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Checking out some EVs, Diess Out of VW Group, China and Chip Fabrication - SAI Newsletter 29


I’ve been a very busy beaver the last week. Friend of Sino Auto Insights and industry insider Mark Rainford dropped into Beijing to try out some cars so we decided to co-lab on some EV content. There will be videos for each vehicle we checked out so I won’t get into it too much here. But just to summarize, the cars we drove/saw this & last week: Polestar 2 Evoke (electric) Motorcycles Urban Classic Zeekr 001 XPeng P7 Li Auto L9 Apollo L4 RT6 prototype I am not sure you could’ve gotten a more diverse set of vehicles pulled together and it was great experiencing them all. Technical bugs aside for some - these are ALL formidable vehicles for their segments. We also documented our Polestar 2 charging experience with Anders Hove, one of the most knowledgeable folks out there about charging infrastructure globally, that we’ll share as well. All in all, a great week to check out what’s currently and will be available here in China and abroad. Except for the L9 & RT6, everything should be available in Europe, if not yet then soon. I often get invited to visit companies and pre-Covid, always thought ‘there’s always time’ so I’ll try not to take those invitations too lightly moving forward. We aren’t in the business of car reviews but I have a pretty good history of trying out a lot of them. To be frank, many reviews IMHO (for several reasons) just aren’t that great, so it was cool to collaborate on content with Mark since he’s a journo with a good background in the automotive space. We definitely give a deeper take than what you might see from other enthusiasts or KOLs. The biggest news of last week that’s worth the up top post was of Herbert Diess, Volkswagen Group’s CEO getting ‘got.’ It seems the three factions that quite literally run VW Group: the Porsche & Piëch family, the Works Council (union) and the State of Lower Saxony – all thought that it was time for him to go and they decided to do it the day before he went on vacation. Here’s my take, a lot of which is in this great article by Junko Yoshida for her site dedicated to the latest news on the development of the latest technologies, the Ojo-Yoshida Report. A couple of Diess’s main responsibilities was to be an agitator AND master motivator but it seems like he was only able to achieve one of the two. Next, was his inability to sort out the software dev strategy. For those of you who’ve followed me or this newsletter for any length of time, you have probably gotten sick of how much time I spend talking about software being one of the keys to a successful legacy transition into the modern mobility space. With Diess, he obviously underestimated how difficult such a task would be and overestimated his strategy for being able to bring everything in-house all at once. Here’s the rub – Apple or Google isn’t popping off about how they plan to build cars and hire thousands of automotive engineers and overtake Tesla by 2025 because they know its REALLY hard to do! In Apple’s case with its products, many of their quality challenges stem from failed HW. They have bugs in their software as well but all of the major tech companies are able to quickly launch SW patches before most of their users even know it was a known ‘bug.’ So it’s not just writing original code, it’s being able to quickly ID the bug, then send out a patch to fix it. Contrast that with most legacies still struggling to send out OTA updates. We’ve heard about the Apple car now for years and what have we seen – nada. I’ve never seen Apple this indecisive about entering a market EVER but this is reflective of the sector being one of the most complex, capital intensive, competitive and frustrating sectors you could enter. In addition, most German auto execs probably didn’t know what ‘buggy’ software was because they use an Android or iPhone which rarely has showstopping issues with software. How many execs actually sit at their desk and read their own email? And reply themselves? Use an iPad regularly? Again, I might put that number at 50%? So, if they’ve never built anything with software, managed teams that have done it and don’t really use the technology driven by software – why in the hell would they think they could just add ‘thousands’ of devs and all of a sudden have a world beating OS, let alone an entire HW/SW stack? That could compete against Apple, Google or Amazon’s? Kinda ridiculous. Tesla is a prime example, and this is where Elon should be applauded for his brutal honesty. Did Diess EVER say, ‘Man – this software thing is really hard and we’re currently going through software dev hell!’ I don’t think so. He overplayed that hand and it looks like it’s a big reason he’s not in the top job anymore. Thing is with VW Group – they seemed to have sabotaged themselves in order to oust Diess. So old culture won out. Which doesn’t point to this being any easier for Oliver Blume, Diess’ replacement. Old culture right now is a poison that needs some strong medicine. You know the old adage – hard pill to swallow? Well, there are more than a few that need to be swallowed in VW Group’s case. Let's also remember that this is the company that brought you diesel-gate. So any hint of a reputation they had of being an innovative company should have a BIG, FAT asterisk next to it. Because we haven’t even gotten to their challenges in the China market. In China, it’s a product thing, or more appropriately a lack of relevant product. The software and the product challenges aren’t easy or quick fixes. But what they can do is try to move faster. No more thinking, just doing. On the software side, iterate. The software is gonna suck and it’s gonna suck for a while but that’s the ONLY way it’ll get better. ‘Buy’ the software you’re not able to do well in a reasonable time – use it as a placeholder until you can dev something to replace it. Otherwise, products will continue to be delayed which in the China market will lose you share in a heartbeat. Share you’re NOT likely to get back unless you’re willing to pay a heavy price. China EVs & More is scheduled this week for Thursday, 07.28 – 9pm EST, Friday, 07.29 – 9am China local time so meet us in our Twitter Spaces room then to get a download on all that’s happening in the space. Those that can’t 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 - WSJ. I spoke with Selina Cheng for her update about BYD. Some interesting stats from the article – BYD became the 2nd best-selling brand after FAW Volkswagen for the first half of 2022. Domestic brands collectively saw a rise in sales of 18% YoY while foreign JV brands fell 6%. BYD is firing on all electric & hybrid motors. Foreign brands need a hug. The combination of lost interest in ICE vehicles and the strength of domestics in NEVs is putting a MAJOR squeeze on them that won’t let up anytime soon. TESLA - Where in China does Tesla sell the most vehicles? We know that Tesla is the best-selling EV in the world and the China market helps them make that claim. But which cities in China really love Tesla? It’s no surprise that Shanghai, home of ShanghaiGiga would be #1 on the list but the order of the top 5 may surprise you. #2. Shenzhen #3. Hangzhou #4. Beijing #5. Chengdu – I was surprised about #3 and that Beijing was not higher. IN THE NEWS - Faraday Future (FF) is gonna run out of lives. Product was supposed to begin delivery this month. If I were a promising young engineer or ambitious investor, I’d steer clear of this train wreck of a company. The combination of bad and mis-management really leaves you wondering what they’ve done with all of the capital they’ve raised so far. The output we’ve seen from them? One production intent FF91. They are trying to raise in the range of ~$350M but how I see it, they need closer to $1B. And even then, Vegas would likely give FF pretty long odds of delivering its first customer within the next 6-8 months, if ever. - Lenovo is jumping in the vehicle SW pool! It looks like ‘internet’ related jobs are out of fashion now and the jobs that have young Chinese excited are ones in the: NEV, artificial intelligence (AI), chips, biomedicine and carbon neutrality spaces. Lenovo believes it can go head-to-head with giants Ali, Tencent, Baidu, Huawei, DJI and all the other traditional ‘internet’ companies that have entered the NEV/AI space. They’re coming late so does this mean it’s a bit of #FOMO or they’ve just waited to study the market and see areas where their knowhow can make a difference? We shall find out very soon as these sectors aren’t for the faint of heart. Lots of capital, a bunch smart people and ambitious leaders are going to be needed to be one of the difference-makers in either NEVs or AI. - Cruise is looking to make waves outside of the US. Cruise will be launching a pilot program in Dubai in 2023 and in preparation for that have sent a scout duo of Chevy Bolts to map the city prior to any AVs hitting the pavement. This falls in line with the UAE’s goal of converting 25% of all vehicle trips to autonomous by 2030. Cruise was granted an exclusive license through 2029 to set their vehicles and system up there. An ambitious goal of having 4K Cruise Origins, the L4 capable shuttle with no steering wheel or pedals, on the roads was set by the director general of Dubai’s Road and Transportation Authority by 2030. I’ve mentioned this before but it’s worth noting again. All of the AV startups (Chinese & US) are also reaching out to Middle Eastern, European, Latin American, African and Asian cities to try set up deals like this. Exclusive deals that allow them time to optimize their equipment for the environment. It’s why you’re seeing more and more Chinese AV companies lean into foreign media press releases. They want that exposure and they believe they can compete with the best the US has to offer. They’ll win their fair share of head-to-head battles against the likes of Waymo, Cruise, Aurora et all as well. And when they do, what will they do with it? My prediction is that 2023, a few of the Chinese AV companies have a coming out (of China) party with major announcements of pilots in Europe and other parts of the world. TRENDING ON SOCIAL MEDIA - E-bike fires a real problem for the NYC. A lot to unpack here since there’s no clear definition in NYC of what an ‘e-bike’ is, what the SOP for charging and/or repairing an e-bike is and whether or not there