• Tu T. Le

Jetta the brand, Daimler & BMW - frenemies, The Grand Tour goes to Detroit - SAI Newsletter #8



Finally back in Beijing after a few productive weeks in Detroit and the Bay area.

I was able to meet with some companies/people doing some amazing things in the sector, and though there’s still a divide between Detroit and Silicon Valley on who, why and how they’ll ‘win,’ the gap in understanding how to work together has definitely narrowed over the last couple years. I’ll be back in early April so for those I was not able to catch up with so let’s try again next month.

In an ongoing and recently weekly trend, Volkswagen Group made another important announcement spinning off ‘Jetta’ into a separate brand aimed at capturing a piece of the low end of the China automotive market, specifically in the tier 3-4 cities.


VW is also rumored to be formalizing an investment in Argo.ai, a Pittsburgh based AI company that currently has Ford as its largest shareholder.

FCA also announced a $4.5B investment in 5 Michigan plants estimated to add 6.5K jobs, this is a big win for the State of Michigan so congrats to all involved!

Daimler and BMW have decided to formally partner on 5 new businesses. I’ve always thought that partnerships can be part of a larger, overall (business development/transformation/entry) strategy, but it is not, in and of itself, a ‘strategy.’ It could be tough for these 5 new businesses to compete outside of their home markets.

A bit long intro this week but I did want to mention I saw the first episode of Season 3 - The Grand Tour. This is the Amazon version of Top Gear where Jeremy Clarkson, Richard Hammond, and James May ‘test’ new vehicles.


I was a bit torn watching since the first episode spent most of its time in Detroit testing souped-up versions of the Mustang, Camaro, and Challenger. Although, they did show some good and improving parts of Detroit, a decent portion of the show was dedicated to highlighting the ‘building porn’ and blight that still blankets a good bit of the 2 million acres of the city. As I’ve stated in the past, Detroit will see better days. Slowly but surely, it will.


For you new readers, my name is Tu Le and I am the founder and managing director of Sino Auto Insights. 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 U.S. 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/Ridesharing/Ride-hailing/Bikesharing, OEMs, EVStartups, Investments, and Other. If you know of anyone who would like to sign up for this newsletter please have them visit: www.sinoautoinsights.com. Thanks for reading.

The Sino Auto Insights team

OEMs

Is Jim Hackett the right person to lead Ford’s transformation? ( www.freep.com)

Seems like its dump on Hackett month, at least from the couple articles I’ve seen over the last couple weeks about how he’s struggling to get the Ford Team on board to his vision of ‘design thinking’ and a user-centered approach to product development.

I’ve still quite a few ex-colleagues and friends that work at Ford, both in the U.S. and in China. What I’ve heard from everyone is that Jim runs things a lot differently than any previous CEO they’ve worked for and it can be downright maddening sometimes since Jim’s approach is much more holistic than following some of the historical Ford product development processes that have been in place for the last 50 years.

Transforming a company, changing its culture, and making tough decisions should be hard and it should make people uncomfortable. These are the types of stories I think we need to hear more of in the automotive space, managers coming in shaking things up and making the tough decisions if the traditional OEMs plan to come out on top. There still needs to be a grand vision, cohesive strategy, and flawless execution but that’s the only way these guys survive the future.

Those that have spent any time with me know that I’ve been preaching about user experience for quite some time. The future winners will have been able to capture a large segment of the market because of their ability to design a product or service, at the right price and time, while creating one, seamless and customized user experience. Understanding what their customer’s needs are or developing a product/service to fulfill a need that a customer didn’t know they had is the key.

Let’s say Jim is taking the right approach, if he’s not able to communicate this internally to the team or to convince Wall Street that what he’s doing is going to work, it will not matter whether his approach is correct or not.

#Ford #JimHackett #OneFord #therightstuff


VW and Ford alliance gets broader and deeper? ( www.wsj.com)

VW has been making some HUGE announcements over the last several weeks and till now, I’ve been very impressed with the audacity of some of their moves. With that said, VW, like the other traditional OEMs, is a HUGE monster that isn’t known for its fleet feet or ability to adapt to a constantly and quickly changing environment so coming up with new ways to do business and having the guts to commit to them publicly and financially is a BIG step for the VW Group.

If the Ford / VW alliance does go as wide and as deep as the media suggests, you can add this to the laundry list of initiatives that Herbert Diess has taken on the transform the company. The hardest part now, as most people in the sector know, right-sizing the company, communicating to the team that’s left what the changes mean for them and their jobs, convincing everyone to buy-in and then for each initiative, putting a bulletproof project plan in place, appointing a ruthless project manager and giving them the autonomy to make quick decisions, while moving 5x’s faster than they ever have in the past and hope that they’re still not moving too slow!

A few things in the article that I wanted to clarify having spoken with Argo a while back in Pittsburgh. The Ford/Argo partnership is NOT exclusive so Argo could’ve conceivably created this alliance with VW on their own without Ford’s help or influence. Things could’ve changed between when I spoke with them and today but it was quite clear that Argo had the freedom to explore other partners so I wonder, if this investment goes through, if Argo has decided that Ford and VW Group will be their exclusive dance partners?

Also, Argo management still enjoys being a self-contained entity with minimal interference from Dearborn so I would think that even with the investment, VW would probably not be involved so much with Argo at the beginning. Further, Argo will definitely not want to deal with any of the VW ventures initially so it’ll be interesting to see how Ford, VW, and Argo manage the relationship. I think that if Ford and VW are smart, they’ll keep at themselves at arm’s length and allow Argo to keep doing what they’re doing, at least for the time being.

