• Tu T. Le

Major OEMs 'rightsizing,' eliminating EV subsidies, Tesla's moves - SAI Newsletter #10



Some issues this week with the email service, likely due to the party congress meetings this week in Beijing so apologies for sending this out so late. Should be back on schedule starting next week.

As further proof pours in that the slowdown in China will likely be longer and deeper than initially thought, a spotlight has been placed on OEMs, Tier 1s, EVStartups, AI companies, etc. and the timing and costs of their grand plans for transforming their businesses. It specifically puts a lot more pressure on the OEMs to show how fast development is progressing in these three main areas: autonomous vehicles, electric vehicles, and mobility services.


Expect much more detail from companies on their strategies as they release earnings, implement their restructuring plans and prepare for IPOs. Ultimately, we’ll likely see that some companies are trying everything they can to stay relevant in the sector while some just aren’t doing enough. The risk appetite for the OEMs, in particular, needs to increase significantly if they’re going to be a player in the future.


VW is a good example of a company that has decided that they will go down fighting making their grand ambitions very public through numerous, almost weekly announcements that started just after the beginning of the year.


Tesla, although you could argue about cohesiveness, have also made public much of their plans for the near future. They’ve backtracked on some of their announcements due to the backlash they received, never a good indication of the confidence in their decision-making. Tesla though is also the smallest of the major players so miscalculations can be quickly cleaned up and course corrected.


Ford is also scheduled to detail their turnaround strategy later this year as well. One could argue that Ford has been the least communicative and slow to show their hand so I expect major announcements toward summer and throughout the rest of this year.


I applaud these companies for stretching themselves and as we learn more about how they plan to win, we can dissect whether their logic, planning, and execution will get them where they think their strategies will take them.


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

In 2019, Ford will turn the corner per Jim Hackett. (www.detnews.com)

In an internal memo to employees, his 26th since taking over the CEO role, Jim Hackett proclaimed that 2019 will be looked at as the turning point for Ford, is this empty rhetoric written to calm an anxious 200K or so employees, we’ll have to wait and see.

With all the heat he’s taken over the last almost 2 years since taking on the leadership role, you could argue that the proof is in the pudding. There’s still the challenge of right-sizing the company, where thousands of employees will likely be laid off, and reducing the operating budget by $25.5B over the next few years! That likely means closing plants, exiting markets and selling off or shutting down poor performing businesses.

These are just a couple of the challenges that need to be addressed in order to just stay in ‘the game.’

One aside as to why Ford is in the position they’re in beside poor product planning and a lack of leadership in China for far too long, is the fact that way back when GM & FCA declared bankruptcy and cleaned off their balance sheets, Alan Mullaly thought Ford should be much more fiscally responsible and that Ford could ‘weather the storm’ without having to declare bankruptcy like their Motor City counterparts.

Mullaly is a legend in the industry for what he was able to do back then. With the benefit of hindsight though, from a strategy standpoint was that the right move? A big reason Ford couldn’t invest in future technologies and markets is because Ford needed that money to pay for financial obligations they had that, GM and FCA were able to wipe out, because they didn’t declare bankruptcy.

If we push pride aside from not going bankrupt, and knowing what we know now about what’s happened to Ford the last 5-7 years, did Alan make the ‘right’ move?

#Ford #turnaround #TheHuddle #internalmemo #dontlookback #turningpoint


Someone is long Ford. (www.seekingalpha.com)

I’ve thought about Ford’s approach to tackling the three areas I outlined in the intro centering design around the user and it makes sense and is something I’ve pushed for from other automakers since I launched this newsletter. I also believe that Ford is well positioned to be a leader within the next 4-7 years in each of the spaces. I don’t necessarily agree with the author’s logic about the ‘why’ though when comparing them to Tesla.

First, Tesla has always been overvalued and the market, Silicon Valley and anyone else that buys and sells auto stocks made that so.

FACT: Tesla has never sold a car without some type of government welfare, ever. 


When there were no major competitors in the segment and Tesla was the darling of the market, they were still only able to sell ~50K vehicles/year until the lower priced, but still subsidized Model 3 was launched.

