Cities Designed for Everything BUT Cars, Model Y Fit & Finish, Office Redo - SAI Newsletter #13
No much appetizer this week since there’s a decent amount below.
Into week 2 of my quarantine, pretty uneventful but very productive week.
Had some old friends check-in with me to see how I was doing so that was nice. Really looking forward to being able to stretch my legs and eat a few meals I’ve been jonesing for since being back. That and having a beer – will be great to have a nice, cold beer.
IN THE NEWS THIS WEEK:
- FCA extends their US & Canada plant closures through May 4TH. GM and Ford had already extended their plant closures indefinitely. This as the coronavirus is expected to hit its worst in the coming weeks in the US.
- Tesla staying productive during its Fremont plant shutdown – expanding the plant in order to increase production capacity to make room for the Model Y, a vehicle they think they can sell a TON of.
- New York legalizes the use of e-bike and scooters – FINALLY. Not sure what the big fuss about this was but it looks to be in the past now. A very good thing for food delivery folks that used the e-bikes as part of their job. NYC will still have final say on how they’re used and where they’re allowed but this is a HUGE step in the right direction for the state.
- Via – On Demand Shuttle service raises Series E round at a $2.25B valuation.
TRENDING ON SOCIAL MEDIA:
- Free Taco Tuesday from Taco Bell! Better make a run for that border – sorry false alarm it’s obviously Wednesday today…
- Some automakers (VW, Daimler, Audi) doing their part to promote social distancing by temporarily amending their logos. Other automakers are helping by building ventilators and masks for the first responders and hospital staff as we’d highlighted last week.
PRODUCT / SERVICE INTRODUCTIONS:
- A solution for disinfecting shared bikes and scooters prior to use, how about self-cleaning handlebars and brake levers - Introducing NanoSeptic
- Polestar, Volvo’s electric vehicle brand has intro’d its Precept concept vehicle and it’s pretty sweet with its suicide doors and Scandinavian minimalist design influence.
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.
The Sino Auto Insights team
It sure does seem like it. Not one week after the Chinese govt. announced that they would extend NEV purchase subsidies that they’ve had in place since 2009 for another two years – last year they indicated that they’d eliminate them altogether by the end of 2020 – multiple agencies within the Chinese govt. are now in discussions to reduce the actual rebate that’s handed out to the automaker while also narrowing the scope of NEVs eligible to receive them.
There could be two reasons for this. First, with the entire passenger vehicle segment is going on 20 consecutive months of declines and it’s much more important for the economy to get back the ~20+ million ICE vehicles sold than it is getting back the ~1.3M or so NEVs. Second, the Chinese govt. has spent over $60B on those subsidies since 2009 so maybe they are hesitant to throw good money after bad, especially since that money could go towards helping a sector that would give the Chinese economy an immediate boost.
Without the subsidy in place, there’s little chance the EV sector gets anywhere close to the growth trajectory it was on prior to the beginning of 2019. A reduction in the subsidy that occurred early in 2019 caused the entire NEV sector to slowdown and actually shrink so you can bet they’re crunching the numbers to see the delta between keeping the subsidy as is vs. reducing it and if negligible to sales, they’ll reduce.
For those of you new-ish to the auto sector and / or unfamiliar with how cars are built, this will be a good primer for you on how ‘car’ guys judge whether or not a car is well ‘built.’. I don’t want to get too much in the weeds though since there are videos embedded in the article that are pretty self-explanatory, but some background on Sandy Munro – he’s one of the gurus on build quality and car companies hire him to evaluate their cars and use that information to build better cars basically.
‘Fit and finish’ would be the general term used for a vehicle’s build quality with panel gaps being one of the areas scrutinized, but panel gaps aren’t just about how large or small, it’s also about the uniformity of the panel gaps on the entire vehicle. For those of you old enough to remember – think Lexus commercial where the steel ball rolls around the entire vehicle’s panel gaps – that was to show the consistency & uniformity of the panel gaps hence the attention to detail and consequential build quality of that car.
