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Again - Tesla, ICEs to EVs, China EVs taking on the EU - SAI Newsletter #26



The biggest news this week, which I detail below was Tesla’s incredible CQ2’20. Their sales and stock price continue to roll.

I pulled together a newsletter this week since we didn’t do anything too memorable to celebrate America’s birthday.

I’d mentioned that Sino Auto Insights is co-sponsoring a half-day virtual conference on July 23rd from 8AM-Noon EST and I'll send out specific details for each panel in a separate email. We are still shuffling around some panelists but we're mostly set. You can also the roster via the registration link. Those that are keen to join and I hope that's all of you, sign up here: https://events.supchina.com/mobility20/

We are excited about the people who’ve agreed to participate and am certain it’s going to be a good cross-section of opinions and educational for everyone who joins. Please do also forward this information on to your networks and encourage them to join as well!

Finally, we’ve launched our redesigned website have a visit and send us your feedback: www.sinoautoinsights.com This goes for the newsletter as well. Send us feedback whether it's good, bad, indifferent. We enjoy constructive feedback the most. And new topics and companies to follow. Thanks for reading.

IN THE NEWS:

-   Move over Formula 1 & Formula E, our next set of race heroes preferred mode of transport will be electric kick scooters?

-   Could this be the fastest e-motorcycle on the planet? The Voxan Wattman has its sights set on breaking the current record of 204.484MPH. I am thinking it’s not going to be a problem but we’ll have to wait and see.

-   That old school Defender you’ve always wanted, now comes in electric flavor. For my American subscribers, this could be your opportunity to own a Defender that hasn’t been sold on our shores since ’97. No pricing specified but bet this rig’s gonna cost a mint. Or you could just grab an homage to that Defender – the Bollinger B1.

-   Jia Yueting no longer owns any of Faraday Future (FF). Now, FF can again focus on not building cars.

-   Do you agree that this will be the Future of Last-Mile delivery?

-   Automakers filling up on battery capacity. This time it’s Tesla. I wonder what could it be that they’re securing their supply for?!

TRENDING ON SOCIAL MEDIA:

-   A Kelly-Moss 911 Safari restoration. WANT. Alas, this one-off was just sold for $375K!

-   The Ford Motor Hype Machine is out in full-force to get people excited about its resurrected Ford Bronco. Looks like it’ll go head-to-head with the OG champion, the Jeep Wrangler.

-   Congestion pricing in LA. London, Singapore did it and haven't looked back. More cities should consider it.

-   Energy storage power stations using retired electric vehicle batteries? Yes, please.

-   7 of the Forbes 50 of American’s most promising AI companies are automotive related. Impressive.

-   What do you know – More people are open to buying cars online sight unseen. This is happening in the UK & Oz but I bet we’d see this trend in the US and EU as well. I believe I’ve mentioned a country that’s led the way on that new-ish auto sales channel.

PRODUCT & SERVICE INTRODUCTIONS:

-   The Mahindra Atom is coming. Finally. After some Covid-19 related delays, the Mahindra Group revealed their newest EV via Twitter. Could this be the spark that India needs to begin its transition over to the electric powertrain? Sales of 2 & 3 wheeled vehicles in India will dominate for quite some time, but there’s already a lot of pressure on the Indian govt. to clean up the pollution so if they’re able to put together a cohesive national road and infrastructure policy, it may open the door for the growth of larger passenger vehicles like you see in China and the west. This Atom could very well be that first step though.

-   Normally concept vehicles are intro’d to show off a company’s future technology and / or where design language is headed but with Bosch, who till now have only been to be a components supplier, does the unveiling of their eBike Design Vision signal that they’re going to enter the market with a complete solution themselves? Seems like this could be a pretty lucrative market that certainly has hockey stick growth. A production version of this bad boy would likely be well above >$4K.

-   Black Tea moped. A café racer / dirt bike light. Looks like it could be fun to jump on this thing, chirp the tires, pop a wheelie, and thrash it around a parking lot! MSRP ~$4.5K

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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.

