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A $1 Trillion Tesla, China Battery Makers Go To EU, MIC BMW iX3 For Export - SAI Newsletter 45



It’s Thanksgiving this week. Thanksgiving normally triggers me to look back on all that’s happened personally and professionally over the course of the year and reflect on all that I have to be thankful for. Most years aren’t like 2020 though. 2020 has been a CRAZY year for everyone!

We’ve all been pushed outside of our comfort zones. It’s been tougher for some than for others. As I look back and think about everything my family had to go through, sometimes it was extremely challenging to stay positive. I think for many of us 2020 will be a defining year in our lives.

With all that said, I have a lot to be thankful for. I am thankful to you all for taking the few minutes every week to browse this newsletter while also making suggestions on how to improve it. We have some new projects planned for next year based on some of your feedback so I hope we can keep engagement high as the company & newsletter evolves in 2021.

The year’s not over though and I am sure there’s going to be a sprint to the finish line for many companies in order to have a strong finish to 2020 with hopes of carrying that momentum into 2021. That’s what we’re planning for at least.

Now onto the news.

TESLA IN THE NEWS

- Will Tesla be mobility’s first $1 trillion-dollar company? According to the people who are supposedly in the ‘know’ …maybe. Just about every research analyst has chimed in on Tesla’s long-term prospects with most of them being pretty optimistic about Tesla’s future.

Morgan Stanley’s Adam Jonas in a ‘best case scenario’ has Tesla selling 8 million vehicles by 2030. Let’s put that into context, there were ~77.5M vehicles sold globally in 2019 so without any growth in the global market between now and 2030 Jonas is forecasting that Tesla will command >10% of the global market up from their <1% currently.

Now, if overall car sales shrink which I believe has a good chance of happening due to the increased popularity of alternate transportation (e-bikes/scooters), the continuing trend of people not wanting to own a car (with the short term exception due to COVID), and the continued growth of ride-hailing/sharing, Tesla would need to command well north of 10% global share to sell 8M/year. The absolute number of 8M is not that significant to me, but the share of the market is.

Frankly, and I’ve said this before I believe Elon doesn’t even want to sell that many cars! His key success metric has not and will NOT ever be ‘car sales.’ I predict that Tesla can be the first $1 trillion dollar mobility company even without selling 8M cars/year and I don’t think I am going out on much of a limb here. But this is as much a bet against their competitors as it is a bet for Tesla.

- Another roof flies off a Tesla! This time it’s in China and it’s a Model S. But it appears it’s a shoddy repair by a third-party shop that’s the cause. Like my always Dad taught me, ‘Righty tighty – Lefty loosey.’

IN THE NEWS

- China’s battery manufacturers continue to make investments in capacity in the EU. This time the investment is coming from SVolt Energy Technology Co to the tune of $2.4B for a factory in Germany that would have a capacity of >24 GWh which could power 300-500K vehicles/annum. This is on the heels of CATL announcing in 2019 an investment of >$2B for a factory also in Germany that is set to supply companies like BMW, VW, and Volvo for the EU market. With the recent news of the UK banning petrol and diesel engine vehicle sales by 2030, there’s going to be an even more frenzied scramble to build capacity for battery production as well as for EVs exported to the EU. We will keep you updated on all the jostling and elbowing that’ll take place to establish positioning in the market. Speaking of positioning…

- What ‘positioning’ really means in marketing speak and why I have been preaching its importance to these Chinese EVStartups for so long. Market ‘positioning’ is a way to communicate how your brand values align with your target market’s needs better than your competitors. From there, your marketing message should always reinforce this ‘positioning’ in one way or another. The products or services you launch under this brand should also reflect and reinforce your positioning. Finally, your messaging should elevate your brand among the competitive landscape and ultimately compel your target market to buy your product or service.

Your brand positioning is the foundation on which you build your products on and your products should benefit from the trust that your brand is establishing with the target market. Once you’ve been able to firmly position your company’s brand in the market, it can become VERY difficult to push you from that positioning. Think Nike, Apple, Coca Cola just to name a few. These are brands that have well-established positioning in each of their markets leading to those ‘brands’ being valued in the USD billions.

Since the EV makers are still very new (<6 years old) to the market relative to their competition, it’s important to establish this positioning early and consistently reinforce the messaging with your target market at every touchpoint. Cars are an ‘emotional’ buy for most people since it’s an opportunity to have the vehicle reflect ‘who they are.’ For the EV Startups, having a solid position in the market is one of the best ways to play defense when the traditional OEMs all launch products into the market in an attempt to crowd a competitor’s product out. Tesla has clear positioning globally so it’s no coincidence that they’re also the #1 EV brand in the world.

The good thing is that we are in the early stages of the EV market developing & growing so there is still time for the EVStartups to create a solid positioning affordably. The key to this positioning is really being able to understand and identify your target market’s needs, incorporating those insights into crafting the proper ‘messaging’ that will resonate with your target market. That and producing consistently amazing products and services is how you build your brand in a nutshell. That’s NOT to say it’s easy!

