Batteries now a 'fair' game in China, NIO's recall, Didi in defense mode - SAI Newsletter #24
There were some potential gamechanging announcements and maybe one on the way depending on what results from the Xi – Trump one-on-one meeting that’s scheduled for this Saturday.
A likely outcome from the meeting is a truce between both parties, meaning that they will continue to negotiate in good faith without any further escalations to deal with. This also means that the current tariffs in place would stay as is. With how unpredictable the U.S. and Trump administration has been, I’d put this outcome as 50/50 with ‘your guess is as good as mine’ the other likely outcomes.
One important change that could take some pressure off future product launches from Tesla and other foreign automakers to the China market is the announcement from the Chinese govt essentially ‘leveling’ the playing field for foreign battery manufacturers by taking away favoured status from the domestic players. This gives OEMs the option to utilize batteries from already qualified partners, something that could save a bunch of time AND money.
Apple making a small but strategic acquisition of Drive.ai confirms what most people thought all along. Apple believes the market and opportunity too large, and that they can build a better ‘mousetrap’ then their contemporaries, to sit out the autonomous vehicle space. With no pressure to launch anytime soon, I look forward with what they’ll finally come to market with.
As kids begin their summer break, I’d expect things to quiet down (just a little) over the next month or so as folks get away for a few weeks, including myself. Will be in Cali and Detroit again starting for a lot of July & August for those that are around and would like to get together. On to this week’s news…
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. 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
EVs & EVStartups
The Chinese govt. this week effectively eliminated the list of (57) ‘approved’ battery suppliers that received govt. subsidies, all who JUST happened to be Chinese. The list was used for sourcing purposes by OEMs in order for their vehicles to also take advantage of the subsidies.
This is a BIG deal and levels the playing field for non-Chinese battery manufacturers. In particular, it means that EV Automakers can source batteries from Japanese and Korean battery suppliers like Panasonic (Tesla battery cell provider) and LG Chem, both who have a strong presence outside of China, without penalty. It also opens the door for any upstart startups or SMEs that think they have a better battery - one that’s able to pack a higher density into a smaller, less heavy and hot, package at a cheaper price than what’s out there currently.
The two largest Chinese battery manufacturers currently, CATL and BYD (who happens to make cars that use their own batteries) have made headlines recruiting some signature foreign OEMs like VW, Toyota and Honda to be their customers so it will be interesting to see if the OEMs decide to stick with their Chinese partners or especially in the case of Toyota (which already announced a partnership with Panasonic), decide to source their batteries from fellow Japanese battery manufacturers. This could be the case with the Korean OEMs as well.
Both the Korean and Japanese battery manufacturers will likely need to increase capacity in China to avoid import tariffs on battery cells, a tool the Chinese govt. could use to force OEMs to still source locally with or without the list, if they see that their Chinese ‘champions’ aren’t able to compete on their own.
This coincides with the recent recall announcement from NIO regarding a battery pack that was prone to battery fires. This may be the Chinese govt. trying to help their Chinese battery suppliers save some face (NIO's battery cells supplied by CATL but maybe not battery pack?) since most folks that follow the sector believe that the foreign brands generally have a higher density and better quality/reliability and that their domestic counterparts aren’t yet ready for the bright lights.
If the Chinese battery manufacturers aren’t able to step their games up so that their battery ranges and quality/reliability can at least match those of their Japanese and Korean counterparts, this could really spell disaster for A LOT of the domestic Chinese battery manufacturers.
In news that should surprise no one, Tesla has a skunkworks team working on developing their own battery cell. Although risky, this makes sense on SO many levels …IF they can get the tech down AND sell enough of their cars it would make a game changing difference on the price of their vehicles, so much so that other EV carmakers wouldn't be able to touch their costs.
You could argue that with the Model 3 coming online in Shanghai by early next year and the Model Y coming online likely later in 2020, they already have the potential unit volumes that could help them amortise the cost of R&D and investments in capacity to make developing and manufacturing their own batteries make (dollars &) sense.
The challenge is that there are already a TON of smart people in Japan, Korea and China doing the EXACT same thing. Again, if they get the tech and cost right, and this is a BIG IF, they could compete with those battery suppliers for the OEM contracts. This could allow them to sell an additional XX million battery cells, creating a new, significant revenue stream that would help them fund their vehicle ambitions, while potentially increasing their profitability substantially since that additional margin that would normally go to a battery supplier, would now go directly into their pockets.
After numerous videos surfaced of ES8s spontaneously catching fire, NIO announced a recall of ~5K (about a quarter of their ES8’s sold) to replace the battery pack that caused the fires.
Recalls are NEVER voluntary and a lot of them, like this one where NIO will replace the entire battery pack, can be VERY expensive on the brand and pocketbook but there was probably pressure from the Chinese govt. and enough of an assessed ‘risk’ from their internal bean counters that NIO management decided it better to recall the vehicles than not.
This is a pretty decent sized black eye for a company that initially touted itself as the Tesla ‘killer.’ There have been videos of Tesla’s catching fire as well, so this isn’t just a NIO problem but Tesla did send out a software patch that they think should help them avoid an all-out recall.
No word yet on how the NIO ES6 is selling but I have NOT seen one on the road in Beijing yet so I am thinking sales are lukewarm at best. From the previous article, I wonder if CATL batteries are making the NIO vehicles look bad or was there a design flaw by NIO that got past the quality control (QC) process. Oh, and NIO is trading at $2.60, close to penny stock status…
Your head may be spinning trying to keep up with all that’s going on in the U.S. EV sector so, even if you’re NOT in the market for a new vehicle, along comes this buying guide to help educate you on all the players AND their vehicles for sale in the U.S. This article also includes common terminology and other useful EV terms so you could say it’s an ‘EV101’ article.
