• Tu T. Le

Auto market slowdown; Predictions for 2019 - SAI Newsletter #1, 2019

Updated: Jan 31, 2019



Happy New Year everyone!

My name is Tu Le and I am the founder and managing director of Sino Auto Insights.

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 U.S. 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/Ridesharing/Ride-hailing/Bikesharing, OEMs, EVStartups, Investments, and Other.

Since we've been off for what seems like an eternity (in reality its been less than 2 weeks) we have alot to catch up on. With CES going on as we speak and the North American International Auto Show (Detroit Auto Show to me) right around the corner there is, have been and will be alot of announcements from tech and automotive companies that we'll cover in the following weeks.  If you know of anyone who would like to sign up for this newsletter please have them visit: www.sinoautoinsights.com. Thanks for reading.

The  Sino  Auto  Insights team

As I reflect on all that's happened in 2018 for the sector and look forward to all the possibilities that 2019 bring, I can't help but feel a bit anxious for some of the managers for the EVStartups, OEMs and tier 1's as they update their strategic plans to incorporate the trade war and slowing Chinese economy. 

There will likely be many sleepless nights and overtime booked for a good portion of them.

As 2019 plays out, I'd like to make a few predictions that we can look back on this time next year to see if I knew what I was talking about.

1. There will be growth in the NEV market for China, but not as much as forecasted 3-4 months ago, and much of the investment RMB that was readily available in 2018 will have dried up pushing the least capitalized and poorly managed EVStartups out of the market. 

2.  E-bikes will begin to make their move to replace push bike sharing and e-scooters as the preferred mode of transport for large parts of Asia.

3. Throughout the year, excess supply of NEVs that will put downward pricing pressure and make it even more difficult for EVStartups and OEMs to make a decent profit on the cars they sell.

4. Where I have the most confidence - Faraday Future will find a way to survive 2019!

Now on to our first newsletter of 2019.

Sino Auto Insights In the Media

Elon is one step closer to building Tesla’s in China. (www.cnn.com)

With the Tesla’s groundbreaking ceremony earlier this week in the ‘burbs of Shanghai, Elon has raised the stakes for all comers, large and small, that want to compete with Tesla in the China EV market. As I mentioned in the article, Tesla actually competing on price in China could be a HUGE opportunity for them and a headache for all the so called ‘Tesla killers.’

#TherealTesla #Model3 #Shanghai #TeslainChina


Apple’s surprise earning warning a sign of things to come for the automotive sector as well. (www.cnn.com)

Apple's shares have fallen off a cliff ever since it gained and lost the title of ‘Most Valuable Company in the World.’ This does not bode well for automakers who plan to roll out new vehicles aimed at capturing some of the excitement built up for EVs.

Most concerning is that the economic slowdown currently facing China could last a while.

#Apple #earningswarning #tradewars #salesslowdown


Will the trade war change any goals for Made in China 2025? (www.wardsintelligence.com)

I argue that although the openly communicated leadership ambitions of the Chinese govt. with their ‘Made in China 2025’ on pretty much all things technology have been all but silenced, their goals, by and large, remain the same as before.

#MadeinChina2025 #tradewar #nothinghaschanged


OEMs

Which companies won’t be around 15 years from now? (www.bloomberg.com)

This article is a bit older but resonates quite a bit with what I believe will likely happen in the near future unless more traditional OEMs can wean themselves off ICEs before it’s too late. Therein lies the rub, when ‘too late’ is is anyone’s guess.

For example, VW globally will launch 80 NEV’s by 2025, so they’re betting their existence that the short term pain of lower sales while the market adjusts to their revised product lineup will lead them toward a much brighter future and revenue and profits that they are more used to.

It won’t be just new vehicles from the traditional automakers, they’ll also need to dramatically change how they make money, support their products and move into new businesses that did not exist just 5 years ago.

That equates to consistently launching profitable products and services that are self-sustaining while they build up their working capital by selling more and more EVs. Not an easy feat for companies that have historically had to deal selling some vehicles that don’t make them a dime.

#survivalofthefittest #whowillstillbearound #fullcourtpress #VW


Managers will really begin to earn their salaries this year. (www.bloomberg.com)

All the recent speculation about China automotive sales is now official, the China automotive market shrank last year for the first time in 20 years, a fairly significant 6% to ~22M vehicles. Oddsmakers say that it will shrink further this year putting a lot of pressure on any automakers that were planning on China being a growth engine for their sales, which is basically all of them.

In particular, the major OEMs in the most precarious positions are Ford and the VW Group. Ford has planned to add capacity, a necessary move for them, at a time of overcapacity and a shrinking market while both companies plan to launch a number of vehicles over the next 18-24 months that will flood an increasingly crowded market of EVs and SUVs.

