CALB on CATL's heels, Tesla is Tanking, Bosch & WeRide Co-Lab - SAI Newsletter 20
It’s becoming a bit more restrictive now in Beijing. This week our complex banned delivery people from entering our buildings so now all deliveries are dropped off outside of the main entry doors and we go pick them up ourselves. At least deliveries are still consistently coming. Covid numbers for Beijing were up over 80 a couple of days this week so there are parts of Beijing where barriers have been erected while some areas have gone into a more severe Shanghai-like lockdown, and some people have even been bused to central quarantine. The outlook isn’t good, but I remain hopeful (fingers crossed) that we can avoid a serious citywide closure that lasts indefinitely. A few more of my friends and associates are leaving China for good. Some are leaving and heading back to their home countries without even having a soft landing/job waiting for them, they’ve just had enough of the Shanghai lockdown. Many of them do have automotive backgrounds so for the readers in Europe and the US, if you’re looking for qualified consultants and/or industry folks both on the technical or commercial side, shoot me a note maybe I can make an introduction. As someone who’s lived in China for the last 12 years there has always been moments of frustration that led to expats leaving. That said, there’s ALWAYS another set of younger, single, and ambitious expats to come take their place, but there’s been a downward trend over the last several years as the number of expats in cities like Beijing, Shenzhen, and Shanghai shrinks. Further, people I trust believe that this time, it’s gonna leave a mark and that the economy will not be the same. If I were young, ambitious and wanted to live abroad for a few years, I may not choose China, in fact, I would likely choose Vietnam. For those that haven’t been to Vietnam recently or ever, go for a visit. Saigon’s (I refuse to call the place of my birth Ho Chi Minh City) energy is infectious. A bit of irony in me saying this but it reminds me of the energy I felt the first few times I went to Shanghai years ago. Lots of beaches, amazing food, friendly, hardworking and entrepreneurial people with a cost of living that’s doable. Along with expats leaving, companies have been dealing with the increasing number of challenges of doing business in China and how much more expensive it’s gotten to do said business, especially when compared to the costs in South Asia and Southeast Asia. On the other side, domestic Chinese companies have really become much better with design, quality, and branding and that’s made competing for the Chinese consumer much more challenging with customer acquisition costs growing. A perfect example is the EV sector. If companies were on the fence about doubling down on investment in China, the Shanghai debacle may be the straw that broke the camel’s back. After years of investment, they may see that the market for their product has become too competitive to really gain any significant share and believe that there are better returns for their investments in other parts of the world. That would help explain Volkswagen’s vocal commitment to the US market and goal of doubling market share in the US by 2030 and Hyundai’s recent announcement of investing >$10B, most of it before 2025. They see a better return for their investment while also having to deal with less non-business related BS. The only other country in this world that can challenge China in regard to manufacturing prowess is India and that’s only in theory since for the longest time and for a number of reasons, India has been unable to compete. So will the Indian govt. see an opportunity to attract that FDI? The clear winners in all of this are and will continue to be Thailand, the Philippines, Vietnam, Bangladesh, Singapore and a few other SEA countries. But even if you combined all those countries together, they still may not be able to compete with China in manufacturing capacity so although I do see companies looking elsewhere for cheaper growth prospects, they will remain present in China as long as it remains a cash cow and isn’t too mafan (read: too much trouble) even if just to maintain the status quo since this market still dwarfs the dozens of other markets they sell into, many by a lot. I finally booked my plane ticket back to the US. It didn’t break the bank either so that’s one big burden I won’t have to think about anymore. I’ll have a TON to do and likely a bit of domestic travel while I am there visiting family, friends, associates, clients and places on both the best coast and east. This also means I’ll definitely be in Detroit for the auto show so for those planning to be in town that week, let’s meet up! Last week, we dropped our latest China EVs & More MAX episode with Steve Levine as our guest. For those who aren’t familiar with Steve, he’s the Editor at The Electric, a weekly newsletter that focuses on batteries and EVs. I originally reached out to him a few months ago to ask if he’d participate in the MOBILIT/E Conference and he not only participated but hosted a fireside with Levi Tillemann, the head of Policy at Ample, the US’s best known battery swapping startup. Lei and I had such a great time talking with Steve that we couldn’t decide what parts to cut so we just broke our chat with him into two parts. For those who want to be educated on batteries, raw materials, different chemistries, China vs. the US, battery tech and much more, I invite you to have a listen to both episodes, I promise that you won’t be disappointed. Please join Lei and me for this week’s China EVs & More Twitter Spaces room on Thursday, 05.26 – 9pm EST, Friday, 05.27 – 9am China local time. For getting a download on all that’s happening in the space. Those that aren’t able to join, 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. QUOTED - Asia Nikkei. We know about the importance of CATL & BYD batteries to the Chinese EV sector but do we know who’s currently in 3rd place? That’s right, it’s CALB! Who you say??? I had a chance to speak with Zach Coleman and CK Tan for this story