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Biting chip restrictions, China EV Inc takes Paris, Top 5: Tesla Model Y - SAI Newsletter 39



 

This week we’ll be short and sweet. Still lots to cover though so let’s just go with it. I was in SF earlier this week – miss that place A LOT. I checked my Photos app and the last time I’d been there was in early 2019. I was in town for some meetings and to participate/attend a couple of conferences. Alas, I had to cut my attendance at one of the conferences short and missed the one thing I was really looking forward to, an interview with RJ Scaringe but I’ll be back in NorCal in about 2.5 weeks and this time will make it down to SoCal as well so for anyone in either area, hit me up if you want to meet up. A couple of world events that are worth noting. Liz Truss, UK Prime Minister has stepped down after 45 days. I guess she started working and thought – WOW. This kinda sucks. We are also in the middle of the 20th Party Congress in China where we’re expecting a third term to be confirmed for Xi Jinping. We are also NOT expecting ANY major shift in Zero Covid policy so my expectation is that we will need to QT well into 2023 should we want to enter China. That’s if folks can get visas in the first place. What this portends for the automotive sector and China’s economy well, analysts are predicting a slowdown in sales in early ’23. If that’s the case, it’ll put A LOT of pressure on the startups that aren’t well capitalized – which are most that haven’t gone public so we could see some closures, consolidations and good teams and/or IP picked up on the cheap come late 2023. Another trend we should see growing substantially in 2023 – more suppliers & contract manufacturers that normally serve the high-tech sectors and customers like Amazon, Google, Meta, Microsoft and Apple will creep their way into selling their wares to OEMs and EV companies. The shift has already begun which means the weaker tier 1s that haven’t been innovating or are slow to pivot will see some tough times in 2023. What else got our attention this week.

- More good investment news for the US. BMW plans to spend a total of $1.7B to fit out its factory in Spartanburg, South Carolina in preparation for EV production while also building a battery factory to assemble modules close by. To complement BMW’s investment announcement, AESC, a battery cell manufacturer plans to invest in a 30 GWh factory to support BMW’s production. No real details were made about the battery cell factory though. - Why party stores (what we Michiganders call 7-11s since the stuff they sell there are all things you bring to a party!) aka convenience stores don’t want anything to do with EV charging although it makes a ton of sense? The utility bill. - Mullen acquires Electric Last Mile Solutions (ELMS) for $240M. It was a cash play and basically allowed them to acquire the Mishawaka factory in Indiana that used to build Hummers. Not sure how much IP ELMS actually had to acquire but most startups biggest challenge is where they’ll build their product? This answers that question – now where will they get the funding to prime the parts pump in order to get to Job #1 – that’s the next item on the list of ‘Things to do’ apparently. ---------- Another change to this week’s podcast, we’re going live on Friday, October 21st 3pm. That’s tomorrow. Lots to unpack including Lei’s trip to Paris to kick the tires on some of the China EV Inc that we talk about often on the show.! For those that can’t join live (shame on you!), the China 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. GET SMARTER - We know that China is dominating the world in BEV sales but let’s dig deeper.

