Coronavirus' effects on everything, GM & Ford's long term planning - SAI Newsletter #12
Wow, so where to begin this week’s newsletter.
Some of you contacted me wondering about last week’s newsletter so let me first apologize for not getting one out and explain the fairly eventful week my family and I had. The week started with my family in MI, at my sister’s house to be precise, as we had been for the last several weeks. The week ended with us in Beijing, in quarantine at two different hotels.
We made a quick decision to head back, our thinking was that China is likely a safer place now than the US for the kids. My wife and I have been monitoring the coronavirus situation very closely from the very beginning, both in the US and in China, and believe that the US is at the beginning of a 2-3 month period of fighting off the coronavirus - with the worst still yet to come.
For those of you that live in China but decided to travel abroad for Chinese New Year, especially those with small children, and wondered when to head back you know all about the uncertainty and hesitation involved with deciding what to do – stay or go – and if go, when?
We’d previously purchased tickets (twice actually) but had to cancel them due to changes in travel policies in HK and TPE where we were scheduled to layover. We’d also heard about some of the horror stories floating around by some of our friends and other expats who headed back to China where processing & testing when you arrived at the airport was taking between 9-15 hours! Nonetheless, although we felt safe where we were in Michigan, we were ready to get back to our home.
We were pretty lucky to find a flight headed to Narita just before Japan was going to impose a mandatory 14 day quarantine for any travelers into Japan, including those with long layovers - so we booked them. Our ultimate, final destination was Beijing but because ALL international flights to Beijing were being diverted to other Chinese cities we decided to enter China thru Shanghai, then try to catch a connection to Beijing from there. This was risky as well since there was a good chance Shanghai would make us quarantine there for 14 days before being able to move on to Beijing and another potential 14 day quarantine.
If you include processing & testing time, this made for a painfully long trip for two small kids so after landing at Narita and to break up the travel, we spent the evening at a hotel near the airport before heading into Shanghai the next morning. We landed in Shanghai on Friday AM local time around 12:15pm. Our flight to Beijing was scheduled to take off at 4:15pm so it seemed ALL but certain that we wouldn’t make the flight and have to quarantine in Shanghai. Remember that we still needed to be processed, grab our luggage, check-in to our domestic flight, go through security, and arrive at the gate before the doors closed!
Right away things started to look up for us since we were part of the first group to de-plane. Our processing time actually only took just over an hour - the key here was that they decided to punt on testing us for the virus. Once we’d completed processing and we told them we had a connection, they assigned a customs agent in a hazmat suit, to escort us to our next flight, skipping most of the lines, all the way to the gate. AMAZING! Once we were on the plane, we were certain that we dodged a HUGE bullet by NOT having to quarantine in Shanghai.
The flight to BJ was about 30-40% full and when we landed we de-planed onto buses that were parked on the tarmac. We waited on the buses for just over two hours before we were driven to the BJ processing center where they separated my wife and I into two different hotels. My wife took the boys and went to a ‘temporary’ hotel – they all subsequently tested negative for the virus and were able to go home to complete their 14 day quarantine. I was shipped to a hotel in South BJ where I am currently spending my entire 14 days. After I get out, I will receive a certificate that will allow me to roam, I believe, fairly freely around BJ. Most importantly though, I’ll be reunited with my family. I Can’t WAIT.
Our flight started on Tuesday at 5:45AM EST out of Detroit > Newark (5 hr. layover) > Tokyo (13 hr. layover) > Shanghai (4 hr. layover) > Beijing landing at Friday 6:30pm CST (Friday 6:30AM EST) and we got to our hotels at about 11ishPM that same evening. The boys did great and I am proud of them for being troopers, especially since we wore surgical masks the entire time we were traveling. We wore masks AND goggles on each of the flights. EWR > NRT was 14 hrs.!
Overall, I came away EXTREMELY impressed with the professionalism and helpfulness of each person we came in contact with during the entire trip / process. It’s an extremely stressful time for both sides, so their patience and thoughtfulness was much appreciated, especially considering they are putting their lives in danger to get us processed.
