Byton drama, market continues fall, NIU to the U.S. - SAI Newsletter #14
Will keep this short and sweet since I’ll likely have a good set of updates next week for the Shanghai Auto show. There are a few announcements already but will try to consolidate and put into one newsletter to make it easier to follow.
Besides, I am still traveling and will be in Detroit starting on Saturday through Wednesday, then Shanghai until April 20th. Anyone at either of those locations, drop me a line if you’d like to get together.
For you new readers, my name is Tu Le and I am the founder and managing director of Sino Auto Insights.
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
Overhead and likely drone snapshots have been making the rounds on China’s twitter of lots full of unused EVs in the tier 2 city of Hangzhou.
This is similar to the bikeshare bicycle ‘graveyards,’ basically mountains of bikes piled up that were rounded up by cities because so many were blocking roads and sidewalks. China’s MO has always been one or two companies start a ‘sharing’ business, quite a few copycats follow suit and next thing you know there’s too many of a good thing.
In this case, the vehicles are likely manufactured by a state-owned enterprise (SOE) where profits and efficiency are not top priorities, hence the thousands being parked unused. We have not gotten to that point with any of the EVStartup companies yet but it would NOT shock me to see some popping up within the next 12-15 months as production kicks off for many of them while sales become more and more challenging.
In a surprising turn of events, Carsten Breitfeld is rumored to be leaving Byton at a hugely important juncture in the company’s brief history.
What we know is that most, if not all EVStartup companies will need more financing in order to move their products from concept to Job1. This has only been exacerbated by the fact the automotive sector in China is still shrinking, the lone bright spot being the EV sector is still growing, and last week the Chinese govt. announced that they will be substantially reducing the subsidies that have been handed out over the last few years which will likely put downward pressure on pricing and sales of EVs.
In Byton’s particular case, and I am completely speculating here but sounds like a combination of clashing egos and disagreement on company strategy the reasons for his departure since co-founders leaving a startup is not common, especially if they’re not being forced out AND the product hasn’t even launched.
I would also speculate that the product team is having a long hard look at the features currently slated to be available at launch for the M-Byte and are reconciling that list with the potentially limited capital available and the importance of launching on-time with a viable, successful product that HAS to be mostly bug free in order to stand a chance of surviving in this brutal, competitive market.
If I was the adult in the room for these meetings, that’s what I would be challenging the marketing and product folks on. The pressure to successfully launch is increasing and with the news of NIO's struggling sales, that has to only add to management’s anxiety. IMHO it’s better to simplify, launch on-time with a decent amount of quality than delaying the launch due to the complexity of the product you’re trying to bring to market.
As a follow up to my post on subsidies on EVs being reduced by the Chinese govt. this article does a good job of summarizing why it’s important to let competition put the poor performing EV companies that manufacture the least reliable, dangerous even, EVs out of their misery.
As it relates to quality, an EV’s main challenges are delivering on range, reliability, and safety. Since a large portion of the 1.27M EVs sold in 2018 are from the lower price bracket which tends to have less reliable and more dangerous batteries, this helps explain the numerous complaints about quality and range.
Unless Chinese consumers are able to feel good and safe when getting into their EVs, it will take a lot longer than the Chinese govt. would like to become to thea global leader in EVs.
I propose this exercise to people that want to understand which companies, both OEMs and tech, will eventually control a vehicle's ability to monetize via services outside of ridehailing/sharing.
When you sit in your car, the first thing you see dead center on your steering wheel is the logo/brand of the vehicle. When you fire up your phone, if it’s an iPhone you see the Apple logo and if it’s an Android phone, you’ll likely see the Android logo then maybe the handset logo a few seconds later.
That’s what companies are fighting for ultimately, to be that logo you see once you get inside your vehicle.
This is really a debate for another time but if you’re truly designing the ultimate ‘user experience’ it should begin as you wake up since your phone already likely knows your schedule and can help you sort everything out, like checking traffic, hailing an Uber/Didi, ordering or making your coffee and telling you what time your car will arrive, as you’re brushing your teeth. I’d further argue that once you get inside your vehicle, companies would’ve already missed multiple opportunities to deliver a great user experience/monetizing opportunities. For now though, let’s keep the discussion to once we get inside the vehicle.
‘Make vs. Buy’ has a lot more implications in this instance than ever before and right now the ONLY play I see carmakers having is to do this on their own OR licensing a portion of the backend software to create the scale and depending on brand and positioning, creating a customized user experience for each individual customer by brand.
This is where VW Group’s decision is fraught with risk and opportunity. They have the largest stable of brands to manage and although the backend could be shared and scaled, if they really want their customers to pay premium pricing for an Audi, Porsche, Bentley, etc. the user experience needs to address the needs of that specific target market.
You could argue that the ride-hailing companies have already taken some of the ‘shine’ off the OEM brands since most people couldn’t tell you the make or model of the Uber or Didi picked them up in yesterday. But for the OEMs, it’s an existential threat that needs immediate attention.
ECONOMY & MARKET
The folks that follow this sector closely may already know much of what this Economist article spends a decent amount of time and detail explaining. The sheer size, the willingness of the govt. to support, data available, and lack of history of internal combustion engine vehicles (ICEs) all point to China already becoming a dominant player in the future of the transportation sector.
Notice I did not say, THE, since I believe that similar to the thinking that the world will have 2 internets, I think that Chinese companies will dominate China, U.S. companies will dominate the U.S. and there will be a dogfight between the two for the European and rest of the world (ROW) markets.
Momentum also will not make up for the technological expertise that the U.S. still holds over China in the many important sectors that will help decide the winners, such as AI, hardware, and chips and that will still need to be reconciled before China can really dominate their local market. The U.S.’s main issues have more to deal with data, the government, and special interests who’d prefer we stick to ICEs and keeping those robots off the road.
The article is a pretty good overall capstone on how the sector has been evolving and many points are raised that should be considered when determining what needs to happen and when it will happen in order to succeed in the future of the EV/AV and mobility sectors.
The Chinese automotive market had its 9th consecutive month of declining sales. This is making out to be a terrible year for ICE car sales, the bright spot being NEV sales are still growing, this time to 126K units for March.
Chinese electric scooter manufacturer NIU has its sights set on global domination. Having added 10 more countries to its list of where they can be purchased, they seem to have the cadence down with entry into the U.S. market on the near horizon.
Price points are on the high side >$2,500 (there are cheaper versions sold in China) but I can totally see these being a hit on the coasts, one and two season cities, and with college kids, ultimately promoting another way to bypass car ownership. Could we see future partnerships in NIU’s near future as part of the sharing economy? Some e-scooter companies have already beta tested scooter sharing in Asian and European cities, but for it to happen and catch in the U.S., it would take a savvy team and a lot of cooperation at the municipal level in order to succeed so for now, they’ll probably just sell them and make a bunch of money doing it.
Lastly, I am not sure if NIU scooters are victims of Trump’s trade war but I will find out. A 25% tariff on top of the premium pricing could put a BIG dent in sales before they even build momentum.
The solution Sun Mobility, an Indian mobility startup, is testing just makes a lot of sense for a country like India whose pollution has been bad for some time and getting worse.
It’s also another vote for the battery swapping business model, something that Gogoro, the Taiwanese e-scooter company has rolled out in Taiwan, Japan, and some European cities. This takes it a step further by swapping out not only rickshaw/tuk-tuk but larger buses as well. They’re likely a long way from making money but it’s great to see the attempts from any startup that wants to tackle an industrialization issue that affects every single citizen that inhabits a polluted city. Will try to learn more about this company and update accordingly.
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.