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Fewer EV Brands in China, Bold Move by Ola Electric, VW China Partners Jealous - SAI Newletter 36



The latest buzz this week is about the MIIT Minister speculating that the EV sector in China needs to go through some consolidation so that it can continue to grow. EV company share prices are down on this announcement but I have a different take that I shared with Eamon Barrett from Fortune that you can read here. There are currently still hundreds of EV companies trying to gain traction in the China market with slightly more than a handful having achieved any type of sales success, most of them we’ve heard about. Many of the companies the minister is referring to are pseudo-SOEs that help support local economies by providing jobs and tax revenue in turn making the folks in charge look good. That means that they don’t mind if the company that’s in their province isn’t competitive and will help it along as long as it keeps employing people and paying its taxes. These zombie companies then wreak havoc with the sector because they’ll do about anything to grab share including sell at cost or even at a loss. No matter how well-managed you are, you can’t compete with someone who has deep-pocketed backers and isn’t afraid to throw good money after bad. This is already the case in the ICE sector where there’s a TON of overcapacity. Think solar panels and steel. This isn’t the only scenario but there are literally hundreds of companies you’ve never heard of, you never will hear of, that were established because of the handouts being given to the sector but have stuck around, aren’t competitive, and should close up shop. These are the companies the minister is referring to. Battery cell manufacturing is another sector to watch for since that’s another area of heavy investment in capacity. Here’s a good example of CATL announcing another $1.2B investment in capacity just today. CATL has aggressively invested to expand capacity over the last few years. What we should keep in the back of our minds is that Panasonic, LG, Northvolt, Farasis, Gotion, BYD, Samsung, SK, and a bunch of companies here we’ve never heard of are all adding capacity or have plans to. And not all battery manufacturing is created equal so a hiccup by any one of these so-called ‘premium’ manufacturers puts more pressure on the others to supply those customers that are lacking. And remember – Pressure bursts pipes. That’s the current case with Daimler & Farasis since it looks like Daimler is looking to CATL to support their production while Farasis gets their quality, reliability, and capacity sorted. I was a guest on a new UK podcast called ‘Ride: The Mobility Podcast’ with hosts Jonny Combe and Martin Kahl. The other two guests were Sampo Heitanan, the founder of Finnish mobility integrator MaaS Global and Pedro Somma, who is founder of Quicko, Brazil’s first MaaS service. The topic was about building a MaaS super app, could it be done, what elements are needed for it to succeed and which region would likely be the first to successfully have one. It was an interesting discussion and I learned a ton from everyone on the pod. And I now have some new friends in a few different places I want to visit. For those interested in listening to the pod, click here. A program note for this week’s EVs & More, Lei & I will be hosting our Twitter Spaces room earlier this week. We will jump on Thursday – 7pm EST. Please join us as it’s still early and there’s already a ton to discuss. For those who can’t join in real-time but are interested in listening to this week’s or past episodes of China EVs & More, you can find them by scanning the below QR code:


A very quick thank you to all of you who’ve supported the EVs & More show since we launched it 7 months ago. We turned it into a podcast on a whim in May and it’s gotten a lot of traction and last week hit 1K downloads! About 1/3 of our audience each comes from the EU, North America, and Asia so a pretty balanced and curious bunch. You can read Lei’s Medium post detailing our goals for the pod here. We plan to experiment a bit further with the show and I hope we’re able to reach an even wider audience very soon. TESLA NEWS - For those wondering what all the fuss is about FSD Beta 10, check out this 20-minute ride video. There is a lot of noise out there from the Tesla Stans meant to confuse people but I am only concerned about how good the system works. Nothing else. If that’s what you’re looking for as well, watch this supposedly unedited video and judge for yourself, is this safe or not? I will say this; the driver seems to disengage quite often. This beta was sent via OTA on September 11th and there are already a number of videos out on YouTube testing it so you can have a look at others to cement your opinion about it one way or the other. Thanks to Taylor for flagging this video. IN THE NEWS - Ola Electric doing its best to make a difference while becoming the largest electric moped manufacturer in the world. I’d heard that Bhavish is one of the more ambitious entrepreneurs out there. Not just in India but the entire world and it does seem to be an accurate statement with this announcement posted on his blog this week. Bhavish announced that his FutureFactory, when completed later next year will be the largest factory for electric scooters in the world, will employ ONLY women. That is completely ambitious and TOTALLY AWESOME. He’s trying to set a terrific example for India but I hope it also resonates with the rest of the world. I have 4 sisters so I’ve seen how tough sometimes life can be for women. When manufacturing at capacity, it should employ about 10K so that’s quite a few women that will have the opportunity to gain new skills and provide for themselves. A BFD. - Apple