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Blockbuster VW & XPeng collab, BYD Gets Heismann from India, Tesla Rangegate - SAI Newsletter 29



 

The family is headed back to Beijing for the first time since we moved back to the US and they’re pretty excited. I was planning to tag along but will be pushing my next trip out to October for now. Too many things going on here that need immediate attention although I am finding Zoom calls with interested parties in China aren’t getting it done either. Summers had always been tough for coordination & vacations when EVs became a thing in China a few years ago but with the addition of the IRA, it makes for an interesting list of questions on both sides that folks are wanting answers to. The focus of the Chinese govt is still on getting the economy back on the right track and for many Chinese that begins and ends with the real estate sector. Many Chinese have their wealth tied up in real estate and since it’s been down, it’s made people want to keep their money on the sidelines. That may be about to change as there could be policies announced in the coming week or so that would further support the sector. It’s all in hopes of getting the Chinese economy growing at more than the ~5% it was recently announced it was growing at. Elon also rebranded Twitter officially. It’s now called X. He wants to transform it into the West’s version of WeChat. A seemingly impossible task that only HE has the audaciousness to try to make happen. As someone who uses WeChat on a daily basis (still), let me say it is one of the most convenient apps on the planet. It is also very scary to think how much Tencent knows about me and WeChat's >1.5B users. Just some of the things I’ve done using WeChat: chat with friends, send pics, send documents, buy something, sell something, pay for my portion of a meal, hail a ride, unlock a shared bike, track a package, buy a maglev ticket, buy plane tix, do a survey, book a hotel, have a meeting and so much more. Basically, if you think about doing something on the interwebs, you can likely find a way to do it through wechat if you’re in China. Now, why it would be difficult for Elon, let me count the ways. First, in China when WeChat rolled out, there weren’t any real entrenched apps that dominated this respective space. In the US currently, there are dominant payment apps, chat apps, social media apps, e-commerce apps, ridehailing apps and sharing apps so there'd be a fight, likely a big one, each time X enters into a different market. Next, the growth at all costs mentality is over so using other people’s money to fund this transition could (strike that would) get a lot of pushback, especially as those other app companies he’s trying to disrupt do things to not let him. Further – people HATE forming new habits but if you’re already doing X, Y and Z on one app, then doing another thing on it adds convenience, hence WeChat. But in the US, I open at least a dozen or so apps on a daily basis. That’s our ‘habit’ so getting us to change it, even for something MORE convenient is going to be pretty challenging. People now are also much more conscious of data, their own specifically and what apps are doing with it. Many aren't comfortable with how its used. If X were to become the western WeChat, they’d need ALL sorts of your data. Finally, do you know who Pony Ma is? I didn’t think so. Now, do you know who Elon Musk is? Yeah, thought so. Elon is a polarizing figure, one that a certain percentage of the US does NOT want to help make richer. Even some celebrities are taking a huge stand. Pony Ma BTW is Tencent’s founder CEO – the maker of WeChat. Lastly, I need to keep this note in every newsletter. There may be a quite a few of you that have signed up for the newsletter that haven’t received it. If that’s the case, please check your spam folders. We add subscribers each week but depending on your spam filters you still may not receive it. I know it’s weird that I am writing this since if this note is in your spam folder you won’t ever read it but anyways… I was all set to push the send button earlier this week but with the huge news this week, I had to get my take in (see below) on the transaction. Will get it back to a normal rotation beginning next week. CHINA EVs & MORE Just finished with this week’s show so watch for it next week on the pod. We’ve decided to freeze the date / time of the live show to Friday, 9am EST. For those interested in joining, look out for the Spaces room each Friday morning. For those that want to ask questions, feel free to contact me directly or send them via email and I’ll do my best to answer them during the show. Any changes will be noted earlier in the week so make sure to give us a follow for updates. If you can’t join the live show, I invite you to listen to our recorded China EVs & More episodes at this site. And as always, we appreciate any feedback that will make the show better. Also, if there are any companies you want our thoughts on, let me know. QUOTED - Economist. For all the Tesla STANs out there that believe they and to a larger extent, Elon can do no wrong, trust the Economist to break down where some of Tesla’s weakness lies and the reality it has ahead of itself. I spoke with Simon Wright for his recent piece about Tesla and he does a great job of breaking down what it’ll take for Tesla to get anywhere close to the 20M by 2030 goal. Let’s just say that goal is all but impossible to hit, but even getting to half that changes the entire industry and puts some automakers out of business. - Axios. I had the pleasure of speaking with Joann Muller for this Axios article. It’s great to see that more western media are starting to pick up on the China EV Inc competitiveness and ambitiousness that’s causing a bunch of heartburn to all the foreign automakers that used to do VERY well in the China market. This article is all about the heartburn they’re causing as they move their attention and ambitions to the foreign markets, specifically US and the EU. The EU IMHO will end up creating some protectionist measures in order to help their domestic automakers, it’s either that or curtains for many of them. And there’s too much history and too much politics wrapped into many of those historical brands to see them go the way of Pontiac, Oldsmobile, Mercury and Saturn. - Technode. Traded Wechat’s with Jill Shen from Technode this week re: VW & Xpeng partnership. I won’t spoil the details of the article but let’s say she reached out to a few of us and summarized all of our takes on what to expect, what could be challenging and how it might end up working out. Worth