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Today, I’ll be interviewing automotive expert Michael Dunne, who has had a storied career working for General Motors, JD Power and automotive consultancy Automotive Resources Asia. He now runs the auto advisory company ZoZoGo.

1. Welcome, Michael! Can you tell us a bit about your background and what you focus on today?

Years ago, I put this question to one of the partners at Sequoia Capital: What is the secret to the firm’s stunning success? He said that the key was simple: Identify a coming wave and ride it. That’s what took me East in 1990 - the boundless energy and potential of Southeast Asia and China.

In 2015, I moved to California, drawn by early signs of explosive potential around Tesla and Waymo – around electric and autonomous cars. Right away, I started making road trips up and down the California coast to meet the giants of Silicon Valley and the smart and “out there” people starting electric and autonomous car companies. The energy was palpable.

Today my company, ZoZoGo, delivers intelligence and advisory services to investors, automakers, tech companies and dealers on the future of electric vehicle demand globally. There is a race for dominance in electrics and batteries. China has built a huge lead. But Europe and America are moving fast to catch up, pouring billions into new battery factories and startups like Northvolt in Sweden and Our Next Energy in Michigan.

2. In your book American Wheels, Chinese Roads, you wrote about General Motors’ quest to win the hearts of Chinese consumers. How do Chinese consumers think about their car purchases differently than in the United States?

You really have two kinds of Chinese car buyers in my experience. First, you have the educated urban elites for whom status and image are paramount. What matters is the social status that the car projects. They will happily spend US$75-100,000 on a car provided that it delivers an image of exclusivity, of distinction. This is exactly the market GM successfully tapped into when it introduced the US$50,000 Buick Century in the late 1990s.

Less affluent Chinese consumers care about image, too. “Oh look, Engineer Li bought a Chery, probably because he could not afford a Volkswagen.” But there is a wide swathe of consumers in China who, at the end of the day, are quite pragmatic about their purchases. They want a quality vehicle with good fuel economy that offers convenient and affordable parts and services. This is why Toyota and Honda continue to flourish in China despite the historical animosity between Japan and China.

Great Wall Motor’s Haval SUV brand. Source: Great Wall Motors

How are they different from Americans? Chinese consumers are getting more and more comfortable buying home-grown brands like Geely, Great Wall, BYD, NIO and Great Wall. In the coming years, look for the market to tilt strongly in favor of Chinese brands, similar to what we saw happen in Japan and Korea. In contrast, American buyers want the best value for money, whatever the country of origin. This hard reality is the bane of the Detroit 3’s existence.

3. What do you think have been the key success factors for foreign automakers such as General Motors and Volkswagen, compared to comparative failures such as Ford?

Many of the once powerful global automakers in China - companies like GM and Volkswagen - are now backsliding. In GM’s case, sales are down 33% from their peak in 2017. And profits have dropped by more than half. Volkswagen is down too, but not as much.

What is going on? China is in the midst of this dramatic and decisive pivot to electric vehicles. This year EV sales in China could reach a stunning 6 million cars and trucks. Chinese brands like BYD, NIO, Wuling and Xpeng are totally dominating the electric car market. Tesla is the only foreign brand in the top 10. Other global automakers have, for various reasons, missed the electric boat. VW is ranked 15th in the EV charts. And GM does not even make the top 20.

To come back more directly to your question: GM and VW racked up incredible profits for many years in China thanks to strong joint venture partners like SAIC (Shanghai Auto Industry Corp). The JVs thrived in a market that saw unprecedented growth year after year. The shine started to come off of the JVs ever since 2018 when the market began to slow and profits declined. As China becomes technologically independent with the development of their own electric vehicles, global automaker prospects in the China market look uncertain. Suzuki, Isuzu and Acura have already retreated from the market. Jeep just ended its joint venture with Guangzhou Automotive, after selling just one vehicle in June 2022. Middle market brands like Chevy, Peugeot and Ford could soon meet a similar fate.

Ten years from now, we might see foreign participation limited to the premium segment occupied by storied powerful premium brands like Mercedes, BMW, Lexus and Audi. And with some luck, Cadillac and Lincoln too.

4. What do you think about the potential for Chinese auto exports - will Western consumers be buying Chinese cars eventually, just like we’re buying Japanese and Korean cars today?

Global automakers should be vigilant because China is entering the take-off stage for exports. In 2021, overseas shipments doubled to 2 million. Exports will top 3 million this year and then climb above 5 million annually by 2025. Think about that: Three years from now, Chinese car exports are on track to be as large as Japan’s car market.

Chinese auto exports boomed in 2021 thanks to NEVs. Source: Statista

What’s driving exports: massive overcapacity and weaker demand at home coupled with much-improved product quality. Most exports land in developing markets in Africa, South America and Southeast Asia. But now we are seeing BYD, Polestar, NIO, and MG compete in richer country markets like the UK and Australia. The Trump Administration put in place a 27.5% import duty on Chinese cars as a preemptive move to deter a flood of imports.