Tesla’s management and execution challenges will not easily or quickly be resolved, especially since a lot of the wounds seem to be self-inflicted. That’s even before their decision to fast track an assembly plant in a foreign country (China) where they’ve already had to hire, fire re-hire, local managers and restart the business multiple times.

The stakes are MUCH higher now as competition mounts and their products are starting to get a bit long in the tooth. Forget the ‘OTA’ – Over the Air software updates, cars should still physically be updated every 3-5 years and the Model’s S & X haven’t seen major updates since their original launches.

Back to Ford, where the author glosses over something I think is of paramount importance, Ford’s ability to actually design products & services that people will want, market and communicate why they want it and price it competitively enough that the masses can afford it and will choose them over other alternatives in the market.

Where Jim Hackett will earn his keep is if he’s able to communicate and lead his team into translating what customers want into vehicles and services that they need.

#goinglongonFord #turnaround #Tesla #JimHackett #nomorewelfare


The rightsizing and transformation of the workforce is well under way. (www.wsj.com)

With the recent announcement by VW, we can definitively state that the traditional OEMs are working towards ‘rightsizing’ as well as transforming the skillsets, expertise, and focus of their global workforces.

By my count: VW – 7K employees, GM – 14.8K employees, Ford – TBD (but announced)

I also think that these numbers will increase still as the companies reconcile the economic slowdown in China and further analyze their needs as the market becomes clearer. I am fairly certain that they will not need as many engineers (traditional auto + software) as they initially planned for so this will be a HUGE disruption to the sector over the next 12-24 months as the layoffs occur and the scramble to backfill them with alternately skilled staff begins to happen.

It’ll be a difficult time and my suggestion to those around the world (U.S., China, EU) that will be affected by these job cuts, stay positive, keep grinding and aggressively pursue that ‘next’ opportunity.

#morelayoffs #VW #GM #Ford #rightsizing #newskillsneeded


EVStartups Tesla’s recent moves a warning shot to the China EVStartups? (www.scmp.com)

It’s a safe assumption that none of the China EVStartups will admit to you that the recent, albeit, schizophrenic moves by Tesla, namely the massive price reduction on all their models, is something that has them concerned or will change the way they attack the market. They’d not be telling you the entire truth.

Take NIO, who've recently reported less than stellar sales, canceled plans to build their own factory, and had to have their CFO on the recent earnings call explain to the media that their ES8 is actually much different than the Model 3, as if that wasn't fairly obvious to those closely following the sector. This, when article after article prior to their launch named NIO one of China’s Tesla killers’ and the media coverage meant NIO captured some of that glow because of the comparisons to Tesla. Now it doesn’t seem so convenient to be compared side-by-side to Tesla products since they are trying to distance themselves from being a Tesla 'wannabe.'

Of course, this worries them! Each of these China EVStartups is deeply concerned about Tesla ‘leveling the playing field’ via price reductions and by locally manufacturing their vehicles. Tesla is not the ONLY thing that keeps them awake though. VW’s aggressive moves also have their heads on a swivel. There will be an onslaught of vehicle launches by numerous carmakers and the first domino is going to fall with this week’s introduction of the Tesla Model Y, the true competitor to the China EVStartups products.

Taken all together, along with a slowing economy sprinkled on top there’s plenty for the China EVStartups to be concerned about. Many sleepless nights ahead for quite a few of them. They’ve started hearing footsteps and they’re getting louder and louder every month.

#Tesla #iamnotafraid #youshouldbeafraid #EVStartups #VW #aggressivemoves  


Economy

Will the Chinese govt. still eliminate the EV subsidies and discounts currently in place? (www.yicaiglobal.com)

There are currently a number of reasons (read: discounts) as to why the Chinese consumer is still attracted to EVs while the rest of the market is in a slump. Should those reasons be eliminated, there’s a decent chance that the EV market will begin to lag as well.

That’s going to be especially challenging for the EVStartups, as NIO can attest. It’s a scenario that plays out every time the economy slows down, whether it’s the U.S., EU or China.

Cars get built, they don’t sell and sit on dealer lots for longer and longer. Dealers start freaking, so one carmaker puts ‘money on the hood’ in order to ‘move the metal’ and other carmakers follow suit in a race to the bottom.