I am certain that there would be a lot of flights from Wolfsburg to Pittsburgh so that the VW management could play with their new ‘toy.’ Are there currently any direct flights from Wolfsburg to Pittsburgh? Good thing is that the Yinzers also love beer!

#Ford #VW #Argo #technologypartner #50/50


The Germans waving the white flag? ( www.theverge.com)

Have to say am a bit baffled and disappointed with this announcement. Not that it doesn’t make sense but because we’re still very early in the race be #1 in these spaces and no winners have been crowned in ANY of the 5 areas that Daimler and Bimmer plan to partner on. I would’ve hoped that rather than mitigate risk by partnering, Daimler and Bimmer would’ve embraced the opportunity and risk associated to each of these new businesses in order to develop a leadership position in one or all 5 of these ‘new’ business categories. If these companies plan to compete and succeed in these spaces, specifically outside their home markets, their appetite for risk will need to be dialed up and they will not be able to partner on EVERY new opportunity they see.

Also, at the risk of sounding skeptical, it’s two car companies trying to do tech & services so who will be their tech partner in this? One of the reasons, IMHO, that they weren’t successful prior to their planned partnership is because they didn’t quickly find a tech partner to learn from and build their new services through.

With speculation that VW will make a major investment in Argo.ai to grow their budding alliance with Ford; Bimmer and Daimler have to know that it’ll be challenging in the future to compete in Europe against VW, the only real viable market in the future for the 5 new businesses, unless there are some further drastic moves that will quickly make them competitive in the U.S. and China.

On the other hand, I definitely see opportunities for some savvy, Silicon Valley experienced folks that are open to moving to Europe at one of these ‘new’ companies, job postings will be soon to follow shortly.

#Daimler #BMW #JV #5newbusinesses #partnership #bettertogether


Jetta is now a brand in and of itself, not a product line anymore. ( www.caranddriver.com)

VW seems to have really tried to outdo itself and stay in the news recently. This time, they’ve announced that they’re working with one of their China partners, FAW and making Jetta a separate brand that’s targeting first-time buyers in tier 3 and 4 cities. They will then push VW brand upmarket.

I remember when they tried to take VW brand upmarket in the U.S. with the Phaeton, and that didn’t work out so well so here’s to hoping they have a better strategy for moving upmarket this time.

It seems the VW management team believe that their current stable of 8 brands is not enough to cover the China market. Not to mention the multiple JVs they’re currently involved in. With all the uncertainty of the China market, and the amount of marketing yuan that will need to be invested in order to compete in the future for market share, you’d think that it may be easier to focus on some core brands, reinforce their positioning where they are strong while investing in new, amazing products and services.

#Jetta #onemorebrand #anotherJV #willthiswork


An introduction to some of Tesla’s competitors in China. ( www.wired.com.uk)

Although not an exhaustive list of companies that plan to launch EVs in China’s growing market but a good primer for all the large traditional Chinese OEMs that are mostly state-owned, with the exception of Geely, that think they have the ‘right stuff’ to take on Tesla and the rest of the over 480 EV startups in China and come out on top. Some of the major EVStartups left off the list: Faraday Future, WMMotor, SF Motors, Qiantu, Byton, NIO, and many others too numerous to list.

There’s been a ton of money invested already by these companies and by the EVStartups to get their EV businesses up and running but there’s still a ton more that’ll need to be invested, and wisely, in order for these companies to survive what’s to be a brutal multi-year battle for supremacy in the world largest vehicle (&EV) market.

I predict that within the next 48 months, most of these EVStartups will have run out of money, others that have decent product but aren’t able to fund their operations and R&D any further will have taken on strategic investments from the traditional OEMs and 8-12 EV companies that were scarred badly in battle but were able to come out the other side more experienced and in good positions to capture a big portion of the market with their vehicles and value-added services.

#itstartingtogetcrowded #briefintro #teslakillers #Tesla#1


Economy

Manufacturing continues to move from China to Southeast Asia (SEA). (www.businessinsider.com)

What was a slow drip due to the steadily increasing labor rates for Chinese manufacturing over the years has accelerated into a consistent outflow of manufacturing jobs for things such as clothing, furniture, tech products, shoes etc. since the U.S. tariffs were put in place, to SEA countries like Cambodia, Thailand, and Vietnam.

This article focuses on bicycles sold in the U.S. but is indicative of the types of decisions that are being made by multinational managers across many sectors due not only because of rising labor costs & tariffs but also because these companies want to be closer to where much of the future economic growth will be coming from in the next 10-15 years.

Deal or no deal, China is going to have a much more challenging time maintaining adequate growth levels (>6%/annum) because of a number of factors including rising labor costs.

The size and scale of China means that they always likely play a part in manufacturing for all of the sectors just mentioned but it will become a smaller and smaller portion of their GDP.

#chinaeconomy #manufacturingmoves #cheaperinSEA #tariffs


Batteries

BYD breaks ground on a new 20GWh battery factory in Chongqing. ( www.electrek.com)

There have been plenty of announcements of battery factories popping up, mainly in Europe and China over the last 12-18 months and none too soon.

With the manufacturing of EVs in China to increase substantially over the next 24-30 months, it’s going to take a lot of battery cells to keep up with the increased volume. I think the assumption that the battery factories will come out of the gate at the right quality/reliability/volumes is something that’s going to be tested significantly once these batteries get put on the road in volume 2-3 years from now.


I would like to think the that BYDs, Tesla’s and CATLs will have everything sorted out before Job 1 rolls off the line, otherwise, there could be VERY expensive and embarrassing quality spills that need cleaning up.

#BYD #buildyourdream #batteries #another20GWh #moresupply #Chongqing


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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