For VW Group in particular, without the proper marketing and positioning, their move from mainly passenger cars to SUVs as the meat of their product lineup is risky since for the last +30 years, that’s not what they’ve been known for. Putting big tires on a van and taking a picture of it on top of a mountain does not make it an SUV however much they may try to convince Chinese consumers that it does.

For the EVStartups, precision execution, proper working capital management while exciting consumers about their products still might not be enough for them to successfully carve out enough sales to get past the slowdown which may last until 2021.

#OT #VW #EVStartups #Ford #overcapacity


Your next car will be an EV. (www.wsj.com)

Dan Neil has some pretty convincing arguments here for those with open minds and a bit of imagination. Unfortunately, most people prefer the status quo so unless there is really is no alternative or the cost savings is CRYSTAL CLEAR, many Americans and Europeans will not be purchasing an EV as their next car.

Besides, he didn’t address the special interest groups, whether it’s the dealers, oil companies or the OEMs themselves, that will do EVERYTHING in their power pull that tail out as long and as far as it’ll go.

#EV #ICE #Aliveandwell #Notyet


Mobility

Didi management missteps and hypergrowth leads to stricter regulations for the sector. (www.techcrunch.com)

As competition heats up and costs increase, will Didi be able to pivot or need further protection from the Chinese govt. in order to survive the onslaught of competitors coming its way?

One of the greatest strengths for Didi is that it dominates its home market but it’s also one of its biggest weaknesses since one minute you can be the darling of the Chinese govt. the next you’re afoul of them and need to be reined in.

Here’s to hoping that everything they’ve learned in the recent past can be utilized to position themselves to maintain their leadership and growth as they transition from the hunter to the hunted.

#Didi #newrules #itsgettingcrowded #pivot


Didi adding services to help keep drivers on the road. (www.techcrunch.com)

These new laws make it much more onerous to drive part-time for Didi so in order to keep their drivers on the road, Didi has created new businesses that they hope can help with doing just that as well as create an alternate revenue stream.

I can see this becoming a cost center as other ridehailing apps come online and they need to compete to keep drivers from jumping ship.

#Didi #newbusinesses #addcomplexity #pivot #ridehailing


E-bikes set to grow substantially globally over the next several years. (www.scmp.com)

I believe electronic mopeds and e-bikes will replace e-scooters within the next 12-18 months in the multi-modal chain of transportation due to its ease of use, safety and ability to go further when compared to the e-scooters. Yadea, the world’s largest E-bike manufacturer is also long e-bikes and plans to capture a HUGE portion of that global growth.

If you go anywhere in Southeast Asia (SEA), you’ll find mopeds and e-bikes dominate the streets. With many major SEA cities banning gas powered mopeds it’s only a matter of time before e-bikes and electric mopeds become the preferred mode of transport for these cities.

#ebike #SEA #Yadea #Gogoro #betterthanscooters #fightforthelastmile #lastmile


AI

The risks associated with restricting AI technology. (www.sfgate.com)

I understand why there are concerns about being protectionist and the desire to be open with technology but let’s be frank here. It’s basically a 2 man race for AI dominance since I don’t really see any other countries having significant horses in the race.

The article states that curbing AI exports could stifle innovation but also that protectionism may not matter at all at the end of the day, so which one is it?

Further, if AI heads in two separate directions as some believe ultimately there will be two different internets then is this still that important? I’ve not a fully formed opinion on this so would appreciate any feedback or food for thought from anyone else who feels strongly either way.

#AI #whatmeworry #risks #2manrace


Investment

Chinese money not welcome anymore? (www.reuters.com)

Even if the trade war is settled amicably, scrutiny from Chinese investment in ‘critical technologies’ will continue for the foreseeable future IMHO. The climate and attitude in Washington has changed so much that any and all deals no matter how small or seemingly innocuous they are will likely be examined more closely than ever before.

I am pretty certain that there’s domestic capital or overseas capital from other countries that will fill that void, although the lack of Chinese money could cap valuations, the kind that makes the founders rich even when they’ve not proven their product in the market …against proper competition.

#CFIUS #WashingtonDC #otherpeoplesmoney #foreigninvestment #protectionist


EVStartup

Faraday Future (FF), the company that refuses to die. (www.engadget.com)

Kudos to FF for working out the differences they had with their investor. Now, do they have enough of a team to get their product on the road? That remains to be seen but I would NOT count them out. I think many who’ve followed them since the beginning have written then off more than once only to be shocked and amazed by their resiliency.

Assuming that they can attract further investment, they will need to un-furlough and/or attract new employees to join so they can work 100hrs/week to get the FF91 to production!

I am going to take a wait and see attitude on this since I’ve learned my lesson on doubting them.

#FaradayFuture #bulletproof #cockroach #renegotiate #FF91

China: +86 13 811672141

USA: +1313 290 3880