Elon Musk and his band of merry pranksters have sparked yet another revolution in the world of automobiles, this time when it comes to manufacturing. In traditional factories, many small pieces of stamped metal are welded or glued or crimped together to make the chassis of a car. Tesla thought its might be a better way — combining all those stamped pieces into one casting that was stronger, lighter, and less expensive to make.
So it went in search of companies that made casting machines, which brought it to the doorstep of Idra, a company with headquarters near Brescia in northern Italy that manufactures the giant casting machines Tesla needed to make its idea work. Those machines are now in the process of being installed in Tesla factories in the US, Germany, and China.
Here’s something you probably didn’t know. Idra is owned by LK Group, a company founded more than 4 decades ago by Liu Siong Song, who was born in Indonesia to Chinese parents. According to the New York Times, as a child Liu could often be found at his father’s auto repair business, taking things apart and putting them back together in new and interesting ways. He went to college in China and settled in Hong Kong, where in 1979 he started a company that made cheap toy cars and watches.
Liu’s casting business prospered and grew, becoming LK Group in the process. It began making machines for motorcycle factories, then smartphone factories, then car factories. In 2008, when the global economy went into a nosedive, LK Group purchased Idra for $5 million. Then in 2019, Musk came calling and the rest, as they say, is history. For those with the courage to invest in stocks listed on the Hong Kong stock exchange, 2021 has been a banner year. The value of LK Group shares has increased 9-fold this year.
Liu and Musk have become fast friends. He says LK and Idra have worked side by side with Tesla for over a year to make the casting machines that will be used to make components for Tesla cars. “Every once in a while, they would ask us whether it was possible to do this or that,” he says. “With each revision they made, we needed to make change in our machine, too.” The casting techniques that once made toy cars are now making real cars.
Not everyone thinks castings are a good idea. There are concerns they will make it more expensive to repair cars that have been damaged in collisions, for example. If that is so, insurance rates could be higher, negating some of the benefits of producing cars more efficiently and at lower cost. But those concerns are probably temporary. Repair shops raised the same concerns when the switch from body-on-frame to unibody cars took place, and when new structural materials like aluminum and carbon fiber began finding their way into automobiles. Somehow, the auto repair industry will adapt and adjust.
Page Two: The Rest Of The Story
The above is a nice feel-good story about a young entrepreneur who turned his passion into a global business. Now here’s the really interesting part. Liu tells the New York Times that LK Group is now working with 6 other car makers — all of them in China — which want to incorporate castings into their own automobiles.
But there’s a problem. Remember how Liu said every time Tesla made a change in its design, LK had to make changes in its machines? Liu says many Chinese companies can’t find enough qualified people to make the designs needed for LK to fine tune its casting machines for them. “Many Chinese automakers are talking to us about building the machines, but the majority of them are still in the design process,” he says. “We have a bottleneck in designers in China.”
Nevertheless, that is a temporary problem. The real news is that the manufacturing revolution Musk started is gathering momentum, but only in China. There are no reports of US or European companies transitioning to castings, not even at Volkswagen where Herbert Diess is pushing hard to make his company competitive with Tesla. Certainly no one at GM, Ford, or Chrysler is talking about castings.
The New York Times says that by changing the way cars are made, Tesla could do for Chinese electric vehicle makers what Apple did for China’s smartphone industry. Many Chinese suppliers for the iPhone began working with local brands, helping them making better phones. Now Huawei, Xiaomi, and Vivo phones are popular in Europe, India, Southeast Asia, and Africa.
But not in the US, where most phones are made either by Apple or Samsung. The Biden administration is pushing the EV revolution forward, but America is at the beginning of a disturbing new trend — sinophobia. Chinese car companies are already selling their products in Europe but are being very cautious about the American market. There are only two Chinese-made models sold in the US, but the companies selling them are studiously avoiding any mention of where they are made. Bonus points if you know what those two models are.
“China is overtaking its competitors by switching lanes in the car race,” says Patrick Cheng, chief executive of NavInfo, a mapping and autonomous driving technology company in Beijing. “The race used to be about internal combustion engine vehicles. Now it’s electric cars.” EVs could shake up the auto industry and, by extension, jobs, technology, and geopolitical influence, the New York Times reports. Think of how names like General Motors and Volkswagen have given the United States and Germany economic heft and international credibility.
The same could happen with Chinese-made automobiles, which are poised to shoulder aside other more established companies in their home markets. Geo-political considerations could effect the process. My father refused to ride in a Japanese car his entire life, and German companies encountered plenty of sales resistance in the post-war era 70 years ago. Since then, America has fully embraced the cars made in Japan and South Korea. Will it do the same with Chinese-made cars?
History suggests the answer is yes — eventually. In the meantime, the Chinese companies will be marketing their products in world markets. If America turns its back on cars from China, it risks falling into the same trap as Australia, which now finds itself a dumping ground for cars that aren’t competitive in other markets.
It’s all well and good to boost local industries, but economic isolation leads to stagnation and limits consumer choices to second tier offerings. The absence of any chatter about casting techniques by the Big Three automakers is an ominous sign that America is no longer a leader in automotive technology. Some would argue it hasn’t been for quite a while.
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