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Mobilit/e Conference, Hongqi Headed to Japan, Boston Globe Tries FSD - SAI Newsletter 5


AND we’re BACK! It’s always a little weird at the beginning of the year when you celebrate (calendar) New Year’s and then Chinese New Year (CNY) so close together. But we are at it again after a week off from both the newsletter & the podcast, re-energized and ready to go! It’s also unusual for many of us to be around Beijing during CNY since, pre-Covid, it would normally be a great time to grab the kids and get away for a few days but I think my mindset needs to shift from how things were ‘pre-Covid’ to a world that includes Covid as part of daily life for the foreseeable future. That means being more thoughtful about travel – at least here in China. I’ve gotten a lot of pings asking about how Beijing has been since the Winter Olympics officially kicked off on Feb 4th. I was also here for most of the 2008 Beijing Summer Olympics and the vibe is completely different. Much of that has to do with Covid but there’s also a more muted marketing approach as well. There aren’t as many signs about the Olympics, and definitely not as much marketing with celebrities from companies around the city. That said, I still like to watch the Olympics because it IS inspiring and I do root for the people and teams that resonate with me. There wasn’t much rest for the wicked on my end during the holiday because we have a lot going on including final prep for the Mobilit/e Conference that kicks off next Monday, Feb 14th through Feb 25th. Mobilit/e will bring together >60 experts in the fields of EV/AV/mobility to discuss a range of topics including rare earth metals, connected, shared, China EVs, US/EU EV policy, and much, much more. Over the two-week period, we will provide >30hrs of content coming from startup founders, investors, industry & policy folks, and people like me – nerds that are passionate about getting to that next level of progress in global mobility. You can find all of the details here: I am SO pumped (and nervous) about this event! Paul Krake and I got pretty ambitious and to be quite frank, I didn’t know that we’d be able to pull it off but as we are a few days away from kicking the conference off, I think we are in a VERY good position. We need a final marketing push to make sure we get folks engaged but the lineup is, IMHO, about as star-studded as you’re gonna get – especially Anne-Lise Richard, the Global Head of E-Mobility from Stellantis, Arianne Walker, the Chief Evangelist from Amazon Alexa Auto, and Douglas Johnson-Poensgen from Circular who will be our keynotes. I myself will be taking part in some pretty interesting panel discussions including the ‘Traditional Players Step Up’ and the ‘Tesla’ panels – two that have gotten a lot of signups already! This promises to be one of the largest Mobility conferences this year if it’s not THE largest so I invite you all to find 1, 2, 5, or 6 of the discussions to join! If you are someone interested in the mobility sector, cleantech, and/or EVs & AVs, there will be something here for you. On the newsletter front, as mentioned in previous podcasts, it seems the rest of the world (ROW) has woken up to China EV Inc so moving forward we will try to balance giving you the important news about what’s happening IN China with what China EV/AV Inc is doing OUTSIDE of China and let me assure you there will be plenty of both. As mentioned up top, Lei and I are back at it for this week’s EVs & More Twitter Spaces room – Thursday, 02/10, 9pm EST, Friday, 02/11, 10am China local time. For those that aren’t able to join, the EVs & More podcast is available wherever you grab your podcasts from. Most of our back pods are posted and the descriptions will be able to tell you what we discussed that particular episode. TESLA NEWS - As BerlinGiga comes online where will the production overflow from ShanghaiGiga go? Likely due East & South. Japan, being the 3rd largest passenger vehicle market in the world behind China and the US, seems like a logical place for Tesla to begin to make larger inroads. With almost 4.5M cars sold there last year and very few of them being EVs, the opportunity is HUGE. I spoke with Shiho Takezawa of Bloomberg for this article that summarizes the opportunity ahead of Tesla in Japan. Now that ShanghaiGiga will not need to ship MIC M3s & Ys to Europe, Tesla’s export market focus likely centers on Japan, S. Korea, Singapore, Australia, New Zealand, other parts of SEA, and India towards the middle/end of the year. BUT of course, Japan is the jewel. Toyota, Honda, and Nissan will not take this lying down though so two things to look for. Can Tesla get past selling handfuls of vehicles to the Japanese consumer (last year it sold ~5K) and what will the reaction be from the Japanese domestics. A major fight is brewing and it could get explosive so looking forward to seeing how everything unfolds there! A couple of quick assumptions before we close on this – Tesla’s China domestic demand will continue to grow but how fast? I will assume that in 2022 most of the domestic capacity COULD go to accommodate domestic demand, especially if 2022 sales reach the >5M units which is being forecasted by the Chinese automotive bodies. That means that Tesla, like in 2021, will have to balance domestic consumption with continuing to feed its other foreign markets from ShanghaiGiga. There will assuredly be increased demand from Singapore, SEA, and OZ/NZ. Tesla’s aggressive price cuts in Japan last year should also lead to more sales there, so could Far East & Southeast Asia makeup for the ~160K units shipped to Europe in 2021? I don’t see that happening but I do see them growing their share significantly in each of those markets. The bottom line is that they’ll likely be able to feed the domestic beast while still keeping their other international markets happy as well. - Hi, is this Tesla customer service? Yeah, I think I am missing a chip in my car? It seems that Tesla was NOT as effective managing their supply chain as one would’ve guessed. They were able to get close to 1M units produced this year but now we may know how. Tesla, like the rest of the sector, is also short parts - important ones at that. It boggles my mind that Tesla's business/manufacturing/marketing practices aren’t scrutinized more than they are. A part that’s been 'engineering changed' out of a vehicle isn’t a big deal in and of itself, but if it’s pulled out and the new system is not