Ford & GM struggles in China, Lime pivoting, My favorite GZ (广州) trip - SAI Newsletter #3
This is a travel week for me so let’s get right to it.
I spent a few days last week in Guangzhou visiting a couple of up and coming EV/AV startups and will detail a bit more about my visits and the sectors they play down below. Let’s just say that I left both companies feeling like their teams are capable enough to deliver solid products at competitive prices as long as they can get more funding to weather the current storm and keep those doors open.
Since next week is Chinese New Year, I am thinking there may NOT be a newsletter since a good portion of this newsletter’s audience will likely be covered in snow in Niseko or sipping on some fruity, alcoholic beverage somewhere in Southeast Asia.
In case there isn’t a newsletter next week, let me be the first to wish everyone a Happy Lunar New Year, year of the rat! 新年快乐! Chúc Mừng Năm Mới!
IN THE NEWS THIS WEEK:
- The China US trade deal was signed. Still unsure what it does for IP protection and China’s
subsidies for favored industries like EV/AVs so we will have to wait and see how this will affect the auto sector, if at all. Early word is that it really doesn’t move any needles significantly.
- GM sold 15% (3.09M vehicles total) less vehicles (including JVs) in China in 2019 than it did in 2018, a pretty significant decline. GM sold over 4M vehicles only 2 years ago in 2017. GM doesn’t anticipate the market being much kinder to them in 2020 either.
- Foxconn and FCA sign up to be JV partners and make EVs together.
- Well ok, the Byton 48” screen doesn’t distract as much as it looks like it would, but is it necessary?
TRENDING ON SOCIAL MEDIA THIS WEEK:
- Tesla is now officially worth more than GM + Ford combined. Look for it to climb even further with MANY analysts long on the stock.
- GM to re-introduce the ‘Hummer’ name as an electric pickup. To be clear, the ‘Hummer’ will be attached to an electric pickup under the GMC brand. Let’s say they’re being nostalgic and will not be conceding sales of one of their most profitable products very easily.
- NIO shares pop on speculation that they’re getting a $1B lifeline from Guangzhou Auto Group (GAC). I believe I mentioned I thought NIO may get bought out by one of their partners: JAC or GAC.
- No irony in this: Daimler & Bimmer mobility JV to use Tesla’s as taxis for the ridehailing.
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 US, I also provide a point of view that I hope educates and sparks debate.
The Sino Auto Insights team
Forget the last few months of shrinking sales, we can’t ignore the fact that China has become the largest EV market in the world in a very short period of time and that bodes well for Chinese auto parts suppliers that specialize in parts for the EV space.
Further, the ADAS component and complete systems suppliers will also see major growth as L2 & 3 autonomous becomes standard features on even the least expensive vehicles sold in China. The trade war ONLY further increases the speed at which the switch from foreign (read: US) suppliers is likely to occur since NO OEM wants to qualify a part, chip or sensor from a US supplier only to be banned from using it by the US/Chinese govt.
Having spoken with some of the EV/AV startups, their process of swapping those critical parts out even if the quality or innovation isn’t on par with what the US suppliers have to offer is well under way. This could mean a lot tougher times in the future for companies like Velodyne & Nvidia. They surely hope not though.
For those non-US suppliers that think China may be too competitive, this could be the ONLY opportunity you get to grab some share so make that move!
Ford continued its struggles in 2019, selling less than 600K vehicles in China. Contrast that with Ford selling 1.27M just three years prior and you wonder what it will take for Ford to get sales moving back in the right direction.
We can point to a lack of new product being the primary culprit for the tremendous sales contraction but then we need to ask, why has it taken so long for them to pull in new products for the China market.
You can’t really blame many of the new management for Ford China’s struggles of the last few years, but I am starting to think that even they didn’t know how bad it was. One thing is for sure though, if I were Anning Chen – Ford China CEO, I would be flying to Dearborn about every week to make sure that new product and a much larger budget for China is part of Dearborn’s top 2-3 priorities so that China doesn’t pull the entire company down.
Tesla is still MANY years away from outselling Ford globally if at all but what I wouldn’t have imagined even possible in late 2017 / early 2018, would be that Tesla could outsell Ford in China within the next 6-7 years. I think Ford will implement their turnaround plan and launch new vehicles that will sell well into the China market so that doesn’t happen but to even think Tesla may have a chance to outsell Ford is incredible!
I headed down to Guangzhou (GZ) last week and had the opportunity to meet with two of the leading startups in the EV/AV space for China.
