Nathan Pikarsic: Competing in global auto race requires US industry to retool

This month, Jeep opened the first new auto factory in Detroit in three decades. Auto workers and suppliers have responded by celebrating.

With reason — it’s the Motor City’s first new auto factory in 30 years and is expected to employ almost 5,000. Jeep deserves credit for investing in the United States rather than building a factory overseas.

But before the champagne runs out, let’s look for the devil in the details. And then let’s call on Stellantis (the new parent company of Jeep), the U.S. auto sector and those making policy to “Build Back Better” in Washington, D.C., to do more.

Jeep’s new factory will build a gas-powered, seven-seater SUV. This expanded Jeep Cherokee will meet near-term demand. It will enthuse Wall Street shareholders fixated on quarterly expectations.

But here’s what it won’t do: Help Jeep, and the entire U.S. auto industry, compete against China’s government-backed auto makers who are playing the long game. China is intent on capturing not today’s demand, but tomorrow’s — and cementing market dominance through control of the rapidly growing electric vehicle industry.

The world is shifting to electric power units. If the U.S. wants to get back into the game globally, we cannot afford to be placing shortsighted bets. We must take the long view.

For over a decade, the Chinese Communist Party has pursued a deliberate industrial policy to dominate the global auto industry. We’ve combed through years of Chinese auto sector industrial policy and investments to understand how China secured not just a lead in EVs but a stranglehold over them. Since the early 21st century, China has incentivized its companies to seize positions of influence in legacy automotive supply chains, like tires and steering systems. Simultaneously, Beijing intentionally laid the groundwork to control the global shift to EVs. It has secured access to critical minerals and refining capacity upstream of battery cells. It has used consumer incentives to push EV adoption and producer incentives to support battery production domestically. It has encouraged auto makers to “bring in” technology from abroad.

China’s industrial policy approach has worked. Every U.S. carmaker buys at least some share of its EV batteries from Chinese government-backed champions like CATL and BYD. Chinese auto companies don’t buy from EV battery suppliers outside of China. And if you want cobalt, graphite or rare earths for a new battery production line, you’ll be getting those by way of Beijing, too.

The explicit goal of Beijing’s industrial policy is to leapfrog the existing order. China sees technological and geopolitical disruption as an opportunity to do that. And the decisive moment is now. Having spent a decade preparing, players like Nio are starting to “go out” and compete globally. Both new and incumbent U.S. leaders depend on China for inputs, production and markets. Whether or not the rest of the world realizes, China is shaping tomorrow’s auto sector.

The American auto industry needs more than a single new plant to compete. It needs more than one-time capital infusions, Band-Aids and bailouts. It needs a radically new mode of public-private partnership, government support and courageous corporate leadership. The U.S. Senate moved in a positive direction with its Endless Frontier bill, which will provide funding for necessary research and development. But such investments need to be matched — or, better yet, exceeded — by support for manufacturing; for the capacity to translate innovation into reality, market share, jobs and sustainable financial returns. Washington needs to invest in and provide tax credits for actual production.

When President Biden visited Ford’s Rouge Electric Vehicle Center last month, he promised that the future will be Made in America. The reality is that we’re on the verge of the iconic rumble of an American-made V8 being replaced by the silent glide of an EV battery made in China.

To get back in the race, the auto industry and D.C. need to work together, and smarter. The private sector needs to recognize the urgent need for control over, and even vertical integration of, critical supply chains. The U.S. government needs to get key allies and partners, like Germany, to block predatory investments that support technology theft; and to structure procurement programs that reward domestic production defined by safe, humane working conditions and living wages.

William Knudsen, the famed auto executive and wartime production hero of World War II, used to say that “the genius of America is production.” It’s high time America remembered that.

Nathan Picarsic is a Pittsburgh resident and native of Westmoreland County. He is a co-founder of Horizon Advisory, a strategy consultancy that helps companies and investors assess geopolitical risk.