Former Ford CEO Mark Fields on auto tariffs reprieve: The biggest winner is Tesla

Key Concepts

• Auto Tariffs: Levies placed on imported auto parts and fully assembled vehicles.
• OEMs (Original Equipment Manufacturers): Major automakers like General Motors (GM), Ford, Stellantis, Tesla.
• Reshoring: Bringing manufacturing production back to the US from overseas locations.
• Cost Base: The total costs involved in producing vehicles, including parts, labor, and capital.
• Automation: Using machinery and robotics in manufacturing processes to reduce manual labor.
• Vehicle Platforms: The shared set of design, engineering, and production efforts, as well as major components, over a number of outwardly distinct models.
• Supply Chain: The network of organizations, people, activities, information, and resources involved in moving a product or service from supplier to customer.
• Robotaxis: Autonomous vehicles intended for ride-hailing services.
• Lidar (Light Detection and Ranging): A remote sensing method that uses light in the form of a pulsed laser to measure ranges (variable distances) to the Earth. Used in some autonomous vehicle systems.
• Waymo: Google's autonomous driving technology company.
• Tesla: Electric vehicle and clean energy company, also developing autonomous driving technology using cameras.

GM Earnings and Potential Tariff Adjustments

General Motors reported earnings with Earnings Per Share (EPS) and revenues ahead of estimates. Concurrently, White House officials indicated the Trump administration might move to reduce the impact of auto tariffs by lessening some levies on foreign parts used in U.S.-manufactured cars, while potentially maintaining tariffs on fully imported vehicles. Mark Fields, former Ford CEO, characterized this potential move as a "partial win" for OEMs. He noted that while alleviating duties on some imported parts is helpful, tariffs on imported cars and the stacking of different tariffs mean it's not a "wholesale elimination."

Impact of Tariffs on Automakers

• Partial Relief: The potential easing of tariffs on parts offers some relief, but tariffs on imported vehicles remain a concern.
• Quid Pro Quo: Fields suggested there might have been a "quid pro quo" where OEMs committed to moving some production back to the US or strongly advocated for their supply base to relocate parts manufacturing (especially less labor-intensive parts) to the US in exchange for tariff relief.
• Increased Costs: Regardless of adjustments, the remaining tariffs increase automakers' costs.
• Pricing Decisions: OEMs face a critical decision: how much of the increased cost to pass on to consumers versus how much to absorb, impacting margins.

Reshoring Production: Timelines and Costs

The potential tariff situation incentivizes bringing manufacturing back to the US, but timelines and costs vary:

• Relatively Quick Moves: Shifting existing models between plants can be faster.
  • Example: GM plans to move approximately 100,000 units of its full-size pickup production from Mexico (out of 400,000 made there) to an existing plant in Indiana. This could happen relatively quickly.
• Longer Timelines (Re-tooling/New Plants):
  • Moving production of vehicles built on different platforms requires re-facilitating existing US plants, taking "at least 18 to 24 months."
  • Building entirely new plants takes significantly longer.
  • Example: Hyundai/Kia, which imports about 65% of its vehicles (facing potential 25% tariffs on Korean imports), is just bringing a plant online that was started back in 2019/2020, indicating a roughly 5-year timeline for new construction.
• Increased Cost Base: Moving production to the US inevitably increases the cost base due to higher labor costs compared to regions like Mexico.

Automation, Jobs, and Investment

The push to reshore production intersects significantly with automation:

• Automation Analysis: Automakers are analyzing their parts footprint and supply chains to identify which parts manufacturing processes are best suited for automation if brought back to the US.
• Business Case for Automation: Higher US labor costs make the capital expenditure for automation more compelling than it might have been previously when comparing against low overseas labor costs. Automating reduces the labor content needed for reshored production.
• Job Creation Impact:
  • Reshoring will incrementally add jobs in the US.
  • However, due to the drive towards automation, it will not be a "one-for-one" replacement of jobs lost overseas. Automakers will automate as much as possible.
• Investment: Reshoring requires significant investment in capital equipment for automation and plant modifications/construction.

Winners and Losers from Tariff Scenario

Mark Fields argues that "nobody's a winner" in an absolute sense because costs increase for everyone. However, relatively speaking:

• Relative Winner: Tesla: Produces all its vehicles in the US. While sourcing many parts from overseas, potential relief on parts tariffs would benefit them significantly.
• Relative Winner: Ford: Assembles approximately 80% of its vehicles in the US, making it less exposed to import tariffs on finished vehicles.
• More Challenged: GM & Stellantis: Both import a significant percentage of their vehicles (around 50% or more). Crucially, they produce some of their highly profitable full-size pickups outside the US (e.g., GM in Mexico), making them more vulnerable to tariffs on imported vehicles.

Autonomous Vehicles: Waymo vs. Tesla

The discussion shifted to the autonomous vehicle space, specifically comparing Waymo and Tesla's robotaxi ambitions:

• Operational Permits: Waymo is considered "way ahead" of Tesla in securing permits and operating its autonomous vehicles. Waymo operates in multiple cities (e.g., San Francisco), while Tesla still needs regulatory approvals in many areas.
• Technology Approach:
  • Waymo: Primarily uses lidar, radar, and cameras. Has proven its technology over years in several cities.
  • Tesla: Relies on a camera-based vision system ("Tesla Vision"), foregoing lidar.
• Tesla's Robotaxi Plans: Tesla aims to launch its robotaxi program in Austin within two months. Elon Musk envisions a large network where owners can add their cars to a shared fleet.
• Proving Tesla's Technology: The key question is whether Tesla's camera-only system can perform reliably and safely for full autonomy.
• Evaluation Timeline: The performance of Tesla's system in Austin will become apparent relatively soon ("a couple of months") after launch, particularly through mandatory incident reporting in states where they operate.

Synthesis/Conclusion

The discussion highlights the complex interplay between trade policy (tariffs), manufacturing strategy (reshoring), technological advancements (automation), and future mobility (autonomous vehicles). Potential adjustments to US auto tariffs offer only partial relief to OEMs, as costs are still expected to rise. This pressure, combined with political goals, encourages reshoring production, but automakers are likely to lean heavily on automation to mitigate higher US labor costs, resulting in incremental, not wholesale, job gains. Different automakers are positioned differently based on their current manufacturing footprint, with Tesla and Ford potentially faring better than GM and Stellantis under the discussed tariff scenario. In the autonomous vehicle realm, Waymo currently leads in operational deployment, while the upcoming launch of Tesla's camera-based robotaxi service in Austin will be a critical test of its alternative technological approach, with performance data expected relatively quickly.