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Geely & Renault Get Cozy, India & Tesla Can Do Now, Didi Drama Continues - SAI Newsletter 31



**Image courtesy of the Financial Times

This coming Sunday, I was invited to moderate the Autonomous Vehicle panel for the Technode Emerge conference, but due to the mini-outbreaks happening throughout China and out of an abundance of caution, it was postponed. Covid restrictions have started to pop up here and there in many other cities as well as it looks like now that the Tokyo summer games have officially closed, all eyes are on Beijing and the 2022 Winter Olympics which are set to open in just less than 6 months. China does NOT want an out-of-control pandemic ruining the Winter games so you can bet that the Chinese govt. will err on the side of caution over the next several months when it comes to controlling the spread of any outbreaks. As for international travel, I don’t see Chinese borders being open until late 2022 at the earliest. That means that anyone that’s able to receive an entry visa, a difficult task in and of itself, they’ll need to quarantine at least 2 weeks if not 3. If we ever get to a bilateral agreement between the US & China for vaxxed people to only have to QT for a week upon entry into China, I’d likely head back to the US for personal and business and then just deal with that 1 week QT period here, but alas I think I am dreaming. A bit of housekeeping – Lei and I are officially moving our China EVs & More live show from Clubhouse to Twitter Spaces. Our first show on Twitter Spaces will take place on Thursday, August 12th – 8:30pm. You can find the link here. For those interested in listening to past episodes of China EVs & More, you can find them by scanning the below QR code:

Arguably the biggest news this week was the announcement of an official partnership between Geely and Renault. It looks like Renault will use Geely technology to build hybrids for the Chinese market and take the responsibility for marketing and selling those cars in China. They are also exploring tie-ups in South Korea where Renault has a presence. This could further progress into an agreement to jointly develop EVs although that’s not quite clear yet. Take this as Renault’s attempt at playing catchup with the local competition and to try to reignite the brand in China, a market that has been pretty non-existent for Renault for some time. When I say non-existent I mean that they sold <2K vehicles in 2020 in China. For Geely, it creates more revenue on the CM side of the business which should help them with plant utilization rates even if their own products aren’t selling well. Geely continues to make moves that point to growth being their major priority. And not just in Geely branded and affiliated vehicles. TESLA NEWS - Did Tesla finally convince the Indian govt. that it is in their best interests to slash import duties on EVs? For those that read last week’s newsletter, you know that I posted that Tesla was NOT having much luck trying to convince the Indian govt. to reduce import duties on EVs. It seems a lot can happen over a week’s time as now the latest is that the Indian govt. is considering reducing the import tariffs on imported cars with cost, insurance, freight (CIF) of <$40K USD from 60% to 40% and for vehicles with CIF >$40K from 100% to 60%. This has HUGE implications for Tesla. India is currently the 5th largest vehicle market in the world and they virtually only buy ICEs, with most cars sold <$20K USD pricepoint. With that said, if Tesla can get any traction on imports into India then they’d likely take the big step of building locally to get closer to that ~$20K pricepoint, carving out a huge market share and an early lead in a market that’s not yet pivoted to clean energy vehicles and that up till now has been nothing but a pain in the sides of most legacy automakers. It appears that Elon has NOT lost his touch. IN THE NEWS - VW Group CEO Diess recently complained on LI about his charging experience during his trip through Austria to Italy. He tried to use charging infrastructure from Ionity GmbH, an EU charging infrastructure company. Specifically, Diess said it was ‘anything but a premium charging experience.’ Did I mention that Ionity is partly owned by VW Group? So was he speaking rhetorically here? Did I also mention that VW Group is part owners of Electrify America, an eerily similar but US-based charging infrastructure company? Part of VW’s penance for diesel-gate in the US was that they’d have to invest in promoting clean energy and they did that through Electrify America. I’ve read about how poorly thought through & managed charging infrastructure is in the US so I guess it doesn’t matter what side of the pond you reside on, it’s obvious there are opportunities for immediate improvements to the number, location of, and amenities available to folks that are waiting while their vehicles charge. - Didi is in talks to have a third party monitor their data management & security. Again, for the folks that thought the initial investigation by the CAC was just going to be a ‘speed bump’ towards Didi’s road to world domination, let me just say that this shaping out instead to be a ‘road closed’ sign ahead potentially for Didi. The outcome of this situation is being monitored closely by ALL tech companies in China since it has implications for them as well. What