China built Model 3, Faraday CEO steps down, Grab commits to Vietnam - SAI Newsletter #32
We’re getting to the official end of summer. It’s been great the last week or so here in Beijing, bearable heat and beautiful sun. The boys are back in school next week so won’t have to juggle the schedule as much starting next week, very happy about that.
Since I wasn’t able to post the summary article about the Technode EV panel I sat on last week, here it goes: https://technode.com/2019/08/23/tech-after-hours-sh-ev/
Further, it seems that Rupert was holding out on us last week since WM announced this week that they will be launching a sales platform for ‘used EVs.’ Not much detail other than its still in the planning phases but as I learn more about how they’re going to differentiate themselves from the current crop of ICE 2nd hand vehicle platforms, I’ll update accordingly.
There was a lot of smoke generated for yesterday’s AI debate between Elon and Jack Ma at the World AI Conference in Shanghai (WAIC) and it seems that all the hype wasn’t merited.
Most folks I know who watched were let down so I won’t get into the specifics of what they discussed. For those who still have FOMO thought, their chat is posted on YouTube.
Audi E-Tron UPDATE:
12 weeks, still no E-Tron.
My friend did speak with someone at Audi last Friday and was told that he actually could’ve kept driving it and that loaners were only provided to folks who ‘felt uncomfortable' still driving it. This, after they'd told him when this fiasco started 12 weeks ago that he needn't drop the E-Tron off at the dealership yet they they show up three hours later at his work with his Q7 loaner and take off with his E-Tron. Seems there's alot of blame to place here.
Also, and let this sync in for a second. They told him that he should ONLY park your E-Tron outdoors.
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 US 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/Ride-sharing/Ride-hailing/Bike-sharing, OEMs, EVStartups, Investments, and Other.
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The Sino Auto Insights team
So it’s O-fficial! Tesla, at their stand at the World Artificial Intelligence Conference (WAIC) in Shanghai yesterday, showed off their ‘Made in China’ Model 3.
This is an AMAZING turn of events since it was only in January that the Shanghai Gigafactory really began construction in earnest. Upon closer inspection of pictures of the factory (they’re floating around the interwebs), unsurprisingly you’ll notice that the inside of the factory has still not been completed so although Elon may be able to ‘claim’ that this Model 3 was ‘Made in China,’, the one that’s being showcased is going to be a hand-built prototype with most parts likely coming from current suppliers for their Fremont factory that shipped the parts Fedex or maybe even hand-carried them to China. Total speculation here but - there MAY not even be a powertrain or battery module inside!
Nonetheless, count me as one of the doubters who thought Elon wasn’t going to be able to begin production of the China built Model 3 by the end of this year. We are still a LONG way away from that being a reality since the factory needs to be completed (both interior and exterior), including the lines, paint shop, and tooling still to be set up, then the prototype, alpha, beta builds being completed before pilots built off production tooling can be assembled, not to mention the verification and validation of processes. Then and only then will Job 1, a ‘sale-able to the public’ Model 3 be able to be rolled off the line. Even if the stars align and they’re able to get everything sorted on their side, a supplier could fall down and cause a delay!
All this is generally speaking as I have NOT seen their project plan, do not know the current situation they are in nor do I know the details of what they’ve agreed to with their suppliers and partners. I am still skeptical about Tesla having production versions of the Model 3 rolling off the line before December 31st but here’s where I would NOT mind at all being wrong!
There’s going to be a full-court press from here on out to make sure that Elon isn’t a liar though so the US and China teams responsible for the Shanghai Gigafactory launch, I can guarantee you, will have a good dose of pressure and many sleepless nights from here until production start!
The Chinese central government has given the green light to 7 local city govts. to lift restrictions on vehicle purchases as one of 20 policy adjustment proposals suggested to them in order to jumpstart domestic consumption in China.
The automotive sector has been hit hard, particularly the ICE segment, which has seen sales slowing for a consecutive 13 months. Last month was the smallest decline so some economists believe the market may have hit a ‘bottom’ and that we could start seeing a recovery within the next month or so. EVs have also been affected by this slowdown and are likely happy about any help the govt. can provide.
In my view, due to the pressure still being applied from the trade war, it seems like this slowdown could last at least a few more months, or at least until there is more clarity on when the US and China would call a truce. My prediction is that the slowdown continues well into 2020, covering a timeframe where MANY carmakers will be launching new products into the market, especially the EVStartups.
We’ll keep this item in front of us since it’s such an important issue. If the slowdown continues into late 2020, it will likely push quite a few of the China EVStartups to the brink. AND it’ll put a damper on some of the amazing cars that’ll be intro’d within the next few quarters.
