Search

Beijing COVID Update, Tesla's Deep China Ties, Yep - Didi Still in Trouble - SAI Newsletter 17



 

We are just getting back from May holiday, China's Labor day, and there are a few changes to Covid policies here in Beijing. First, there are now multiple areas on mini-restriction or lockdown including a couple of building complexes close to where I live. Too close. They’ve asked everyone in Beijing to get Covid tests daily now. It’s supposed to be temporary but that could change at the drop of a hat. So far, Beijing seems to have caught it earlier and has been better prepared than Shanghai but we are still in the VERY early innings here so fingers crossed that we will be able to combat it without the severe lockdowns we’ve seen all over the rest of China. Also, there are foreign automakers that build in Beijing/Tianjin as well like Mercedes & Hyundai so the Chinese automotive sector is nowhere close to being out of the woods. One thing is for certain though, no other car company has the level of support that Tesla does from the local Shanghainese govt. There’s this symbiotic relationship that has quickly developed over the last couple of years since ShanghaiGiga opened its doors in record time and Tesla is doubling down on its commitment to China by adding additional capacity in Shanghai. See Tesla posts below for more deets. Reuters & Bloomberg are on fire this week! I got a lot of my content and updates from both of those platforms. A LOT of impactful reporting coming out of them so keep it up team Bloomberg & Reuters! Please join Lei and me for this week’s EVs & More Twitter Spaces room on Thursday, 05.05 – 9pm EST, Friday, 05.06 – 9am China local time. For getting a download on all that’s happening in the space. For those that aren’t able to join, the EVs & More podcast is available wherever you grab your podcasts from. Most of our back pods are posted and the descriptions will be able to tell you what we discussed that particular episode. What I thought was going to be a short and sweet newsletter ended up being likely one of the more interesting and information-filled editions this year. Enjoy. QUOTED Wired. I had a nice exchange with currently (Shanghai) locked down friend Mark Andrews for his review of the Wuling Hongguang Mini EV. By now, you’ve heard me talk about this ‘little engine that could’ ad nauseum but do you want to know about where the rubber meets the road? Mark goes into a good amount of detail to shine a light on all of the EV’s highlights AND lowlights. He wanted to pick my brain on what lessons could be learned by GM (a 44% owner in Wuling Motors) and others from the surprise success of this diminutive and affordable city EV. Click the link here to find out my ideas. Ojo-Yoshida Report. I wanted to make note of a new paid newsletter that’s tackling the intersection of technology and geopolitics globally called the Ojo-Yoshida Report. I spoke with George Leopold for an article about China’s current domination in battery cell manufacturing and what it might take for other companies/countries to wrestle away some of that share. This article may be behind a paywall but if you’re a subscriber, it’s worth the click. TESLA - The DEEP ties between Tesla and the Shanghai govt. Tesla sent a letter to Shanghai officials in order to thank them for bending over backward to help Tesla reopen ShanghaiGiga in the Lingang area of Shanghai on the Pudong side. The factory had been shut down for 22 days losing about 50K units of production. It’s been back online since April 19th but that would NOT have happened without the enormous efforts of the city officials that helped transport 6K workers to the facility as well as disinfect the factory in order to create that closed-loop for operating the factory. There could be similar stories out there where city officials have helped other companies get back on their feet but none that I’ve heard have had this ‘all hands on deck’ approach. Oh, and of the 666 firms in China that were made a top priority to reopen, >200 of them were Tesla suppliers. - Doubling down on those deep ties. The same letter from above that thanked the local Shanghai authorities for their help opening ShanghaiGiga after a 22-day closure due to Covid also confirmed what has long been suspected and that’s Tesla is building another factory next to ShanghaiGiga taking a step closer to its goal of pushing Chinese production capacity to 1.5-2M units within the next couple of years. It’s important to remember that Elon said that he forecasts 50% growth YoY for Tesla over the next several years so China HAS to be a major, sorry scratch that – THE major beachhead for that growth from both a production AND consumption standpoint. Make sure to remind the western analysts that rate Tesla ‘a buy’ aka the Tesla STANs, but gloss over the details of how lynchpin China is in Tesla’s plan towards world domination, that they should ALL be subscribing to this letter and listening intently to the pod