Germany slumping, Tesla Most Valuable EVER, WM Motor spotlight - SAI Newsletter #2
With CES this week there was a lot of noise coming from Vegas but not that many interesting announcements. Many of the Chinese companies that would have normally participated decided to sit this year out due to the trade war and current tensions between the govts. DO NOT think that means most of them don't still have ambitions to make it BIG in the US though!
The news cycle here will likely slow down a bit as we get closer to Chinese New Year on Jan. 25th, and since my boys have over a month off we decided to take them to the US for the next few weeks. If anyone is in the Detroit area would like to catch up, please get in touch since there may be a happy hour set up for those in town. I am even going to take the family to Pittsburgh for the first time so should be a terrific break for everyone involved.
Although sometimes it seems as though there are only two relevant EV players in China, NIO & Tesla, especially over the last couple of weeks, I think this year some of the other players who’ve raised a lot of capital, like WM, will emerge and have their stories told. In WM’s case, they were featured in a terrific Economist piece I linked to below.
We will also see EVStartups like CHJ, who announced they’ll IPO in the US the first half of 2020, running low on 'juice' and trying to raise more capital. CHJ began delivery of their first product, an SUV in November 2019 though I wasn’t able to find any sales numbers for them. I have seen a few motoring around BJ though. We’ll learn soon enough how many sales they have and how well managed they are when they build out their prospectus in the next few months.
For those of us in China that follow the sector pretty closely, we know there are dozens more EVStartups that could potentially leap out of the shadows and grab a piece of the market in the next 18 months. This could be the perfect time to do it too, call it ‘The era of the China EV - 2.0.’ They can learn from their predecessor’s missteps and the slow market should put less pressure on them to have immediate, significant sales. Their product needs to be right though. And they need to know who their customer is. And they need to keep a handle on the cash burn.
We’ll continue to see NIO & Tesla in the news though, since they’re both US publicly traded companies with diverging fortunes, at least currently. As a matter of fact, there is a great piece that I was interviewed for that does a terrific job of contrasting them.
IN THE NEWS THIS WEEK:
- Tesla reduces price of its locally made Model 3 by 9% placing it more in line with the other main EV competitors at ~300K RMB ($43K USD) after subsidy. A couple of things could be at play here. Tesla is being VERY aggressive and trying to quickly carve out share AND maybe their internal forecasts are seeing continued weakness in the China market and this is a way to move the metal and keep their Shanghai Gigafactory humming.
- NIO sold 8.2K vehicles in Q4’19, the 5th straight month of sales increases giving NIO positive momentum into the new year/decade.
- GM sold 15% (3.09M vehicles total) less vehicles 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.
- Mercedes EQC is rumored to have sold less than 100 units in Germany since its production launch in May 2019.
TRENDING ON SOCIAL MEDIA THIS WEEK:
- Sony’s concept car at CES blew people away.
- Fisker Ocean debuts and is scheduled to go into production in 2021. Fisker’s track record isn’t great for getting his cars manufactured though so we’ll wait and see
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
German car production fell to its lowest level in almost 25 years due to lower international demand. For scale, the Big Three German auto OEMs (Daimler, Bimmer and VW Group) produced 4.66M vehicles in 2019. Volkswagen sold over 4.21M vehicles in China alone in 2018.
The pain is likely to continue as Germany’s car lobby, the VDA predicts that global car sales will shrink further this year. That likely means more cost cutting from the OEMs and tier 1s in the form of layoffs later in the year. All this while they spend most of their R&D, like the Americans and Japanese, on switching their vehicle powertrains over to electric.
Their initial entries into the EV market have been pretty disappointing IMHO, basically vehicles designed as ICEs with the powertrain swapped out and batteries bolted on them. I am talking about you E-Tron and Taycan! Further, the Mercedes EQC (battery electric SUV) which has been in production since May is rumored to have sold less than 100 units in Germany.
This is going to be a pretty tough next few years for Germany and their auto sector so brace yourselves. If sales tail off more significantly, each of these OEMs could potentially run into cash problems, jeopardizing their ability to invest in further EV development.
Tesla regularly sends over the air (OTA) software updates to its customers but this one, if true, is especially interesting and is something all the traditional OEMs should strive for. And soon. Although ability to send OTA updates isn’t even part of most OEM’s feature roadmap for their cars for another year or so. And Tesla has been shipping vehicles with OTA capabilities since at least early 2017.
The story goes Elon was sent a seemingly innocuous tweet from a follower ‘Thoughts on saving dashcam footage when honking the horn?’ In which Elon responds ‘Yeah, makes sense’
6 weeks later, the twitter suggestion was added as a safety feature and part of the OTA holiday 2019 software update. 6 weeks.
