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Demand for Model X & S Wanes, Public Transit Need's A Boost, Jony Ive & Ferrari - SAI Newsletter 48



It’s beginning to feel a lot like Xmas. It’s been bitter cold here in Beijing and I am thinking about my family and friends back in the US and elsewhere as they deal with the worst of the pandemic since it started. The good news is that the vaccine has started to be delivered but we are nowhere near out of the woods and people should still socially distance and wear masks.


With all the money pouring into EV/AVs, there’s been a lot more attention paid to the China market which has kept us busy here. I don’t see that changing at all for 2021 and I think as companies continue to try to reconcile where they are, both size and strategy wise, we should see more opportunities for small startups to make an impact. We will also unfortunately see companies having a harder time finding their place in an EV/AV future which could lead to some pretty serious downsizing, partnering and/or acquisitions. For the automakers, the faster they can build up their software dev teams, the faster they can begin to bring more strategic projects in-house. For many, it’s the right thing to do, it’s definitely not the easiest or fastest, but it’s the right thing to do.


We’ve started to better understand where the Biden administration stands with regards to combating climate change and supporting the development and commercialization of EV/AVs. As I stated below but bears repeating – This is not about being ‘green’ or ‘clean’ anymore, it’s ALL about being globally competitive for the next 50 or so years.


I have not decided how I will tackle the next couple of weeks but I am likely going to publish one newsletter between the next two weeks. With so much action, there’s also so much news so it’s been more tricky and time consuming to chop all the good content down into a concise newsletter. That said, I may dedicate the final newsletter of 2020 to reviewing the most important happenings of the year as well as making some ‘Bold Predictions’ but I may just push it out till Chinese New Year in February since it’ll be business as usual here until then.


I hope you’re all able to stay safe and as always, please do reach out with any questions, comments or suggestions. Oh and I would be remiss to not mention a very good article published this week in The Wire China that I was interviewed for called ‘VW’s New Dynasty.’ It’s behind a paywall but here’s the link anyway. It’s a deep dive on VW’s history, current situation, and outlook on how they plan to still dominate in China, their largest & most important market by far. For those that want to have a read, feel free to ping me.


Also, I participated in this week’s Technode China Tech Investor with Elliott Zaagman (fellow Michigander) and James Hull. We talked EV/AV valuations, how the traditional OEMs can compete in EVs but also how software is eating the automotive world. In particular how the large tech companies are encroaching on automotive turf, what we should expect from the tech guys in the future and how they can beat the car companies at their own game. You can have a listen to the podcast here. I’ve received some pretty positive initial feedback so I invite you all to have a listen. And seriously apologies for my mug being so large on the header!


TESLA IN THE NEWS

- Demand for the Model S & X seems to be waning. Enough so that the line is being shut down for 18 days during the holiday period. Both cars are pretty long in the tooth, introduced in 2012 for the S/2015 for the X. Since their original launches, I’d argue that there has NOT been any ‘major’ redesigns for either vehicle. They’ve both had some minor interior & exterior tweaks along with regular software updates and one-off specialty packages like the proposed Model S Plaid have been offered but they’ve both mostly remained the same since launch.


Traditional automakers normally do a ‘major’ refresh of their most popular products every 3-5 years. Tesla is likely working on a redesign for their halo cars but it does NOT seem to be much of a priority given that the S & X only collectively account for ~11% of sales. The pressure to completely redesign them should increase substantially as more vehicles launch from their competitors, those who are aiming directly for Model S & X customers. The question that Tesla internally is wrestling with is ‘How long can we just flash the software to add features before we need to invest the capital for a major, physical redesign of both vehicles?’ My bet is that whenever they do redesign, those Falcon doors won’t make it on the new version of the Model X.


- Does anyone have an idea of what Tesla’s market cap should be? The question of ‘Is Tesla a car company or a technology company?’ always pops up when I have discussions with other mobility and transportation wonks whether in the US or Asia and my answer to them always is – ‘YES!’


Because it’s simple, Tesla is all of the above. What the analysts are getting VERY wrong is that the traditional methods of determining values on companies utilizing old financial measures like discounted cash flows and weighted average cost of capital will not paint an accurate picture of Tesla or any company that straddles the line between traditional & tech co.


