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Do Not Sleep on Geely, Hengchi, A Frankenstein'd EV Co., MAAS' Upcoing Moment - SAI Newsletter #31



Podcast announcement:

Following our successful virtual conference, Sino Auto Insights and the US China Series have decided to continue our cooperation with the launch of a podcast that will provide more in-depth coverage of the China/US mobility & transportation sectors.

In our inaugural episode, Paul and I discuss Li Auto’s IPO and I further speculate on XPeng and WM Motor’s IPO ambitions. I invite you to have a listen and subscribe if you’d like to hear more of Paul Krake and I waxing poetic about all the latest goings-on in the sector. As always, appreciate any suggestions for topics and/or constructive feedback that will make the podcast or newsletter better.

I also wanted to acknowledge the ongoing, challenging relationship currently between the US and China. It’s now pulled a couple of very popular social media apps, one popular in China the other in the US, into the debate. Since we talk auto and mobility here, I won’t get into the social media stuff too much but I will say that any continuing challenges with the relationship could without question affect electric vehicles, mobility, and autonomous vehicles so we will monitor update and as always give you our opinion on how we think things may play out so you can plan accordingly.

I’ve spoken with a few investment research folks and some journo’s and we should start to see more coverage generally about how the challenges may affect a few different, important sectors like the one we all care so much about, as they try to game out all the different scenarios. We may be in for a rocky next few months though so buckle up!

Other news from yesterday was NIO’s earning, they lost $164M for the quarter but had a +9.7% vehicle margin compared to a -24.1% margin in FQ2’19. For the month of July, NIO delivered a total of 3.5K vehicles (2.6K were ES6’s) but raised its Q3 sales forecast which is important since they’ve started delivering their 3rd product, the EC6 to accompany their ES6 & 8. Contrast that with Li Auto delivering 2.5K Li One’s and Tesla delivering >11K vehicles in July.

Now on to the news.

IN THE NEWS:

-   There’s a bike shortage around the world. If you’re keen to get one and don’t want to wait up to 2 months after you order it, think 2nd hand. Here are some tips for finding a good, used two-wheeler.

-    Ridehailing companies like Uber and Lyft may need to make some significant changes to their Income Statements as a California judge orders them to classify drivers as employees. This blows their biz models out of the water during an already difficult time.

-    Is 5G finally getting the attention and prioritization it needs from the US govt.? It very well could be, but we’re likely still looking at years before it’s useful to the masses.

-    Ford going private won’t make their challenges go away, it may just make them more apparent.

TRENDING ON SOCIAL MEDIA:

-    The Cybertruck looks like a doorstop. The Nikola CEO doing his part to stay in the headlines by calling out the design of Telsa’s pickup. I get it, the share price goes down unless the company is making news but do you really want to poke that bear? I’d talk to the guys over at NIO first.

-    A Hot Wheels collection worth $1.5M – you bet!

-    When will the preference for big honkin’ SUVs fade? Many OEMs hope not for a long while.

-    Chinese buses doing their part to keep American cities from being overrun by pollution.

-    Keeping facial recognition software useful when everyone’s wearing a mask.

-    A new generation of fans break the internet listening to Phil Collin’s sick beats for the first time, for those that don’t know Phil was initially is a drummer by trade. This short video is GREAT.

PRODUCT & SERVICE INTRODUCTIONS:

-    The Cadillac Lyriq was revealed last week in what was what I’d call a fairly bizarre product intro. With social distancing the rule of the day, it can definitely make product intros awkward for audiences. That’s unless they’re planned accordingly. If you’re trying to build excitement for your luxury brand’s grand entrance into the EV market, building anticipation and excitement should be keys to events like this. That was NOT accomplished IMHO.  Having said that, I like the Lyriq, I think the rear end of the vehicle starting at the c-pillar needs a design scrub. Those eye level brake lights sandwiched between two pieces of sheet metal really look out of place.