is back to going it alone on their rumored EV. Apple has been vacillating between ‘make’ or ‘buy’ for their EV for what seems like an eternity and they’ve now decided to do it themselves …again. This tells me that all of the potential partners that Apple targeted balked at the level of control that Apple wanted AND that they couldn’t find the right ‘fit’ culture-wise. Then again, Apple does NOT normally deal with partners as large as some of the auto manufacturers they’d been rumored to be courting. I must say that the indecisiveness for this project and all of the details spilling out to the public domain is very un-Apple like. This project is like none that they’ve taken on before as well so getting it ‘right’ may mean stopping and starting again until the environment, partners, design, costs, team, and market are right. I’ve also mentioned this before in previous newsletters – Apple won’t ever be the first to market with anything, they’ll just be the best. I’ve experienced the tediousness and pressure-filled environments of product development, launch, and ramp so it must be pretty frustrating to those insiders even moreso. Perhaps that’s why Doug Fields left? He saw that it was going in a direction he didn’t like? Speaking of Doug… - Ford adds a Chief Digital & Information officer on the heels of the Doug Fields hire. Ford has hired Mike Amend from Lowe’s. It seems that Ford wants to be able to sell you home improvement accessories? Not sure I understand this hire because Lowe’s isn’t really known for their ability to digitally engage customers while simultaneously creating stickiness on their platform but I could be wrong? I just see the Doug Fields hire as a move outside of Ford’s comfort zone and then this hire as a move back into it. If Ford or any company for that matter wants to really push the envelope and become a global leader in the mobility space there needs to be a set of bold moves, hires, announcements, changes. This hire seems like none of that. I will reserve judgment for a few months and see how everything shakes out once Doug and Mike are onboard and report back what I hear. - Dealers, just like traditional carmakers, have met their match. A good WSJ piece that sums up the current situation in the US for new car dealers. I feel like a broken record because this is something I’ve spoken up about for the last few years. China doesn’t have all of that dealer history (or baggage depending on how you look at it), but they do have a boatload of dealers mostly concentrated in the higher-tier cities. With that being said, most major automakers also sell direct via Taobao so there are many lessons to be learned from China by the Americans managing those dealer networks. It’s about time the customer gets put front and center during the new/used vehicle sales process. How can the process that most people dread doing, buying a car, last so long unchanged? Because there was no incentive to change. They had all of the laws on their side and the car manufacturers really didn’t care about the customer but once every 3-5 years. It’s completely ridiculous that Michigan and Texas are two states where Tesla and Rivian aren’t able to deliver their vehicles. Digital isn’t the future, it is NOW. This change is going to happen A LOT faster than most people realize in the US. With more EV products in the market, the legacies will want to wrestle control back from the dealers. That’s the ONLY way they’ll be able to compete with Rivian, Lucid, and yes Tesla. I JUST came up with a few ideas of how to help dealers embrace getting online. So, who should I contact?? Jumping off of my soapbox now. - This is every EV maker CEO’s worst nightmare. What GM is going through with their Chevy Bolt is a case study on what problem an EV maker would do well to avoid at all costs if possible. Car companies have recalls, we all know this. What is different with the Chevy Bolt recall is that it involves 6 model years’ worth of cars (or about 141K) of what’s supposed to be their future bread and butter. If the cost for the recall alone isn’t scary enough (has to be >$1B), the fact that a recall that began in November 2020 and neither GM nor LG still isn’t able to pinpoint the root cause of the battery cell defect which could cause a battery fire should keep Mary Barra up at night. GM is hitting their sweetspot starting next year for EV launches. The Hummer, Cadillac Lyriq, and soon after that the Chevy Silverado. What happens with all of those launches? Does this invalidate the Ultium platform? Why haven’t they been able to sort out the problem? Do I still trust my battery cell partner? Is it back to the drawing board or is this technology and relationship salvageable? How much is this going to cost me in dollars and cents AND good well? Those are ALL open questions. - VW China partners are getting jealous. VW has gotten fat and happy off of the backs of SAIC & FAW here in China and is the global leader in automobile sales largely due to the work of their joint ventures with them. But there’s ALWAYS tension with the JV partners since they ultimately manufacture the cars on VW’s behalf and have a say in the products that should enter the market. With the addition of JAC into the mix, it seems that Volkswagen wants to complicate their situation by a factor of 100! It’s not enough that currently the ID series vehicles struggle to sell in China for both FAW & SAIC but the move to take a majority ownership stake in JAC clearly tells their current partners that they want more control of their own destiny in China one in which may involve less of them. If they don’t manage these relationships very delicately, this could get really ugly really quickly jeopardizing their commanding position in the China market. GET SMARTER - China produced 60% of the world’s