Didi concedes or maybe more appropriately is forced to concede will set the bar for most of the other tech giants that collect, manipulate, and monetize data. In ALL sectors. - IF Didi gets out of their mess, and there’s nothing that indicates that it’s close to being over for them yet, they’ll still have a cloud hanging over them in the foreign markets. Case in point: Some MPs in the UK are trying to block Didi from launching their service in Britain out of fear that the data will be vulnerable and be accessed by the Chinese government. Didi has already received a license to operate in 4 cities (Salford, Sheffield, Wolverhampton, and Manchester) in Great Britain and had plans to expand even further but the combination of what’s happening with them in China and the stir that it’s caused for them globally puts much of their pre-IPO expansion plans in doubt. Final observation, this cloud could be large enough to cover ALL mobility-related companies that want to expand outside of China. There have to be internal risk assessments being done at BYD, NIO, XPeng, Aiways, and any other Chinese EV company with dreams of dominating the EU markets. Those assessments can’t look good either. - Neolix, the Beijing-based slow-moving autonomous delivery vehicle startup is broadening use cases for its vehicles in order to push towards profitability. One such opportunity is partnering with Industrial & Commercial Bank of China or ICBC as most people know it. They will help ICBC deliver bank cards and services rather than having to wait in line at a physical store. For those that live in China, you know that visits to the bank can be VERY painful so anything that helps you avoid those trips is worth paying a bit of a premium for. This reinforces the notion that historically bricks and mortar services can be made mobile and more convenient. The key for these companies is to push utilization rates higher on these vehicles so that the cost of operation can be amortized over more transactions/operations/jobs, whatever you want to call them. I think that’s actually more important right now for these companies than diversifying the number of different ways they can be utilized. Both ways will work though ultimately. - VW’s batteries currently cost $1.3K more than Tesla’s. An unsurprising bit of data if you’ve been following the sector as long as I have but it’s still a significant cost delta that’ll be tough to make up. If we’re keeping score, it’s >4% of the price of an ID.4 that’s built-in China. The article focuses on VW, batteries, and finding the talent to develop the technology ‘in-house,’ but looking at the bigger picture you could swap out VW with pretty much ANY legacy automaker and they’d likely be in the same or similar boat. They’d tell you they’re not but they’d be lying. An interchangeable term that could be swapped out for ‘battery’ that would still accurately describe the legacy’s conundrum would be ‘software development.’ The challenges the legacies face with competing against the EV startups and Tesla is that they DO NOT have the expertise ‘in-house’ on either of these most important skills. I agree that bringing these functions in-house is important, existential even. In VW’s particular case though, the headscratcher for me is since when does it make sense to copy Tesla’s battery development process? Your companies, culture, and economic situation are nothing alike. They’re in Silicon Valley, where talent for battery & software development are plentiful. That’s not the case in Wolfsburg. The truth is, the legacies ‘catching up’ is going to be very difficult at best, impossible at worst. Tesla and these EV startups have ALWAYS moved faster than the legacies. SW dev has been in their DNA since day one as well. So if you’re doing it ‘like’ them, you’re never going to catch up TO them. - A parking garage, scratch that - a research lab is opening in Detroit to study parking and test new tech. This is easily where Detroit could take a global leadership role, in testing new technology, autonomous and otherwise - Can they do it though? Do they want to do it? Whenever I visited, which was often prior to the pandemic, I got mixed signals about it. Maybe it’s leadership, companies, municipal support, timing, or all of the above. They’re only going to get one chance at this and I hope they don’t let it slip away. TRENDING ON SOCIAL MEDIA - Are HD maps having a moment? A couple of major caveats about HD maps. First, Tesla’s Autopilot does NOT use them, primarily relying on visual perception. This is similar to their stance on LiDAR with both, in their opinion, being unnecessary for their version of an autonomous vehicle. Second, HD maps also have national security implications so a US HD mapping company would likely NEVER be able to map China. I don’t believe the US has made that distinction yet towards Chinese companies. Further, licenses for HD mapping China are restricted to currently ~14 companies. Baidu, Ali backed AutoNavi, Tencent backed NavInfo, Didi, Huawei, and a few other notable tech companies all have licenses and the HD maps created by these companies are subsequently used by the AV startups that these tech giants have invested in. As more ADAS features become standard and we push towards level 3 autonomy, HD maps will become major revenue drivers for these companies by racking up licensing fees. As more EVs hit the roads, they