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Hindenburg Research At It Again, Overcapacity in China EVs, Blackberry Not Dead - SAI Newsletter 46



Photo by Wilson Ye on Unsplash This was quite a busy week for news so it was a bit tougher to edit myself on which topics to post about. I think I grabbed some interesting ones though. Also, I wanted to make a correction from last week’s newsletter to make sure everyone has accurate information. I’d posted about dealerships in the US and was incorrect in saying that ‘most dealerships are owned by a handful of large corporations.’ The truth is that 6 dealership chains (AutoNation, Asbury, Lithia, Penske, Sonic, and Group 1) generally sell between 7-9% of ALL vehicles sold in the US each year with the balance of vehicle sales spread across 18K dealers owned by 6.5K individuals nationwide. I will dig deeper on this topic and write about it in future newsletters as I learn more so stay tuned for that. Appreciate the lesson, Glenn. I’d also mentioned that for the China EV companies to enter the US, they’d need to consider manufacturing locally to avoid tariffs. To further drive that point home, since late 2018 around when the trade war started the US slapped a 27.5% import tariff on Chinese-made vehicles. NOT Chinese ‘branded’ vehicles but Chinese ‘built,’ so this tariff affects American car companies shipping to the US too. That tariff is likely going to stick around under the Biden administration so the only way that Chinese EV cos. sell into the US while keeping their vehicle prices competitive is to either eat that tariff cost themselves (which GM & Volvo currently do) or build them locally. Appreciate the clarification on that, John. Finally, some general comments on some of the recent news about mashups between Alibaba + SAIC, Alibaba + Huawei, and other newly launched players in the EV space. Just because an OEM teams up with a technology company does NOT mean there’s a distinct advantage with that mashup. What’s going to be most important for future success in the sector, whether (Tech co. ONLY), (Tech co. + OEM) or (OEM ONLY) is whether their product is designed well, well priced, has an amazing user experience, and is compelling enough that customers would choose them over the competition. That means seamless HW + SW integration along with partners and suppliers that ‘get it.’ That ultimately boils down to planning, management, and execution. If we look at all of these recent and not so recent partnerships, who are you betting on? TESLA IN THE NEWS - Tesla gets greenlighted to begin selling its Model Y in China. This is what Tesla been waiting for and the Model Y should be a hit right out of the gates. It’ll also provide head-to-head competition to products from NIO, Li Auto as well as Porsche, Audi, Merc, and Bimmer. Or there could be a bit of Tesla fatigue and the Model Y gets a cool reception along with lagging sales. If it’s the former and hoovers sales from its competitors, it could upend the entire segment. I think it’s going to do fine BTW. Will be fun to watch this battle in 2021 - Grab your popcorn! - Elon keeping it real with his employees telling them that if costs spiral out of control the lofty valuation, which this week reached an all-time high of ~$560B, is going to get crushed like a ‘soufflé under a sledgehammer! With CAPEX increasing due to capacity investments and more in-house battery manufacturing, it’s prudent to remind employees that keeping costs down will allow them more flexibility in the future. You can read the actual email he sent to Tesla employees in the link. - Tesla is going BIG, I mean BIGGEST with their Berlin Gigafactory. Announced at Tesla’s Battery Day a couple of months ago, Tesla plans to ultimately increase capacity of the Berlin Gigafactory from about 100 GWh/annum to 250 GWh/annum over the next few years. That’s more than the current global capacity of battery cells! This makes a lot of sense. Once they’ve sorted out the manufacturing bugs in Berlin, they’ll likely roll out the proprietary battery manufacturing processes, known as Roadrunner, at their Shanghai and Austin Gigafactories. That helps keep the proprietary technology and manufacturing processes aka their competitive advantage in-house. In addition, they won’t have to rely solely on battery suppliers to supply their future demand – which is going to be MASSIVE. - Tesla getting into electric bicycles? Well at least conceptually they are. It looks great but it may take some time to get used to riding. This is THE FUTURE of e-bikes though. IN THE NEWS - By getting serious about being green, will Uber also build on its branding and user experience? We saw last week that it’s been rumored that Uber is looking for EV partners in the EU so it should come as no surprise that they’re also looking to do the same in another important market for their future, India. India currently has some of THE worst pollution in the world so anything that’ll get thousands of petrol engine vehicles (2, 3, and 4-wheeled) off the roads will ultimately help with the smog. This will become a common theme with OEMs and platform and ride-hailing apps in the very near future. BOOK it. - India sets some ground rules (read: regulations) for the ride-hailing companies that compete in the market. Specifically, ride-hailing firms are capped at 20% juice on their rides, and the Indian govt. has put a ceiling on surge-pricing as well. The drivers are limited to working 12 hrs./day and the ride-hailing cos. will now have to provide them insurance. This makes an already competitive market where profits are slim even more dire. India is shaping up to be a market that will see a lot of changes and new entrants around mobility within the next 2-4 years so let’s hope the Indian govt. can keep up! - Hyundai joins in on creating an EV platform for all future products. These platforms in and of themselves offer the OEMs much more flexibility with design across a number of different form-factors including crossovers, compact & full-size SUVs, sedans, and even commercial vehicles which should help simplify their product lineup and hence reduce overall costs. Ultimately, differentiation could get more and more difficult. - With all the excitement about China EV cos., the Chinese govt. decides that it’s prudent to pump the brakes on the sector in order to avoid overcapacity. There