This isn’t a deep dive on the vehicles but it’s thorough and objective enough that you’ll know ALOT more by reading it.
AV and AI
Apple’s acquisition of Drive.ai’s ‘remains,’ they were basically able to acquire Drive’s talent and IP for cents on the dollar, confirms Silicon Valley’s worst kept secret, that Apple still wants in and plans on launching their own version of an autonomous vehicle likely within the next couple years.
Years ago, Apple hired away of ton of folks from GM, Ford, etc. to build up their Titan team. Apple laid off a bunch of those same people earlier this year, the ones that hadn’t already left the company or were pressured to leave, that is.
Apple is a unique company, with a unique culture and way of doing things and it’s not a good fit for most. If you’re in a traditional function like accounting, finance, etc. then there’s not a ton of difference between Apple’s way of doing things and any other company’s. If you’re a part of any of the Ops, Product, Engineering, Design or marketing teams though, your job can turn into a 10-12 hr daily grind.
I speculate that Apple didn’t think a lot of those car guys really ‘fit’ their culture so acquiring Drive.ai was an easier way for them to ‘start over’ on reaching their AV goals. I also think that Apple, like most other tech companies, underestimated the level of effort & investment needed to build something from the ground up that met their rigorous specifications.
Drive.ai’s wheelhouse was closed loop mass transit, hence the bus-like, orange vans they used to collect data and beta test their product. Although a different type of vehicle, the business model seems functionally at least, eerily similar to AV companies like May Mobility, Navya (and as the article states), Optimus Ride, and Voyage so those companies’ chances of being acquired just got substantially smaller (I am likely oversimplifying the advantages these other players have and if so, those that disagree, please reach out to educate me).
This mini-slice of the mobility sector seems fairly indefensible should one of the big boys (Argo, Aurora, etc.) decide that this market has strategic or monetary value so they should enter it themselves. Think Waymo buying a BUNCH of buses bolting on their hardware/software stack and partnering with ANY large city, company, college and saying ‘I’ll take it from here, thanks!’
As for Apple, I am pretty certain that they will not release ANY product before it meets ‘spec’ which means that their ‘Special Projects’ teams are looking at how they can approach this a TOTALLY different way, design it in such a way that it doesn’t feel like a ‘beta test’ each time you get into the vehicle, and/or turn the traditional business model on its head.
The growing popularity of e-bikes is causing a stir for regulators, who’ve been caught flat-footed …again on how to treat these recently, extremely popular innovations to normal pedal bikes. E-bikes have a form factor like normal bikes but have small motors and batteries that make them a bit heavier and allow them to get going pretty fast, much faster in many cases than a normal pedal bike could likely go with a person just pedalling without help.
In the U.S. there currently isn’t any consensus on whether they should be limited to paved roads, like motorcycles or whether they can be ridden on sidewalks and trails, where pedal bikes are traditionally ridden and the likely solution isn't 'a one size fits all' but as we begin to see more and more of them on the road, it'll become clear the importance of how to treat them. These decisions could also help or hinder their adoption.
As I’ve mentioned in quite a few past newsletters, e-bikes will become a main mode of transportation for ALOT of the world within the next 24-48 months. I also predict that we will see municipalities begin to incorporate their use into urban planning for cities, new and older, while limiting access of cars and trucks to improve traffic flow and reduce pollution which should help solve traffic congestion in many major global metropolises’.
This tech just makes too much sense, unless you’re a regulator that is; it’s environmentally friendly, not as intimidating to operate, safer, cheaper and best of all, there’s a higher likelihood to profitability for the operators of these e-bike sharing programs.
My last prediction is that you will start to see them eat into the # of rides for traditional ride-hailing services involving cars too since they are more comfortable to travel farther distances, the ones that would normally be a bit too far to walk.
The scooter companies, like the ride-hailing companies, were mostly able to get one past the municipalities they current run scooter sharing programs in. As with Uber, Didi and Lyft, the cities then decided enough is enough ‘Although we don’t really know what’s going on or how to manage it’ we can’t look like we’ve lost control of the situation since, in the case of e-scooter sharing in particular, people are getting hurt and companies are potentially making money on our streets without a dime hitting our pockets.
I write this in jest although it seems like a broken record and something that most major cities should’ve seen coming from a mile away ESPECIALLY if they paid attention to place like CHINA.
The data ownership and security debate is an important one and should be had so that ALL parties, especially consumers, know just how their data is being used and whether it can be used without their knowledge and consent.
If I were a consumer though, I’d be skeptical of the company AND the municipality when it comes to who knows where I am at all times …oh unless that company is Apple, Google, Amazon, Tencent, Alibaba, or Baidu.
Didi (滴滴) has decided that it wants its users to always use its platform to hail rides even if those rides don’t come from Didi. This ‘opening’ of their platform is largely in response to Meituan Dianping (美团), expanding ride-hailing operations enough to at least annoy and cause this response from Didi.
Didi has had a pretty challenging last 18 months and is still unable to generate any profits from its operations. This competition to be China’s dominant mobility provider/platform promises to be a long, cutthroat and potentially winner-take-all so we will keep everyone updated on what happens next!
I know this had to happen since FCA is behind, looking for a buyer/partner and needs to stay in the game for now, but unless its better or truly different most people would just as soon use their phone to order these services, right?
Since, in the future this WILL BE a differentiating feature in cars the development of a platform like this should REALLY be taken in-house, shouldn’t it? Who knows their customers better?
Finally, I didn’t realize Lear, a former employer of mine (shout out to Alan Brenner, Jim Housel and Chris Tsuha), was getting into the e-commerce platform business, that’s a long way away from seats and IPs.
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.