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Diess Pokes Sleeping Bear, GM Bolts Improve (A Bit), Tesla Heads to India - SAI Newsletter 6



Since the news NEVER stops in EV & mobility, I decided to publish an abridged version of the newsletter this week. For those unaware, it was Chinese New Year last week so China has effectively shut down for the next week so there won’t be too much news coming from Asia but that doesn’t mean I am not keeping track of everything that’s worth noting. Paul Krake and I had a terrific chat on the China EV market last Thursday via Zoom & Clubhouse. Since we are newbies with Clubhouse we did run into some audio issues, something we knew could happen, but we’ve since sorted those out and will be better in the future for it. I also wanted to let those of you who are on the Clubhouse platform know that Lei Xing and I will be hosting a Clubhouse chat to discuss this week’s newsletter and all things EV & mobility this Thursday 8am EST / 2pm CET / 9PM CST. For those who aren’t familiar with Lei, he’s the former Chief Editor of the China Auto Review (CAR) and is very knowledgeable about the sector. This will be an interactive room so we will open it up to questions from anyone attending. Those keen to listen to Lei & I wax poetic about the continued craziness in the global EV & mobility sector should definitely tune-in. You can find me on Clubhouse: @pluggingyouin One thing I am doing a bit more research on for next week’s newsletter is the LG Chem vs. SK IP issue that could crimp US EV manufacturing. I don’t specifically know what was infringed so will try to sort that out for next week. TESLA IN THE NEWS - The hits just keep coming as the Tesla World Tour continues. Elon must feel like he can do no wrong. Next stop India! A long-held rumor has now been confirmed by Elon himself and that’s that Tesla will be building cars near Bangalore. No timeframe was communicated yet. For those keeping score, that makes Tesla’s next two stops after Berlin, South Asia, and Southeast Asia to set up battery and auto manufacturing beachheads in that region. Indonesia would be key to their battery supply chain with its abundance of nickel while India has a market potential similar to China with its ~1.5B citizens. That said, India currently buys <2.5M vehicles / annum or about 1 / 10th of China’s volumes which means they are quite far from meeting that potential. India’s current transportation system consists mostly of trains and 2 / 3 wheeled vehicles since investment capital for infrastructure upgrades remains a challenge. In order to jumpstart the sector, India plans to provide $4.6B in incentives to EV & battery companies that set up their facilities locally. What Tesla needs, more handouts! They’ve also floated a policy that would ban petrol mopeds by 2025. India DOES have some of the worst pollution in the world so the adoption of clean energy vehicles has become a major govt. priority but how they get there is still trying to sort itself out. There are MANY hands out right now that likely need to be greased in order for any type of traction to be established so we could still be looking at MANY years before we get to any significant 4-wheeled sales volumes. Tesla could be looking at India as an entry point into SEA since the region which includes Singapore, the Philippines, Vietnam, Indonesia and Thailand has a combined population of 655 million. There’s no doubt that Tesla is playing the long game with this move. IN THE NEWS - Should Diess be poking the sleeping bear? Apple’s services revenue went from 0 to ~22.5% (and still growing) of total revenues (in FQ’20) in less than 10 years so if Apple puts their mind and management muscle towards a product or market, I am NOT betting against them. I am not sure why Diess would want to give Apple bulletin board material like that. As referenced in another post below, I may be more concerned with (Germany’s) and hence VW Group’s ability to develop a world-class technology competency (read: software development) that will make their vehicles difference makers in the market. Investing $82B doesn’t automatically buy you software and UX design chops. Say what you will about Tim Cook as not being a ‘product’ or ‘design’ guy like Steve was, but Apple wasn’t anywhere close to being the largest company in the world when he took over as CEO. And now they’re pushing a $2.5B market cap. I know Tim isn’t measuring his success as manager of Apple by market cap, but nonetheless they got there. The guy is a cold-blooded assassin and they WILL be a player in the transportation space within the next 10 years. MARK THAT DOWN. - Just how large IS the transportation and mobility markets combined? According to one VC the TAM or total addressable market is $2.8 Trillion between the logistics / new vehicles / ride-hailing sectors …yeah, that’s with a T. Anyone that’s an investor should read this article even if you don’t agree with the numbers since the logic makes decent sense. - Porsche - The one case where manufacturing vehicles in China may NOT make sense. Let’s first start with context. Porsche annually sells <300K vehicles globally - that’s less than Tesla in 2020 BUT it is VW Group’s most lucrative brand accounting for ~40% of its annual profits. And that’s with ONLY manufacturing in the EU and exporting to every other market. Porsche is one of the if not THE most profitable automotive companies in the world. They pretty much ONLY produce hits. That’s a great position to be in but as the market shifts to EVs will Porsche also need to change its mindset with producing locally? Porsche management team needs to decide how ambitious they want to get with sales growth. The question isn’t whether they should grow or not, it’s more about by how much otherwise they risk becoming a boutique brand that makes great cars for an insignificant but very wealthy portion of the world’s population. Case in point, their initial EV product the Taycan was warmly welcomed by analysts and customers for its performance and they sold as many as they made, a modest ~20K, but as pointed out in previous newsletters I wouldn’t say it’s a really a terrific example of an EV since the range is