Transcript: The target painted on Chinese electric vehicles

This is an audio transcript of the FT News Briefing podcast episode: ‘The target painted on Chinese electric vehicles’

Marc Filippino
Good morning from the Financial Times. Today is Friday, June 14th, and this is your FT News Briefing.

It’s a big day for car stories. First, Tesla shareholders approved Elon Musk’s controversial pay package. And the European Union is trying to challenge China’s EV industry. Plus, can Toyota survive a safety scandal? I’m Marc Filippino, and here’s the news you need to start your day. 

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Tesla shareholders yesterday reapproved Elon Musk’s $56bn pay package during the company’s annual meeting. The controversial compensation plan was originally proposed in 2018, but earlier this year a court in Delaware struck it down. The court said the compensation package, which would be the largest in US history, was excessive and had been approved without broader shareholder support. The vote yesterday was a huge win for Musk, and it wasn’t the only win. Tesla will also be reincorporated in Texas. It’ll move from Delaware. Musk thanked a group of investors after the vote by telling them, quote, hot damn, I love you guys.

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The European Union announced this week that it was slapping tariffs on imported Chinese electric vehicles starting next month. They’ll be as high as 48 per cent for certain carmakers. Pretty steep, but not as high as what the US imposed on Chinese EVs a few weeks ago. And all these tariffs got us thinking, what does this mean for China and its electric vehicle industry? Here to talk about it is the FT’s China correspondent Ed White. Hi, Ed. 

Edward White
Hi. 

Marc Filippino
So Ed, why did Europe impose tariffs on Chinese EVs this week? 

Edward White
Europe has had a long-running issue with Chinese industrial policy, particularly what Brussels believe is illegal state support that breaches international trade rules. And this was coming to a head because a huge number of Chinese vehicles have been arriving into ports in Europe. These EVs, they are cheaper, more high-tech than a lot of the cars that are available in the European market. And there’s just been a view in Brussels that this has come too far. And if they didn’t act now, it would possibly be too late. 

Marc Filippino
So overall, Ed, what impact will these tariffs have on Chinese electric vehicle exports to Europe? 

Edward White
In the short term, these are higher prices on Chinese vehicles. They could lead to a little bit of a slowdown in the sales and therefore in the shipments from China. But probably, longer term, experts think that this won’t really be enough to stop the Chinese companies from targeting EV sales into Europe. If we look at BYD, the biggest Chinese EV maker and one of the biggest EV makers in the world, it’s already pretty well placed in Europe. It’s investing heavily into local manufacturing via Hungary, which is a much more China-friendly country than other parts of the European bloc, and other companies might well follow the example set by BYD. And many people in the industry think that the jury is really still out on this one, and that at this stage, many of these Chinese companies actually still have an advantage even with these tariffs on top. 

Marc Filippino
OK. So it seems like the tariffs are not actually gonna do a ton to slow down Chinese EV sales. But I can’t imagine China’s thrilled about the development. How do you think it’s gonna respond? 

Edward White
Increasingly they’re calling European moves in this space blatant protectionism. They’re also really increasingly trying to downplay the idea that there has been state support that has unfairly advantaged Chinese companies. In terms of specific retaliations, Beijing does like to really surgically strike countries and industries just to send a very clear message. So, for example, in January, the Chinese commerce ministry started its own investigation into French cognac shipments into China. And this was a move quite clearly targeted at punishing France for its support of this EV investigation. You know, one other point on this is that there is a bigger context here for Beijing, and that is that there is always gonna be a tendency, I think, to sort of stay away from doing anything that will hurt China’s own interests. So there will be some caution around that. 

Marc Filippino
OK, so that’s just Europe. But you know, let’s not forget that the US hit Chinese EVs with a 100 per cent import levy last month. Could the combination of these tariffs damage China’s EV industry? 

Edward White
For China, they see themselves as being basically locked out of the US market at the moment. So that’s a big problem. Europe, they still see a way in, but whether people like it or not, because China has built this very impressive supply chain for these crucial clean tech industries — not just EVs, but also things like solar and wind and many other industries — Chinese companies are increasingly setting their sights on the rest of the world. So all of the key emerging markets and all of the developing countries are really in play. And I think that’s where we’re gonna see China shift. And we are already seeing China shift a lot of its export focus to those markets. 

Marc Filippino
Ed White is the FT’s China correspondent. Thanks, Ed. 

Edward White
Thank you for having me. 

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Marc Filippino
National renewal — that’s what Labour leader Sir Keir Starmer is promising to deliver to the UK if he’s elected prime minister. That’s according to the party’s manifesto released yesterday. But there wasn’t a lot that was new in the document. Instead, Starmer reiterated plans to raise £8.6bn in new funds by cracking down on tax evaders. He also said Labour would increase the levy on oil and gas companies, and promised to rejuvenate the National Health Service.

