Ford's major debut, WM fund raise, Tesla's Cybertruck - SAI Newsletter #44
For those who still haven’t gotten the memo that the global automakers are ‘ALL IN’ on electric vehicles (EVs), please take note of all the product introductions from the LA Auto show this past week. With the exception of some notable internal combustion engine (ICE) intros (Defender – LIKE), the headlines were dedicated to EVs and hybrids from Ford’s, VW, Audi, Karma, Toyota, Hyundai to name just a few.
The headline grabbing EV that bogarted a lot of the attention of course was the Ford Mustang Mach E which I highlight in one of the linked articles below. Basically, this thrusts Ford’s into the spotlight when it comes to real competition to Tesla. Elon even tweeted a congratulations to the Ford’s team for the product introduction knowing how important this intro is to the market and a signal that BIG traditional OEMs finally embracing, albeit carefully, a market Elon has been pushing since Tesla was founded ~16 years ago. Other automakers will follow quickly with their own EV introductions which, if you’ve been keeping up with the newsletter, is what we know to be true.
Ford’s had a few days of Twitter, Insta, and auto media buzz but that quickly got stolen by Tesla’s Cybertruck intro that just happened yesterday. The specs on the truck are quite impressive but THE most extreme feature on the truck is the $40K starting MSRP IMHO. At that price point, Tesla will NOT have any issues selling a TON of them even if that design may need to grow on some people.
I look at this as Tesla’s continued pivot towards the volume segment of the market following in the footsteps of his Model 3 and upcoming Model Y. This is because it’ll keep the plants humming, something sales of the Model S & X are not able to do, which we know is extremely important especially if we’re increasing capacity every couple of years.
Capacity utilization of about 80-85% is what the industry thinks is a healthy target. It should also be where Tesla can consistently make money. Remember that Tesla is kicking off production of its Shanghai Gigafactory as I type this and has plans to open another one in Germany in the next couple of years. That’s going to be a lot of cars needed to be sold if those plants are all running at 80%.
Also, the volume allows Tesla to pull more data from vehicles on the road which should make his autopilot even more accurate. Volume also plays well when the business of making money becomes more like the iPhone business model. For services & monetizing opportunities the larger Tesla’s install base the more & greater the chances of making money inside or even with the vehicle.
The EV market is still small globally with lots of room to grow. If Tesla just grows linearly with the EV market, they’re going to be a HUGE behemoth before you know it (<10 years). Elon is smart. He knows this. This plays well into his goal of world domination.
I am traveling internationally this week so we have a smaller, shorter newsletter. Should be back to normal length by next week though and am still working on the timing for distribution so bear with me on that.
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 about how I look at the issues. We will mostly divide our articles into these buckets: AI, Mobility/Ride-sharing/Ride-hailing/Bike-sharing, OEMs, EVStartups, Investments, and Other.
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The Sino Auto Insights team
A few quick observations. First, naming the EV after Mustang, arguably their best HALO car line unless you’re a truck guy / gal, Ford’s had to have known it would be controversial and would upset MANY ‘car guys’ who think a Mustang is ‘THIS’ and ONLY this. I’ve had numerous convo’s this week regarding whether that was a good or bad move and my take is that Ford’s is looking at this purely as helping ‘lay the foundation’ of the new Ford’s, it shouldn’t negatively impact the Mustang brand in the long term, and will bring a broader audience into the fold since it’s already a well-established, trusted marque and the market for a 2-door sports car isn’t HUGE.
Second, in order for the naming to work, the new product that reps that names needs to BRING IT. Now, it was JUST launched so we don’t know whether it lives up to the Mustang pony just yet but initial readouts from media reports seem to give it a ‘We like what we see so far’ vibe so let’s see if the production version can keep that promise of ‘bringing it’ when it’s launched later next year.
There’s even a backstory about the Mach E, which are always the most interesting part of the product development (PD) process – the why’s and the why not’s of design decisions – that took the PD team from more conservative, built for the mass market EV, to the version they just launched that’s a bit edgier and technologically forward but firmly places Ford’s into the mix when it comes to EVs.