on CALB, which started out as an aviation supply company but quickly shifted to EV batteries and has the backing of some pretty substantial provincial level governments as well as private backers like Xiaomi founder Lei Jun and Sequoia Capital. To learn more about the 6th largest battery cell provider in the world, click on the link here. - Sixth Tone. If you want to know why it’s so hard for the OEMs to get back online, read this article that details the challenges that Tesla ran into when it tried opening ShanghaiGiga back up a couple of weeks ago. And these types of challenges aren’t going away anytime soon which means that production could be halted again and again with no real momentum being built up. Click here for those details. - The Ojo-Yoshida Report. I wasn’t quoted but I was a guest on their podcast where we talked China EVs & AVs. Funny with the shoe being on the other foot but Junko, George, and Bola asked some great questions and I did my best to answer them thoughtfully – if you want to hear me answering instead of asking the questions – here’s the link. TESLA - Tesla is down ~40% since early April, is the party over for them? You’d be forgiven to think that you’ve heard this one before. A lot of people have taken a bath betting that Tesla is overvalued. The ONLY reason I track their share price is because it’s basically the only way to keep score. But nothing about Tesla’s numbers, including the share price, makes any sense. I think that has a lot to do with western analysts that haven’t the faintest idea of how Tesla operates in China yet make HUGE proclamations about how well they’re going to do globally. If they can’t speak intelligently about what Tesla is doing in China, walk away just walk away. I say that because China is where Tesla’s bread is going to be buttered for the foreseeable future both from a sales and a production standpoint. They JUST doubled down on China by committing to increasing capacity to 2M units at Tesla City, that’s the name I coined for Linggang area in Pudong aka ShanghaiGiga. And now that they have BerlinGiga online, the lion’s share of that production will need to be consumed domestically. Sure, Tesla will use Shanghai capacity to export to Japan, Korea, SEA and Oz but if a few years from now the majority of their capacity is exported, they’re in BIG trouble in the China market. Remember that Elon said he wants to sell 20M cars by 2030 so Tesla NEEDS to rely on China, in the same vein that VW Group relies on China. To their detriment. He can’t get to 20M units if he doesn’t sell at least 6-8M of them right here. The US and EU will play their sales roles for Tesla too but even though the EV markets for the US and EU are growing, their overall market demand is not – so we’re likely looking at an EU market that tops out at 14-15M units/annum and a US market that tops out at around 18M. Another wrinkle, Tesla will NOT be able to reach that lofty goal of 20M if they do NOT have multiple products that each sell in the 2-3M units/annum. Cybertruck is NEVER on its best day going to do that. The Model 3 is already seeing declining sales. What things (with an ‘s’) does Tesla have in the pipeline that would warrant global share like that, I can’t wait to see! And by 2030, there will be more products than ever for a consumer to choose from which should eat into Tesla’s share. So that leaves Tesla selling into fleets (perhaps robotaxis), which it is experimenting with now to push that volume. The number that I want to throw out is that currently Toyota and VW Group are the world’s largest automakers at about 10M units sold/year and they fight each other for that title almost annually. And on top of that, they hit those numbers with more than one brand. Tesla’s goal is to double that. I’ve just gamed out a bit how Tesla may get to 20M by 2030 but what’s clear is that it isn’t going to be easy and the road will only get tougher. Say what you want about some of their competitors, Toyota and Hyundai are pretty well managed companies, not to mention there could be some late-comers (read: Apple) that have something to say about who leads in the mobility space in the future. The key takeaway from all of this – There is NO scenario I see that Tesla gets to 20M without China playing a significant role both in production and sales. Then again, Elon could be just riffing and throwing out random goals that aren’t rooted in reality or any Tesla strategic plan to get there. GET SMARTER - If USA EV Inc is going to lose, it’s going to be here. In the trenches, and by trenches I mean everything that is outside of the car. Let’s just say the OEMs get the infotainment and UX right inside the car – that’s only half of the battle! Tech companies are going to get this right – Chinese EV makers are getting it right (see NIO app stickiness) so the legacies also need to get this right. It becomes a qualifier not a differentiator. That’s unless you get it REALLY right and become the benchmark, but we are getting ahead of ourselves here. It’s selecting the ‘appropriate’ features for the app, putting them all together and having it work alongside the vehicle features that together create one, seamless, compelling UX. Stuff just needs to make sense, and that’s hard. Customers, especially younger ones will want to explore how far they can take their vehicle’s capabilities while NOT in the car. Whether it’s turning on the aircon so that the seats aren’t scorching hot prior to entry, remotely locking the doors, to vehicle theft detection and diagnostics, all of those functions and plenty more should be at an owner’s fingertips via an app when they purchase vehicles now. Even speaking with someone or finding out the latest software bug and patch should ALL be communicated via the app. Automakers have NEVER had this opportunity to build brand loyalty and a (+) Net Promotor Score since once they bought the car, they handed the customer relationship over to the dealer. Now they can directly affect brand perception through a great product and then reinforce it with a user centered, robust app. On top of this, that app should cost next to nothing to