if they want to be educated! This will make ShanghaiGiga the defacto export hub for most of Asia and likely other parts of the world. Tesla has BIG plans for China. And Shanghai seems to be reciprocating that love! When this relationship goes sour though, it’s could get pretty ugly, but that could >10 years from now. A large part of moving past China's reliance on Tesla will depend on if and when any local player can overtake Tesla as the world’s largest EV maker. Being China’s largest won’t be enough. A VERY TALL TASK indeed. THE MOST INTERESTING THINGS THAT HAPPENED THIS WEEK - You thought that Chinese EV SPACs were dead? CH-Auto, the maker of the Qiantu brand EV whose had multiple fits and starts since it was established in 2015 including trying to license its IP to a US partner, has announced it’s going public later this year via a US SPAC. Originally, Qiantu’s parent did NOT lack ambition as evidenced by its opening of a retail location smack dab in the middle of Sanlitun’s Tai Koo Li shopping mall back in 2019 only to shutter it less than 1 year later. It was part book store/coffee shop/contemporary hangout spot that just happened to have an EV parked in the middle of the store. And yes I did check it out and said car parked in the resto and was not very impressive from a fit and finish standpoint. I received their pitch deck about a year ago so they’ve been in search of capital for quite a long time. I feel that this transaction should get more scrutiny as we get closer to the actual reverse merger. Further, it’ll be an uphill climb for Qiantu to actually gain any sales traction in the Chinese market with the current level of intense competition. Will file this one away with the other ‘keen to learn more about’ drawer. IN THE NEWS - Stellantis leans into car sharing with its recent acquisition. Stellantis has announced the acquisition of BMW/Merc jointly owned Share Now, a carsharing service that they weren’t doing much with. The article posits that this indicates the premium automakers will continue to focus on private vehicle ownership while the larger OEMs like a Stellantis, VW, and GM would look more intensely into building out their service revenues. I think that’s giving the automakers waaay too much credit. I don’t believe any of the automakers have any real idea of how to build out their service revenues but that’s OK. They’re experimenting with different & new business models (as they should) but as long as sharing/hailing are less attractive than owning, creating new services that will have any significant stickiness will be challenging. By nature of their business, the global legacies are culturally conservative so it’s no surprise that the current crop of new ideas being generated isn’t bold enough – they aren’t making the types of sacrifices needed to build these types of businesses from scratch. The sales & customer data that’s being collected along with the global/regional/technology trends need to be analyzed in every way possible and bolder ideas need to be nurtured with the right amount of capital, the proper resources (with the right skillsets are dedicated to it), and the business allowed to evolve as more data is injected into the business. Basically, if the planning and strategy folks believe a new business has potential, they need to throw it in the trash and go 5 steps further than that. Remember also that each of the legacies is built much differently: products, culture, balance sheet, management, revenues, and expertise. This means that the opportunities that present themselves will also be different. What is the same conceptually? Can any one of them make the right moves in order to create an opportunity where there currently is none? If I had to point to any companies that are making their best efforts, I’d say Ford’s move to divide the company into old-ICE and new-EV is pretty bold. I woud also say Mary/GM’s development & use of a dedicated EV platform is another move by a legacy that pushes things. Just STILL not enough IMHO. TRENDING ON SOCIAL MEDIA - Didi in double trouble. Didi not only got put in the box by the Chinese govt a day after its IPO last July but it’s been revealed that the SEC is also now investigating them for what has not been disclosed. If we are keeping score, not only does Didi have to deal with the SEC in the US but they are also currently not able to add any new users to its China, and just got the Heisman from Chinese regulators who rejected their application to list in HK. All of this is happening less than 1 year from their US IPO. I can’t imagine that Jean Liu and Cheng Wei are thinking taking that huge risk by defying the Chinese govt to IPO was worth it now. I still use the service and have no issues generally but I can’t imagine the future has a ton of upside anymore, not this current vintage anyway. - Singapore making it cheaper to purchase EVs. Singapore has BOLD ambitions. 