Ever since car buying websites began sharing ‘dealer’ or ‘invoice’ pricing to consumers, the business of selling cars got ALOT tougher. There had NEVER been that level of transparency before and it made it impossible for dealers to hide the profit they received on each vehicle sold.
Those that follow the sector know that most dealerships, both in the US and China, don’t make much on any new car sold, and that its the add-ons and services they provide to the car buyer after the vehicle is delivered that gives them the bulk of their profit.
To make matters even more challenging, again in both the US and China, there are a few large players that control many of the dealerships, making it even tougher for the smaller players to stay competitive. The dealer lobby in the US also makes it very difficult for any innovation or disruption to occur unless its coming from them and let’s face it, they’re not in the business to innovate on anything.
The fact of the matter though, like many other old economy business models, is that younger folks don’t want ANY part of the traditional vehicle purchase process. In China, more and more consumers are comfortable purchasing cars, sight unseen, via their laptops or mobiles. OEM brands reach customers and sell vehicles via Alibaba's retail website - T-Mall.
This author seems to think that direct-to-consumer models like Tesla’s will not work since state laws prohibit OEMs from competing directly with dealers. I believe that if these dealers seize the chance to innovate, they have ALL the data that would allow them to create new ways of reaching customers and monetizing at the various touchpoints, they could create new business models that would protect them from the disruption that WILL happen to their sector. Unfortunately it seems that they would rather protect their current position and hope that the changing landscape is an outlier and not actually where the sector is headed.
An example would be Tesla in the US, although they have retail locations in major cities in many states, the employees at those retail locations are forbidden from even discussing pricing with consumers, let alone trying to sell you a car!
On top of that, Tesla in Michigan is forbidden from delivering vehicles that are purchased by Michigan residents into Michigan so if you were to purchase a Tesla on their retail website, you would have to travel to Ohio, Indiana or some other state in order to pick it up! That’s how powerful this dealer lobby is. How this benefits the customer I am still scratching my head thinking that one through.
I see HUGE potential in mining the data dealers possess in order to redefine the customer/dealer/OEM relationship and I’d be happy to work on dealer innovation/business transformation projects since I am confident it’ll be a future winner. We just need one or two to have the guts to embrace these changes and pivot towards them.
If I can piggyback off of the preceding article, here is another situation where unions are attempting to block a service that consumers are trending towards. If there was a way to pay one, affordable price for a subscription of vehicles by brand or manufacturer, and it rolled all miscellaneous fees - including insurance, into that fee you better believe consumers would be OPEN to that business model.
People are generally commitment phobes so the thought of not being stuck to one vehicle for 2 years (in many cases even longer), and only having to pay a small premium for it is definitely a potential winner for OEMs and where the market is headed. For sure.
There’s SO many ways you can go with this. You can add drivers AND vehicles should you have kids and they become driving age, you could make it so you can reserve a rental if you’re traveling, both domestically and internationally or partner with ride-hailing services where your brand doesn’t have coverage.
Alas, the entity that should’ve thought of this in the FIRST place, again they have ALL the data, decides they’d like to stifle innovation and block these types of business models from getting off the ground. These services will happen and those manufacturers who are not allowed to launch them (like Volvo potentially) will only be at a disadvantage to those who can which in turn will just hurt the dealers that sell their vehicles.
On the other hand, manufacturers are still trying to make the numbers work on these types of ‘services’ so that they’re consistently profitable - which could be very challenging. As more and more OEMs launch these pilots into the market, you’ll start to see which parts of the service they’ll want to keep for themselves and which parts they likely outsource and therein lies the future opportunities, if the dealers decide to accept the future of the sector.
Let’s file this away in the ‘partnering …just in case’ bucket since Toyota sealed the Didi partnership with a $600M ‘kiss.’ There have been numerous partnerships announced both in the US and China, between OEMs and AI startups to help with AV production, R&D, testing, as well as engineering and data sharing. The ones the matter are the one’s with dollars or RMBs attached to their commitments. Think GM with Cruise, Ford and VW with Argo, Toyota with Didi… Having a horse in the race just means they’re less likely to abandon them when the going gets tough, and it will.
Toyota is waaay behind some of the other, larger OEMs when it comes to AV development so they’re playing catch up and these two recent moves solidify their foundation. Toyota coming late, likely saw that the dance cards of some of the other China AI startups full as well, so maybe they settled on Didi as a defensive play? Also, with Pony now in the mix, how is that relationship going to work? Is there a hierarchy? I’d assume that Pony doesn’t feel it needs and is reluctant to, share insights or data, with Didi and vice versa?
FF just announced a resctructuring plan for the company and part of the plan includes Jia Yueting (YT), the original founder stepping down.
