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Apple With No Dance Partner Yet, Didi In Trouble Again, Supply Issues Continue - SAI Newsletter 10



Photo courtesy of That’s Beijing

Some of the big news this week besides what’s down below was VW’s version of Tesla’s Battery Day yesterday. I didn’t get a chance to tune in but did read some of the summaries posted about it. I’ll carve out some time to watch for myself later this week but from what I gather it seems that VW is still riding Tesla’s coattails on much of their transition to a 100% EV future.

Some of their priorities include most of what Tesla is already doing:

  • More Supercharging stations

  • Bi-directional charging

  • More efficient battery technology

  • More capacity for battery manufacturing (building their version of a Gigafactory across the EU)

  • Moving faster

  • Powerbanks

  • OTA capabilities

You’d think that with the scale and collective experience of VW Group that they’d be able to articulate a grander picture of how they plan to ‘lead the world into a clean, mobile future.’ Alas, it seems that they’re just not that imaginative. Every year on 3.15 China Central TV or CCTV produces a show that puts a company that isn’t great to their customers here in China on blast and there were rumors that this year it would be Tesla but they were not targeted. I am certain Fremont was on HIGH alert and relieved that they weren’t the subject of this year’s show. The other big thing that happened that received global coverage was the Beijing sandstorm that blanketed the city most of yesterday. Beijing is right next to the Gobi desert so sandstorms aren’t something new for us, they occur at least 2-3 x’s / year. This particular storm happened to be the most serious that Beijing’s seen in 10 years according to news reports. The good thing is that today, everything was back to normal and the sandstorm actually cleared the pollution that was hanging over the city the last few days. Finally, Lei Xing & I are at it again on Thursday 9am EST hosting our ‘China EVs & more…’ Please do tune-in as we’ll go over some of what’s covered in this newsletter as well as take questions and open up discussion the last 20 or so minutes. We’ve had to cut-off the room at the 90-minute mark the last two sessions so guests have been very engaged and we are expecting that to continue. If you do NOT have an invitation to Clubhouse and would like one, please contact me directly. TESLA IN THE NEWS - With all of the outrageous videos some Tesla owners have posted on social media taking their FSD beta software out for a spin on public roads across the US, it was only a matter of time before all of the posts got the attention of the National Highway Transportation Safety Board. They are requesting tougher requirements on testing autonomous features from the automakers in particular not using your customers as beta testers for a feature that could get them seriously hurt. This could put a damper on Tesla being able to roll out updates to the public without any scrutiny from the US govt. in the future. The Chinese govt. is no doubt watching this play out in the US as well. The large OEMs, with their teams of lawyers and risk management departments, haven’t been as bold as Tesla since it would’ve created so much potential legal ‘exposure’ for the companies, even if at L2, liability still sits with the driver. Chinese AV startups, one in particular, have been emboldened as well and have gotten out in front of official govt. announcements. China currently has MANY more AV & EV companies that would love to make their names and reputations by having their customers also post videos of their vehicles successfully driving themselves out of Third Ring Road traffic into Sanlitun and that’s exactly why the Chinese govt is not going to let that happen without their blessing. My bet is that we will see revised traffic laws and policies quickly rolled out to accommodate this new technology being rolled out on China’s streets. Policies that will provide oversight and safety without impeding progress as more robotaxis & vehicles with ADAS features continue to increase their presence on the streets. The race to be first is on, but it seems that the competitors have now gotten the attention of the ‘adults’ in the room and the adults are not about to lose control of the competition, at least not in China. IN THE NEWS - And why would any OEM want to partner with Apple again? For those that have followed Apple for a while, the fact that they’re not able to find a willing OEM ‘partner’ to help them build the Apple car is not surprising – at all. Companies that are obsessive about design are normally control freaks, even moreso than your average ‘successful’ company. Apple is no different. There is no lack of confidence coming from the Apple team. There is a companywide belief that each and every product that comes out of Cupertino IS going to be a hit, and the fact that their products are obsessed about the world over reinforces this (with the exception of the post below). Their formula for product design, marketing, and branding works well. For computers, tablets, watches, phones, and entertainment services at least. Bottom line, there is NO company that wants to build a car to Apple’s specs and then have a vehicle that they themselves