- Will having to use auditors overseen by US regulators deter Chinese companies from listing in the US? We are likely going to find that out if the SEC follows through on their plan to require Chinese firms to follow the same rules as their domestic US counterparts or risk being frozen out of the US capital markets. Chinese companies that are already listed in the US will be given a grace period in order to comply which is still yet to be determined.

This likely matters more to Chinese companies, like the recent Chinese EV companies that IPO’d earlier this year in the US, that would like to launch their products/services into the US markets to gain a foothold in the largest economy in the world. Why this policy was put in place has always been a headscratcher. Maybe it made sense when it was implemented but it created a very unlevel playing field that Chinese companies have taken advantage of for a long time and rightfully so.

- Chinese built BMW iX3s are being exported to Europe for sale. Shipping out of the JV plant in Shenyang, the plan is for these iX3s to be shipped to 39 countries and districts mostly in the EU. This follows on the heels of Tesla last month exporting its own MIC Model 3s to the EU and points to a few things.

First, this trend that China will be the jumping-off point for worldwide EV exports will likely continue with other automakers including Ford & GM. This also indicates that there must be some slack in local demand, at least in the short term, otherwise why go through the hassle? Long term though, the Chinese demand will more than likely take all of that capacity for itself. In Tesla’s case at least, with construction underway on their Berlin Gigafactory, it’s definitely a band-aid solution for now. Long-term, it will depend on what Tesla’s manufacturing strategy is once Berlin & Austin are up and running.

One wildcard is the US market – how would Chinese exports be received by the US government and by customers even if they came from the US automakers? My guess is that it would receive a lukewarm welcome, at least initially. That’ll be up to Tesla, GM, Ford, and the other US automakers to butter up the Biden administration so that onerous tariffs aren’t slapped on any potential imports from China and hope that most consumers can overlook where these cars come from.

On the other hand, I could see a scenario where the potential of the US market has serious EV players making long-term investments in building local capacity like Toyota, Nissan, Hyundai, BMW, Mercedes, VW, etc. has over the past 30 years in the US.

- Can the EU compete, let alone overtake the US and China on technology innovation? I’ve had numerous debates with my EU friends living and working alongside me here in China about why the EU doesn’t have its own set of BAT (some would argue the B shouldn’t be there anymore and be replaced by an M) or FAAMG. For those of you who do NOT know what those acronyms mean Google ‘China BAT’ and ‘FAAMG.’ I’ve always been very skeptical that the EU could be leaders in technology but not because of any lack of intellectual horsepower but because of the lack of technology history combined with the regulatory environment including privacy laws.

Now, to be clear I am NOT saying that the US or Chinese systems are better. What I am saying is that their current environments allowed for the tech giants to blossom early on and I’d argue at least in the US’s case become potentially too powerful, NOT necessarily a good thing. What I am not an expert on though is what particular policies & programs would need to be implemented in order for the EU to quickly become a global technology heavyweight. Which countries would be the best suited to have an EU style Silicon Valley? The UK? Germany? France?

For my EU friends, I’d love to learn more from your perspectives about whether or not you think the EU region can build tech powerhouses like Apple, Google, Alibaba, Tencent, etc., and why or why has that not happened yet? I’d also enjoy being educated on what you all think it would take to make that happen. Let me know.

TRENDING ON SOCIAL MEDIA

- One on one interview with my good buddy and GP at SOS Ventures William Bao Bean. He’s got an amazing story and has a ton of great advice for startups or anyone who is curious about the tech space in Asia. William and the SOS team are very active making small investments at the seed and pre-Series A round to fund fledgling startups all across Asia making William very well known with the startup community here.

He’s a tireless worker who always has something good to say about his startups and incubators. Full disclosure: I am a mentor and advisor for his accelerator programs here and in Taiwan so I get to experience his energy and passion first hand.

- According to a study by the Brussels-based Transport and Environment published this week, hybrids pollute much worse than advertised, up to 8x’s more. Also, in electric mode and under heavy driving, the distance range that these vehicles can travel are also much less than marketed.

- People in Colorado LOVE their burgers! Devotees stood in line for between 12-14 hrs. as two new In-N-Out burgers opened recently. I also LOVE In-N-Out but not THAT much!

JUST THE NUMBERS

- $500K – That’s how much GM is offering some US Cadillac dealers to stop selling Cadillacs. First, GM sold ~156K Cadillacs in the US in 2019 at ~880 dealers which averages about 177 cars/dealerships. The average dealership in the US sells about 8/month or ~100/annum so these Cadillac dealerships do well for themselves when compared to dealers overall. If we dig a bit deeper, the 80/20 rule says that ~175 (20%) dealers sell most (125K) of their Caddy’s.

Even if you get rid of many of the low performing dealerships, this doesn’t open the door for them to sell direct to the consumer (DTC) since many states have very onerous laws that protect the dealers from having to compete directly with the OEMs for sales. It’s these laws that put the traditional OEMs at a distinct disadvantage relative to Tesla, Rivian, and the other EV companies that have or plan to only have the DTC channel to sell its vehicles.