the read so click on that Technode link. BLOCKBUSTER NEWS OF THE WEEK - VW Group decides it needs help in its most important market and writes a check to acquire a 4.99% stake in XPeng. It’s a $700M transaction and it’s a nod by the VW Group and VW China management team that they are much farther behind then they originally let on. I had the chance to speak with Liza Lin for her article for WSJ that details the transaction that you can read here. To my surprise, this HUGE news has been covered pretty significantly by Western media so I won’t talk too much about the transaction itself and focus more on the implications. First, it’s a bold move by VW. A necessary move, but also a desperate move. This investment along with the Audi announcement last week is an acknowledgement (finally!) that the VW team is ill equipped to be major players in the EV space in China without significant help from other Chinese EV companies. This transaction was 8 months in the making so let’s assume that VW was also talking to other China EV Inc. before finally settling on taking the plunge with XPeng. On the XPeng side, they’ve been struggling to build any momentum with their products since the launch of the G3 launched in late 2018. I thought they had promising products that just never panned out. On top of that, their move into the European market was filled with missteps. This transaction creates another revenue stream for XPeng, but it also could smooth out a number of rough edges from their European expansion. It will also plug XPeng’s ADAS system into what could me hundreds of thousands and possibly millions more vehicles in the next decade, depending on how successful VW is in building new products off the platform. This will help train their algo. Let’s face it, the only other players that should be able to boast this are Tesla and BYD. Tesla will be hampered by distrust of their FSD system in China while BYD hasn’t really looked at making ADAS and connected their first priority. Advantage: XPeng One of the headscratchers for me - VW will use the older platform that the XPeng G9 uses rather than the new G6 platform but that tells me that they are perhaps looking to build a larger vehicle vs. a midsize which is what the G6 is. They will also lean into the use of XPeng’s ADAS system so this is a fairly extensive partnership right off the bat. There’s also likely a call option for Volkswagen to acquire more of the company at a certain price in some future date should the relationship bear fruit for both parties. How much ownership would be available for sale would likely be dictated by the Chinese govt who I would see wanting to cap the ownership stake. This comes at a time that VW Group just reduced their 2023 global sales guidance by up to 500K units, most of which they’re losing from the China market. See more in the last post. These bold moves make some folks that follow both companies optimistic (XPeng is up >30%) but this is really step one, the tough parts are still to come for Volkswagen. Blume seems much more pragmatic and content to not be part of the news cycle but it’ll take more than him to turn this titanic of an organization around and unless he brings outsiders in to manage the shiny new bits (think SW, HW and digital), these moves will all be for naught. So, I’ve heard a few rumors but would love your take – who’s next to invest in one of the China EV Incs? BYD - The Indian govt says thanks but no thanks to BYD’s proposed $1B investment in building capacity for EV production in India. Surprising but not so much – what was surprising was that they threw BYD the Heismann on national security concerns! A rare setback for BYD. It feels like I’ve only been talking about how they are firing on ALL cylinders. I think there’s more to it too. We know China and India have a challenging relationship. We know that India has also banned a number of Chinese apps previously so this goes back a long way. For the last 40 or so years, the Chinese govt has been able to dictate the terms and conditions (Ts & Cs) to companies and countries that want to invest or do business in China, but now the shoe is on the other foot and there are likely a bunch of countries that have long memories. I also think that Tata and Mahindra are smiling as they are the ones who will gain from this the most. Current products from both could NOT compete with BYD’s so this gives them more time to launch more competitive products before BYD makes that breakthrough. The story is not over here. India knows that having BYD, like Tesla build in India would attract investment from the suppliers that want to follow both of them in. But the Indian govt also knows that their domestic players aren’t ready – just like the IRA buys some time for the US automakers. TESLA - Rangegate. Tesla has been overestimating the range of their vehicles since the early days. Good catch by friend of the newsletter Nori Shirouzu here. Light is like disinfectant, right? Is it egregious enough to be considered fraud, I bet there will be a number of people AND lawyers that will try to prove that it was. NEWS THAT GOT OUR ATTENTION THIS WEEK - General Motors, Honda, Hyundai, Kia, BMW Group, Mercedes-Benz Group and Stellantis N.V. combining superpowers to get more chargers on US roads. Now that the plug is decided, this should be much more straightforward. And necessary. I’d said that charging will come and that it’s in the best interests of these automakers to make it happen sooner than later so they decided to take control of that destiny. BRAVO. You know that EV adoption tipping point that looked distant just a few months ago? Well, it looks quite a bit closer today. This has to piss off the oil lobby in the US though. Hehe. #TrickleTrickleGUSH TRENDING ON SOCIAL MEDIA - LeapMotor is in the verge of making a major announcement next week. To answer my question up top, this could be the unveiling of the next foreign automaker who seeks help to stop the bleeding in the China market. I have a sneaking suspicion of who it is, Nissan so let’s see if I am right about it next week. Remember Toyota and BYD are already dance partners. BY THE NUMBERS - 9M. Volkswagen cut its delivery forecast down to this number from 9.5M. This is effectively their losses from China ICE sales and the lack of EV sales making up for the delta. Now we see why it was so important for them to bring viable products to their most important market. _________________ 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 global automotive and mobility sectors. 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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