China’s 4th Industrial Revolution rattles US tech stocks

BYD’s $11,400 electrical vehicle, Huawei’s progress in enterprise resource planning software hurt Tesla & Cisco

A brand new electric car for $11,700? The Seagull impresses NASDAQ, sending Tesla shares down. Photo: Move Electric

Two of the worst-performing US tech stocks this week – Cisco and Tesla – have something in common: Both ran into a buzz-saw of Chinese competition. At the New York opening April 21, Telsa had lost more than 12% during the week and Cisco more than 8.1%.

Tesla’s Chinese competitor BYD announced an $11,400 electrical vehicle, a challenge to Tesla’s lowest-cost offering at about $33,000.

And Huawei announced that it had shifted to its home-grown enterprise resource planning (ERP) software, after  US sanctions in 2019 cut off its access to American systems. Huawei competes with Cisco in wireless local area networks (LAN’s), Ethernet switchesrouters and other communications technology.

BYD’s 78,000 Yuan ($11,400) Seagull EV, which offers a 300-mile radius and acceleration of 0 to 60 mph in five seconds, stole the show at last week’s Shanghai auto fair, according to industry websites. That’s half the base price of the Nissan Leaf or the Chevy Bolt, making the Seagull the world’s cheapest electric vehicle – possibly, the Ford Model T of the 21st century. BYD says it will export 300,000 vehicles this year, a six-fold increase over 2022.

China produced 27 million cars in 2022, compared with 10 million in the United States, 7.8 million in Japan, 5.5 million in India and 3.7 million each in South Korea and Germany. With nearly US $3 trillion in revenues, the automotive sector is by far the world’s largest manufacturing industry.

China’s carmakers are a national laboratory for so-called Fourth Industrial Revolution technologies, and China’s dominance in batteries for electric vehicles provides an added advantage. The combination of robotics and artificial intelligence, including quality control and preventive maintenance, may collapse the cost structure of automotive production, and China is far ahead of the rest of the world in this sphere.

According to a Huawei spokesperson, 6,000 dedicated 5G networks already have been installed in Chinese factories. The high information capacity and quick response time of 5G enable AI applications in manufacturing – for example, transmitting very large numbers of images to the Cloud for real-time processing to improve quality control. Huawei is introducing so-called 5.5G, an enhancement that increases information throughput by a third, because AI applications already are straining the capacity of 5G systems.

BYD’s inexpensive Seagull is an augury of change. The average new US car costs $48,000, about the same as the average annual disposable income. The $11,400 sticker price for the new BYD offering is slightly less than the average disposable income in China and slightly more than the $7,000 disposable income in Brazil.

Industry 4.0 manufacturing could collapse the cost of entry-level vehicles to the point that average families in the Global South can afford them, the way Henry Ford’s assembly line put the Model T in the reach of the average American family in 1907.

China’s exports jumped 14% year-over-year in March, led by a 35% rise in exports to Southeast Asia with digital and physical infrastructure at the top of the list. If China succeeds in collapsing the cost structure of manufacturing, its export market will continue to expand as well as corporate operations overseas. BYD for example is trying to take over Ford’s abandoned Bahia plant in Brazil.

With its vast economies of scale, China may achieve cost efficiencies that put the auto industry of developed markets at risk. It is catching up with the United States in some of America’s remaining pockets of excellence, including enterprise software.

Huawei’s announcement of its homegrown ERP system illustrates the risk of technology boycotts. Dependent on American software until 2019, Huawei now has a system, “MetaERP,” that it can sell competitively, taking market share away from America’s Oracle and Germany’s SAP.

On April 20, Huawei held an award ceremony at its Dongguan facility for the Meta ERP team, under the rubric, “Heroes Fighting to Cross the Dadu River,” according to a company press release. That refers to the 1935 Battle of Luding Bridge, a victory by outnumbered Communist forces pursued by the Nationalist Army during the Long March.

Analogies to China’s civil war abound in the country’s business writing. China’s semiconductor industry, the main target of US technology controls, will dominate the production of mature nodes (14 nanometers and wider, according to “Observer” columnist Chen Feng. By out-competing the West in the mature segment of the market, China will position itself to challenge them in the high-end segment of the market.

Chen Feng wrote in February: “Mid-to-low-end chips are still profitable, but China will not be satisfied with this market segment. Instead, it will rely on mid-to-low-end chips to bootstrap high-end chips. This is a sustainable development. China’s steel industry, which crushes the world, was built in this way. Whether it was the era of the Revolutionary War [China’s civil war] or the world economy, encircling the cities from the countryside was China’s most successful experience.”

Power, it seems, flows from a broadband base station, if not from the barrel of a gun.

April 30, 2023 | Comments »

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