are protocols buildings need to have in place to avoid the risk of these fires. The one thing that’s certain is that more people are using e-bikes which is a good thing. With any new technology, there will be growing pains but the fact that people buy replacement parts for them and often DIY repair leaves A LOT to be desired. In addition, the fact that many lower income folks are using them for work puts them at risk of not being able to do their job if the authorities aren’t able to get a handle on these accidents and decide to limit the use of them. That would be tragic. There is a reason that most underground parking in China doesn’t allow e-bikes to be parked inside and it’s due to the risk of fire. Even the slightest risk could pose a danger to people and the cars around where the e-bike is parked. NYC could take on the responsibility of setting up some guidelines other cities in the US could follow but let’s see how ambitious they are about actually incorporating these essential vehicles into its transportation system. I know a few folks that are BIG advocates for adoption, so fingers crossed that they win most of the debates. INTRODUCING - The All-electric Mini Aceman. A UK Icon - Made in China (by Great Wall Motors). First off, this Mini is HUGE. 13’ long. Mini half-heartedly tried to build an EV using an ICE platform with the 2020 Mini Electric but it failed to gain any real traction, largely due to its terribly short range of <150 miles. There seems to be a lot to like about this car, but a lot is still unknown and 2024 is a long way away in EV years so we will wait to make a final judgement. If you squint though, it kinda looks like the Smart #1. As I get older, my need for a 10-car garage with a bunch of gas guzzling but amazingly iconic cars wanes – OK so maybe a 5 car garage? If I remain a city dweller, an affordable small car that is quick, easy to park with a decent amount of range would be what I’d be looking for. Can the Mini Aceman fulfill that need? - VW flying the friendly skies. VW Group China just intro’d a prototype eVTOL manned vehicle prototype they’re calling the V.Mo which it hopes to tighten up even more before the summer of 2023 to begin high standard test flights. They are eventually targeting the eVTOL to accommodate 4 people with luggage for ~400km. VW joins XPeng both openly showing off their air mobility ambitions. I am not that bullish on the China govt. opening the skies to these things since it creates a lot of new and different challenges that Chinese govt will not want to deal with. This could be a dress rehearsal to entice countries not named China to reach out and look more closely at these companies for their markets. Unless these things take-off and land in really rural areas, urban usage in the current environment seems like a stretch. Too many things need to be added, changed, and settled. GET SMARTER - China will dominate in chip fabrication by 2030. Just probably not the cutting edge ones that get all of the headlines. China is poised to build 31 fabs by 2024. That’s more than Taiwan: 19 and the US: 12 Most of China’s fabs will be focused on the lower end chips, the kind that almost every piece of technology needs whether it’s an EV, laptop or appliance. This end of the market is largely being ignored by other countries as the fabs coming online in other countries will focus on making the most cutting edge chips that attract a higher margin. The most advanced chips that use 7 nanometer transistors are what people drool over but will this lead to another commodity that the world needs and that China controls? It seems likely. And this plays right into China’s hands. When they invest in industries, they want to be the largest player by far – this helps their companies remain relevant and allows them to dictate terms & prices to the market: See solar panels, steel and more recently lithium, and EV batteries. Case in point, its forecasted ‘by 2025 40% of the world’s capacity to fab chips with 28 nanometer nodes will be in China, up from 15% last year.’ BY THE NUMBERS 273. That’s how many Chinese companies are at real risk of being delisted from US exchanges should the Chinese govt decide to not allow complete access to the audit papers of those companies. The deadline is quickly approaching, and it seems the US is not going to blink on this. China’s playbook has always been to have the US negotiate against itself as they sit back and stall but perhaps that tactic isn’t going to work this time? That means that Li, NIO, XPeng will get booted but let’s also not forget there are many other Chinese startups/companies that aren’t established yet or not shipping product that could use an international boost, both financially and from the exposure a US IPO would provide. I have a theory about what I think will happen but I’ll wait to see if the drop dead does pass and whether or not these companies get de-listed. 22M. That’s the sales milestone that SAIC Volkswagen has reached since the JV was established in 1984, making it the 2nd oldest automotive joint venture in China. Beijing Jeep is the oldest for those wondering. ——

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

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