  • ¥100-150K ($14-21K) = 27% share of sales

  • ¥150-200K ($21-28K) = 14%

  • ¥200-300K ($28-42K) = 26%

This means that BEVs priced <¥300K ($42K) make up 67% of the market. Contrast that with BEVs that are >¥300K ($42K), they own ~4% of the market. Unpacking this – companies like NIO, Tesla, Li Auto and their peers sell relatively expensive vehicles in China and frankly not that many of them (relatively anyway) and they’ll likely never sell in the volumes of their much less expensive peers. But that’s also why we’ve seen BYD dominate, why Tesla has been rumored to be working on a $25K Model 2 and NIO will be launching a mass market brand later this year. They want to get into the volume game. Let’s be clear – that rumored Tesla Model 2 is more for the China/India markets than the US market where it still commands crazy share and doesn’t have many real competitors yet. Lastly, among all of those brands in China that play in the <¥300K price range there are several that design and build BEVs worthy of export – BYD being the prime example and the traditional legacies whose strongholds are Europe and the US should be VERY worried about those brands entering ‘their’ markets. - The Chinese govt scrambling to assess the impact of the latest restrictions the US govt. has placed on chips and chip-making equipment. Let’s be clear here. This is a VERY big escalation on the US side and that they dropped this on China during the 20th Party Congress is highly unlikely a coincidence. The language in this new policy is quite specific and targeted and points to details like clock speeds, the sizes of memory and technology processes that will be restricted. Further, and this is where the rubber meets the road, the US govt has placed restrictions on people with US passports prohibited from ‘helping’ China further its capabilities in the space. It’s not just the Chinese govt really assessing damage though, it’s the US side that’s trying to get a read on reactions and what potential retaliations will be – AND there will be retaliations. My fear is that this is really going to continue to escalate without any off-ramp in sight. We’ll be closely watching this space for any new/updated reax. IN THE NEWS - A week after its BIG Berlin event, NIO has already begun shipping ET7s to customers in the Netherlands, Germany, Sweden and Denmark. NIO has also already backstroked a bit on their subscription ONLY model and is now considering vehicles for purchase. It shouldn’t be a surprise that they’ve begun shipping the vehicles since there were a few hundred that had been shipped earlier this year to Europe that were just being sat on. Likely the years allotment of vehicles to the country since I’ve been told we won’t expect another shipment by NIO to Europe this year. BUT the hope from NIO is that we should begin to see demand for the ET5 building in hopes of becoming the main competitor to the BMW 3/5 Series, the Merc C/E Class and Audi’s A4/5 products. QUOTED/INTERVIEWED TaiwanPlus: Was asked by Louise Watt about Foxconn’s EV ambitions for her video piece here. How I see it, Foxconn will have a steep learning curve on both the manufacturing side and potentially becoming a B2C company where they’ll need to directly interact with their consumers and understand their needs and be able to translate that into features and a product that not only meets their needs but keeps them safe against large trucks and buses. The manufacturing part I think they’ll get eventually, the designing a product for not just the Taiwanese market could be the one that gives them some trouble. Ojo-Yoshida Report: I had a nice chat with Junko Yoshida for her detailed unpacking of Volkswagen’s investment in Horizon that you can find here. It may be also behind a paywall. Junko does a fantastic job with giving a bit of history and color on Cariad, Volkswagen and how we got to this point. I think it’s important to note that this ‘buy’ decision should tell us that in order to compete in China, Volkswagen believes that it needs help either because they don’t believe they can develop the skillset in-house or that they can’t do it fast enough. I believe it to be both. I also think that with the chip restrictions being dialed up by the US govt, this could give VW an opening in the China market since there’s a decent likelihood that US companies including the autos could face a much tougher time selling their products in China as part of the retaliation. We should also remember that China EV Inc is beginning to ship products to foreign markets so the Chinese govt should tread lightly or brands like NIO, BYD, XPeng and others could face similar backlash in recently entered markets. Let’s just hope that cooler heads prevail. TESLA - The Model Y should become a Top 5 global car in sales this year. That’s quite an accomplishment for Tesla that’ll likely be lost among its softening demand, specifically in China where about 50% of their sales will reside for 2022. TRENDING ON SOCIAL MEDIA - China EV Inc makes a BIG splash at the Paris Auto show. A bit envious of Lei since he was able to join and kick the tires on some of the cars we talk about on the podcast but we BOTH plan to head to LA for the Auto show in about three weeks so that’ll be a ton of fun. Key themes for the show - Similar to Detroit, much smaller with many brands not attending or paring down their booths. Also, EVs took center-stage as the European brands unveiled locally made EVs. Finally. the Chinese contingent aka China EV Inc was well represented with BYD leading the way. - Beijing evaluating whether to shorten QT period from 10 to 7 days? Currently, mandatory quarantine would be 7 days in a hotel and then 3 days at home but ONLY if the local property managers and your neighbors allow it. That’s a crap shoot as I’ve heard from friends that have been allowed and have NOT been allowed to do home quarantine. The government is now looking at 2 days of QT at a hotel and then 5 days at home. This would be a major move forward for China even as most of the world outside has completely moved on and are now living with Covid. Let me tell you from my recent experience being in the US, no one seems to care and there are NOT many masks even on planes. The big question is will this ultimately help China open back up or are most people that would want/need to travel back to China still not be keen to QT at all? For now, we can speculate all we want because if you want to go to China right now, the current mandatory QT is 10 days, that’s if you can get a visa for entry and then afford the plane ticket back to China. If you’re trying to get to BJ right now, it’s even dicier. INTRODUCING - The Rolls Royce (RR) Spectre, RR’s first fully electric product. This two door grand tourer vehicle will replace the Wraith which it looks a lot like, in the current lineup and has a range of 320 miles and start at an aggressively priced $413K! These are the indications that EVs have truly become a global phenomenon. - Not to be outdone, Cadillac this week unveiled its Celestiq halo car for the brand. At a starting price of $300K, Cadillac is trying to take its place among the ultra-luxury brands like Rolls and Bentley. Each vehicle will be bespoke and one of a kind. The design process could take up to 10 months and each will be hand built in Warren at the GM Tech Center. I applaud GM’s ambitiousness with reaching for the stars on this one. Can it return to past glory though, not likely on this first try. There are things I really like about the Celestiq and things, like the rear end that doesn’t look quite finished, that are a bit clunky.

BY THE NUMBERS - $40B. That’s how much has been announced in total investment for battery cell manufacturing in the US to ensure that growing demand for EVs has sufficient supply of locally manufactured battery cells to support. This points to President Biden’s goal of 50% of US vehicle sales being electric by 2030. - >$20B. That’s how much the value of Mobileye is estimated to shrink to from ~$50B (hopeful) valuation that Intel was looking for. I was reminded by friend of Sino Auto Insights Michael Dunne that Intel’s original purchase price for Mobileye back in 2017 was about ~$15B. DOH. ---------- 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 Team

 

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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