TPT January 2019

G LOBA L MARKE T P L AC E

Additionally, the business model of selling cars to individual customers – a model around which the industry is structured – can be unsettled in a world with cars that drive themselves. Autonomous vehicles should significantly push down the cost per mile for ride-hailing services. Consumers will begin to weigh the cost of owning and maintaining a car. Two-car families could decide to own one car instead; or decide against ownership altogether. Auxiliary benefits – such as enhanced safety and more time for the freed-up driver – can be expected, with a new focus on the passenger experience. This is another area in which automakers are not experts. • At the same time, declining battery and electric vehicle (EV) powertrain component costs are on a path toward making EVs a more affordable option than vehicles with internal combustion engines. An EV currently costs approximately $10,000 more to produce than a combustion engine car. But, within about ten years, improved battery chemistry – specifically, NMC 811 lithium battery technology – is projected to drive down EV costs to a point at which a combustion engine car will cost some $5,000 more to produce. The lower upfront cost for an EV, together with greatly diminished operating costs (no more oil changes or visits to the gas station) may become impossible to ignore for most consumers. • Traditional automakers and OEMs have very little “content” on EVs. Currently, their intellectual property in a car is centred on the transmission, powertrain and drivetrain. The electrification of vehicles significantly reduces the prominence of these technologies. One T Rowe Price analyst estimated that OEMs that do not contribute a part of the EV powertrain will see their value as a percentage of total cost of the car cut by approximately 60 per cent, with more of the total car value contained in the battery. Such an environment could come sooner than the market appreciates. • An aggregation of third-party forecasts points to EVs accounting for approximately ten to 15 per cent of sales in 2025, but the analyst thinks the reality will be the other way around. Only ten to 15 per cent of consumers will want to buy a combustion engine car at that time. › The broad consensus is that EV adoption will be gradual, but the T Rowe Price analysts believe there will be an earlier tipping point in adoption. EVs’ lower relative cost and auxiliary benefits alone make them appealing. This is compounded by the increased rate at which combustion engine cars will depreciate because of the clear path for EVs to becoming a larger presence in the fleet. The rate-limiting factor may be the ability to add battery capacity – not consumer demand. Why? Because, according to Messrs Greene, Grant and Hedrick, “Consumers are still at the early stage of appreciating the transformative nature of EV propulsion.”

The Tr ump tar i f fs Smaller and poorer steel-producing countries are bearing the brunt of the US import duties In the US, coverage of President Donald Trump’s steel tariffs has tended to centre on their effect on domestic companies and the responses of the country’s larger trading partners: China, Canada, Mexico and the European Union – all of which retaliated against the 25 per cent duty on imported steel imposed in March 2018, prompting a global trade war. The Peterson Institute for International Economics (PIIE), a private and non-profit think tank based in Washington, DC, has now taken note of “a little-noticed and little-appreciated aspect of these particular tariffs.” That is, that they have also hurt smaller and poorer steel-producing countries and inflicted pain on them disproportionately. (“Trump’s Steel Tariffs Have Hit Smaller and Poorer Countries the Hardest,” 15 November) The PIIE analysts Chad P Bown, Euijin Jung and Eva Zhang pointed out two disturbing elements of this disparity of impact. First, Mr Trump’s stated rationale for the tariffs is the protection of US national security, to which imported steel from smaller producers in Bangladesh, Guatemala or Peru pose no conceivable threat. Thus, no US policy goal is advanced by penalising these more vulnerable countries. Second, the tariffs violate norms that the US itself helped establish at the World Trade Organization (WTO), whose members are explicitly committed to shielding innocent bystanders from the fallout of protectionist actions. Yet Mr Trump’s disregard of this pledge has drawn little attention, not least because of the comparatively weak influence of the smaller steel producing nations. › The PIIE analysis identifies a “significant irony” of the trade war ignited by the Trump steel tariffs: as a result of strong US economic growth, total US imports of steel increased by 2.2 per cent in the first six months after the tariffs were imposed in March 2018. This does not inhibit Mr Trump from declaring his tariffs a resounding success. And, if one of the purposes of the tariffs was to drive smaller, poorer countries out of the US steel market, this item in Mr Trump’s “America First” policy can be deemed successful. Over the same April-September period of last year, five of the 27 developing countries that had been exporting steel products to the US did not export any. › These countries could, of course, cut back their steel exports to the United States and “wait out” the current crisis. This is the lesser-of-two-evils expedient recommended by the PIIE analysts. They wrote, “Given the fixed re-entry costs to re-establish contacts, trust with buyers, and a distribution network, exit [from the American market] due to Trump’s tariffs is likely to have a more negative longer-term effect than a simple reduction in export volumes.” It is a difficult decision for steel producers whose smaller scale means thinner profit margins in the best of times. Meanwhile, according to data referenced by PIIE, American consumers have seen price increases on imported steel of 14.7 per cent relative to the period before the tariffs.

Dorothy Fabian, Features Editor (USA)

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JANUARY 2019