If that happens for long enough, a correction will need to be made in the market normally by eliminating capacity. We’ve started hearing about this in Chongqing with the Ford and Changan JV. They’ve started laying off their employees. One of the main reasons EVs are still growing is because:

The denominator is still small so moderate gains in sales will show as large % growthThe subsidies and discounts in place are still enough of an incentive for consumers to purchase

My prediction is that these discounts will last past 2019 and into the beginning of 2020. For those EVStartups that aren’t able to meet their sales forecasts, that’s going to spell real trouble for them when those discounts and subsidies go away.

#subsidies #EVwelfare #EVMarketstrong #marketslowdown #keepitcoming


AI/AV

Salaries for software and machine learning engineers just jumped in NorCal. (www.digitaltrends.com)

Cruise announcing that it’s going to double its team by the end of 2019 has gotten a lot of attention. Recruiters are busy trying to poach folks from Waymo, Uber, Argo, Aurora, Apple, Ford you name it in California, Detroit and Pittsburgh. Even a few of my Detroit friends have asked me for introductions but alas Cruise is not somewhere I know that many people …yet.

Is this in reaction to VW’s announcements or the fact that Waymo and Uber are also now going to allow external investment into their AV divisions? I am not certain but you can bet that there will be a mad scramble for CVs and some renegotiating of ‘employment’ terms for the foreseeable future in the Bay. A great opportunity for someone with some ambition and want to work in sunny, still very expensive NorCal.

#CruiseAutomation #GM #externalinvestment #needmoreworkers #tightmarket #ineedaraise


Mobility

A peek inside Uber’s self-driving Ops. (www.techcrunch.com)

Back in 2016, Uber had a VERY high opinion of itself and of its recent acquisition, self-driving truck startup Otto.

Uber had forecasted it would have 75K autonomous vehicles on the road this year and that by 2022, would be operating driverless taxis in at least 13 cities.

Those incredibly impossible numbers led to Uber burning through $20M/month on research and testing in order to get self-driving cars on the road.

We now know that those numbers were a WAG, a formal, scientific acronym that stands for ‘Wild Ass Guess.’ We know that no company is currently close to achieving those numbers. All these revelations are part of the report that was written by a third party for the Uber vs. Waymo IP/patent lawsuit that netted Waymo .34% of Uber shares. 

Uber is likely burning more than $20M/month by now on R&D for their autonomous vehicle ambitions so here’s to hoping that sustainable profitability is right around the corner otherwise it might not come around for years.

#ambitiousplans #highburnrate #Uber #Otto #stillgoing #IPO


Mobike, like Ofo before it retreats to China. (www.techcrunch.com)

Mobike, who’ve till now didn’t signal to anyone that their international operations (mostly AsiaPac) were in trouble has announced that they’re pulling out of all markets other than China. This came as a surprise to many but if you’ve been following the sector and the parent company Meituan Dianping (MTDP), it really shouldn’t have.

MTDP is not profitable so they have pressure, Mobike who MTDP acquired for $2.7B not even a year ago is not profitable so this had to have been a drain on MTDP. The acquisition likely just prolonged the need for some of these tough decisions to be made, unlike Ofo who tried to stay independent and consequently, have been on the verge of bankruptcy for several months.

I will take this one step further by declaring that these ‘last mile’ transportation solutions, whether bicycles or scooters, at this time do not have a business model that gets them to sustainable profitability. Pricing as it currently stands doesn’t allow for it. Raising prices will just push customers to other forms of transportation or to competitors.

This is why I believe that the next iteration of the ‘last mile’ solution, the electric bicycle will be the ‘vehicle’ that companies will use for their ‘last mile’ solution in order to achieve sustainable profitability. They are able to travel farther and faster and are safer than scooters, three reasons why customers would be willing to spend more to ride them. I also see a great bit of overlap between customers using Didi and customers that could use these electric bicycle sharing apps. Who will launch this in volume and can create the business model that makes sense for the company AND customer remains to be seen so do stay tuned.

#Mobike #exitingmarkets #notmakingmoney #justlikeOfo #electricbicycles

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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