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Didi's Troubled IPO, Tesla & Beijing on the Outs, Mobility for ALL - SAI Newsletter #26


Another week of blockbuster news, this time coming from what Beijing did after Didi’s IPO on June 30th. It seems there was A LOT of posturing behind the scenes, shares being traded, and bonuses being handed out. There will likely be no ‘smoking gun’ evidence about the Didi management team ‘knowing’ that the hammer was going to get dropped down 2 days after their successful public debut, they did raise $4.4B, but you’re not going to convince many investors who are ‘under water’ right now on their investment that they didn’t. It also seems that perhaps there was a need to be concerned as Didi may have been sending data over to an office of theirs in Mountain View if some of the Twitter posts are to be believed. I caught up with Paul Krake, our partner at the US-China Series to unpack what happened and try to game out what this means for Didi moving forward, along with the ridehailing and smart EV sectors. If you like podcasts, you can listen to our conversation here. I almost got whiplash watching sentiment towards Didi go from VERY positive to VERY negative in no time, and this negative sentiment is reflected in their share price which is off about $4 from its high of $16ish. For those wanting a bit deeper look into Didi’s history, this story from a few weeks back that I was interviewed for by The Wire China was a good primer for Didi’s US debut and is an even much more interesting read now, link to that article is here. I am currently in Shanghai having just attended the launch event for the AutoX Gen 5 robotaxi. One thing is for sure, they’re taking a completely different approach to this than Baidu’s Apollo which if you can recall, I visited a few weeks back. First, and this is the most peculiar part of their strategy, is that they’re still using an ICE for their Gen 5 robotaxi. You’d think they would’ve transitioned over to an EV by now but there, in all its glory was a Chrysler Pacifica packed with sensors, cameras, radar, and LiDAR. Lei and I will spend some time discussing this in a bit more detail during our China EVs & More Clubhouse / Podcast this week so for those that haven’t tuned in yet, you can do that here. Speaking of which, Lei and I are on the same bat time & same bat channel, this Friday 8:30am China local time for those interested in dropping in our show. Now, onto the news. TESLA NEWS - Is Tesla and Beijing on the outs? This Bloomberg deep dive (that I happened to be interviewed for) does a good job of describing the evolution of Tesla’s relationship with Beijing. Author Matthew Campbell argues that perhaps Beijing is ready to move on from Tesla and leave it to fend for itself as a negative sentiment about the company and their products has grown since the beginning of the year. Remember, if Beijing is willing to take down Ant & now Didi, you think they’d think twice about doing the same to Tesla? The main difference here is that I believe that Tesla still has some leverage due to the fragility of the domestic EV market and the absence of a domestic player stepping up to take Tesla’s place. Further, although Tesla commands the EV market with their MIC Model 3 & Y, it’s still only a fraction of the overall ICE passenger vehicle market. Perhaps the powers that be believe the domestics need a bit more seasoning and getting whipped by Tesla before they decide this is their time and step up. IN THE NEWS - Soapbox moment: Mobility for all. That’s not optional. As refugees of the Vietnam War, my family grew up pretty humbly. With that said, we could still afford a car, and having lots of brothers and sisters meant that there was always someone to take me & pick me up from whatever my brother and I had going on. I remember the first used car my two older brother’s bought to share for about $250, a used Dodge Colt that was a complete POS. They got it bondo’d up and repainted red. It wasn’t much, but it ran and got them where they needed to go and the bottom line was that it represented freedom for them so they were proud of it! We were lucky ones. I knew people in my Pontiac neighborhood that relied on the bus to get them and their families from point A to B. That could be work, school, the grocery store, the mall, again everywhere. And this is one of the reasons why affordable public transportation is SO important. When the e-scooter sharing craze started in the US a few years ago, it was only affordable to a small cross-section of people in Detroit. To add insult to injury, not only are they NOT affordable to many of the city’s most vulnerable, but those same citizens that HAVE to either walk or take public transportation to get around, also have to dodge and maneuver around these e-scooters when they’re parked and avoid getting hit by someone riding one! And the bottom line is they’re not affordable because the founders of Lime, Bird, and Spin weren’t trying to solve for that problem. These e-scooters are solely for the use of people that have the jobs that can pay for a $3 flat usage fee along with the $.15 / minute usage fee. I don’t blame these companies completely because the cities should share in some of this blame as well. Affordable & innovative are NOT mutually exclusive words. We just need to know and agree on the problem we’re solving for. As Warren Buffet’s right-hand man once said, “Show me the incentive, and I’ll show you the outcome.” - Arrival - the UK startup that’s trying to revolutionize delivery vans & buses just may have the bold enough ideas to do it. The use of a composite material rather than steel, batch & modular production that saves a tremendous amount of space and capital – check. Local sourcing that doesn’t rely on just-in-time principles – check. Arrival is pushing the envelope on just about everything, not just the design of the vehicles they’re selling to companies like UPS and First