cheap. And they got lower-end consumers, lower end of the market consumers interested. And now you can buy very tricked-out, top-of-the-line minivans and all sorts of products from these companies that came in and started small and grew.

Afford a vehicle, affordability was a big theme of our conference last year. And it's still a challenge. And we're going to have this problem where we don't have a lot of lightly used cars in the next couple of years because we under-produced future-used cars for the last three years. And usually, these come off lease and go into the used market. People need a car to get to work in this country. And these are going to look very attractive, especially with that, hey, you just need a good electric car. We've got one. It's less than $25,000. Hop in.

RICK MATTOON: OK, so I think I know the answer to this, but I'm going to ask you anyway. So in working towards the IRA incentives compliance on zero FEC mineral content for 2025, how problematic will recent bans, embargoes on minerals, mineral refining tech and materials from China be?

KRISTIN DZICZEK: Oh I wish I were a minerals expert, but I'm not. But I got three of them to talk to you tomorrow. And I'm looking at one of them. This whole space is-- I know it's a trite thing, but we wish we had the supply chain and the refining and processing for these minerals now. But if you don't start building it now. Like, the best time to plant a forest is 30 years ago. The next best time is start now.

So we're building the forest of the ecosystem and the supply chain for battery electric vehicles. Critical minerals refining and processing are all part of that. And there's going to be bottlenecks. And I hope all of you stick around for tomorrow, but one of the points I'm going to make tomorrow is there's an Australian company that built a mine for cobalt in Idaho.

Cobalt largely comes from really bad places with a lot of bad labor practices. And China owns a lot of the supply chain coming out of Congo. So we've got a cobalt mine in the US. Yay. It hasn't produced a single bit of cobalt. The governor was there. They cut the ribbon, all kinds of things. But when they got ready to go-- and they hired 300 people. They got ready to go to production, the price of cobalt falls. It's not economical to run that.

It wasn't economical to get oil out of the tar sands for a while either. So at some point, it becomes economical, and we can do this. But it's a huge amount of investment. And especially with those export restraints, if they pull back and everybody builds up this capacity to build other things and then they let like let the export restraints go, crash the price. So there's no getting around China.

RICK MATTOON: Yeah, I think we got that from your presentation.

KRISTIN DZICZEK: No getting around.


KRISTIN DZICZEK: Well, and I was really skeptical for a long time. When those first cars came in, they were terrible. And I was reading a lot of stuff in preparation for this about the Chinese companies and their plans for our market. So even in 2007, 2008, they said we're going to have EVs in the market in 2010. We're going to build a plant. We're going to sell 250,000 vehicles a year.

Like, all of these companies, well, Geely has a plant in the US. It's a Volvo plant, but it's owned by Geely, a Chinese company. BYD is building buses in the US. Battery electric buses. Their eyes may have been bigger than their stomachs back in the early part of their coming to our shores. But it's starting to get real now, really real.

RICK MATTOON: So here's another China question for you. How does the USMCA-- the new NAFTA for those who don't know it-- treat cars built by Chinese companies in Mexico? I assume they are treated as any other such car but with no special barriers to entering the US market?

KRISTIN DZICZEK: As long as they are compliant with the USMCA requirements, they can get tariff-free access to our market just as the Japanese, the Germans, and the Koreans who build vehicles in Mexico have that same access. Yep.

RICK MATTOON: So we have a couple of questions which are Michigan focused, which as you can imagine would come in. So first of all, the implications of what you've raised, what does that mean for Michigan? Because it seems like a lot of the investments are being made either South or in Ohio, not necessarily in Michigan. And is there something Michigan should be doing about that?

KRISTIN DZICZEK: Michigan is doing a lot about that. And Michigan started doing a lot about this maybe a little too early. When Energy Secretary Jennifer Granholm was governor, there was big push to build battery plants here in Michigan. And one of my colleagues and friends at the state, we call him "battery boy" because Eric Schreffler was "battery boy" for Jennifer Granholm for a number of years, trying to attract and land these investments.

And we have a lot of very small battery plants as a result of that and the LG plant in West Michigan, which expanded and has gotten more investment. There's, I think, two Ultium plants coming to Michigan. So some battery investment there. Michigan's a place where a lot of the EVs are getting built right now, too. So I don't think Michigan's really losing out. But it's a competition. And it's not just a competition among states. It's a competition in the world.

And you can say we're going to swear off these incentives amongst states, and this is silly kind of thing to do. But Canada might put the incentives on. Mexico might put incentives on. We're in that kind of a world where everybody wants to have a piece of this new and growing part of the industry. So it's competitive. Michigan certainly doing their best to go after it. And they've got a foothold with what's already here.