Xpeng plans to still be around when the dust settles.
My first stop was Xiaopeng Motors who, in December 2018 launched a midrange 5 seat SUV called the G3 with a price tag of about ~$30K USD before subsidies of which they’ve sold just under 20K total units to date.
They’ve also mostly been under the radar when you compare how much ink the likes of NIO and Tesla have gotten but I think they’re poised to make a pretty decent sized splash in 2020, tough market conditions notwithstanding. They’ll be launching a 4 door sedan, the P7 later this year and will be building it out of their own factory in Zhaoqing, a city about 1.5 hours west of GZ.
With the way the market is looking for 2020, many challenges for XPeng still lie ahead, further growing sales, managing their increased complexity due to selling a self-manufactured sedan (P7) AND an outsourced manufactured one (G3) and just as importantly managing costs while raising more capital. That’s why I think the addition of Brian Gu as vice chairman was such a key hire. His relationships and experience in the banking sector globally should help protect their valuation while still attracting new capital.
From what I understand of pricing, the P7 will slot in just under current pricing for the Tesla Model 3 so there could be some tough competition for sales but the EV sector, even with its current struggles, is still growing so it’s not a zero sum game and IMHO both products can reach their target sales numbers, unless the market continues to struggle into late 2020 which I don’t think will be the case.
My (over) 40 minute ride around GZ in a WeRide robotaxi.
I’ve been in cars that are able to park themselves and in Tesla’s with Autopilot on driving down the 101 in NorCal so I didn’t initially think that riding in a WeRide robotaxi would be that big of a deal but as I was getting out of the Lincoln after a 40 mins. pre-planned ride, I thought to myself two things; ‘Man, that was pretty impressive!’ and ‘Boy, do we still have a ways to go…’
For those that aren’t familiar with WeRide, they used to be called JingChi but changed their name in late 2018 after securing their Series A round. Drama had been following them since their founding in 2017 including Baidu suing them, forcing their CEO and co-founder Wang Jing out.
It seems they’ve since been able to sort out their management issues now and have their heads down working on product. Was told they have about 300 employees, many of them Stanford and CMU PhDs. They’ve been locked in a race with Pony.ai, Momenta.ai, TuSimple with a few others including Baidu, who they’ve now formally partnered with, vying to be the first and TOP DOG when it comes to robotaxis.
Of that group, WeRide is the first to launch a robotaxi pilot program that’s open to the public (Baidu & Pony launched invite only pilots) so that’s a MAJOR feather in their cap since that gives the impression that they were the only AI company comfortable enough with their solution and/or they are willing to accept the risk of major setbacks should anything go wrong.
Re: Robotaxi ride, again it was a predetermined ride around and through the heart of GZ. There was a safety driver behind the wheel ready to engage if the robotaxi made poor ‘decision’ that would put the vehicle, and it’s passengers, in harm’s way.
As far I as I know the driver never had to engage once. I had a similar experience to another rider who documented their ride for the South China Morning Post here. The car was very considerate, meaning that it was definitely programmed to be very conservative, whether it’s entering major traffic, changing lanes or vehicles cutting in front of us, the car always conceded to the more aggressive drivers. Not good or bad, just my observation.
Now, there wasn’t any one time I felt unsafe in the vehicle and the fact that it was done in China (there are more challenges to deal with), just added to the impressiveness. Overall it was a terrific experience BUT I could also tell that in order to get to that level of equal consideration, smoothness, comfortability and safety that passengers are used to, there’s still a decent amount of work to be done and data to be collected.
This seems is a very capital intensive business so, although I could see more of these types of ‘pilot’ programs launching all over China and even robotaxis being launched to the public when certain weather conditions are met, the frontrunners are still quite a ways away from being consistently profitable and hence its still too early to tell which ones will come out on top.
LAST MILE MOBILITY
Lime, the most valuable e-scooter company in the world is abandoning its recent blitzscaling strategy and swapping that out with a profit driven one that includes what is presumed to be 12 of its largest money losing markets. That’s not to say they won’t re-enter them but likely not until they’ve worked out a formula that gets the numbers to be consistently in ‘the black.’
I’ve been on record saying that e-scooter companies are going to have a difficult (read: impossible) time ever reaching profitability as a stand-alone business and likely they’ll need to be attached to a platform gives them access to a larger number of users, allows them to scale faster while reducing substantially their fixed costs.
With a ~$2.4B valuation, I am not sure I see too many companies willing to dance with Lime at this point.
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.