Group but also trying to simplify the current, complex, expensive automobile manufacturing process. Admittedly, the extent of my knowledge of Arrival was their investor deck that was sent over to me for evaluation and I thought that since their main product is going to compete in the commercial vehicle sector, a fairly low margin business, it would be tough for them to get the scale they need to eventually become profitable. There’s a twisted logic to their business model, but perhaps it’s just me that needs to get my head around it. Basically, Arrival wants to build a bunch of small plants all over the world so that they can avoid the capital outlays needed to build giant factories that handicap flexibility and nimbleness (see legacy OEMs). Also, big factories also means that much of your working capital is dedicated to buying parts for vehicles to be delivered to those factories ‘just-in-time.’ Here’s where I need more time to think through – If they sell 1 million vehicles a year, does it make more sense (cost savings, efficiency, expertise, reliability, quality) to build 500K units at two plants or 100K units at 10 plants? And this is where I am not yet convinced that their cost-saving assumptions will ever materialize. Because the minute they charge more for their vehicle, their potential customers will jump ship to a competitor. This is a great article that is worth the click and 8 minute read for those wanting to learn more about the ‘how.’ - Introducing Liuzhou, the EV capital of the world. Some stats to back this claim up: 1. ~30% of all vehicles sold there in 2020 were EVs. Liuzhou is a small city in China with a population of 4M or almost 4/5’s of the way to Norway’s size, the other more familiar EV powerhouse. 2. Liuzhou’s air and water quality are some of the best in China. The local govt. took a grassroots approach and incentivized its citizens to try out an EV. They scrubbed the collected data to customize a vehicle’s range (in order to ensure that the EV is not over-engineered. More than 15K Liu Zhou 人‘borrowed’ an electric Baojun for 10 months and when the trial period was over 70% of the participants purchased said EV. US, EU et al. Are you taking notes? TRENDING ON SOCIAL MEDIA - An autonomous slow-moving robot that follows you around filled with chilled beer? Yes, please! That’s what Heineken US promotion is offering, an autonomous vehicle called B.O.T., which stands for Beer Outdoor Transporter. This is brilliant! - Is Big Oil trying to sabotage Big Hydrogen in order to push out EV adoption? Oh, what a tangled web we weave. I am not a conspiracy theorist BUT I do know that the EV push is coming in hotter and faster than most people thought it would just 18 months ago. Of course, the world has gone through a tremendous shock with the pandemic that has likely pulled in that tipping point to global mass adoption of EVs by a good 3-5 years IMHO. The premise of Michael Liebreich’s argument (founder of New Energy Finance now Bloomberg New Energy Finance) is that the oil lobby funds the hydrogen lobby and wants to simultaneously confuse politicians in order to slow the adoption of EVs by saying that hydrogen has usefulness across many scenarios when, in his eyes, it doesn’t. I kinda buy that. If you’re still not convinced that the sabotage is on, have a look at this video of an Exxon lobbyist caught on candid camera. GET SMARTER - What the Pho?? ONE of the national foods of Vietnam and for certain one of my favorite dishes in the world. The aroma of the broth, if cooked properly, can take me back to when my mom would make it at home for us. It was such a real treat and since we were such a huge family, she had to use a BIG pot to make the broth. A whiff of that goodness can also take me back to the streets of Saigon (I was born in Saigon, not Ho Chi Minh City) where I am sitting on a blue, red, or white mini plastic chair with mopeds whizzing by on a hot, muggy afternoon hearty bowl of pho in front of me knowing that within a few minutes, it’s going to be devoured. Either way makes me VERY happy so I invite those that haven’t ever had a bowl of pho to google where your closest Vietnamese restaurant is and try a bowl for yourself. For those that have already enjoyed a hearty bowl of pho before, I invite you to remind yourself of how satisfying the combination of beef, noodles, green onions, cilantro, fish sauce, mint, and basil can be. Or course, if you’re in the US, I recommend adding a couple of slices of jalepeño, a squeeze of red rooster sauce aka Sriracha sauce, and a bit of lime juice. JUST THE NUMBERS - $150M: That’s how much a contract between Plus & Amazon could be worth where Plus will supply Amazon with Plus retrofit units that will enable what could be more than 1K of Amazon’s existing semi-trucks with autonomous capabilities. The system they’re offering, as the name implies, can be fitted onto existing trucks. Amazon was already an e-commerce monster and with Covid, it cemented their title as one of the largest customer of trucking services in the world. For those that don’t know, Plus was called and it’s one of the companies Lei Xing, my co-host for ‘China EVs & More,’ as a China-fornia startup with its close ties to both places. Part of the deal included Amazon being granted a warrant that within 8 years, they had the right to purchase up to 20% of Plus. Oh yeah, Plus also beat out another China-fornia company, TuSimple, for the right to supply those Plus Retrofits. - $1.5B: That’s how much of a paper loss Cheng Wei and Jean Liu had in the two days after the hammer was dropped on Didi by the Chinese govt. - 85K: That’s the amount of sales of the Wuling Hongguang Mini EV IN CQ2’21. This helped propel GM to a YoY sales increase of 5.2%. In all, GM & its partners sold over 750K cars in Q2. A pretty decent haul for a slow couple of months. —— 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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