RICK MATTOON: So here's another battery related question. So given that we don't seem to have the minerals at least in the near term, do you think there's a role for battery recycling?

KRISTIN DZICZEK: Yes. Battery recycling is going to be really critical. But I mean, think about it. Like, the average car on the road is-- my S&P friends will tell me exactly, but it's more than 12 years old. So you get a car. You drive it for-- average is 12 years. Some of them go way longer than that. And then you need to take the battery out and reclaim those minerals. So we're a long way from having a feedstock to go into recycled batteries.

There's a lot of folks putting in place the investments to do that. But before we're going to get critical mass of minerals coming out of that stream, we need to have more EVs on the road that then have lived their useful life. And the only ones that are out there having lived their useful life are the hybrids right now.

RICK MATTOON: OK, so here's, I think, a tough question to answer. But with the evolution of battery technology through 2029 as you forecasted, who's going to be the losers on the ICE side?

KRISTIN DZICZEK: Oh I don't know.


But it's something that I worry about a lot. Here, I would like to annex Ohio to the seventh district because if you take in Michigan, Ohio, Indiana, this is the center of not just Detroit 3, but all automakers, engine and transmission manufacturing. So there's a lot of not just the producing the engines transmissions themselves, but the supply chain for it is here in Michigan, Ohio, and Indiana.

So we have the most to lose. We also have the most to gain in this transition. And stretching this goal to it's going to take us longer to get there, is good for the places that are still making internal combustion engines and transmissions. We're going to be making those for a long time because, again, like I said, you can't get 50% of Americans to agree on anything. So we still have to make engines and transmissions for quite a long time, as well as the service parts for the 300 million of ICE vehicles that are on the road.

RICK MATTOON: So one of the things you showed is not return to normal in your sort of normal chart has been productivity within the auto sector. So any intuition as to why it's lagging at this point?

KRISTIN DZICZEK: It's not lagging in the parts sector. It is in the motor vehicle sector and then that-- I'm going to talk a lot more about this in the last session tomorrow with our experts on what you can do to change productivity. And we'll talk a little bit about it in the cost section today, too. I don't really know why. Productivity will tend to-- it's hard to measure.

And it's very volatile especially in times where you're having wild economic swings because you have-- companies may hoard more labor as they go through a downturn. And you look way less productive you also look way less productive when you're launching new vehicles and new models because it takes more hours and people on the floor to make things, get all the kinks worked out. If you've been making the same car for 10 years, you can be super productive.

And that was one of the ironies of-- that it used to be this public report called The Harbor Report. And the plant that would win The Harbor Report, like most productive plant, would be the next plant to close. And largely because it hadn't had an investment in a long while. It was making a car that had been making for 10 or 12 years. And you get darn good at it if you've been doing it for 10 or 12 years, or even 8 years.

But if everything is changing, and we've got much more rapid model changeovers and new introductions of new technologies, new ways of doing things, that's going to slow people down. And we won't be quite as productive. So I think some of it is that, but we'll explore that more in those two panels.

RICK MATTOON: So this is an interesting question. It has to do with implications of having these low-cost EVs coming to the US, potentially. Do you think that's going have real implications for the retail market for used vehicles? I mean, will they end up undercutting the reach of the vehicle?

KRISTIN DZICZEK: Yeah, because I mean the best substitute for a new car is a used car. But if we've under-produced these future used cars, I think they're going to be very competitive with used cars. And the next panel that Martin's going to run will probably talk about that quite a bit.

RICK MATTOON: OK. So I'll ask one last question. And again, I think you probably know where this is going to head. But coming off the success in 2023, do you expect the UAW to be able to organize other autoworkers?

KRISTIN DZICZEK: I don't know.


I don't want to make projections like that. But it is true that they have engaged more in especially in social media and video and other forms of communication. Their communications ratcheted up several notches with this latest round of negotiations. A lot of that carries forward to an organizing drive, but you need to have the boots on the ground talking face-to-face to convince people to sign that card.

They've got something they're calling the 30/50/70 rule that they're going to follow. So when they get 30% of cards signed at a plant or an automaker, I think, they will announce that they've got the 30%. At 50%, they're going to start having big rallies. At 70%, they're going to ask for recognition. And I think there's three or four companies that they've got to.

Back there, they tell me two. Two companies that have reached the 30%. And they're down coast at some others. So this is, again, take on the world all at once and push everywhere until you see what door opens for you. So it's a very different strategy than they've had before. It was very successful to push on all the doors at once in negotiations. I don't know how to say if it's going to be successful or not. But they've gotten to 30% in a couple of places.

RICK MATTOON: Great. Thanks, Kristin. I could go on for much longer with this, but we have to bring up Martin's panel. So once again, let's thank Kristin for her insights that she shared with us this morning.



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