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China Reads Elon's (Re)Tweets, Gen Y DO NOT Like to Drive, US Money into China - SAI Newsletter 9



 

The Mobile World Congress is this week in Barcelona and I'd originally planned to go but will watch from the sidelines instead. It’s a bit more about consumer tech but it would’ve been interesting to check out the latest micro-mobility products, especially since this is more Euro-centric than other major conferences. So far, not many real mobility announcements, just a bunch of mobile phones with Chinese brands dominating the product intros. CHINA EVs & MORE Lei and I are back to our normal Thursday, 3pm ET schedule this week and it’s a busy week ahead with Tesla Investor Day and February sales leaking out as I type this so if you’re free and want to chew the fat with two of the best in the biz you better tune in, especially if you have any questions! For those that 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. TESLA - MonterreyGiga? Yes! There should be more details about this investment during tomorrow’s Investor Day is my guess now that the cat’s out of the bag. Will they be able to launch enough new product to fill all this capacity they’re building around the world? China is the wild card in their global domination strategy of course and there may be some self-inflicted wounds that make that market a bit dicier. See post below. I just tweeted this as my initial takes on this news. First, this is a mitigation move to blunt any risk & uncertainty which could be caused by ShanghaiGiga in the future. A Model 2 likely on the way w/in the next 30 or so months. Let’s see if prediction #2 is even close to reality. One thing I’ll point out, I don’t think the MX / Monterrey govts will be able to match the speed of the China/Shanghai govts on getting the factory up and running. They could surprise me but I highly doubt it. - No, No, No Elon. Global Times reminds Elon not to bite the hand that feeds it – basically a warning to Elon that if he doesn’t have anything good to say about China, he should say nothing at all. This after Elon retweeted some posts about the coronavirus originating from a lab in Wuhan. He was already being leaned on pre-Twitter CEO title but now it’s clear that they want to make sure Elon only uses Twitter in a positive way towards China which firmly jams Tesla between a rock and a hard place even more. See the MX announcement. - Tesla pumps the brakes on its FSD rollout in the US. I’d highlighted a recall that NHTSA pushed for in last week’s newsletter and as a result of that recall, Tesla has decided to hold off activating FSD Beta for those that purchased the service but haven’t yet had it activated. In a press release, Tesla also articulated that FSD is an L2 ADAS system, not L4 as most Tesla STANs have you believe. INTERVEWED/QUOTED - CNN. Chinese companies have been happy to fill the void left by foreign brands in the Russian market since the war began. Companies like Chery and Geely have taken advantage of the lack of ‘choices’ as hundreds of foreign brands exited the market in protest to Russia’s invasion of Ukraine. I spoke with Michelle Toh for her CNN piece on how Chinese automotive brands have been happy to gain share as their foreign competitors decide they don’t want to sell into the market as long as Russia continues with its war. With no end in sight for this war, the increased share for companies like Geely and Xiaomi could last for some time. NEWS THAT GOT OUR ATTENTION THIS WEEK - Ford China gets new leadership. Anning Chen is ‘retiring’ and Sam Wu, who joined Ford less than 2 years ago from a non-automotive company will take charge later this year. I’d heard rumblings and rumors about this happening and mentioned it in a CEM episode a while back. Regardless of the musical chairs with Ford China leadership over the last several years – what will ultimately help the most is BIG investment, new product and faster moves. I should add that those new products need to be home runs. They can’t be anything less than triples at a minimum. With Ford hemorrhaging already, I can’t see a big check being written to fund Ford’s attempted regroup to get China ops in order though. I also wonder if Jim is going to get any miles added to his frequent flyer account in April to attend the Shanghai auto show. If he does make an appearance, it should signal to the market that Ford does see itself as a real player there long-term. As I have recently begun to tell my boys – Well done is always better than well said. TRENDING ON SOCIAL MEDIA - GM bringing the HEAT to LeMans in 2023. They will have two teams, one from Corvette & one from Cadillac participating in the world’s most famous vehicle endurance race. I’ll be tuning in! - Apollo Go gets to 100 robotaxis in Wuhan. These are the no safety driver L4 taxis if you’re wondering. I’ll have to jump back into one when I head back to Beijing/Shanghai for the Shanghai Auto show! More vital stats: Covers 750km area (or about 466 miles for the Americans) where there are ~1.5M people (SF proper population ~800k). To date, Apollo Go robotaxis have had >2M orders making it the largest robotaxi service in the world. This matches the quantity that Cruise has running in San Francisco, but the number of miles is much smaller (I think) and I’d argue much simpler terrain overall vs. a Wuhan. - Geely shows off its Galaxy brand products. Geely is starting to lose the plot here. We’ve reached that moment in the story where more is just …more. They don’t seem to be pushing the sector forward, just reacting to it. In Galaxy’s case, they are reacting to BYD’s move upmarket with Yangwang. In what I would call a critical and like highly competitive segment for the group, premium mid-sized SUVs, they’ll be competing with themselves via Polestar, Volvo and Lotus. I could be wrong, but Li Shufu we have enough brands! Actually - I know I am right, we do have too many brands. BTW, the Galaxy designer Chen Zheng aka ex-Changan designer used what he designed while at Changan for the Galaxy brand so now Geely is being sued by Changan for IP infringement. So not only was Li Shufu not satisfied with the number of brands, but he wanted to steal BYD’s Yangwang thunder so bad that he pushed the Galaxy team to hurry the launch of the products. GET SMARTER - Don’t listen to what foreign companies in China say, watch what they do. Foreign companies rely too heavily on China for their growth so the US govt’s hope that many would abandon the market or at least limit further investment isn’t rooted in reality. Quick examples of some US companies doubling down on the China market – Starbucks plans to open 3K new stores by 2025, that’s in addition to the 6K they already have operating in 230 Chinese cities. McDonalds will open 900 new stores in 2023 after opening 700 in 2022. Retailer Tapestry, which owns Coach & Kate Spade plans to invest ~$160M in new stores and renovations to current stores. These are BIG bets from retailers considering the current state of affairs between the US and Chinese govts. It doesn’t seem like the US govt is going to dial down its rhetoric anytime soon, so this increases the risk of backlash to US companies doing business in China. On the tech side, it’s a much different picture though as many are looking to decrease their reliance on China for not only manufacturing but sales as well. This will only work if other regions are able to increase their economic growth, otherwise these companies will reassess for 2024 and likely look to invest into growing their market share. - VCs with China arms told to put the brakes on investments into ‘sensitive’ sectors. Unless there is an outright ban that includes severe penalties from the US govt if private investors are caught investing in companies in the specific sectors the US govt deem sensitive technologies, it will NOT stop the PE and VCs from continuing to invest. Let me also add and be clear on this – there cannot be any loopholes that lawyers can use to weasel their way out of restrictions/bans. The China and US startups generally promise the largest returns and multiples due to the TAM (total addressable market) of just their home markets so any warnings without specific restrictions I promise you will fall on deaf ears. And this ‘independence’ that these investors claim between their US and China arms is all talk. If they were truly separated, why would one share the spoils of a windfall return with the other? The reality is that there has been plenty of RMB investing in these VC/PE funds for years. If the US govt was that curious they would follow the money through all these funds’ different corporate structures to see where the capital originated from. This WSJ article spotlights Sequoia but let me assure you there are dozens of other VCs that have significant presence in China along with significant RMB in their funds. Fact: It would be difficult (near impossible for most) to raise the types of capital that the PE and VCs raise for their funds unless there is a disproportionate amount of either Saudi Riyal or Chinese RMB as part of the fund. We should be able to get a better read on how serious the US govt is on clamping down on USD funding these technologies starting Tuesday when the newly organized House committee on the Strategic Competition Between the US and the Chinese Communist Party has its first hearings. - The move away from private passenger vehicles is real. And it’s being driven by youth (and adults <40 years old) that don’t feel the need (and consequently aren’t convinced by the carmakers like their parents were) to own or even learn to drive a car. Some statistics that should startle the OEMs and boost the Ubers & Lyft’s of the world:

  • US: In 1997, 43% of 16-year-olds have a driver’s license. In 2020, just 25%

  • US: 20% of people aged 20-24 years old do not have a drivers license. In 1983 the number was 8%

  • From the article “The proportion of people with licenses has fallen for every age group under 40, and on the latest data, is still falling.” DOH!

And this isn’t just an American thing:

  • UK: In the last 20 years, the number of teenagers who have a license to drive has decreased by half

  • EU: The number of driving trips made in 5 big European cities: Berlin, Copenhagen, London, Paris and Vienna down substantially from its peak in the 90’s

Reasons for the numbers dropping: the internet, cost of a vehicle, ridehailing apps. This reason is likely not a coincidence with the younger generation pulling away from driving – climate change. The threat is real and growing. So, OEMs -What to do besides launch competing services to Uber / Lyft? It’s gonna come faster than you think as the youth that aren’t keen to drive or own a passenger vehicle replace take on leadership roles for cities, states, countries. Trickle, trickle, gush. And to be clear – I would rather not have to drive much either. Leisure trips where I can spend time with my family makes it nice to have a car but most of the time, I am in the car isn’t quality family time. I’d rather have that time back to do more fun stuff. BY THE NUMBERS - $155M. That’s how much Stellantis has invested into an Argentinian copper mine to support its EV production. - 90K. That’s how many vehicles have been recalled in China by BMW for a SW bug. Now, I am pretty sure this is a real recall that will require the car owner to bring their Bimmer into a BMW Brilliance dealership. No OTA capabilities here yet! If I hear otherwise next week, I will update and correct. ___________________ 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.

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