DTC normally makes it easier for the brands to create a consistent user experience which is very important when selling luxury vehicles. It’s hard to tell how many dealers will take this buyout but I applaud GM for trying to offload some of what is likely poorer performing dealers that are hesitant to make the necessary capital investments in order to sell and service Cadillac EVs.

The tragedy here is that many of the dealerships in the US are owned by a handful of large corporations who’ve sat on this cash cow for what seems like forever. There has been no incentive for them to innovate and so they haven’t. The OEMs should take some responsibility for this as well. That’s why Tesla went DTC from the beginning, they saw a better way of engaging with their customers and weren’t handcuffed by contracts that forbade them to sell direct.

There’s been a reconciliation brewing under the surface for some time now with the changes that needed to occur in the space. COVID-19 made that even more obvious. Now, should take a step back and decide whether they want to be part of the solution or continue to be part of the problem.

- The mythical 15-minute city (for those that aren’t familiar with what it is, click here) is back en vogue and many EU countries are looking to transform their cities to support this concept. The idea is NOT to really ‘drive’ vehicles out of the city, it’s more about making everything a citizen needs to live available within a 15-minute walk/bike ride. We are talking stores, hospitals, restaurants, work, etc. Paris announced in mid-2020 that they’d be spending €300M to convert many of Paris's main boulevards into bike lanes taking advantage of the changes that were forced into place by COVID-19.

Other cities in the EU and US (Milan, Barcelona, Austin, Portland) are also looking at ways to make their cities more bike-friendly so this is not a trend that’s going to die anytime soon. With the growing popularity of e-scooters/bikes, it’s actually going to become more important for cities, via their transportation networks, policies, and laws, to be more accommodating to these changes in citizen’s mobility preferences. At the end of the day, it’ll be good for traffic and pollution and cars will have their place in the city, maybe just not the city center.

For what it’s worth, the 15-minute city is currently a much more likely case study for cities in the west which have populations of <1M people and much smaller landmasses. For anyone who’s been to ANY of Asia’s massive cities, it’s hard to get around 1 neighborhood in 15 minutes let alone the entire city. The key point is that again, having small, self-contained communities where it’s not necessary to go very far in order to take care of most daily tasks. That’s something whether the city is large or small, is definitely doable and an admirable goal for most. I am very interested to see what types of ideas, innovations, and solutions local govts. implement in order to make their cities much more accessible to all.

- Autonomous vehicle startup Gatik raises $25M in a Series A round. Gatik’s trying to solve the ‘middle mile’ challenge between long-haul trucking and low-speed autonomous delivery bots using fixed routes to help eliminate some of the unpredictability of open road driving and hence pull-in monetizing opportunities. Their initial clients include Walmart and Loblaw Companies which is Canada’s largest supermarket operator. We are starting to see more distinct use cases highlighted by investment capital which should lead to more pilots.

- TuSimple the autonomous long-haul trucking startup with ops in San Diego and Beijing has closed an impressive $350M E round of capital. That should provide it with a pretty substantial runway to get its pilots up and running in Texas and California.

- The Formula E racing series has been certified to have a Net Zero carbon footprint. As an American, I never really got into Formula 1 with the recent exception of tracking Lewis Hamilton’s amazing & record breaking accomplishments over the last couple of months. With that said, I am going to learn more about the Formula E teams and try to attend a race next year with my boys, travel permitting. It’s amazing how fast these cars can go but you don’t really get an appreciation for it until you see it live and Formula E is something my boys and I can definitely get behind!


PRODUCT & SERVICE INTRODUCTIONS

- The Morgan 3-wheeler. This isn’t actually a product introduction but a product’s end of life. These things are pretty unique and after a 10-year production run, Morgan has decided that they shelve it for now. I learned a great deal about Morgan’s through my British friend, Jim James. He used to live in Beijing and was owned the import rights for Morgan a very British, boutique automotive brand. Many countries technically also categorize this three-wheeler as a motorcycle and not a car so for those interested in buying one, this last run is only producing 33 units so there’s a decent chance you’ll need to get yours on the secondary market or eBay.

- A microcosm of the challenges that Chinese EV makers face as they enter foreign markets. This isn’t the story about one of the big 4 (Li Auto, Nio, XPeng, or WM) but Kandi who just received approval from Texas to receive tax rebates substantially lowering their prices for the US market. It’s part investment challenge, part market research, market-entry, customer engagement, marketing and sales, and finally after-sales service and support. For Kandi’s particular situation I am not sure why they chose Texas as their jumping on point since every other car in Texas is a full-size truck or SUV.

Where the opportunity lies for them is to determine specific use cases that would allow their vehicle to shine and then do a full-court press on a handful of the most logical use cases. Are their cars best suited for B2C at all? I can see scenarios where B2B could give them a boost while they sort out how to engage retail customers, something much more involved. Maybe work with local delivery apps to get as many of their cars on the road as possible which would consequently also create awareness perhaps? Anyone from Kandi reading this, get in touch because I have some ideas for you!

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This weekly newsletter is a collection of articles we 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, we also provide a point of view that we hope educates and sparks debate.

The Sino Auto Insights

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