Second, models in the past never had to deal with markets as large as China and India. And you can argue that the principles should be the same but the big assumption there is that how it was done before was always correct. I mean, if how we do business is being disrupted, shouldn’t how we evaluate how successfully companies do that same business evolve as well?


Having said all that, I think most rational people would agree that the EV stocks are overvalued now and it’s just determining by how much. That delta between how much a company should be valued at and how much it actually IS valued at is called ‘sentiment’ and therein lies the rub because sentiment is very different from company to company.


- Elon plans to use Tesla’s new 4680 battery technology for Berlin made Model Ys. If I am understanding this properly and I’d like to think I am, there could be Model 3s & Ys built in Shanghai, Berlin, and the US all with different battery technologies. Seems pretty complicated.


That’s unless Tesla transitions Fremont over to the 4680 standard as well, the likeliest scenario and have the Made in China (MIC) Model 3 that’ll be priced right for that market because of the cheaper LFP battery. BTW, after they switched to the LFP battery Tesla consequently lowered the price of the MIC Model 3 by almost 40K RMB (~$6k) and saw their November sales spike to >20K units. There have been complaints about it from Chinese customers though so this story isn’t over.


IN THE NEWS

- Public transit needs to make a major comeback if cities like NYC want to stay attractive for its inhabitants but it isn’t going to be easy. NYC’s Metropolitan Transportation Authority which runs NYC’s subways, buses and commuter rails services 4 of 10 of the US’s public transit riders. You read that right, 40% of ALL of the US’s. As the article states, a city’s transportation system is a network and when one part of the network doesn’t work well it burdens the other parts.


The world’s public transportation providers need a big time bailout or those 3-5 minute wait between trains on a subway in NYC, London, or Seoul could end up being 20-30 minutes. That’s not to mention those stops that drop you off within a couple hundred meters of your destination, forget about it since there could be fewer stops and in extreme cases subway lines could be closed altogether due to funding shortfalls.


If it takes you longer to get to work, those city jobs become much less attractive to those outside of city proper which means less people may take those city jobs, which means less tax revenue and on and on and on. If you’re thinking I own a car or ride a bike so this shouldn’t affect me, you’d be wrong.


- Baidu believes it can do better. Why else would they want to manufacture their own car? This tells me the economics of the transaction has changed, the margins are too small when sharing revenue with a partner, and/or all of the above. Baidu’s revenue growth has been lagging behind its counterparts the ‘A’ & ‘T’ in BAT so do they think that getting into transportation is going to unleash more value, I sure hope not. They should REALLY study how much companies like Faraday Future and Byton have mightily struggled with trying to put their own vehicle on the road.


This can’t make their Apollo manufacturing partners feel very good either. If executed, Baidu would build a product utilizing virtually the same HW/SW stack in some cases to compete directly with theirs.

- Why do most self-driving cars look the same? #boxonwheels The folks developing people shuttles that all tend towards the same form factor will tell you that in this particular use case, form follows function which would be a valid statement. BUT it’s totally uninspired and if/when these shuttles hit the road how will you tell them apart from one another.


The form follows function argument seems like an excuse for ‘little imagination’ at a time when, if you want folks to get excited about autonomous shuttles, should be spent exploring more use cases and form factors. An opportunity that I have NOT closely examined is interior design and user experience because if there’s an amazing, customized user experience that will make me a loyal, and more importantly repeat customer, then the lack of inspired exterior design will most definitely be forgiven.


- Mobileye screams, “Hey! Don’t forget about us!” With all the launches of robotaxi pilots in China and the US, Mobileye wanted to grab a piece of the spotlight by posting an hour long video of a test vehicle utilizing one of its two autonomous driving technologies driving around Munich. There wasn’t anything too exciting in the video which is the whole point, they wanted to show their ‘progress.’


It seems that Mobileye may be hedging their bets by ‘dual path-ing’ solutions, one that includes LiDAR and one that does not à la Tesla. Intel bet BIG on Mobileye to be their gateway into the mobility sector so it’ll be interesting to see how their SW/HW stack measures up to guys like Aurora, Waymo, AutoX and others.


- Is Ferrari thinking about taking the company in an entirely new direction? If you’re to believe who they’re considering to replace departing CEO Louis Camilleri then, yes they are. Is this a bridge too far though? One of the folks who is rumored to be considered is Jony Ive, the former head of design at Apple. WOW.