Finally, these people aren’t limited to China so I applaud ALL the first responders, medical staff, police and everyone else that are putting the needs of others in front of theirs in order to help those affected by the coronavirus – globally! Thank you for your sacrifices!
IN THE NEWS THIS WEEK:
- The first Detroit Auto show that was to be held in June has now been postponed to June 2021 and yes, this had to be done.
- The Chinese govt. has decided to extend the NEV subsidies for an additional 2 years, which includes waiving the 10% sales tax. A welcome announcement for the China EVStartups.
- Softbank is still at it. This time they’re in talks with Didi’s autonomous driving unit about a potential $300M investment.
- Lucid says it’ll push the intro of their production version of the Lucid Air out till August (originally scheduled for April), which means they likely will also be pushing out production with my guess being that they wouldn’t start delivering them until Q1/2’21.
- VW burning $2.2B USD / week! Currently, the China market is the only one generating any significant revenue for them. Talk about HIGH fixed costs, this could lead to layoffs and/or bailouts by the German govt.
TRENDING ON SOCIAL MEDIA:
- What are the greatest designs of the modern times, Fortune ranks the Top 100. Nodding my head in agreement for quite a few items on the list. Spoiler alert: Basically most Apple products on the list. As a sneakerhead, not enough iconic shoes (hello Sambas!?). Pretty US centric products. Would be great to see a contrast for Asia / EU.
- Learning apps for kids. For those of us (most of us), that need help with the kiddies since we started WingFH.
- The best car movies. In case you have some time on your hands and were wondering what to watch. Big fan of many of these movies and just saw ‘Dirty Mary, Crazy Larry’ for the first time two weeks ago.
PRODUCT / SERVICE INTRODUCTIONS
- Xiaomi introduces a city scooter called the A1 / A1 Pro. It’s light (115lbs) with a range of ~ 40ish miles. At $500-700 it should be a hit. Currently only to be sold in China. I may have a need for this.
- Straight Outta Amsterdam …well technically Nunspeet. Meet the Muto. I wouldn’t call a bike that €1,699 affordable but it looks like a pretty sweet, durable bike. This is a pretty detailed preview but will also try to get the scoop from one my good friends who happens to be Dutch.
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
AI / AVs
Spoke with Alysha Webb, writing for Wards Intelligence about the gaining popularity of low speed autonomous vehicles for things like delivery & vending and how the coronavirus has likely accelerated their adoption. You may need a subscription to access.
An interesting topic since I think this could be the tipping point year for the low speed autonomous vehicles to really become a part of the mainstream amid the coronavirus pullback in traditional habits.
With the coronavirus pandemic pushing most people to avoid crowds, public transportation (subways / buses) ridership has taken a hit around the world. Due to the seriousness of the coronavirus scare and increased options for ‘last mile’ transportation, I think the move away from public transportation use is going to stick for those folks who remain hesitant to ride even after the coronavirus has been contained. The key will be whether or not these other options can continue to become more affordable and convenient.
One legitimate substitute for public transportation for those a bit closer to their destinations is the pedal bike, I use Mobikes almost daily. Further, the increased popularity of affordable electric bicycles will give those that are a bit farther away from their destinations a real option as well, likely eating into ridehailing share and revenue. People can choose to purchase the bikes or use them as part of a shared service.
Before the coronavirus, I thought that public transportation was going to combine with other modes of ‘last mile’ mobility to create a transportation ‘network’ to help people get from point A to B. Unless local govts. can ensure safety, convenience and affordability when riding on them, public transportation may be completely substituted out as a transportation option.
In order to get as many of those riders they lost back, they need to wait out the virus until it’s been contained, then roll out a marketing campaign along with incentives (read: free rides) in order to attract those customers they lost and potentially new ones.
Bafang, one of China’s largest e-bike components / systems manufacturers has just unveiled its new M200 e-bike system that hopes to push prices of e-bikes under the $1K pricepoint.
We are beginning to have many options when it comes to electric bicycles but most are still >$1.5K pricepoint and IMHO, the tipping point price on them need to be somewhere closer to $600-700. We are getting there and I am certain that we’ll see a more affordable electric bicycle intro’d before summer.