lithium in April 2021 vs. 1% from the US. This should concern the EU, US, and anyone else looking to make an impact with EV manufacturing. China will have control of much of the global lithium supply for quite some time unless there are any breakthroughs in battery tech. This article deep dives into how China’s two main lithium suppliers, Ganfeng & Tianqi, over several years became the world’s big dawgs and is worth the read. TRENDING ON SOCIAL MEDIA - ROAD TRIP! 1K miles in a petrol-powered Audi Q5 vs. Tesla Model S Plaid vs. Ford Mustang Mach E. The winner shouldn’t be that surprising to you but the amount of time between 1st and 3rd place could surprise you. This test was conducted by Marques Brownlee or better known as MKBHD, and his team. A lot of variables went into how these cars placed and it shouldn’t be a surprise that the Model S underperformed its estimated range while the Ford Mustang Mach E outperformed its quoted range. With that said, I think Marques is great when it comes to product reviews and tests like these so I encourage to spend the 20 mins needed to watch the entire video. Some hints about the results. We know that one of the advantages for Tesla customers is the supercharger network. That is even more of an asset when roadtripping. Specifically, there are about 1.1K Tesla superchargers spread across the US that are fully integrated into Tesla’s nav and mapping creating a UX that no one can beat. On top of that, the superchargers are generally well maintained and work specifically with Tesla vehicles. We’ve also likely read about the nightmares that are the ‘every other’ charger station situation in the US where they’re poorly maintained and/or don’t work and the ones that do are slow as molasses when they do. Electrify America has about 650 superchargers in place in the US which is great BUT when combined with all of the other PUBLIC (think shared by everyone) chargers that lack of real-time status about each charging station. As in the case with the Mustang Mach E. I kinda want to do this now here in China. Who’s with me?!? - Aurora’s business model: Driver as a Service. Here it is, the Aurora Driver HW/SW stack that comes preloaded onto vehicles. Be it commercial trucks or robotaxis. When their customer uses their ‘Driver’ they get charged. It’s a ‘pay as you go’ model that is much different than other models because it’s asset-light. I’ve openly questioned in past newsletters with regard to autonomous vehicles - Who will own the data and who will own the vehicles? In this case, the data is shared while the vehicle is owned by the customer. It’s a different approach to a problem that others are trying to tackle and it’s closer to a Tesla model since Tesla also doesn’t own the cars that drive around and collect data for them either. I like it. Revenue would seem to still be pretty far out due to the investment needed to get to safety levels in most use cases to better than human error but at least their economics seem to make more sense. - Is Xiaomi going to acquire Borgward’s 180K unit capacity Beijing factory to answer it’s ‘where to manufacture’ question? If the Beijing govt. has anything to say about it then yes. For those who aren’t familiar with Borgward, they’re a company that was established in 2008 with operations in Germany and China. They basically haven’t been able to sell any cars over the last several months and have shuttered their factory and recently started laying people off. It’s a pretty big factory that’ll need a lot of product to get it running at close to capacity, we’re talking a few years’ worth of momentum so unless Xiaomi is going to get this factory for pennies on the dollar, I may walk away. Even then, owning a factory saddles them with the responsibility to fill it with employees and demand, the demand part they can’t guarantee considering they haven’t even finalized the design of their first product. They are also likely getting approached by a number of brands that have excess capacity that they’d love to sell to Xiaomi so taking on this factory is a huge risk for them but maybe the Beijing govt. is providing them with an offer they can’t refuse. This could also be a negotiating tactic by Xiaomi as well to rent someone else’s capacity on the cheap. - NIO shows off its ET7 smart, sports sedan in Germany. NIO also confirmed that the ET7 should be available for sale there before the end of 2022. NIO went a step further to say that if demand deemed it, they would look to produce it locally. We all know this needs to happen right? Any wannabe serious player that plans to establish itself long-term in the EU or ‘Murrica needs to get serious about producing in those markets. From a previous newsletter, we also know that Li Auto is out scouting for EU production opportunities as well. NIO would likely partner while Li Auto may be more inclined to build their own factory. Both are still a long way off if their products don’t sell well there. - Baidu rolls out their robotaxi service to Shanghai. So far that’s 3 tier-one cities: Beijing, Shanghai, and Guangzhou, and 5 altogether. It’s worth a try and now that it’s pretty convenient for the folks in Tier 1 cities, you should give it a try. JUST THE NUMBERS - $300M. That’s how much DeepRoute has raised for their Series B round led by Alibaba. DeepRoute has partnership agreements in place already with ridehailing company Cao Cao, another recipient of ~$600M in funding announced last week, and SOE Dongfeng Motors which catapults them into being a semi-serious player. DeepRoute has a long way to go to catch up to Chinese heavyweights like Apollo (Baidu), Pony, WeRide, Momenta, and AutoX though so we will continue to monitor. —— 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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