have designed, engineered, and manufactured; whether in Germany, the US, China, Japan, or Korea, go head-to-head with the Apple car that they had a hand in building! Finally, and I know this is pretty obvious but I’ll say it anyway - Cars are a whole new ball game for Apple. Not in a disrupt the ‘old watch industry’ kind of way though. This IS different so just ‘Thinking’ different isn’t going to cut it in this case. This is really where they need the combined hit-making capabilities of Steve and Jony. Unfortunately, neither of them is there anymore. For Apple to think that they’d do it ‘better’ than all of the current carmakers out there doesn’t surprise me because against most, I believe they could. But taking the metaphorical ‘steering wheel’ away from an OEM that’s been successful at building AND selling cars for the last 50-100 years and telling THEM how to do it (That’s the key: Apple has to both design and sell), seems a bit naïve and problematic. - What is wrong with Didi’s vetting process for drivers? There have now been multiple tragedies over the last 4 years that have involved Didi drivers. Assurances by Didi management and changes to Didi’s driver vetting process and the rollout of improved rider safety features after the first couple of serious incidents in 2018 obviously still didn’t go far not enough to prevent the most recent tragedy. This time, a Didi driver got into an argument with a passenger and tragically ran the passenger over after he’d gotten out, killing him. I use Didi quite often but I wonder now outside of the larger cities is it a safe service? It makes me very uneasy to think that my wife and children use it sometimes as well. Something needs to change drastically at Didi or their reputation among customers and the Chinese govt will put that $60B valuation and pending IPO in jeopardy. - In the short term, there will be volatility in the EV supply chain. Could be a shortage of chips or a shortage of cobalt that causes the price to skyrocket! It seems like recently ‘All of the Above’ is happening to the EV supply chain. And it’s NOT going away anytime soon. These supply shortages mean that the sourcing, materials, logistics, and planning folks will be earning their keep for the foreseeable future because supply shortages put production behind taking sometimes months to catch up that lost production. Back when I worked in GM’s Production Control & Logistics (PC&L) group (which no longer exists), I learned how to ‘chase’ parts. In other words, my job was to babysit suppliers to make sure that parts were shipped according to the master production schedule (MPS) and arrive at the specified time in the quantities that were ordered. No more no less. No more because that meant additional inventory that would sit on our ‘books’ and that, unless we increased production and reduced our orders in equal amounts, those excess parts would never be bled out of the system. No less because that meant I had to chase a ‘partial’ aka a partial shipment that would make the order whole. Most folks don’t understand and hence don’t appreciate the level of coordination it takes to keep manufacturing plants going without interruption AND without additional costs associated with running it. That’s called efficiency. OEMs are some of the best at this, running plants efficiently, and at capacity which most in the industry will tell you is well over 90%. One small issue affects the entire operation, hence the name ‘supply chain.’ In the current situation, most OEMs' supply chains will take some time to get back to running efficiently. - Automakers should be studying carefully what Canoo is doing and making the case for flexible design that allows for both narrow & wide use cases to drive their next generation of EVs. The automakers have much of what Canoo does not. Scale, a marketing machine, qualified suppliers, manufacturing know-how, and a captive audience of current customers. Each of those qualities creates such a huge advantage! IF they could only learn how to use it. While we’re at it, why wouldn’t one of the OEMs that are cash-rich acquire Canoo? Their current market capitalization of ~$3.7B doesn’t seem too unreasonable, although with all the SPAC craziness, it’s difficult to justify most of these EV & mobility-related company's valuations. There is nothing in ANY legacy OEM’s portfolio that’s doing what Canoo is doing with the exception of Bright Drop perhaps? But Canoo has taken it a step further and really leaned into the box design and carried it out to the use cases of everyday people. Who knows whether Canoo’s business model will work but their vehicles seem to be designed and thought out pretty well, they could just look at this as an acquihire, something that’s not that unusual in Silicon Valley but isn’t utilized much in the auto sector. - E-bikes becoming a real player in the EU & US. Just not yet in China. Bikes sales have grown 65% in 2019-20 but e-bike popularity has been on another planet altogether and has grown by 145% in the US! The EU is seeing huge growth as well so if this growth continues, which the folks that study bicycle usage seem to suggest it will, what needs to happen to cities in order to accommodate this type of ‘transportation’ evolution? Most large American cities are currently optimized for individual passenger