FCA walks away from Renault, Tesla and Weibo, New Rules for EVStartups - SAI Newsletter #22
Am in Detroit for the next week and a half so will have an abridged newsletter this week. For those keeping score, FCA decided to walk away from merger negotiations with Renault so it’s back to the drawing board for both parties as they look to strengthen their positions in the evolving automotive sector.
Had the chance to participate in the A2Tech 360 Mobility Summit yesterday in Ann Arbor and left overall impressed with the event. The conference focused on what’s happening specifically in Ann Arbor but there was a good mix of startups, corporates as well as public entities which made for engaging panels and presentations. Thanks to Komal Doshi of Ann Arbor Spark for letting me participate!
There’s a banquet lunch being sponsored by the Michigan China Innovation Center (MCIC) in Detroit with guests including Chinese provincial officials and Chinese mobility related companies that I’ll be attending today. It’s an interesting time for this lunch considering the current trade environment between China and the U.S. so will update you all next week if there is anything worth noting.
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 U.S. I also provide a point of view that I hope educates and sparks debate about how I look at the issues. We will mostly divide our articles into these buckets: AI, Mobility/Ridesharing/Ride-hailing/Bikesharing, OEMs, EVStartups, Investments, and Other. If you know of anyone who would like to sign up for this newsletter please have them visit: www.sinoautoinsights.com. Thanks for reading.
The Sino Auto Insights team
Chatted with Linette Lopez of Business Insider on Tesla’s Weibo offer to potential customers providing 0% financing and license plate leasing for their vehicles, the latter of which is technically illegal in China.
Tesla’s aura seems to be wearing off a bit in China and with a gang of competitors gunning for them, both traditional OEMs as well as EVStartups who are launching their own EV products soon, Tesla is going to have a real battle for customers once they’re able to get the Shanghai Gigafactory 3 up and running.
Tesla’s already had a few ‘false starts’ in China over the past several years and this Weibo snafu shows that they likely haven’t learned much from their earlier challenges. The China market can be very unforgiving so how Tesla plans to address it and its competitors, now as a local player is going to be ‘Must See TV.’ I’ll be tuning in that’s for sure.
With the FCA Group mashup with Renault falling through, what’s next for the both of them?
From a historical standpoint (see DaimlerChrysler, see also Premiere Automotive Group), there’s no guarantee that the tie-up would’ve worked out even if they had moved forward with the transaction, the merger would’ve addressed some deficiencies in their portfolios (Renault with trucks and the U.S. market/FCA with sedans and the European market), although arguably not the two most important: Technology and China glaring weaknesses for both companies.
The speculation will begin running wild now on who each will select as a ‘future’ partner. The fact that that the French govt. wants to be an active participant in any new entity that involves Renault will likely work against them and could scare quite a few quality suitors away.
We see now how much a slowdown in the Chinese automotive market negatively affects the global automakers and how any further deterioration of the trade war will make that even more so. As of right now, either OEM can wait it out to find the appropriate partner, whether it be another OEM or a major technology company, but things will NOT get any easier for anyone in the automotive sector moving forward even if the trade war gets resolved.
In order to rein in overcapacity, and avoid an EVStartup bubble from bursting, the Chinese govt is likely going to put more ‘rules’ in place restricting which EVStartups can and can’t outsource manufacturing as they wait for their own plants to be built or sell enough vehicles so that manufacturing vehicles themselves makes sense.
The rules will revolve around total sales for those companies who’ve already launched products into the market, and for those that have not, there will likely be R&D expenditure mins. as well as manufacturing quotas that run over a number of years.
These new rules could be put in place within the next 3-6 months increasing the pressure on these EVStartup management teams, especially those that haven’t launched production and are looking to raise more capital but are finding that the ‘capital’ well is drying up. One notable, struggling company, NIO, has already been provided a lifeline (read: bailout) by the local Beijing govt.
This means that many of those 2-4-year-old EVStartups, many of which we’ve never heard of, with ambitions of becoming China’s Tesla but have run out of money will not be able to realize that dream. That’s unless of course, their name is Faraday Future, who always seems to find a way forward!
EVs & EVStartups
Aiways, a Shanghai-based EVStartup I visited a few weeks back is ambitiously planning to be the first Chinese EVStartup to sell into the European market. Aiways, who recently secured a 1B RMB investment from the Jianxi local govt. plans to use at least some of that investment to get their vehicles on German, French and Swiss roads by next spring, something I think that has about 0% chance of happening since they haven’t even launched their U5 vehicle in China yet.
I got the impression that Aiways has a pretty significant burn rate so I expect that they will need even more cash to get production launched and a decent volume of vehicles built.
Let’s check back later this year to see if my predictions about Aiways ring true.
AV and AI
GM is forging ahead with its AI ambitions for its autonomous vehicles by adding roads and routes with increasing difficulty so that it can gather data for its machine learning system. GM seems to be taking a much more conservative approach than Tesla whose Autopilot system can be packaged with just about every Tesla sold.
With GM only offering Super Cruise on the Cadillac CT6, the critical mass of data that’s necessary to safely operate fully autonomous is going to take quite some time to gather. This reinforces the revised sentiment by most auto and AI companies that fully autonomous vehicles will likely not be around for another 15 years.
Once we see more and more testing taking place in 4 season locations, that’s when we should get a much better idea of how far along all the players are and more importantly, who’s ahead and who need to play catchup.
It was inevitable that the scooter wars would reach Southeast Asian (SEA) shores and the competition is just starting to heat up. As a bellwether for the rest of SEA, Singapore will be the initial battleground city(state) for many of the local and international players to launch their sharing programs and its waaaay too early to tell who will come out on top.
What we do know is that Asian folks aren’t that forgiving to international players who don’t understand the local market to just try to retrofit their business models without adaptation to local tastes so I’ll give the local guys a bit of an advantage there. The Birds and Limes of the world have really deep pockets though so it’s anyone’s game. LET’S GET IT ON!
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.