This blows my mind but is something I think is crazy enough that it COULD work. I don’t see Jony taking a role at any of the traditional OEMs because he’d demand control of essentially all design decisions but Ferrari, which sold ~10K vehicles in 2019, could be an iconic enough boutique brand that I could see Jony thinking long and hard about taking the reins if offered. If Jony did take the role and that would be a BIG IF, I bet there’d be so much interest in the first product launched during the Ive era that it could break the internet!


- The new king of fly-hailing. After acquiring Uber Elevate, Joby Aviation is now the big dawg of eVTOL. eVTOL stands for ‘electric Vertical Take Off & Landing.’ O2O ventures like these need scale in order to amortize the initial investment costs but will we really see affordable, short-hop flights in our near future? Could this become part of a city’s or even state’s transportation system or just another app for the wealthy? Flying drones are generally a lot easier to program than vehicles since there are many less obstacles in the air than there are on the roads and you could geofence airspace to avoid completely high traffic and urban populations.


On the other hand, there are also companies like Sebastian Thrun’s Kittyhawk that are working on flying cars that you would own. My father was a South Vietnamese Air Force pilot during the Vietnam War so I’ve always been interested in flight and thought that one day I would pursue a pilot’s license to follow in his footsteps. Seems I may not need anything that formal in order to get myself up in the air.


- Many people around the world are looking forward to the Biden presidency beginning, but will he be good for EV/AVs adoption in the US? At least some people tend to think so. There are three main issues at play here in order for the US to get its act together on the tech that’ll get EV/AVs on the road en masse.


First - Policy. The US has none, at least not a cohesive, friendly towards EV/AVs national

policy that gets the country all moving in the same direction. Second – Not about being ‘Green’ anymore. Due to COVID-19, EV/AVs are now all about how the US stays competitive with the rest of the world. The private sector CAN NOT do this alone and there’s too much at stake to just leave it to individual states taking a bunch of small steps. Third - Funding. As in there is a tremendous need. The automakers have made recent announcements about the levels of financial commitment they’re making to make EV/AVs a reality.


States like Michigan are doing their part by sponsoring public/private projects like Cavnue that will open up a 40 mile corridor from Detroit to Ann Arbor where autonomous vehicles can be tested. There needs to be larger projects and more of them in MANY other states if we’re to expect to move into a global leadership role in this space. I have no doubts that we have the expertise to make things happen as long as the barriers that impede (read: stop) progress have been torn down.


That’s not to say there won’t still be some major hiccups but the US govt. needs to quickly develop a ‘Build it (create awareness & educate them) and they will come’ mentality. That along with some strong leadership in key roles, speaking of which…


- Biden’s nominees for Transportation & Energy Secretaries, Pete Buttegieg and former MI Governor Jennifer Granholm, are extremely consequential to the US’s prospects of becoming a global lead dog in the move towards clean energy & EV/AVs. Jennifer Granholm has been a pretty fierce advocate for combating climate change and for manufacturing EVs specifically while she was Governor of Michigan.


A big part of the Transportation Secretary’s responsibilities is to upgrade the US’s infrastructure and if Pete can upgrade it not only physically but technologically, installing 5G towers, sensors that communicate with their surroundings as well as centralized traffic management system at the municipal level, the adoption of EV/AVs can be accelerated substantially.


They are both VERY progressive with their views generally which leads me to believe that they’ll work hard to pull the US into the 21st century. Equally as important is the fact that they both ‘made their bones’ and reputations in the Midwest, so they know intimately how the decisions they make can affect employment and opportunity in those states.


- ….and how did you plan on filling those open roles? GM tries to explain how they will hire 3K software developers to support its pivot towards electric, connected and autonomous vehicles. In reality, the skills that GM wants to recruit are scarce AND in high demand in other sectors as well. Any and all decently experienced software developers, user experience designers, project managers, and product managers will likely have no shortage of opportunities in the foreseeable future.


Key is if GM and other traditional carmakers can make their company, what they’re trying to accomplish and their ‘potential’ employees roles in all of that be sexy enough that the candidates would shun non-automotive jobs in places like Austin, Boston, LA, and yes still in Silicon Valley to help over 100 yr. old companies try to reinvent themselves? A daunting task but if marketed properly could bring some talented folks into the fold. That would also mean that many of these companies ‘veterans’ would need to leave in order to make room for the news BSD’s of the company.


