There are a lot of reasons to criticize the Chinese economy, which we have done here at BATG, e.g., their theft of intellectual property, their groteque centrally directed overproduction of everything the state wants their economy to get good at (e.g., steel, EVs). But let’s give them their due, the Chinese are making some very good EVs, very cheaply. There is a reason why most of the west is trying to stop the onslaught of Chinese EVs–they are just a better value than anything on the market. We’ve noted before the outrageous state push in China for EVs, where they have hundreds of firms (most of which will ultimately go bankrupt, and many already have). But the intense competition within that oversupply has led companies like BYD to become very, very good. In Europe, BYD sales continue to accelerate rapidly, with them capturing 7% of the EV market last year. Most of the world thinks they simply cannot compete with China’s push; indeed the industrial policy populists of both the left and right in the U.S. think we must emulate them with a strong state-directed push to support key industries.

Joe Biden significantly tried to force EVs onto Americans by his regulatory push on mileage (which could only be met by EVs), but even with significant subsidies, EVs were simply too expensive. In addition, concerns over limited range, cold-weather performance, etc., (as well as the high price) led Americans to reject them. A big part of that is also that Americans do not like to be told by the nanny state what they must do, whether it be vaccines they must take, or cars they must drive. The Big Three automakers lost over $50B last year on the Biden push–what big government ordereth, the market taketh away. And yet China’s ability to make cars that are rapidly scooped up in countries around the world has not gone unnoticed. And as I regularly state here at BATG (and in my classroom!) Competition always makes you stronger, protection always makes you weaker. There is no truer axiom in free markets and in life: People will always rise to the challenges in front of them, or they will fail. Those that rise succeed–in life and in markets.*

So earlier this week Ford unveiled their new effort to take on the Chinese with an EV truck. Not the $50-100k F150 Lightning, but a $30k mid-sized truck. Per the WSJ report:

The secret is now out as Ford races toward building its first model, a new truck it says will be nearly as fast as a Mustang, travel around 300 miles on a single charge and feature in-car technology to compete with Tesla and China. It’s aiming for a 2027 launch and a price tag of around $30,000, the cost of a Toyota Camry. Getting there means tearing up a century of manufacturing practices in a notoriously hidebound industry. At stake for Ford is securing a future beyond the gas-guzzling pickups and SUVs that have long defined its bottom line. 

The project had been kept quiet from its 2022 start, led by veterans from Tesla and Apple who worked on designs out of a California office. Ford eventually brought in some of its own employees to help execute the vision. The process was filled with misunderstandings and distrust as the techie outsiders worked to win over the risk-averse industry veterans. To build these new EVs, the company must use fewer people and simpler parts, and dismantle decades of engineering inertia. Chief Executive Jim Farley is calling it Ford’s new “Model T moment.” Rival automakers say overcoming China on EVs can’t be done, given their advantages: extensive government backing, low-cost labor and a massive head start.

With its new truck, Ford says it has eliminated thousands of feet of heavy copper wiring, cut out hundreds of parts and made it 15% more aerodynamic than its other pickups. The process included rethinking the assembly line, which Ford helped to pioneer. That process is traditionally iterative, slow and depends on scores of outside partners. On Ford’s new “assembly tree,” a modular system stamps out two massive, aluminum castings and a battery that get merged at the end of the process—closer to how Tesla and China’s automakers build EVs. “We’ve never blown the whole thing up before and just started over,” Coffey said. “If and when we build this, we will rewire Ford.”

I don’t know if Ford will make it, but I certainly hope they do. I might even be a buyer for a low cost, low maintenance USA-made pickup since I don’t really need to drive a pickup hundreds of miles. But here is the key point of this post. Who among us thinks that Ford would have been willing to totally “rewire Ford” to meet this challenge, absent the challenge? As they say, necessity is the mother of invention, and market participants need constant pressure to force them to creatively meet customer’s needs. As I wrote in another article, people don’t compete in markets simply to grow profits, they do so to survive.

Competitive free markets act as a similar measure of common grace. The institution of free markets is often the outlet for scientific and artistic discoveries as the system is not only efficient in information transmission but also in the rapid delivery of beneficial products and services to those who most highly value them. Many scientific discoveries and improvements in technology either directly or indirectly lead to advances in products that consumers demand, and competitive forces tend to lead to a sharing of the gains of trade. Indeed, firms that do not embrace technological change as fast as others become part of Schumpeter’s entrepreneurial creative destruction; competition forces firms to pursue technological advantage and to provide increasing quality at cheaper prices. Note that this is not simply the incentive to “get rich” (although those at the front of the pack often earn superior profits), but rather the incentive is also to survive. Market incentives of profit and loss ensure that those who are not competitively embracing technological and scientific change that could improve products for consumers will not survive.

I want Ford to innovate. I want Ford to serve me with a better quality, lower cost product. And they simply won’t do that without the force of market competition. So kudos to the Chinese for bringing the fight to U.S. auto manufacturers. And kudos to Ford for rising up to meet the challenge. Game on! I know who I’m rooting for.

* And in markets, those that fail get the consolation prize. They work for the winners until they are ready to try again.