This is not just for show either. Poor build quality could lead to poor fuel economy because of higher drag due to uneven surfaces, squeaks and rattles in the car as things are loose or rub together, wind noise, poor reliability, and ultimately a higher cost of ownership. It takes a TON of effort to design and manufacture consistent build quality into millions of vehicles and I am not sure that’s as appreciated as it should be.
BTW – Sandy had evaluated a Model 3 before and basically trashed it’s build quality. Rumor was Elon wasn’t mad and got in touch with him to learn more about what Sandy had found. When fit and finish is terrible, you can see it with your naked eye. Sandy is at least using a measuring tool here for the Model Y. Good stuff!
During the time of ‘shelter in place,’ news that mobility companies like Uber / Lyft struggling should come as no surprise. It was the same for Didi in China during the earlier part of this year when China was in the thick of fighting off the coronavirus. The Chinese economy is very slowly gaining momentum as more people are getting back to work and China tries to move past the virus.
These companies are looking to diversify their revenue streams in order to survive, leaning on food delivery to make up much of the revenue lost from ridehailing. There’s the risk that the post-coronavirus ridehailing business doesn’t match the pre-coronavirus numbers so they’re also likely relying on food delivery to be a consistent performer for them moving forward.
The challenge is that with companies like Meituan in China and Door Dash, GrubHub and Postmates in the US, this vertical is also lined up with aggressive, hungry competitors which could drain their capital even further. For Lyft and Uber who have ample reserves, it shouldn’t be an immediate concern but it could limit their ability to invest further into their core business if they’re not careful.
I love that this author advocates for the continued use of shared, electric, kick scooters and pedal bicycles after the coronavirus has been contained / defeated. And yes, it does make sense that since we’ve now incorporated into our daily routines using gloves and disinfecting surfaces prior to touching them, it won’t be looked at as such a burden for the folks that previously used those modes of transport to continue to once cities have lifted their shelter in place guidelines. One startup highlighted in the intro has even intro’d scooters with self-disinfecting handlebars and brake levers.
Unfortunately, I think the drop off in usage of those products will persist for a pretty long time so the question of burn rate and cash management comes into play, which the author does briefly mention. Further, the post-coronavirus world creates openings for new competitors like electric bicycles, a much more comfortable way to get around and the range to take on longer distance trips, to carve out a space in an already crowded market.
From previous newsletters, you’ve probably heard me on multiple occasions predict that this will be the year of the e-bike and as prices become more competitive – I am even more bullish on their growth. BTW, I have no horse in the race and this is just something I can see the market embracing because people will find them more useful than e-scooters and pedal bikes.
Finally, we know that Lime raised capital at a significantly lower valuation ($400M vs. $2.4B) eliminating its unicorns status so if / when the usage numbers do get back to pre-coronavirus levels, how many of those startups will actually be left to service those loyal customers? Oh – and they weren’t making money before the coronavirus pandemic hit, so that problem still needs a solution as well.
I tried closing my eyes to envision the author’s description of the Hayes Valley neighborhood I often hung out in when my wife was living in nearby ‘Sunset’ district. I haven’t been back to SF since they began prohibiting passenger vehicle traffic on Market Street earlier this year so I am keen to see and feel for myself how that one restriction has, if at all, changed the feel of the area, the flow of traffic and / or movement throughout the rest of the city, I’m thinking probably not that much. That initial change to Market Street was likely just the first domino and we’ll see more aggressive moves to limit vehicles in SF, that’s if the city can get any further changes approved.
This article resonates with me a lot, and not just because of my fondness for SF and the Bay area but because of the challenges AND opportunities that are described in the article about NY and SF - the same challenges that Detroit and Beijing face, two cities I’ve spent a TON of time walking, riding and driving around the last few years.
This statement in the article also struck me, ’If you have no choice but to drive for every trip, it's not your fault. Your city has failed.’ To put it simply, too many cars causing a too much traffic and pollution consequently because most real estate in the city is too unaffordable for too many people, some of that because there are too many parking lots for the cars.
Detroit is on the very front end of re-inventing itself so there’s a ton of opportunity here for the city to make itself more accessible to everyone, either through bike lanes or further building out the public transportation network. The flow of traffic and congestion will depend on which neighborhoods get the investment to rebuild but if they’re strategic, I am optimistic that they can be an example for the world.