The  Sino Auto Insights team

EVs Tesla kills it. Again. During a pandemic. This one’ll be short and sweet. Tesla delivered 90,650 vehicles in CQ’20, 20K above most Wall Street estimates. Of that total, 10,600 were Model’s S & X. Meaning 80,050 were 3’s & Y’s. Here’s a notable figure for China sales. June 2020 sales - Tesla had 23% market share of the EV market. In other words, 1 of every 4 EVs sold in China in June was a Tesla (likely) Model 3. As long as OEMs can wring a profit out of an ICE they’ll keep them around, right? At first blush, the ‘EVs replacing ICEs’ discussion is like the good ol’ ‘chicken and egg’ debate. What comes first? Is it the technology becomes available and then the cars get developed and built? Or is it the cars get built and the tech improves because of this? Build it and they will come? The answer to all of the above is …YES! The fact that ICEs still make the bulk of profits for most major automakers also means that it will push each OEM’s transition to an EV ONLY product lineup farther out. Automakers have begun to publicly articulate their plans for transitioning over but with the exception of VW Group, who’s diesel-gate forced their aggressive embrace of EVs, each major automaker seems to be hedging their bets. The fact that Tesla isn’t consistently profitable does NOT build confidence in the transition either. The ‘right’ sizing that’s needed, the recruiting of new skills and resources needed, the discarding of policies and procedures that dictated how everyone worked prior that now need to be thrown in the rubbish bin (that reference is for my English readers!), the re-inventing of new ways to work together, the focusing on building quality products for a new powertrain type, the re-branding & re-positioning of linchpin brands & products, and redesigning the system to support these new products AND SERVICES – they ALL take time so, for now, all the OEMs would rather kick that can down the road. Trust me on this though, ALL of the OEMs know there is a day of reckoning in the near future where the band-aid is going to need to be ripped off. In most cases that I have studied, the sooner the better. The OEMs know this as well. They’ve just not been ‘forced’ into making that tough switch over. That’s unless there are external forces that pulls in that day of reckoning and essentially forces the OEMs’ hands. Meet Tesla, that external force. Tesla had already forced many automakers to pull in transition plans before they were ready to. The truth is, most OEMs would just as soon not transition to electric powertrains at all. They don’t really want to innovate, they don’t want to push themselves back into those uncomfortable spaces where uncertainty lives. Hell, many of the OEM’s leadership would’ve just as soon worked their 40 years doing the same things they’d been doing for most of the 40. But none of the OEMs like that Tesla doesn’t make money consistently and despite that, they are the MOST valuable auto company on the planet and are distancing themselves even further from the rest of the pack. They don't like that the 16-year old Tesla brand is synonymous with electric vehicles and innovation globally. That Tesla was at the bottom of the JD Powers initial quality survey yet sales are growing. That Tesla has single-handedly pushed the automotive market into the 21st century dragging the OEMs along. All of that bothers them a lot. Meet Covid-19, an external force. Covid-19 has caught a lot of companies flat-footed, hence the recent announcements from a couple of the German OEMs investment in Chinse battery manufacturers. That 2020 revenue & accompanying profits they were counting on to help them fund NEV R&D that’s now never going to get booked, it’ll force them to re-prioritize, eliminate non-essential projects and pull forward the products that will keep the company moving forward, and that better mean pulling their EV strategy & products forward. Meet China, an external force. China’s status as the largest vehicle market in the world and aggressive moves to build out a robust and competitive domestic NEV sector has forced OEMs to reassess their regional and global 5 & 10-year business plans, likely moving funding to EV programs and pulling those forward. We all know that it doesn’t make sense for OEMs to invest billions of dollars in two different (EV & ICE) powertrain platforms. We also know that having country-specific products is expensive and not the best use of the company’s capital. Each of these forces alone may not have been elicited any significant response from the OEMs. But combining them has caused a major disruption to the sector and that s why ICEs will leave us sooner than most analysts are projecting. Meet Silicon Valley, an external force. See the AV post in this newsletter. Some industry folks don’t see it because they’re not willing to look. It's the smart folks that are freaking out because they see the tidal wave coming AND it's coming in HOT.  #EVs #NEVs #ICEs #chicken&theegg #Tesla #Covid19 #China #externalforce A big test for Chinese EV brands. The European market. With the recent success of MG in the EU, its small SUV the ZS EV captured 2% of the overall EV market, could there be an opening for other Chinese EV brands to also find success there? Let’s break this down and dig into what needs to happen. First, there’s generally just not a lot of selection of EVs at any price point in the EU just yet so if the Chinese EV brands are able to launch within the next 18 months, there could be a real opportunity to capture a decent share of the market. Other Chinese brands have already announced their plans to do just that – but let’s get back to that later. Let me also qualify some of the MG’s success while we’re at it  …not that I am taking anything away from their achievements so far! Whether it’s now owned by SAIC, a Chinese OEM or not, MG is a British brand that dates back to 1921 so there is a ton of familiarity with the brand in the UK in particular where consequently, the ZS grabbed 10% share in FQ1’20. That was by design on SAIC’s part, they were prudent about breaking into the EU market with a brand already familiar to the region although until the launch of the MG ZS EV, they’d still struggled to gain any traction with MG ICEs but again much more product on offer in that segment hence more competition. This indicates that a bit of ‘right place’ & ‘right time’ could’ve played into the success of ZS as well. Getting back to the other EV