Next, I totally commend Ford’s for taking this HUGE step, accepting and embracing this risk and going for it! If you’ve followed my newsletter AT ALL, you know that I am NOT an advocate of waiting around like sitting ducks as newbies or even incumbents to pick you off, even if you’re collecting gobs of cash selling ICEs.
I still have quite a few ex-colleagues and friends at Ford’s, here in China and in Dearborn so it’s good to see some of this well-deserved (and positive) attention that’s been shined on them this week for that Mach E launch. The Mach E isn’t coming until late 2020 for the US and 2021 in China and there’s still a lot to get done if Ford’s is to be considered a major player in the future, including a big mess that’s trying to get cleaned up in China, and mobility initiatives that will NOT bear fruit in the immediate timeframe.
If Ford’s doesn’t clear the path to profitability in China, that will handicap them from achieving their goals in the rest of the world so those that are rooting for Ford’s to succeed, play careful attention of how the China turnaround is going in 2020.
Finally, last observation is that many people thought that Ford’s missed an opportunity to pay homage to its Model T by not naming the Mach E, the Model E. You could be very right about this since Ford’s does have the rights to Model E, but I am sure that they have a vehicle planned in the next few years that’s going to be worthy of that moniker so we will have to just wait and see.
VW, along with its China partners SAIC & FAW, announced this past week that it’s committing $4.4B USD to invest in the China automotive market for 2020. Over 40% of that amount will be dedicated to promote e-mobility, a bit of a nebulous term, since that could mean services and/or products.
That commitment includes upgrading their Shanghai and Foshun plants to be able to manufacture 600K units annually which will likely take up the bulk of that investment amount. As I determine what other ‘e-mobility’ investments are made, will update accordingly.
After having just recently closed their series C round (~$450M USD) earlier this year in March, WM Motor has its sights on more than doubling the $400M XPeng announced they raised last week, to a $1B series D round which WM is targeting to close before summer of 2020. Ambitious timing indeed but as the EVStartups begin to wither away burning through Brinks trucks worth of cash and still unable to actually bring any vehicles to market, we should begin to see the genuine article separate themselves, which I think WM is, from the poseurs.
One big thing that separates WM from many of their competitors including NIO & XPeng is that they build their own cars in their own, soon to be factorie(s). This means their fundraising needs are substantial and their balance sheet should look more like Tesla’s than NIO or XPeng’s, guys that ‘design & test’ vehicles and outsource the heavy lifting (read: manufacturing) to others.
Their challenge is going to be to fill those factories with orders, ideally so they can get those plants consistently running at over 80-85% capacity utilization. That should allow them to put some money in the bank while still having a healthy amount of working capital to manage the day to day. With the launch of their EX6 SUV this week, which should be a boost to their monthly sales numbers, they’re hoping to do just that.
Don’t let the quiet, more workmanlike demeanor of Freeman Shen fool you, these guys have some serious ambition and investing in two manufacturing facilities should make that pretty obvious. Their ambitions are global as well so that cash could go a long way to allowing them to enter an international market like the US or the EU. Before we get ahead of ourselves though they’re going to have to prove themselves in their home market.
My WAG is that they’d need to get to 150K minimum unit sales / annum for them to be break even. That means IMHO they’re going to have to spend a decent % of the capital they’ve raised to really ‘raise’ the WM profile, increase awareness of the brand, while also creating excitement about their products, that’s going to take time, a very clear message of who they are and why customers should want their product and a capable team marketing team that’s carefully growing that awareness. With the recent announcements from VW & Ford’s, they should ALSO know how challenging it will be for them to do that.
Love what Canoo is trying to do here but it’ll be a challenge to really determine how many vehicles need to be in the fleet, at what capacity they should be used, and ultimately what’s the right monthly service fee to charge in order to make money?
The writer of this article commends the Canoo management team for its boldness but let’s be clear here, these guys weren’t able to make their old companies profitable either, and the attitude about companies blitzscaling in order to grow has now shifted mightily to a ‘we want to see some moneymaking.’
You can tell from the comments quoted in the article that the management got that memo and have really massaged their messaging to emphasize their goal of being profitable. With that said, the assessment of the current market and the opportunity I agree with. Whether Canoo can crack that code remains to be seen but I’m thinking that subscription fee is going to need to be a lot farther north of $500/month if the company plans on being profitable.
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.