5. The Chinese EV market took off with the central government’s subsidies for EV purchases in 2014. How reliant do you think the current Chinese EV market is on subsidies, and where do you think the EV market will end up after the subsidies are cut to zero by the end of 2022 or 2023?

China's electric vehicle market is no longer dependent on subsidies to sustain momentum. Demand has already attained escape velocity. There is no going back to gasoline-powered cars. Chinese consumers will buy a record 6 million new energy vehicles (NEVs) this year, or about 60% of the global total. (Note: NEVs is China’s umbrella term that refers to pure electrics, plug-in electrics and hydrogen-powered vehicles).

New energy vehicles in China - Wikipedia — Chinese NEV exports. BEV = Battery Electric Vechicle. PHEV = Plug-in hybrid electric vehicle. Source: CAAM, Wikipedia

6. What do you think about the potential for fuel cell electric vehicles in China - will they ever be as competitive as battery electric vehicles?

Chinese planners talk about building a balanced energy portfolio that includes battery electrics, PHEVs and fuel cells. For the next five years, fuel cells will be a niche market for heavy buses and trucks on fixed routes where they can find charging stations.

A Chinese hydrogen charging station. Source: Nikkei

For cars, we won’t see any meaningful penetration before 2030. The focus today is really on BEVs, batteries and battery supply chains that go all the way upstream to mining. China is now home to the largest battery company in the world, CATL. China also handles most of the world’s refining for battery materials.

7. Which of the Chinese automakers do you think holds the most promise, any of the JV partners or the independent brands?

Here are 6 Chinese companies to watch, 5 of which are privately owned.

Geely: Chairman Li Shufu has amassed an incredible portfolio of brands that includes Volvo, Polestar, Proton, Lotus, Smart, Proton, Zeekr, Lynk & Co. Geely is also a major shareholder in Mercedes-Benz and Volvo Trucks. Founder Li Shufu is the entrepreneur’s entrepreneur: Fearless, relentless, and street smart. You just don’t want to bet against Chairman Li.
BYD: BYD is racing ahead of everyone else in China’s electric vehicle industry, selling more than 100,000 battery electrics and PHEVs every month. These vehicles are powered, of course, by BYD batteries which now rank among the world’s most advanced.
NIO/Xpeng/LI Auto: Among China’s scores of electric vehicle startups, three names stand apart from the pack: NIO, Xpeng and Li Auto, makers of smart electric vehicles. All three were founded by billionaires who made their first fortunes in technology. They are shaking up China’s auto industry with innovation and deep expertise in software. Think of them as the Tesla’s of China.
SAIC: Among China’s so-called “Big Six” automotive state enterprises, SAIC is the largest, smartest and most profitable. SAIC bought the MG brand in 2005 and is leveraging MG’s legacy and brand awareness to fast-starts in several markets, especially the UK.

8. Now that foreign auto companies can fully control their Chinese operations, what do you think will happen to their current partners? Are they investable, in your view?

There is so little transparency and so much lethargy in the state enterprises that I am reluctant to recommend investments. But if one is feeling lucky or needs to place the funds somewhere different, I would feel – let’s call it less uncomfortable – with Shanghai Automotive or Guangzhou Automotive.

Why these two? Mostly because they are located in the Chinese geographies where people know how to make money.

9. I saw on Twitter that you’ve just taken a trip to Vietnam to understand more about the Vietnamese automotive industry. What are your takeaways from that trip?

Vietnam was so impressive. The energy there is palpable. A lot of investment that used to flow to China is now finding its way into Vietnam. You see new roads and new construction in every direction. I visited VinFast, the relentless EV startup with plans to build cars in North Carolina by 2024. VinFast has technology partnerships with many blue chip companies, including Samsung for batteries, ZF for chassis, Amazon Alexa for infotainment and Pininfarina for design.

VinFast will start exporting to Germany, France, the Netherlands and the United States this year. I visited one of their new brand stores in California last week. It was situated in a luxury outdoor mall, not far from Tesla and Apple. In my experience, no car company has moved as quickly as VinFast from formation to full production. Now the big test comes: Will Americans and Europeans embrace this relatively unknown newcomer from the East?

10. Where can people learn more about ZoZoGo and your services?

Absolutely. ZoZoGo advises investors and tech companies on future trends in electric vehicle markets globally. How big, how soon, how real? Visit our website: www.zozogo.com.

We also feature leading individuals in the global electric vehicle industry on our Driving With Dunne podcast. People like Peter Rawlinson, CEO of Lucid, Henrik Fisker, Thomas Ingenlath, CEO of Polestar and many more. You can listen to the Driving With Dunne podcast on Apple, Spotify or wherever you take your podcasts.

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10 Questions with Michael Dunne