brands that plan to enter the EU. We’ve had announcements from BYD, JAC (with an Italian partner) Geely with Lynk & Co & Polestar, and an EV startup – Aiways. All of the brands plan to launch before the end of this year. When I visited Aiways in 2019, they’d already publicly announced their entry into the EU. Most are bringing SUVs to sell into the EU markets, a segment that’s gaining popularity in China as well. If they all meet their announced timing, this likely means that each of them have set up their sales channels (direct to consumer, via dealerships / third parties or both), they’ve set up their after-sales support, warranty & repair operations, and have started to mass-produce vehicles at their factories in order to get them on boats or trains to fill the inventory pipeline. On top of that, they’ve begun their marketing & employee training operations to get people familiar with the brands, the products, educating potential buyers while creating a positioning in the market so when their vehicles launch, the brand has had some time to marinate for a short while. Not all Chinese EVs are created equal though and what I think we’ll find is that those with EU (and Scandinavian) heritage, like MG & Polestar, may find it an easier go than the strictly Chinese brands (BYD & Aiways). More marketing is likely needed in that case which more often than not, means more spending on awareness and education. That onslaught of vehicle launches by VW Group and other OEMs along with the marketing campaigns to accompany each launch will make it even more challenging for the Chinese EV brands but if they’re able to excel in a few important areas: price, quality, reliability, and range, they should be just fine long-term. #EUinvasion #Aiways #BYD #Geely #MG #Polestar #JAC #EVonslaught URBAN MOBILITY One of the current battlefields of mobility services in the US – food delivery. With coronavirus, food (and grocery) delivery companies are having their day in the sun. In the US, there are a handful that dominate: Uber Eats, DoorDash, Grubhub, and Postmates the latter two recently having been acquired (Postmates by Uber for $2.65B in stock & Grubhub by Just Eat Takeaway for $7.3B).  In China, there are mainly two companies that compete nationally: Meituan (they recently announced a $500M investment in EV startup – Lixiang) and Ele.me. A couple of smaller players like Jinshisong and Sherpa tend to cater to foreigners a bit more. There are also regional players that are popular in local markets and dedicated delivery services for some of the larger restaurant chains that make up the rest of the competitive set in China. There’s no arguing that these services are great and arguably necessary during coronavirus as individuals and families alike are shelter-in-place, but how these companies are going to make the numbers work long-term I’ve not figured out yet. That said, I’ve only begun to get into the economics of the ‘delivery’ transactions but one area that is a major difference and should be a concern for the US players is the cost difference in running these services in the US vs. China since wages are generally much higher in the US. The fees charged to the restaurants in the US are pretty obnoxious too which doesn’t bode well for a lot of the restos teetering on insolvency. As more restaurants go under, the fewer the restaurants are available on their apps which makes the service less attractive overall. In my limited experience using delivery apps in the US, I was shocked to see what the US apps charge on some deliveries. Could be as high as $7-9 on a $25-40 order! In contrast, here in Beijing I ordered BK last night for dinner (no judgements please!) and the entire bill came out to 75RMB with the delivery fee as a separate line item – 6RMB of that total – that’s $.86. We should see more consolidations in the sector as these acquisitions will ultimately help these delivery startups stay in business since I don’t see any of them, on either side of the Pacific, surviving without the bulk of their fixed costs being distributed across larger operations. You can bet autonomous delivery vehicles can’t come soon enough! #fooddelivery #essentialservices #coronavirus #lotsofcompetition #US #China AVs Partnerships are the ONLY way to go in this capital intensive, long, and winding road to data gathering for autonomous vehicles. We’ve covered many of the announced partnerships in past newsletters but here are a few worth nothing again: -          Argo AI + Ford + VW -          Waymo + Jaguar -          Cruise + GM -          Zoox + Amazon -          Aptiv + Hyundai -          Voyage + FCA -          Tesla These are just the US based partnerships. We can go over the Chinese & international mashups in a future post. Which two stick out to you? With the exception of the Zoox / Amazon team, the closer to L4 autonomous we get the more the relationship leans in the AV company’s favor. That’s because in this (projected to be) multi-trillion dollar space, does the box (vehicle) being used really matter? Is the vehicle’s design really a difference-maker? And will it still be that difficult to mass produce? The fact that Tesla stands alone, is completely vertically integrated and does (mostly) everything in-house, including designing some of its own ASICs, means that they don’t have to share ANY of the spoils with any ‘partners.’ This plays a bit into their share price being multiples larger than most other automakers, that and the fact that many investors are sheep and just piling in because #FOMO. Over the last couple of newsletters, we also talked about the German OEMs basically outsourcing most of the software development for their EV platforms and OS’s that’ll power their service offerings. In Volkswagen’s case, what’s left over? VW Group had a team of 300 in Munich that were developing their AV system but they are now ALL Argo badged employees! Unless the VW Group changes their mind and decides to bring software development in-house and then is able to quickly build out its own internal teams, every $, €, ¥ will be divided by two. That is until autonomous vehicles appear and we hit L4, then they’ll likely be forced to become a contract manufacturer and just be paid to assemble vehicles running other people’s software. #makeorbuy #thedilemmafacingOEMs #norealdesiciontobemade #musthave #notnicetohave #internaldevteams

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.

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