100% of vehicles to be clean by 2040. Putting this into context Singaporeans bought ~56K cars total in 2020. Their normal run rate seems to hover around 100ishK. If you’re wondering how 6M people only buy 100K / year well it’s because purchasing a car there is REALLY expensive. The example the article gives is for purchasing a Tesla Model 3 locally. The car costs about $56K USD but the COE – certificate of entitlement - effectively the license plate for the car costs ~$65K, more than the car itself! So if you want to buy a Tesla Model 3 in Singapore it’ll be ~$120K all-in. To grow EV sales so that Sing can get to that 100% clean energy vehicles by 2040, they will reduce the entry level COE by $16K. Not a huge amount but they also don’t want their roads to be flooded by vehicles, let’s get real here. If you’ve ever been to Sing, you’ll know what I am talking about. PS. Singapore is also looking to switch all of their taxi fleets to clean energy as well so Sing could look completely different within the next couple of years. PPS. That likely means more exports from ShanghaiGiga to Singapore over the next several years. If you’re wondering what will make up for ShanghaiGiga exports to Europe now that BerlinGiga is open. My moles tell me Oz is on the cusp of changing some laws that currently favor petrol vehicles so look for Oz to be another potentially decent export market for ShanghaiGiga. But Oz will be an even better export market for BYD IMHO… - Is India getting serious about EVs? One company seems to be. Tata Chairman N. Chandrasekaran has announced that Tata is exploring battery manufacturing and chip fab’ing. This would feed into Tata’s passenger vehicle business, in particular the Jaguar and Land Rover brands that they own. We’ve heard since forever about India’s potential only to be disappointed in its execution. This is another real opportunity for India to grab investment and gain importance to the global economy if they can get out of their own way. India’s real mode of transport has two wheels, not four so it’ll take a lot of investment from the Indian govt if there’s going to be a meaningful switch to cars – think roads, grid, charging infrastructure, and demand. Most Indians can barely afford a moped let alone an electric passenger vehicle. Can they ultimately turn that corner in a timeframe that’ll matter to the rest of the world? I have my doubts but there’s a lot that can be accomplished if the Indian government can direct the 1.5B Indian citizens to all push in the same direction. I’ve seen it first hand for the last 12 years. - If you’re wondering what types of challenges still lie ahead for India and clean energy vehicles, battery fires are ONE of the major challenges that fledgling startups like Ola need to overcome. That grid problem I mentioned in the last post is another. Because of these fires, only 2% of recently people surveyed said they were likely to buy an electric moped in the next 6 months. That may as well be 0% if you take into account the rate of error. This is why many apartment complexes in China still do not allow electric scooters to be parked in the underground parking. The chance of fires is too high. That’s gonna be a tough crowd to convince. GET SMARTER - Indonesia has set its sights on being more than a raw materials provider to the rest of the world. Currently, Indo provides about 37% of the world’s nickel. They’ve recently placed an export ban on nickel in the hopes of forcing companies to invest in Indonesia helping to transform it into a battery cell manufacturing powerhouse. Other South & Southeast Asian are also currently undergoing major transformations (like the rest of the world) embracing clean energy in order to eliminate pollution and gain energy independence. Indonesia has some leverage here since this would help diversify companies out of their already heavy reliance on China for battery manufacturing and raw materials sourcing. Taking that much supply out of the supply chain is one of the reasons why nickel pricing spiked in the last couple of months. There was a run on the rights after Indo made this announcement. It’s clear when looking at the posts in this letter, that the world is shifting away from globalization. What this means for China and the other countries that benefit the most, well we’ll need to wait and see. BY THE NUMBERS - 149. That’s the number of buses benched by the Paris public transit operator RATP due to the 2nd bus fire within the last month. Bollore SA is the manufacturer of the buses which use lithium polymer batteries for power. BYD to the rescue? - 1.79B. That’s the liability exposure (in yuan) that CATL has for derivatives they traded in what seems to me to be trying to time the market, along with other companies, with the expectation that rare earth (read: nickel) commodities pricing would fall. Seems really fishy. The markets didn’t like it either and hammered the share price – down 11% after the earnings report. —— 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.

30 views0 comments