build but it needs to be built right and without bugs. They only have one chance to make that first impression, right? The backend could get a bit hairy but that’s all being worked out enterprise-wide isn’t it? AND this is why I preach that OEMs need tech folks in leadership roles. The car plays a less important role as part of the customer’s entire journey. It begins when they wake up or even the night before since they would likely have access to a person’s calendar and know when and where the next appointment is, what buying habits the person has and plug-ins that link external, real-time data to their custom feed. When it is designed well, it’s a thing of beauty, when it’s not it’s a freakin’ nightmare. People won’t want to use it but will happily blame the brand, not the app for the design flaws. This is SO important that I hope more OEMs review the results of the referenced JD Power’s OEM EV App Benchmark study and make the necessary adjustments to the UX and prioritize it in the future as one of the key touchpoints for a great customer relationship and brandbuilding. THE MOST INTERESTING THINGS THAT HAPPENED THIS WEEK - Are India’s electric vehicle hopes going up in smoke? Recently in India, there has been a bit of excitement about finally cleaning up the choking pollution and one of the tools they were going to use to do that? Two-wheeled scooters. Companies like Gogoro were entering the market through partners (Hero) while electric scooter startups like Ola Electric were popping up left and right hoping to beat the legacy petrol scooter makers like Hero, Honda, Yamaha to the electric promised land. Much of this fervor and excitement has started to fade as recent battery fires have sounded alarm bells about whether these scooters, or more appropriately the scooter batteries were tested properly before launching to the public. One thing that’s important to note about Asia, especially South and Southeast Asia is that these scooters are not just used for individuals to get around but they can be used to transport families around. With horrific videos of scooters and sometimes even people catching on fire, it can scare people away - which is exactly what it’s done in India. Every few years, investment pours into India with the belief that they can be the next China. Let me just stop everyone right there. There will NEVER be another China. India will move, develop and adopt new technologies at its own pace. If you have the patience and importantly, the capital to wait for that moment when the Indian economy reaches critical mass, there’s a monster opportunity on the other side but too many investors have been optimistic for too long about India’s ‘potential.’ And unfortunately, with two wheeled mopeds, this time it doesn’t seem like the market wasn’t ready but the companies. IN THE NEWS - The latest on the Apple Car. The latest on the Apple Car is that it’ll be launched sometime in 2025. There’s been a recent surge in hiring from traditional automotive companies and EV startups alike to build out the team. Since it’s inception, there have been numerous fits and starts that included a few different changes in leadership to ‘Project Titan,’ most that corresponded with changes in strategy moving from both a HW/SW product to a mostly SW offering. Apple will still need an OEM partner to manufacture their vehicle but how much design control they have over that vehicle is what’s currently unknown. This article does a pretty good job of accurately summarizing the history of the project as well as what the latest news is. At least it aligns with a lot that I’ve been told so for those playing catch up, this may be worth a read for you. - Surprise! Didi has decided to delist. Of course, this surprises no one and where they go from here is still very much up in the air as they’ve not been taken out of timeout by the Chinese govt yet. This has to be one of the conditions for getting back to operating without any constraints but what else will they need to do? This isn’t the end of the story, expect another one or two twists before the saga is finally over. TRENDING ON SOCIAL MEDIA - Bosch bets on WeRide. With the US capital markets off-limits for companies like WeRide, Pony, and Momenta, they need to raise more venture capital to launch more pilots and frankly keep their doors open. These AV startups will need to find ways to generate revenue in the near term though if they’re to continue to grow their valuations. It looks like WeRide is currently valued at $4.4B after this Bosch investment but how much more will they and their peers have to raise and how much more of the company will they need to give up to keep the capital coming in? This on the heels of 2nd wave AV startups like DeepRoute and QCraft who seem to be nimbler and more aggressive with their product launches. Is it slow and steady wins the race or just whoever raises more capital? I thought Bosch was working on their own HW/SW stack? How is this going to work? Did Bosch need this because they need a Chinese partner to enter the market? Lots of questions in my mind that need answering. BY THE NUMBERS - -19%. That’s how much China May retail car sales is forecasted to shrink YoY. And everybody is hurting (>80% of car companies), not just a couple of automakers. This is in addition to April shrinking 35.4% YoY. This is worrying enough that the Chinese govt is rumored to be considering a stimulus to get the sector back on track. But as long as Covid continues to linger, the prospects of growth in the sector will be very suspect. - Correction: ¥10K - That’s how much QCraft’s L2 solution that was announced last week is going for. I fatfingered $10K! This shouldn’t be confused with DeepRoute’s $10K L4 solution that’s currently being piloted by vehicles in Shenzhen although it does seem that QCraft are gunning for lowest cost stack bragging rights for China alongside DeepRoute. A little friendly competition never hurt anyone and as long as they push each other, the sector should benefit. And put pressure on the other players to do more …with less. —— 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.