just begin to print money since it’ll be those EVs that are periodically but regularly updating the HD maps as well. In the US, companies like Civil Maps, DeepMap, Carmera, and a number of others are set to take advantage of the infrastructure bill that will more than likely spark a significant increase in the number of vehicles on the road with ADAS features in the coming years. - Is BYD supplying batteries to Tesla in China? That seems like a foregone conclusion but the most interesting part of this story is the rumor that BYD would supply Blade batteries to Tesla’s MIC Model Y next year. A few observations. There was already an announcement that BYD will be supplying an LFP battery for the MIC Mustang Mach-E so could this be the same battery that Tesla will initially use? Would make sense from a scale standpoint to drive costs down even further. In the long run, it would be in BYD’s best interests to push Tesla & Ford into using the Blade batteries since BYD has announced that a few weeks back that they were transitioning their entire fleet of BYD branded passenger vehicles over to the Blade. If indeed true, which seems completely credible, BYD having both Ford & Tesla as customers would validate the battery tech and allow them to play the counterbalance to CATL, the current 800lb. gorilla of the battery cell space. No manufacturing company wants to be single-sourced for important commodities since it pushes too much power over to the supplier during pricing & terms negotiations. In addition, it creates an outsized exposure when / if there are any supply or quality issues. BYD must love this free publicity, first about Ford sourcing to them, then the rumor about their meetings with Apple, and now the talk of Tesla becoming a customer, you can’t buy this type of marketing and validation. BYD isn’t without its challenges though, in our podcast, China EVs & More, Lei & I recently talked about a media startup that crashed a BYD Han, with the Han catching fire 48 hrs. later. There was also another fire video that surfaced this week of a Han catching fire after a crash on some highway here. There are more questions than answers for both of those situations currently but I’ll keep you all updated on anything I hear. - A Ferrari Roma gets stuck in a narrow Italian street. The video is just painful to watch, but the Roma is NOT a narrow supercar. To get a sense of scale, it’s just ~4 inches narrower than a Chevy Suburban! A new feature in GPS could be developed, determining whether or not your car can fit through a narrow passage. GET SMARTER - The proliferation of 5G around the world will force many of the smaller countries around the world to pick a side. An important catalyst for smart EV adoption globally is going to be upgrading telecommunications infrastructure to at least 5G in the (near) future, the type that companies like Qualcomm, Ericsson, Cisco, and yes Huawei provide. It’s important because as more autonomous driving features are introduced, communications between vehicles, equipment, and other objects (bicycles, mobile phones, etc.) will be possible and 5G will allow it to happen not only more often, but at much faster rates. For those of us that have followed US-China relations, we know that Huawei has been deemed by the US govt. to be in cahoots with the Chinese govt. providing 5G equipment with a back door that the Chinese govt. can access at any time effectively compromising the Huawei equipment’s security. The Chinese govt. is trying to reassure the many foreign countries interested in partnering with Huawei that their systems are secure and not accessible - Some countries believe them, some countries don’t. That leaves the undecideds in an awkward position. They’ll eventually look to make those infrastructure upgrades and will have to decide their IT strategy for this upgrade. As more countries that aren’t clearly allies with the US or China begin to look into upgrading their infrastructure, there will be a great deal of pressure by both govts. to pick a side. Top pick their side. The worst-case scenario would be this bifurcation of autonomous systems for those that pick the US vs. China and vice versa. At a higher level, it could lead to two or multiple internets, and two or more technology pathways globally. It’s still a ways away but for those that don’t think it’s possible, you’re not paying attention. JUST THE NUMBERS - 2027. That’s when Alfa Romeo will go ALL-ELECTRIC. It’ll be the first brand in the Stellantis stable to do so which is a bit surprising. It’s definitely one of their more important brands so I could really see Tavares leaning on Alfa for its future success. Beautiful cars that perform well but they just don’t sell great in the US. INTRODUCING - The Audi Sky Sphere concept. It’s officially going to be revealed tomorrow but I’ve seen enough of it through the teaser video and pictures to say that it looks really nice. I am a fan of Audi although the A4, A6, and A8 all kinda have the same shape if you squint a bit. Further, there’s one picture in which the Sky Sphere is blacked out but you can still see its silhouette, and I am sorry but that looks like a Dodge Viper convertible circa 2005 with a 2021 Aston Martin DB11 rear end. —— 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.

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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