2019 Global Car market contracts, SKI & LG should hug it out, AV hindsights - SAI Newsletter #45
Another travel week in the books, so playing catch up with a few things, including with all that’s going on in China and the US. Big news this week was all the fuss going on about the Tesla Cybertruck. Elon must be channeling John ‘Hannibal’ Smith from the A-Team, puffing on a cigar (or maybe something stronger) saying to himself ‘I love it when a plan comes together!’
Tesla has reported that they’re received over 200K $100, fully refundable deposits. This is for a truck that’s likely to look quite a bit differently (no mirrors, reflectors, front and rear taillights, etc.) when it begins production in 2 years. With that said, if he gets anywhere close to selling 200K of them, that’s a WIN in anybody’s book.
He will also increase the install base for Tesla vehicles significantly which is another priority for Elon and Tesla.
The pickup market will get quite crowded by 2021 as 8 of them from Ford, Rivian, Bollinger, and a few others will be intro’d to the market. Will track all their progress from here to see who eventually comes out on top. The US market can and will likely be quite lucrative for a couple of these guys since trucks are SUCH a huge market there.
There were also a few other announcements that I’ve captured in the articles and POV section below so let me know if you think I missed anything significant for the last couple of weeks. Will be in BJ all next week for anyone that’s here and would like to meet up.
This weekly newsletter is a collection of articles I feel best reflect the happenings of the week or important trends that have effects on the automotive and mobility sectors here and in the US, I also provide a point of view that I hope educates and sparks debate about how I look at the issues. We will mostly divide our articles into these buckets: AI, Mobility/Ride-sharing/Ride-hailing/Bike-sharing, OEMs, EVStartups, Investments, and Other.
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The Sino Auto Insights team
With the two largest car markets in the world, China and the US, expected to contract in 2019 it’s no surprise that the global car market is also expected to lose about 3.1M (~4%) units in new car sales when compared to 2018’s 81.8M units of new vehicles sold globally.
Sales have fallen in China by 11% year-to-date while US sales have declined by ~2%. For some scale, the US & China car markets combined make up >50% of global car sales so when either has a hiccup, it's felt globally.
I don’t see the market rebounding that much if at all in 2020 either. Whenever the vehicle market has slowed in the past, it’s always taken a few months before it begins to track upward and there’s still no sign that we’ve seen a bottom yet when it comes to the slowdown and as we get into the winter months, any rebound is less meaningful since these are traditionally slower sales months.
This will make for an interesting (read: challenging) 2020 for the carmakers that are intro’ing new products into the market, which is most of them. The OEMs have always relied on new products to boost their sales and its even more crucial now with EV introductions hitting their stride next year. You can bet they’ll do anything they can to make sure they keep their plants running so if the slowdown continues well into 2020, you can bet there will be scrambling in the form of discounts or other incentives to pull in sales.
It’s the EVStartups that are likely going to struggle if their new products don’t resonate with the market and they continue to find it difficult to raise capital to keep the doors open. Don’t expect any of the traditional OEMs to feel bad for them either, as they’ll likely stay aggressive with marketing campaigns in order to drown out their competitors, I am looking at you VW.
Ever since SK Innovation (SKI) won the multi-billion dollar rights over LG Chem (LGC) to supply VW’s EVs with batteries in the US in 2018, there has been a feud simmering between the two. It’s consistently ratcheted up in intensity as SKI broke ground on a $1.7B battery plant built specifically to supply Volkswagen’s Chattanooga, TN assembly plant with batteries for the EVs that’ll be rolling out of there in 2020.
There have been multiple lawsuits filed by both sides regarding patent infringement and the poaching of employees that are currently moving through the US courts system. OEMs like VW, GM and Ford are monitoring this very closely, are likely speaking with alternate sources and are hoping that the 2 companies can come together to reach a settlement so EV manufacturing operations, when they get ramped up next year, are not interrupted.
There’s likely not enough global capacity as it is when it comes to batteries (especially high quality, reliable ones) vs. projected EV production over the next 36 months so this situation, unless handled with care, could have a major negative impact, not only on US production, but in the EU and China as well.
This article does a good job of spotlighting some of the small, lesser known autonomous vehicle (AV) players (Zoox, Voyage) who haven’t raised money in the USD Billions but could ultimately ape the big guys, and if they did, it would be a MAJOR upset. The winners in the AV marathon are going to have to be able to walk and chew gum at the same time meaning that their technology will need to provide a safe, convenient, affordable alternative to self-driving while also making the business viable by managing R&D costs, operating expenses and pricing so that the numbers make business sense which up until now has been all but impossible for all the players.
Progress is being made though as lots of different revenue models are being piloted and innovation, determination & cooperation will play an important role in which players are able to create viable businesses, but ultimately, it’ll still be the cost side that determines the eventual winners. Those that are able to manage their R&D expenditures along with their operating expenses will have the major advantage, dare I say winning?