could be a number of reasons for this ‘Notice’ and if I may speculate a few of them may be: - The Chinese govt. sees some softness in demand for EVs in the midterm and wants to limit further investment into the sector by new-ish EV cos. - All the money that has gone into the three US publicly traded China EV cos. attracts other companies that aren’t ready for the bright lights (think Kandi & Nikola) but will chase the paper nonetheless. - They want to make sure that all the welfare being paid out is utilized for the sole purpose of increasing the competitiveness of the market. - They’ve seen this movie before with solar and steel just to name a couple of sectors and do NOT want to have a bunch of zombie companies around that need propping up. - A spotlight on two-wheeled electric vehicles. There are a few of the usual suspects like Honda, Yamaha, and Harley Davidson to look out for but don't sleep on Niu and Hero who both have a real chance to be big players in the future. The share in their home countries gives them scale and in NIU’s case at least, are fairly well-capitalized to tackle foreign markets to get some quick wins. - Aurora, one of the world's leading autonomous vehicle startups, publishes their framework for tackling one of technologies' greatest challenges, of course, we're talking about the autonomous vehicle. Interesting to see the type of culture they’re trying to create. More companies should communicate this publicly so they can be held accountable if they stray from their core mission and/or treatment of others on their way there. - Are e-scooters here to stay? Some analysts believe that e-scooters survival depends on the answers to these two questions: Are they green? Can they be profitable? That ultimately depends on whether they can maintain the increased engagement and use post-COVID and as more competitors enter the market. Scale helps but so does keeping costs low and as long as there are viable competitors and substitutes for the customer to choose from, it’ll be some time before companies like Lime and Bird are able to consistently profitable IMHO. I think there will be some consolidation, with the survivors pivoting to become mobility platforms themselves, partnering with other platforms to combine their install bases, or getting acquired by larger players resulting in the same outcome, a combining of install bases to further drive down costs. TRENDING ON SOCIAL MEDIA - Kandi, who I highlighted a few weeks back for getting greenlighted to sell their vehicles in the US has been accused by Hindenburg Research of cooking their books. This is the same research firm that outed Nikola. Having browsed through the report (you can see for yourself here), Hindenburg makes some serious accusations that can easily be verified if you live in China. Kandi’s share price torpedoed by >25% and the news also dragged down NIO and XPeng’s share price as well by >10% yesterday. And if you were wondering, Nikola’s share price is trading at $~17 down from ~$50 just before the Hindenburg report came out. - 5 iconic police cars. You’re not likely to outrun 5-0 when they’re chasing you in any of these sweet rides. - Bill Ford named Automotive leader of the year by Automotive News. Much of it has to do with his work alongside the other Big Three CEOs to help with managing a response to COVID-19 when it hit the auto sector hard earlier this year. We could look back on 2020 for many defining moments but with all that Ford Motor has gone through including welcoming a new CEO, could 2020 be the year that Ford put it all together to become a global leader in transportation? We will have to see… - Time Magazine’s Best Inventions of 2020. Lots of terrific gear and I’ve already planted the seed about upgrading to the PS5 so let’s see if Santa thinks I’ve been a good boy! - Self-driving cars are SO 2018. Take a look at this autonomous boat being tested in Amsterdam and developed by the folks at MIT. 5 years in the making, the still under development Roboat III will be bigger and will be able to carry up to 6 passengers. JUST THE NUMBERS - China has over 224K NEV related companies registered as of November 1st. We are talking OEM, tier 1, infrastructure, and other related sectors. - Car24, an Indian second-hand vehicle marketplace that connects buyers (dealers) to sellers with an O2O (online to offline) customer engagement strategy, has raised $200M in Series E funding making them India’s latest unicorn. - London-based Hungry Panda, a food delivery startup that specializes in finding Chinese food for Chinese living abroad has raised $70M in Series C funding. Already operating in 6 countries, the raise will allow Hungry Panda to continue to quickly expand internationally. I can already see other cuisine & use case-based delivery apps launch and flame out throughout 2021. - For my Canadian friends out there, Blackberry is NOT dead. Blackberry shares jump 65% after inking a deal with Amazon to develop its ‘intelligent vehicle data platform.’ It’s the largest single-day gain of Blackberry – EVER. Blackberry already has a vehicle OS called QNX. This IVY builds on top of that and will utilize Amazon Web Services (AWS) to manage the data. This will likely be marketed as a ‘turnkey’ solution to OEMs and mobility-related companies. - The argument against EV subsidies from the market that buys the most. Norway, which famously purchases the most EVs in the world per capita also provides a TON of welfare to its citizens to encourage them to switch from petrol engine vehicles. We are talking billions of dollars. As an oil exporter, the country has A LOT of money to burn but as this author has argued the subsidies have actually resulted in MORE cars being on the road and made public transportation a much less sexy alternative for transport. And has it really reduced in any significant way the amount of greenhouse gases? According to the article, emissions fell by 10% from 2014 – 18. Relative to the amount spent on subsidizing EVs, that reduction seems small. Let’s also remember that Norway buys <200K vehicles/year, essentially a rounding error when compared with China, the US, and the EU. Is it really worth mentioning the success they’re having with EV adoption? I am not so sure it is. —— 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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