In separate efforts, GM, Ford, Tesla and Toyota are all working to get more ventilators in the hands of US hospitals as the number of coronavirus cases increases significantly causing overcrowding and a shortage of PPE (personal protective equipment) and ventilators.
In GM & Ford’s case, they’ve partnered with ventilator manufacturers to try to design ventilators using existing parts from their vehicle parts bins and allocating space at their manufacturing facilities to get the manufacturing lines up and running.
Getting manufacturing online will take time but once they get they get moving, and assuming there are no quality or manufacturing issues, they should hopefully have enough built to 100% support the needs.
The coronavirus pandemic has really wreaked a TON of havoc on everyone’s life. I, for one can also tell you that I’ve never had to deal with anything like this while I’ve been a parent and the additional dimension of living abroad just added to the ‘surrealism.’
Another accurate description I’d use for the situation the coronavirus has created is ‘disorienting’ since our routines were all thrown out of whack. For those that like to understand why you feel the way you do sometimes, this is a good article that made a lot of sense to me when I read it and invite you to click on it.
What made things a bit better in my situation was being decisive and not looking back after making the tough decision. It helped tremendously that the kids seemed to be no worse for wear although I was told right before I had my first son, kids are resilient – the parent’s job is to just not screw them up!
The trade war & the fallout from the failed WeWork IPO created a challenging environment in China for many startups. Companies were already teetering because of those two factors so the additional challenges posed by the coronavirus pandemic just guarantees that a few more startups that were on the brink are likely fubar-d.
Another dimension that’s not normally mentioned but that also made it difficult to fundraise is the thought that many Chinese startups are overvalued, especially the ones with no clear path to profitability. The competition for startups to gain share in China is FIERCE so that usually means A LOT of cash burn in order to attract customers.
That business model post-WeWork is unacceptable, the coronavirus pandemic just made it even moreso. In this environment though, even VCs need to be concerned about their cash burn and fundraising capabilities since it’s not just a reckoning for startups but many investment firms as well – specifically the ones with no track record of lucrative exits.
An argument is being made that after the 3 recessions of the past 30 years most of the job losses took place in highly automatable occupations (think repeatable tasks that don’t require skilled labor).
The emergence of AI & machine learning only increases the likelihood that jobs that were lost during a recession will be replaced by technology or machines as the economy begins to grow. This really shouldn’t be news because Andrew Yang based his entire presidential platform on this assumption. Ironically, Andrew was also derided by the Left and Right about his ‘freedom dividend’ but now the US govt. seems to think that it would be a great idea to give money away to its struggling citizens.
Based on leaked 2026 forecasted production plans for GM & Ford’s, they plan on making a combined 5 Million SUVs & pickups compared to just 326K electric vehicles in North America (about ~6ish% of total production). You’d be correct to think that it’s a pretty small number when they’re currently both boasting about how committed they are to an all-electric future.
Herein lies the rub that has just been nicely detailed with these numbers – neither company believes, even 5 years out, that there will be much appetite for pure electric vehicles. Even more importantly neither company believes they can design an EV that will command the $10-15K premium, which most of their SUVs and pickups capture now.
This is the irony of the switch over to electric vehicles, in order to invest heavily in & have a successful EV future, most automakers immediate and medium term futures need to filled with profitable ICE sales. In the US, that means the big pickups and SUVs. As the article states, the rock bottom oil prices combined with the effects of the coronavirus pandemic currently to the automotive market only reinforces the need to sell even MORE of the gas guzzling ICEs.
Most OEMs do long term planning 5-7 years out with the near term years obviously being much more accurate than the later years so the years 4 & 5 planning will more than likely change dramatically by the time we hit 2026. It’ll change because those types of exercises are more for the finance guys who need to capital plan than the PD (product development) guys because they don’t know how the market will move, what technology will be available at the time, nor really how consumer tastes will evolve so just look at those numbers as their WAG.
Make no mistake though, if they ONLY build 326K electric vehicles between them in 2026, they’re probably not going to hit that 5M number. And there’s a decent likelihood that Tesla hits 1M vehicles globally by then.
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.