This article hits on another key theme that IMHO, will become more common across many big cities around the world – it’s already happening in many western cities like Paris, SF and London – and that’s adding more bike lanes and limiting access to city centers by private passenger vehicles.
Finally, I am not a policy wonk (but am getting much more versed at it recently) so my mind has never made the direct connection between city & housing policy being climate policy, but I do see how it can all be tied together – which means that for those cities that really want to be more accessible and convenient (which could translate into more opportunities) for the less fortunate, it starts with affordable transportation and housing but like the article states – ‘lefty, crazy San Francisco becomes the most conservative city in the country when it comes to changing the look and feel of the place,’ and I know for a fact that this doesn’t JUST happen in SF so it WILL NOT be easy.
Will WingFH (working from home) be a permanent option for those that don’t need to physically be in the office to contribute? I posit that ‘open’ offices could become a thing of the past while hoteling would be encouraged since many won’t be in the office every day and will not need a permanent desk.
A lot crossed my mind while reading this article including how habits will change not only when it comes to working in the office but mobility generally as well since closed quarters, shared usage and little personal space are common in both situations. I’ve listed some of the things I think could emerge from a post-coronavirus world.
- Surveillance systems used to monitor people’s temperatures
- General access will be prohibited or very limited by outsiders
- HVAC systems used for recirculating and filtering the ‘air’ that people breathe. Many of the newer buildings in China already have ‘clean’ air filtration systems so those existing systems could be updated be filter in ‘disinfected’ air as well
- One area that more conservative companies generally encourage is the old adage of ‘facetime’ could take a backseat as the WFH movement becomes more ubiquitous
- Company culture will likely evolve to include ‘clean, healthy’ to go along with the current ‘safe, and respectful’ work environments
- If less people have to go into work daily, the unrealized effects to office space leasing, car sales, ridehailing
- New office designs could incorporate more sensor driven ‘smart’ doors, elevators, while hand motion detection could become more common as well to further avoid physical touching of surfaces
There was more but this brief list covers most bases. As everyone gets back to work, we will see some creative ways to keep people productive while staying ‘safe.’
Finally corresponding cultural, managerial, policy changes to help break long held obsolete and potentially dangerous norms will be as important as the physical changes to the office setting.
For those that aren’t familiar with Luckin Coffee (LK), it’s a 2-year old company that IPO’d in May 2019 and blitzscaled its way to become the largest coffee brand in China, ahead of Starbucks. As of December 2019, LK had 4,910 brick and mortar stores in China – 600 more than Starbucks, in 2 YEARS! For a while, LK was opening more than 3-4 stores / day. BTW, it took Starbucks 20 years to get 4,300 stores opened in China.
Shortseller Muddy Waters announced in January that they’d received a report that detailed LK ‘cooking’ their books and were going to short LK’s stock. LK initially denied those allegations but last week finally admitted that their COO and a few members of his team indeed did commit fraud via inflating almost half of their revenue for 2019. Shares cratered by ~80%.
For those living in China that have been watching LK’s rise (it’s hard not to since so many LK stores appeared so quickly), their announcement of fraud shouldn’t come as any surprise, at least it doesn’t to many people I speak with here in Beijing. This is a typical ‘pump and dump’ strategy that works well in tech but in the bricks and mortar industries like the one’s LK and WeWork play in, it’s MUCH harder to fudge numbers since there are more capital expenditures generally involved and we can see for ourselves how well or bad a company is doing.
Chinese companies generally want to IPO in the US because they need that USD for international expansion and ultimately entering the US market. Unfortunately, many of these Chinese companies aren’t used to the level of scrutiny or disclosure necessary to ‘close the books’ every quarter as a US listed company.
Thing is, fraud is not the exclusive domain of Chinese companies but unfortunately the LK situation likely puts a negative spotlight on Chinese companies in general, including the EVStartups that are able to survive and are eying an exit via IPO in the US market.
The cynic in me thinks that greed will always outweigh common sense though so if attractive enough on paper, a Chinese company will ALWAYS find enough interest and capital in the US markets. That’s if the US govt. doesn’t add any additional hurdles for them to list there.
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.