Morgan Stanley analyst and Tesla Inc TSLA bull Adam Jonas has a radical idea for the likes of Ford Motor Co F, General Motors Co GM, and Stellantis NV STLA. According to Jonas, these legacy automakers need to consider partnerships with each other or with China as a means to navigate the Chinese electric vehicle (EV) dominance that is fast encroaching on Western markets. As per Jonas, the complexities of affordable Western EVs will remain unattainable without involving China and attempting to disengage from this partnership comes at a hefty price.
Why It Matters: Legacy automakers have been on edge about the threat of low-cost EVs flooding the U.S. market from China. During a recent panel discussion on disruptive technology in Detroit, Ford’s EV unit’s chief operating officer Marin Gjaja labeled Chinese EV makers as a “colossal strategic threat,” emphasizing the possibility of China bypassing the heavy tariffs imposed by the U.S. on EV imports by setting up shop in Mexico.
Even Tesla CEO Elon Musk joined the chorus, stating that if not for trade barriers, Chinese EV makers would “pretty much demolish most other car companies in the world.”
According to Jonas, mass EV adoption and China are “inextricably linked,” and stringent trade barriers on China will only hinder Western EV adoption. Jonas believes that embracing partnerships is key for legacy automakers, as this would help in forming a strong EV supply chain and subsequently developing competitive EV models. He suggests that these partnerships could be forged with startups like Lucid or Rivian, with Chinese companies, with Tesla, or among themselves.
The integration of Chinese know-how into the Mexican manufacturing sector could pave the way for producing low-cost EVs. Jonas highlighted the potential of Mexico as a bridge for China, citing reports of Chinese suppliers seeking to establish manufacturing facilities in Mexico. This move, Jonas believes, could serve as a viable path to locally producing cost-effective EVs.
Jonas acknowledges that although Mexico currently serves as a buffer for China, it may reconsider its stance on supporting the U.S. if it realizes that Detroit’s supply chain integration will take time. In this light, Jonas urges the legacy automakers to seriously consider engaging with Chinese suppliers and leveraging partnerships to tackle the imminent threat posed by Chinese EV dominance.
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