-   The boys over at Evoke just launched an e-cruiser with some impressive specs. It’s called the Evoke 6061 and it looks pretty cool. I know the Beijing based Evoke founders, Nathan and Seb so I wish them good luck with this. They’re planning to launch this thing in the US, so its gonna need to be pretty impressive if it’s going to compete on that side of the world. I think they’ll do fine.

-   Another kitschy-cool design for an electric motorcycle. What should we call something that’s more than a moped but doesn’t quite fill out to be a motorcycle? Suggestions welcome. I am thinking this Punch Moto might be fit that bill, reminds me of a motorcycle that the Roblox designers would ride. A bit boxy, not super comfortable, but pretty utilitarian. Will have to wait and see if it’ll get greenlighted.

-   Segway, yep that same one, gets into electric bicycles. This particular flavor is influenced by traditional dirt bikes and for that reason is called the Dirt E Bike.

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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

OEMs DO NOT sleep on Geely. They may just surprise you. Few folks outside of China know the name & Geely CEO Li Shufu (李书福) but let me assure you that he’s got grand ambitions, not unlike a Steve Jobs or an Elon Musk, for the company he leads. Li wants to make Geely a global player, China’s first, true global player. Let’s quickly list some Geely moves that illustrate that ambition: -   Acquired Volvo in 2010 for $1.8B -   Acquired a 9.7% stake in Daimler AG -   Launched new brand Lynk & Co in 2016 to sit between the budget Geely and premium Volvo brands -   Became a (51%) Majority owner of Lotus purchased for $65M in 2017 Geely is about as close as you’re going to get to a Chinese automotive success story. Part of that success is because Li Shufu had the sense, after acquiring Volvo, to throw some money at them, leave them alone, and let them do what they do over in Sweden. That’s when they came up with hits like the XC60/90 & S60/90, products that have led to their resurgence. Being China-owned now essentially guarantees Volvo a certain volume in sales every year but that wasn’t enough for them. Volvo then went on to introduce their own EV brand Polestar which will be built in both Sweden and China eventually. Polestar’s first product, the Polestar 2 was recently launched and initial reports is that it should be a worthy opponent to Tesla’s Model 3 & S. We’ll have to wait to see about that one though. There’s a lot of ink used to talk about the EVStartups and their global ambitions but Geely is likely currently the best positioned to be a player outside of China but you may not ever know that since Western media don’t cover them that closely. Things are all coming together for Geely and we should continue to see success and further growth. What they’ll need to be careful about is managing their growth and adapting as their reach extends and their operations grow in size and complexity. Specifically, Geely will need to manage their costs. Most automakers do that by sharing parts across brands and products. This is where things will get complicated for them. Volvo parts are likely too expensive to be put on Geely vehicles and vice versa. Depending on which regions their sales grow the most, they’ll also have to reconcile their manufacturing footprint. Does it make sense to make cars in Sweden in the future? Probably not. Geely also plans selling into Malaysia and other parts of SEA with another low-end brand Proton they’d invested in but if we’re talking global players, what everyone wants to see is how successful automakers can be in the EU, US, and China. Volvo, up till now, has been a global brand but very niche and low volume (when compared to other global brands) which contributed to their downfall. That’s not going to be enough for Li Shufu and that’s why Lynk & Co. was also created.   The sheer weight of those types of expectations and ambitions would cause many companies to make mistakes, the type that costs automakers billions of dollars. The keys for Geely will be creating a plan for success, executing that plan flawlessly, and likely most important, adjusting that plan when unforeseen occurrences like COVID-19 pop up in the future. Oh and btw, if we leave out the China EVStartups for now, Geely has done this even though they’re one of a few (BYD, Great Wall the others) privately owned Chinese car companies. The rest of them are state-owned. Pretty impressive. #Geely #Volvo #Daimler #Lynk&Co #Polestar #Lotus #LiShufu #worlddomination EVs Hengchi aka China Evergrande, one of China’s largest real estate development cos. decided in 2018 that it wanted to get into EVs. Many China watchers thought Evergrande’s entry into the EV sector in 2018 was a naked land grab. After a couple of billion dollars of investment, a few acquisitions, and a slew of product launches last