vehicles. Just look at the # of gas stations, parking spaces, and street lights in a city like Chicago alone. Also, the current layout of New York City doesn’t allow for that high of an e-bike take rate unless there are major revamps to the system. This should be seen as a tremendous opportunity though since this type of growth also implies that there will be many fewer passenger vehicles on the roads. This could mean parking lots can be rehabbed and parts of the city can be taken back and converted to green space, low-income housing, or anything else that benefits the city’s citizens. With the gridlock in the US though, will there be an appetite for these types of revolutionary changes in how we live, work, and commute? Maybe, but it’ll also take a big change in how we think about transportation and mobility and that might be the toughest reset of all. I am NO city planning expert by any stretch but it’s been something I’ve been learning more about recently sitting in on some Clubhouse rooms and reading more reports and studies about what cities around the world are doing to better understand what’s possible. And it’s a lot. If local govts. have the appetite to place the needs of their citizens ahead of making their cities more ‘car’ friendly. - A Silicon Valley-based connected car and location-based services company named Telenav will provide navigation and location-based services to SAIC’s battery-powered vehicles in the European & Southeast Asian markets including Australia / New Zealand. For those wondering, there still seems to be tremendous opportunities for US & Chinese companies to cooperate, specifically outside of the US & Chinese markets. SAIC’s footprint outside of China is not that substantial but their ambition is so this could become a very lucrative relationship for Telenav. TRENDING ON SOCIAL MEDIA - This is what we need more of: Kind gestures like when billionaires bail out other billionaires. During NIO’s darkest days in 2019 when share prices fell <$2, He Xiaopeng decided that he needed to support Li Bin by purchasing an undisclosed block of NIO shares. The transaction seems largely symbolic but whatever the amount, if he’s kept it which I’d think he would, it’s grown MUCH larger so He Xiaopeng was well compensated for supporting his friend. - See Apple does have duds! RIP Apple HomePod. There are some folks I know (Apple fanboys) that think that Apple doesn’t have any products that they don’t sell a gazillion of so I wanted to post this to show that yes, even Apple has dud products here and there. I would argue all isn’t lost and that the skills the product team developed by designing and manufacturing the HomePod serves them well in other products and services currently sold or that will be for sale in the future. Everyone I know who got one was NOT disappointed in sound quality, fit and finish or its ability to connect seamlessly into the Apple ecosystem. But that wasn’t enough to save it from getting axed this week. When it launched, I too thought I ‘had to have it” and while in the US, had it in my online Best Buy ‘shopping cart’ but I didn’t buy it. I guess I should check out all the closeouts on it now though. - An electric monocycle? You heard it right. It looks like a Ducati Monster that had its front fork and tire ripped off. The thing can move at 30MPH and although the author thinks it’s weird, I would love to try it out! JUST THE NUMBERS - The acquisition of Voyage by Cruise Automation that was announced this week shouldn’t come as a surprise since Bloomberg alluded to this happening earlier this month. Voyage’s 60 or so employees will combine with Cruise’s ~1,800 to put Cruise at almost 2K That’s a HUGE team. As has been mentioned numerous times in the past, putting robotaxis on the road is a herculean challenge that requires a TON of capital, patience, and a bunch of really smart people and even then, there’s no guarantee for success. There will continue to be consolidation as more and more of the smaller players find fundraising more difficult as they run out of capital. We don’t know what the transaction closed at, but it seems like a good move for Cruise since this isn’t a segment they were targeting, it supplements their team with folks working on the same problem, albeit from a different angle, and gives their ML tool more data. We all know you gotta feed the beast if you plan on catching up to Waymo and plan on making any money on AVs in the future. BTW, as mentioned above - You can look at this as one of those acquihires that often happens in Silicon Valley. This could be a tool the legacy automaker could use to bolster their SW development chops. Acquihiring a small, but great agency. Actually, I predict that it’s going to happen within the next 18 months by at least one or two automakers. - 50%. That’s the % of vehicles VW plans to sell in the US that will be electric by 2030. PRODUCT & SERVICE INTRODUCTIONS - Alpha Motor Company Wolf. A cool little truck that should be pretty popular in the US. I’d think about getting one if I were there. Seems pretty affordable and something that I could use around town as a daily driver and not worry too much about. —— 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

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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