…AND their current market cap puts them ~$7B shy of Ford and GM’s COMBINED. That should piss every GM, Ford, and FCA employee off big time. And not in a ‘this isn’t fair’ sorta way since they’re not 5 year old’s and that’s not going to get them anywhere, but in a ‘MAN, they’re SO underestimating our resolve to design and build world class, profitable products and services.’ In other words, this should motivate you to do better, be better, be bolder and more ambitious!
The only way you guarantee your future is to move faster, push farther, imagine crazier, be riskier, try new things with new people in different ways and if these new things don’t work, take what you learned about that failure and incorporate your learnings into the next set of products/services. PUSH FORWARD.
This is different Detroit; this fight will leave scars and could close doors …for good. Please trust me on this.
Captain Obvious Statement - ONLY amazing products and services (sprinkled with a little luck), launched at the right time and price, will capture this future market and make you competitive for the next 25 years.
Stepping off my soapbox now.
They’ve raised $1.58B and are valued at ~$2.93B (how they calc’d that I have NO IDEA) since opening their doors in 2015 and started delivering their first vehicle in November 2019. There are currently no records of how many vehicles they sold in November or December 2019.
It’s fair to say that unless they raise money, like NIO, they likely won’t make it past 2020. It’s seems they think the public markets will be more forgiving and allow them to command a higher valuation than they think they can get from the private markets / VCs. Still, it’s a headscratcher since they don’t have a track record on sales yet andshould know what NIO has to go through on a quarterly basis.
So there was a WSJ article I linked to last week that pointed this out as well and it was an oversight on my part to not note this (blame it on the NYE hangover…) but, if ONLY 30% of the parts on the locally made Model 3s are being sourced in China, that essentially means that Tesla is shipping almost entire Model 3’s from the US (as parts or kits) into China and just doing final assembly here.
30% is a really, really low number to launch manufacturing for a vehicle and is likely how they were able to get up and running so fast, they didn’t need to qualify any suppliers!
Further, their goal of 100% locally sourced by the end of this year is VERY ambitious. We are 7 days into the new year so I am not about to say it’s impossible but the engineers reading this understand that getting new parts & suppliers PPAP’d (production part approval process) for new programs is a painful and time consuming process (some parts more than others …like say battery modules).
What to look for on their Q1’20 earnings call is margin on the locally made Model 3s, shipping costs and what inventory looks like on their balance sheet. If they were to get to 3K/wk by now, those numbers would NOT be pretty. Again, the slow, China EV market may be a blessing in disguise for them but now I feel for their purchasing, and supplier quality folks since they’re potentially in for a year of ‘hell.’
This is really the first in-depth piece about WM Motor that I can recall and it highlights CEO Freeman Shen’s logic and ambitions for WM Motor. I think one of their biggest advantages is the fact that they got free money to build those plants.
They’ll still need amazing product, a deep understanding of who their customer is and a more aggressive, educational marketing campaign in order to consistently bump those sales numbers up, but those plants put them well ahead of a lot of their competitors. It’s a good read I recommend you click on.
These longer articles allow for a bit more layering of details which gives a more thorough understanding of the why’s & how’s.
In this case, the author Henry Tricks, does a good job of comparing and contrasting not only the companies but the leaders of those companies, Li Bin or William Li as the west knows him, and Elon Musk.
Right now, with their recent Shanghai Gigafactory beginning to deliver vehicles, Tesla can do NO WRONG (see share price). Although things are just starting to look up for NIO, they have a long, arduous path ahead of them if they’re to truly compete with Tesla for China’s consumers.
Having worked at two startups here in China and consulted for many more since across different functions, this short essay resonated with me quite a bit. It resonated because working at startups is really TOTALLY bananas! And it’s NOT for everyone, especially those that need structure, and being able to point to policies and procedures in order to do their job. That’s not a slight on anyone, just a fact.
Let me also qualify this blog by speculating that the author likely didn’t work for a ‘successful’ startup meaning that neither of his stints at the two Silicon Valley startups led to meaningful (read: wealthy) exits. I surmised this because this dude sounds pretty jaded about his experiences.
My experience isn’t entirely the same but the startups I worked at were here in China and not Silicon Valley. Also, strong leadership that is smart, hardworking, flexible and decisive is going to be extremely helpful if you’re to have a successful startup that could potentially morph into a unicorn.
Having also worked as a corporate suit, for some of the larger companies around, let me also tell you that the skepticism he describes about having the right team in place, whether or not the goals are achievable or whether you even know there are customers for this product is not the exclusive domain of startups.
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.