Big Three struggles in China, Peugeot the same, NIO Co-Founder jets - SAI Newsletter #30
Wrapping up a busy month in the US and headed back to Beijing today so it’ll be a short newsletter this week. In the month I’ve been away the auto market in China announced worse results for ICE & EVs and I don’t believe this week’s announcement from the Trump administration about pushing out SOME of the tariffs will be able to stop the slide.
NIO continued its struggles and I am making a leap here assuming that other EVStartups sales numbers over the last few months are pretty anemic as well. I don’t know anyone that was prescient enough in this biz to have predicted that auto sales were going to be this challenging in 🇨🇳 for 2019 so feel for those EVStartups who are generally trying to do the right thing but are facing unprecedented headwinds that could put their startups out of business. It seems that bad.
Hosted a ‘Lunch and Learn’ at the PlanetM Landing Zone that focused on China & US mobility sectors that I think went quite well considering there was a good amount of interaction and engagement from the audience.
Some interesting questions that popped up:
- Where do hybrids fit into the transition towards EVs in China and the US?
- How is Detroit doing?
- Will the Detroit OEMs be able to survive this disruption?
- What can be done if China is so protectionist with their market?
Thanks to Devon O’Reilly along with the folks at PlanetM for the hospitality and all those who attended and asked those great questions. Special shout out to the friends and family who came out to support!
REMINDER for those in Shanghai:
I will be a panelist on Thursday, Aug 22nd in Shanghai at the Technode - The Road Ahead for Electric Vehicles in China, Tech after hours series
Link to event is here: https://technode.eventbank.cn/event/the-road-ahead-for-electric-vehicles-in-china-22637/
Stop by, I promise to be engaging and answer any tough question you have!
Audi E-Tron UPDATE:
It’ll be 10 weeks this Saturday. An $800 gas card but other than that - RADIO SILENCE. Can my VW Group subscribers help a brother out???
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 about how I look at the issues. We will mostly divide our articles into these buckets: AI, Mobility/Ride-sharing/Ride-hailing/Bike-sharing, 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
Detroit’s Big Three are all feeling the pain in China but they promise that they have plans in place to stem the losses and take share from their competitors in what many consider now to be a fairly mature market.
Something to remember, in emerging markets, if you have a decent product its much easier to increase unit sales without spending much on marketing or incentives. As markets mature, the way to increase share is by taking it from someone which happens when new products get launched and/or a lot of money is spent on brand, positioning and if all else fails, putting ‘money on the hood.’
At 28M units sold in China for 2018 those days of easy sales are likely over for the OEMs, the market could still hit >30M within the next 5-7 years but in the short term, the important thing to do is to make sure you’re not losing too much share or spending too much to keep it. I think overcapacity is not being given enough credit here for the market slowdown, even as companies add capacity to build EVs.
This market correction was overdue and mostly everyone has been affected but I wouldn’t call it a wash. Ford has been in a DEEP hole in China for sometime so the turnaround plan in China needs to be flawless AND fast. Otherwise they’ll be stuck with a single digit market share in the biggest auto market in the world. It’ll be hard to get out of that position, even with great products, without significant investment in marketing and incentives pinching on margins.
And one more thing, SUV sales and overall sales in the US has started to decline as well this year and the Big Three have NEVER been great at managing slowdowns in multiple markets so there’s a chance that one or more of these companies could really take their ‘eye off the ball,’ do you concentrate on the market that makes you a bunch of money or the one that has the most upside — the answer is BOTH — something that has proven to be challenging for them, even at the best of times.
Peugeot has decided that 3 consecutive years of shrinking car sales is enough of a trend that it would be prudent to cut some capacity since last year they were only running at 25.6% utilization, meaning that there were a lot of people doing a lot of nothing and still getting paid. Losses add up quite quickly and substantially when capacity utilization is <70-ish% for extended periods of time.
Peugeot may be struggling, but taking supply out of the system is actually a good thing for the sector since China has the capacity to build 64M units, but their utilization last year averaged 43%.
All that excess supply needs to be wrung out of the system otherwise there will be a ton of pricing pressure which then squeezes margins even further and puts struggling automakers at an even more precarious position.
Chinese OEMs always planned to expand internationally, namely in South American and Eastern Europe but it seems plans for a few of them have been moved up due to the significant slowdown in car sales in China.
I’d heard from a reliable source that there were a few of these Chinese automakers had already opened offices in LA and were planning to launch vehicles this year into the US but due to the trade war, those plans were postponed indefinitely.
Nonetheless, we will likely see new cars from these OEMs on the roads in the US within the next 12 - 18 months if we’re lucky enough to get past the trade war and improve sentiment on both sides.
Who would’ve ever thought that Faraday Future could possibly outlast NIO?
I also JUST heard that Chairman and Co-founder, Jack Cheng is ‘retiring.’ Morale at the company must be pretty low and if it wasn’t for that $1.6B bailout they received from the Beijing govt and this is TOTAL speculation here but a few more of the 3 digit sales months and NIO’s likely to get put on a bankruptcy watch looking to sell assets at cents on the dollar. We’re still a ways from that …I think.
As has been mentioned in previous newsletters, we’re starting to revert to normal automotive market dynamics where bigger is better and who can outlast who gets to stay in the game. How many more hands does NIO have left? What’s going to be their ‘all-in’ play?
I’d rather try to pivot and make a move than try to wait it out and conserve cash. If they truly believe in their product and more importantly the upcoming products, that’s the ONLY play in my mind.
MOBILITY AS A SERVICE
If you’ve been in and around BJ, you may have seen one of these robovans parked around town. A 1 year old startup called Neolix wants to replace all those delivery guys that zip through most major Chinese cities, mostly not adhering to traffic signals, with more of these robovans. I spoke with Nikkei’s CK Tan about what I saw as the possibilities and the HUGE potential market in China for this service and some of my perspective is captured in the article.
These types of vehicles sit in between autonomous taxi’s and autonomous semi’s and could have the easiest path the government approval and hence, commercialization.
One thing that should be noted, Neolix is manufacturing their own vehicles which gives them a ton of control but it's also a HUGE capital expenditure. Also, those companies that are working on robotaxi’s (think Baidu, Pony, Jingchi, etc.) could decide to pivot if they also see the potential market for this type of service and want a piece of their own.
<4 WHEELED EVSTARTUPS
If it wasn’t enough for you when I said I believe that there will be a surge in e-bike popularity within the next 18-24 months here is some proof!
6 automakers have developed, co-developed or partnered with bike makers to launch their own versions of the ‘last mile’ transportation solution. All are electric, and all are literally too expensive for the average consumer BUT the seed has been planted and you can bet they’re exploring ways to de-
content and ‘dumb’ some of these prototypes down for use in a sharing ecosystem like a Lime or Bird e-scooter.
Most of the highlighted products also seem to be a bit more practical than an e-scooter considering they have seats and generally have a range much longer than an e-scooter. These are only first tries, so let’s expect other new products at lower price points to come out as well for sale to individual consumers.
Most will be able to be folded and shoved in a trunk so that people can avoid city center traffic.
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.