For his part, Conservative party leader Rishi Sunak trashed Labour’s tax plan. Yesterday, in response, the prime minister promised to cut taxes for people at, quote, every stage of their life if he’s voted back into 10 Downing Street.

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Some of the most recognisable Japanese carmakers are in hot water. There’s growing criticism over a scandal involving data and safety tests, and Toyota is at the centre of it. David Keohane has been covering the issue and he joins me now. Hi, David. 

David Keohane
Hey, Marc. Nice to be here. 

Marc Filippino
So, David, first off, can you tell me what this scandal is all about? 

David Keohane
It’s a very good question because what you got is a very bad-sounding case of widespread issues with safety test data for some of Japan’s biggest carmakers — Toyota, Honda, Mazda, Subaru and Yamaha Motors. But we have to dig into it (inaudible). It isn’t good, and it’s resulted in six models being suspended after the transport ministry investigated some 85 companies in the industry. But as far as we can tell, we’ve got this, like, a series of quite specific and different data mistakes or errors, and in some cases that it kind of verges towards deliberate. But I think we have to be very careful not to suggest this is fraud in a wide sense. 

Marc Filippino
Yeah. Let’s focus on Toyota here ‘cause, you know, it is the world’s biggest carmaker. But you know, not for nothing. I also drive a Toyota. So what is going on? 

David Keohane
Toyota’s issues were in things like pedestrian safety tests and luggage displacement tests. So the models that are currently in production had, for example, data deficiencies in pedestrian and occupant protection tests, a case where test impact angle was stricter than what the legal regulations actually call for, and another case where a test only was on one side of the car versus both. I think that gives a flavour of what we’re talking about here. 

Marc Filippino
So, David, this sounds a lot like what happened a few years ago with Volkswagen and its emissions testing scandal. Is this anything like that? 

David Keohane
As far as we can tell, and we do have to be careful here because serious investigation is still ongoing and is scheduled to be completed at the end of June, but this does not appear to be anything close to another Dieselgate. That’s where Volkswagen used software in diesel engines that could detect when they’re being tested, and thus changing the performance of their results and allowing cars to be produced that maybe didn’t meet standards that they should have met. 

Marc Filippino
OK, so, so far not as bad, but I guess, would you think twice about buying a Toyota because of safety concerns? 

David Keohane
I have to be very careful how I phrase this because I neither want to minimise what’s happened but also want to overdramatise. And I think it is true to say that every one of the carmakers has said that there’s no impact on safety. The faulty data did not affect the safety of their cars. And the share price reaction has been very muted. It’s dropped a little bit, but is still up, you know, by a healthy amount this year. So no, I don’t think this would stop me buying a Toyota. And I don’t think investors are particularly perturbed by it. What you don’t want is for this to get any worse. And it’s certainly not a good look for the Japanese car industry. And it’s also really not a good look for Toyota’s chairman, Akio Toyoda, who’s now had apologised twice this year for similar issues. And I think we’ll only see the full extent of the impact at the Toyota AGM, which is on the 18th June. 

Marc Filippino
Which is just a few days away. It’s just next week. So I’m wondering, will there be calls for chairman Akio Toyoda to step down? 

David Keohane
You have to remember that Toyota and the Toyota Group, there’s a lot of cross-shareholdings and kind of friendly shareholders in there. So I don’t think we have to see him get kicked out. But I think it seems probable that we will see a further erosion of support. Akio Toyoda already lost a bit of investor confidence or support, shareholder support at the AGM last year. From memory, he went from about 96 per cent support in 2022 to an 85, 86 per cent last year. And he’s also, I mean, crucially, grandson of the company’s founder. So this guy is very, very central to Toyota and very, very central to Japanese carmaking and very central to Japanese business. 

Marc Filippino
David Keohane is the FT’s Tokyo correspondent. Thanks, David. 

David Keohane
Ah, it’s pleasure. Back anytime. 

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Marc Filippino
You can read more on all these stories for free when you click the links in our show notes. This has been your daily FT News Briefing. Make sure you check back next week for the latest business news.

The FT News Briefing is produced by Kasia Broussalian, Fiona Symon, Sonja Hutson and me, Marc Filippino. Our engineer is Monica Lopez. Our intern is Prakriti Panwar. We had help this week from Ethan Plotkin, Michela Tindera, Denise Guerra, Victoria Mortimer, Sam Giovinco, Breen Turner, David da Silva, Michael Lello, Peter Barber and Gavin Kallmann. Our executive producer is Topher Forhecz. Cheryl Brumley is the FT’s global head of audio, and our theme song is by Metaphor Music.