week, I am not so sure anymore. It could be both. Their initial move, acquiring a stake in Faraday Future was a pretty laughable initial step to entering the EV sector that ended in disaster. Credit them with sticking with it and eventually finding (or acquiring) willing partners. On their 2nd try, they decided to do it on their own creating a new EV brand – Hengchi. Here is a brief summary of Evergrande’s shopping spree within the last 2+ years: -     Acquired NEVS, a Swedish company that bought the assets of bankrupt Saab -     Acquired UK motor maker, Protean -     Acquired Dutch electric motor maker, e-Traction -     Acquired Shanghai-based EV battery supplier CENAT New Energy Co. -     Partnered with 5 global automotive engineering companies FEV Group, EDAG Engineering Group, IAV Group, AVL Group, and Magna to develop 15 EV models One thing is for sure if Evergrande is successful, something we won’t know for another 10-12 years, the strategy of acquiring assets and expertise and then frankensteining them together into one cohesive company will be copied by others, the people with a boatload of cash, a ton of ambition, but no patience to build out their own team. They’ve taken the important first step, building one-off prototypes, 6 of them to be exact, and showing them off during a heavily covered ‘reveal.’ Now, as the folks at ALL of the other EVStartups will attest, is when the heavy lifting begins. Getting these cars built, will be a financial, manufacturing, and management challenge that the Evergrande mgt. team has never likely had to deal with. That they had the hubris to intro 6 cars, tells you that they’re pretty confident in their plan. As Mike Tyson once said though, ‘Everybody has a plan until they get punched in the mouth!’ #EvergrandeHealth #Hengchi #Saab #6newmodels #ChinaEvergrandeNewEnergyVehicleGroup       MOBILITY MAAS still waiting for its moment. It’s pretty common knowledge now that ridehailing isn’t a sustainable, moneymaking standalone business. Not at the current economics anyway. And it could get worse with California’s new ruling that Uber & Lyft will need to categorize all their drivers as employees (see earlier post). The Uber’s, Lyfts, and Didi’s have now decided to widen their net by including delivery and last-mile options as part of their apps. That has transformed their singly focused ridehailing apps into what most that follow the sector would now consider Mobility As A Service (MAAS) platforms. Some of these platforms have even started to include the ability to buy public transit (train, subway) tickets. Anything to accommodate users' diverse needs, consolidate them onto their platform (increasing the install base), and wring an agency fee out of their partners. As a platform though, there needs to be a lot more cooperation & coordination across many public and private enterprises and a willingness for them to acknowledge that you’re adding value to their service, enough that they’re willing to pay for it. This can create a situation where your partner can also become your competitor if they end up creating their own platform, which many cities are considering. Then there’s finding that critical mass of folks that will either pay you as ‘they go’ or subscribe to a fixed number of uses for a flat fee, enough so that there can be a realistic number of users and pricing that the platform eventually becomes profitable. How I see it, being profitable could take some time if it happens at all. Time that most of these platforms won’t have the money to wait out. If we look at this a bit differently though, this is a tremendous opportunity for the OEMs. They can pick up one of these platforms while their valuations are down, run and manage them with the hope of being profitable but even if not, it shouldn’t cost that much to run, not when compared with their other business operations. Further, they’d likely have a bit more influence with local municipal leaders that would make influencing new transportation policy easier, and ultimately more favorable. If the trend of cities limiting access of private vehicles into city centers continues which I am predicting it will, these platform’s usefulness & usage could increase substantially increasing the chances of being profitable.   Most importantly, the OEMs could keep the platform running even if it was losing a bit of money to harvest all that valuable user transit data that they could build future services around. Then when robotaxis eventually do make it on the roads assuming that they’d invested in the technology themselves, the OEM could use the platform, the one that they’ve owned for several years and developed a loyal, and large install base as the tool to introduce their own robotaxi service. #MAAS #itwillwork #righttimerightplace #lookingfortherightoperators

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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