Further, there will be some fragmentation since many of these startups are all concentrating on different use cases, whether the focus is on cities, highways, or retirement communities. Since sentiment around the mobility & EV/AV sectors has changed so drastically within the last 12 months, you can bet the market and investors will be very unforgiving of anyone that isn’t able to show tangible progress towards profitability.
What I could see happening in the next 18 months is that some of these smaller players will struggle to manage their costs due to product delays or the inability to gain any traction in the market so they’ll get hoovered up or ‘acquihired by some of these larger players that want to supplement their teams or become instantly viable in a subsegment of the market they currently don’t play in.
Finally, the traditional OEMs may have a distinct advantage here. This is software + hardware + system integration at a massive, unprecedented level that needs a ton of investment, patience and nurturing. Who regularly plays in that airspace? The auto OEMs. Their wildcard is quickly developing the in-house expertise (design, technical, operational) to turn concept into product or service.
Formerly known as Jingchi the folks at WeRide, with the help of Renault Nissan Mitsubishi (RNM) who became a strategic investor of WeRide last year, have officially launched about 20 robotaxis in the southern city of Guangzhou to pilot a taxi service this week.
This puts WeRide squarely in competition with Pony.ai, who in January launched their pilot program in Guangzhou as well, and Baidu’s Apollo project as frontrunners for autonomous vehicle supremacy in China. Pony.ai, whose valuation is over $1B USD and is China’ most valuable AV startup, and has global ambitions has also launched a ‘BotRide’ service earlier this month in Irvine, CA.
The competition is really starting to heat up and it looks like 2020 may be the year the cream rise to the top.
LAST MILE MOBILITY
This author gets a big kick out of riding an e-scooter and thinks it’s a more entertaining way to get around town vs. walking. Also, with no irony whatsoever, this author who tore his labrum riding or more appropriately falling off an e-scooter, sings the virtues of how easy they are to operate.
Now, he does have a point about an e-scooter being a great way to explore a city (covering long distances in a short amount of time) but I’d guess that most people using them on a daily basis aren’t tourists and who aren’t that interested in ‘exploring’ but just want to get from point A to B, so the exploring part would likely last a few rides before that freshness wore off. So that argument could hold for tourists but maybe not for folks using it as their daily commuter.
Finally, if it wasn’t so cheap to ride one would he feel the same way? He doesn’t mention that. And for these e-scooter companies to make the economics work, they’re going to have to raise prices …eventually.
Coup, Bosch’s popular scooter sharing service that has service in Berlin, Tübingen, Paris and Madrid has announced that its ceasing operations due to a high operating expense and no immediate ability to generate a profit.
It had been running since 2016 and had gotten a lot of good press so this is a disappointing announcement I know for a lot of people. In order to acquire customers Coup needed to price rides and sharing pretty aggressively which ultimately was their downfall since any significant increase in pricing would’ve likely created a spike in customers leaving the platform.
A good effort from Bosch for sure, but the Gogoro mopeds which are known for their performance and battery swapping convenience, weren’t used the way they were designed to and that drove a lot of the costs since they needed headcount that drove around these cities manually swapping batteries out of the mopeds.
This will make for an interesting year for Revel, who is US based but basically does the same thing using Niu Chinese electric mopeds. Niu does not have a swappable battery system but has the same challenges of having to be recharged so I’d imagine Revel’s costs are pretty high as well. At $1 to unlock and $.25/minute to ride, it seems that Revel will likely run into the same challenges that Coup did.
The US adds another challenging dimension because of the lack of a moped culture so education & safety play an even more important role to Revel’s success.
This is where familiarity with the vehicle, in this case electric & gas-powered scooters, which India is the largest market for, and pricing (rides are CHEAP!) make a big difference. 17K scooters in over 3 dozen cities may sound like a lot, getting you closer to that tipping point, but on a base of over 1.4B people, it’s still not near enough to create the networking effect that moves fixed costs closer to zero.
That said, Bounce is putting pressure on Uber and Ola, the two dominant ride-hailing companies that operate in India. Since traffic is a HUGE issue, it’s much easier to get through said traffic on two wheels vs. 4, being a cheaper alternative is just bonus so look for Uber and Ola to invest further in their own partners (Vogo for Ola & Yulu for Uber) in order to capture some of that scooter rental market as well.
It doesn’t seem like the profitability issue has hit South and & Southeast Asian startups yet but it will, likely sometime in 2020 once higher valuations hit ceilings due to long, waaaay in the future, profitability forecasts.
Bounce is likely to run into a profitability issue as well since they’re in customer acquisition mode and rides are CHEAP. Prediction: This is going to be the year that mobility startups in India make some big moves, driven by investment in the sector and the need to alleviate some of that choking pollution that afflicts many of its larger cities.
Sino Auto Insights is a Beijing, China-based market research and advisory firm that specializes in assisting companies analyze, strategize, and develop products and services that will shape the future of mobility and transportation. Members of our team have experience working in Detroit, Silicon Valley as well as here in China across multiple sectors and functions as entrepreneurs as well as working at larger companies like Apple, Google, Amazon, GM and FCA, and many others.