pretty terrible. With Tesla coming out with the Plaid version of the Model S, the Lucid Air’s imminent launch, and Ferrari diving headfirst into hybrids to just name a few, serious competition is on the way. Superior engineering is not going to be defined by well-balanced, high output petrol engines for much longer as much as Porsche would like to pull that tail out as far as it’ll go. If Porsche can’t get EVs right pronto, their price premium WILL not hold over their new competitors in turn squeezing margins which will push the question of producing locally squarely to the forefront. Porsche will need to answer two questions with their next-gen products – Can they make the pivot to software-dominated, electric vehicles & and how fast can they make the transition? - Does capacity utilization even matter in China? China is the largest passenger vehicle market in the world with annual sales >21M units/year. With that said, the China Passenger Vehicle Alliance released a report that stated that capacity utilization at auto manufacturers fell to 48.5% in 2020. That number is bananas (as in horrible)! These statistics would cause great concern in other regions but in China, where large state-owned enterprises (SOEs) dominate, it doesn’t necessarily spell the end of the world. At Chinese SOEs, it’s sometimes more important to keep people employed rather than close plants, laying people off potentially creating unrest. The challenge here for the foreign automakers is that with the overcapacity, there’s always a downward pressure on pricing, effectively capping per vehicle profitability. In the past, that wasn’t a major issue since the automotive market was growing at double digits, and automakers (read: foreign automakers) were growing alongside the market. That’s no longer the case and that growth rate has now slowed to the mid-single digits. With the transfer of some of that current ICE capacity over to EVs, this is a real opportunity for automakers to ‘right-size’ themselves. Will they take this opportunity, I doubt it but this is where the overcapacity chickens could come home to roost. - Remember when I said I was concerned about the German automakers since technology isn’t a sector that Germany is particularly strong in? Well, this author seems to agree with my assessment. He touts Germany recently passing a law that would enable the use of autonomous vehicles and buses in defined zones across the country. That’s great right? Of course, it is since one of the main bottlenecks is not having the proper support via policies and infrastructure to allow for testing and piloting prototypes that consequently increase visibility and awareness of the companies & prototypes to the public. He argues that creating the right environment for autonomous vehicles doesn’t necessarily mean that Germany will automatically become leaders in the space. And the main issue is which domestic German companies will take advantage of this opportunity and new law? There are very few he can name. He contrasts this by highlighting the mostly American and Chinese players in California, their capabilities, and the fact that there is indeed competition that’s helping push the sector forward. In Germany, not so much. TRENDING ON SOCIAL MEDIA - GM is moving closer and closer in price and product competitiveness with Tesla by launching two new Bolts that are both cheaper and better looking. I emphasize ‘closer’ since disappointingly, the range from the current Bolt to the new ones carry over – headscratcher. On another note, I want to point out that GM partnered with Disney on the launch of these two vehicles and that we should expect grander, more expensive, AND extensive marketing from the legacy automakers as they complete their pivots towards EVs and begin to launch more products into the market. I point this out because this is what’s going to make it challenging for the EV startups to compete, as if it wasn’t already challenging enough, since the legacies will NOT be afraid to open their checkbooks to promote all of their new products. The startups just don’t have that type of capital to throw around so they run the risk of their brand and messaging being drowned out. - Bike lanes on the Bay Bridge – Yes, please! It could happen and would make for a long but beautiful ride over to East Bay! JUST THE NUMBERS - 2025. OK, so that’s technically a year, not a number but it’s important nonetheless. It’s when Jaguar will switch their entire product line over to electric. JLR has had some major issues over the last several years with quality, sales, and their product portfolios. Here’s to hoping they can put everything together as they embrace EVs. - $55M, that’s Formula 1 driver, Lewis Hamilton’s 2021 salary from Merc. That’s BALLER status and more than double Fernando Alonso’s $20M and change salary BTW. - 5kg. How much the lightest and likely one of the most expensive e-bikes weighs. It’s called the Domestique 1-21 Launch Edition and it’s a cool-looking bike but the form factor isn’t much different than normal pedal road bikes. The BIG difference here is that the motor and battery are incorporated into the frame. Gamechanger. Eeyo, your move. PRODUCT & SERVICE INTRODUCTIONS - Alpha Motors just took the covers off of two Ace variants and they are both SWEET. If you can recall back in December I highlighted the Ace Coupe from Alpha Motors. A sweet, little EV with an affordable price and small footprint. The Alpha team obviously wanted to expand its appeal and is now either offering trim packages of variants of the Ace Coupe. Reminder, these things will run you <$50K and have a range of ~250 miles. The first one looks like the Ace had a baby with the Mustang in the Thomas Crown Affair. Higher ground clearance, big knobby tires, and some floodlights on the roof make it look like a beast. The other variant has to be the performance version of the Ace since it has extended wheel wells, wider tires, and dual motors with all-wheel drive. I hope these come out as good in-person as they do renders. —— 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.

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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