Jia also plans on addressing FF’s debt and his own by creating a trust that’s partially funded by FF shares. With most of the A-Team being gutted or having left its hard to know if the rest of the team is big enough and/or whether they have the capabilities to get Job 1 rolling off the line. Lots of questions still need to be answered from an outsider’s perspective but controversy and drama always seems to follow this company so I wouldn’t expect the drama to end just because YT has left the building.
There is still solid progress on the FF91 as a few mules have been built and I believe are being tested in and around California so I’ll be rooting for them to succeed, at least enough to get their cars on the road so that consumers can be the ultimate judge of whether they are going to be a success story or not.
Tesla has launched their car insurance option, originally announced back in April, to their California residents. The insurance is being marketed as being able to save their customers up to 20-30% over conventional insurance with the key to pricing being the trove of data they’ve collected from all their current vehicles on the road.
Tesla will analyze all this data and use it to ‘price’ the premiums for their customers accordingly. Depending how much margin they slap on the rates, this should be a much more affordable & definitely more accurate and honest way to determine insurance costs. There’s always going to be the predictor variable (what other drivers will do) that’s the WAG (wild ass guess), but this is where most, if not ALL, insurance is headed in the future.
Great idea, and something that EVStartups globally are, I am certain, looking at as an additional revenue stream to help them diversify out of just selling cars.
Tesla has already disrupted one old economy sector so I wouldn’t be surprised if they can repeat that feat with the insurance sector. As a matter of fact, I’d be pretty worried if I worked in the auto insurance sector frankly.
In a ‘next logical thing’ move, Spin - Ford’s e-scooter company has decided it’s going to provide docking stations for it’s 700 scooters that are in and around the Washington DC area. This should help with scooters being haphazardly parked and left in random areas including the middle of sidewalks and driveways, so kudos for Spin deciding to do this.
These docks are placed at private locations and not public areas so this makes me wonder, did Ford analyze usage and look to partner with high traffic area businesses or are they hoping that by strategically placing the docks, that will create new usage patterns and demand?
One thing that you’ll likely see, especially if there aren’t enough docks is still a glut of scooters in and around docking stations and docking stations without any at all. I see this on a daily basis here in Beijing, carts full of Ofo’s, Mobikes, and other brands being physically moved from one location to another. Here in China though, those cart drivers are still not a huge cost for the bike-sharing cos. to bear. In the US, that’ll be a different story and if there is a need to redeploy e-scooters from one location to another, which I believe there will be, this could really push profitability even further out.
Will definitely keep my eye on the types of insights gleaned from this POC.
With the Indian govt. considering a ban on all petrol powered scooters by 2025, there have been a lot of Indian electric scooter/motorcycle startups popping up left and right trying to take advantage of that shift - Blacksmith is one of them.
Blacksmith - a Chennai-based startup just intro’d the B3, the little brother to their recently unveiled motorcycle, the aptly named B2. I don’t plan on covering ALL product intro’s for China or the rest of Asia, but the Blacksmith B2 IMHO, brings a totally cool, retro (but) innovative look that’ll help it carve out a nice position in the market. They also have a battery swapping system that would be pretty unique, if pretty capitally intensive, that will also differentiate it from its competitors. The first company I think of when battery swapping is the successful Gogoro (GGR) in Taiwan. GGR is really trying to market their system as a turnkey ‘energy’ solution that just happen to be using electric mopeds as their proof of concept. Their battery swapping kiosks are likely ALOT cheaper to manufacture than what Blacksmith’s will be.
I don’t know a ton about the company itself but have reached out to a few folks to try and learn more. From the two product unveils within the last few months, what I do know is that they carving out the ‘design forward’ positioning and that their management plans to sell enough of the B2’s and B3’s to justify the capital needed to invest in battery swapping stations all over India so once they’re on the road, will give you all an update.
SEA - Rest of Asia
In a vote of confidence to Vietnam’s potential, Grab the Uber/Didi/Lyft of SEA has made a $500M commitment to invest in Vietnam over the next 5 years. That’s ALOT of money for a country the size of Vietnam (around 90ish million people).
Grab is currently one of the leaders in Vietnam’s ride-hailing and food delivery space and plans to expand operations to logistics and fintech, both also growth sectors in Vietnam.
Whenever I travel to Vietnam, which has been fairly often the last couple years, my primary mode of transport is Grab. I’ve also used it in Thailand and Singapore. It’s SUPER convenient since I can just use the same app wherever I am and can pay cash or just have it charge my credit card. You are also provided the option of car or moped with moped being the cheaper and more adventurous option. Me, I am strictly a car guy!
This Grab commitment is also likely a sign that one of the next MAJOR SEA battlegrounds is going to be Vietnam and I’d expect more activity and launches, some have already been announced, to the area from other companies. If I was young, ambitious and adventurous, I would definitely consider getting a few years of experience working in Vietnam.
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.