I’ve said this before and I will say it again. 2021 is likely THE most important year in a long time for the transportation and mobility space. It’s going to be a ton of fun seeing how everything evolves – WE are definitely looking forward to it making an impact ourselves.


- Walmart, along with delivery startup partner Gatik, plan to take a major technological step forward by piloting a safety driverless delivery program, first in Arkansas then Louisiana. Key distinction here is that these routes are relatively short, repetitive or closed loop. But like AutoX, Waymo, Cruise, WeRide and others who plan on taking safety drivers out of the redundancy equation, they’re betting everything it all on their solution being ready for primetime.


- GM has begun to utilize a huge threat to the existence automotive tier 1s and the suppliers can’t be happy about it. Of course I am talking about 3D printing of parts. Now, in this particular case GM is only printing parts for prototyping & pre-production because you better believe there is a clause in the UAW contract that will NOT allow them to use 3D printers for production parts, specifically if it takes a UAW member’s job away.


Some of the larger tier 1s also are union shops so as the technology becomes cheaper, the materials more reliable and durable, this is going to be a hot topic and pressure will build, because it always does, to reduce costs by eliminating the people involved and eventually printing parts for use in production vehicles.


TRENDING ON SOCIAL MEDIA

- A ‘green,’ classic restomod? ZeroLabs wants to make that a possibility for you. I am a bit torn here since the reason I would invest in a classic would be to hear the roar and feel the rumble of that V8 engine. Give me a few weeks though, depending on the make and model, I could get behind swapping out the chassis & engine to turn it electric. Especially if it was a sleeper!


- A fully restored, topless Ford Bronco. WANT. It’s a stick shift with knobby tires that needs to be driven hard and in the dirt. This is about as nice a restomod‘ed Bronco as you’ll ever see. It’s also up for auction from Sotheby’s for anyone interested in owning this beautiful piece of metal.


- A sad and likely unavoidable outcome of the times we live in. The iconic Cliffhouse located just north of Ocean Beach in San Francisco is a piece of history for the city is closing. I agree with the article as well that the food although good, wasn’t the most memorable part of the experience. When I first moved to the Bay, the Cliffhouse was one of the first of many memorable restaurant experiences that really stayed with me. I know many of my friends in the Bay are VERY sad about this news right now that it would be closing at the end of this year. It’s surely going to be missed.


JUST THE NUMBERS

- StockX, a resell platform that lets snearkerheads buy and sell the latest and hardest to find kicks and yes I include myself in that group, wants to raise $250M. Dan Gilbert, a fellow Spartan, started with an idea for an underserved market in this case a platform to easily cop the newest, and hardest to find kicks on the planet and decided that a marketplace would be the best way to monetize the demand. Brilliant! It’s become Detroit’s first unicorn and is now valued at $2.5B.


I was able to visit their HQ in Detroit while I was back in January and I left VERY impressed with their operations and ambition. Because I am a sneakerhead, this is definitely one of those companies where I wish I would’ve thought of it!


- Market capitalizations & close above IPO price on first day of trading:

DoorDash - $50B & +85%

AirBnb - $74B & +113%


We can’t just call this a China EV phenomenon anymore. Now, can the management team’s earn those

market caps? Those valuations seem pretty lofty.


- $221,500 – That’s how much it’ll cost you as I write this to own a culturally significant 1969 Merc 600. Why so much you ask, well because it was owned at one time by the one and only, Elvis Presley! The thing is a BEAST and probably drinks gas but it’s pretty damn cool. Did I tell you it also comes with Elvis memorabilia?? Don’t BE CRUEL …and take this thing down!


PRODUCT & SERVICE INTRODUCTIONS

- These autonomous, solar-powered, floating devices called Interceptors developed by Dutch non-profit ‘The Ocean Cleanup’ picks up garbage in rivers before it heads to the ocean. As someone who’s been to beaches pretty much all over Southeast Asia, these things when fully commercialized are going to be busy for a looong time.


- The coolest, most technologically advanced farm tractor on the planet. I live in a city and have NO USE for anything like this so is it weird if I still want it? Oh, and you gotta pay to play and that’ll be a steep 5 stacks of high society.


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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

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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