tested and validated to ensure there are no issues AND the consumer isn’t told about the change, well that seems misleading at best dishonest at worst. Again, how big of a deal is this redundant ‘chip’ that seems to be a failsafe for the steering control unit is still not known. But having a PR department would sure help them deal with these types of controversies. I wonder if this is gonna get picked up by Chinese social media? If it does, I’ll give you all an update in next week’s newsletter. - The Boston Globe rides shotgun in a Tesla M3 using FSD. Results: No Bueno. This started out as a tweet, well actually several tweets over the last few months. Friend of Sino Auto Insights & China EVs & More Taylor Ogan has been a contrarian on Twitter fighting off the STANs who say that FSD is safer than a human driver. Let me just state that that’s NOT true. #fakenews All of the hubbub on Twitter got the attention of a Boston Globe journo so he DM’d Taylor to ask him what the fuss was all about. Taylor proceeded to invite him out for a test drive of FSD. If you want the details of that ride, you’ll have to click on the link but let’s just say there’s a reason why most other AV companies incorporate LiDAR into their HW/SW stacks, simply because it helps. Folks REALLY interested in learning more about all of the controversies associated with Tesla, I will be moderating a panel discussion on Tuesday, Feb. 15th, 4pm GMT as part of the Mobilit/e conference. Taylor Ogan just happens to be one of the panelists. Rebecca Elliott, who covers Tesla in the US for the Wall Street Journal will be the other panelist. This is going to be GOOD. So tune in. IN THE NEWS - Hongqi heads to Japan to take on the domestics. For those that aren’t familiar with Hongqi (it means Red Flag in Chinese), it’s China’s Cadillac / Lincoln, or in other words China’s national brand. It was made famous because back in the day, Chinese leaders would be driven in them. Well, don’t call it a comeback (they’ve been here for years) but a resurgent Hongqi, a brand managed by FAW, has seen its sales increase significantly over the last few years here in China so much so that it's gaining confidence and wants to see what the rest of the world thinks of its cars. Already in parts of Europe and the Middle East, Hongqi just opened a showroom in Osaka, Japan! This is a pretty bold move for Hongqi – its cars aren’t what you’d call cheap and the Japanese are known for being fiercely loyal to domestic brands, so this could be a big risk for them. But the combination of the built-up confidence from their success in China and Japan being the world’s third-largest passenger vehicle market (by sales) was too much to ignore. Here’s the rub – it’s no secret that China sometimes weaponizes national sentiment against brands it deems goes against the country so I am curious to see, now that China EV Inc is stepping outside of its borders, what the reaction will be to the Chinese brands especially if there are any diplomatic riffs between the countries that China EV Inc is entering. This HAS to be a concern for the Chinese brands as they open their checkbooks and begin marketing and awareness campaigns for their products. That’s one of the reasons why many of the EV first brands scrubbed their names, or had the foresight to know they would enter global markets eventually, and decided to make them more ‘Western.’. Think Lixiang > Li Auto, Xiaopeng > XPeng, - As Tesla focuses on the production of current models in 2022, does China EV Inc have a chance to make gains here with their new products? First off, let’s remember that the China NEV market is forecasted to continue to grow despite chip AND battery supply challenges that most of the automakers will all face – including Tesla (see above post). A safe forecast for this year is ~5M NEVs sold, that’s up from 3.3M in 2021. Pretty significant. Remember that ALL shortages aren’t created equal and that the companies that manufacture the most will generally feel the most pain. We are talking millions of vehicles vs. thousands of vehicles. That means there is a VERY high likelihood despite the supply challenges that ALL significant EV brands in China will make gains in total sales volumes including Tesla (despite no new products) XPeng, NIO, and Li Auto. But from a volume standpoint, China’s BIG EV Three (CBET) are still guppies compared to Tesla the shark as evidenced by combined total 2021 sales of CBET ~280K vs. Tesla’s ~320K units sold in China. Also, remember that the legacies (and many others) are launching products they feel can compete with Tesla & CBET including the Cadillac Lyriq and the recently launched Ford Mustang Mach E to name just two. So the key here is to not only look at total sales volumes and MoM/YoY growth but also how these brands are growing vs. the market & against each other. With CBET, each of them has new products or recently launched products that should easily propel them to grow faster than the market. Also remember that XPeng plays in a different market segment than NIO & Li Auto and since XPeng plays more in the mass market segments, their sales should outpace NIO/Li Auto even more eventually in 2022 like it’s already started to in late 2021. But Tesla, which does not have a new product, may actually see softness in their domestic demand sometime in 2022. Two telltale signs that demand is softening? Reducing prices on their vehicles and large exports to other international markets. I don’t see this happening until at least the summertime but it’s also just after summer that a disproportionate amount of vehicle sales occur so a key time for capturing share. So if you want to be smarter about this – look at growth % vs. market growth & competitor growth. GET SMARTER - Lithium is needed for batteries that power most electric vehicles (and consumer electronics). Most of it comes from Australia, Chile, and China. Therein lies the rub. California could come to the US’s rescue though, maybe. The US currently imports ALL of its lithium. Yep, I said ALL. This creates a lot of exposure for US national security as well as the economy since any shocks to the pricing and/or any diplomatic disputes could put that supply at risk which would create a domino effect across the other sectors. The US still has some leverage to protect it from anything extreme happening in the short term but long-term it needs to find a way to secure its own supply. There’s a lake in SoCal that may have just what the doctor ordered. There could be as much as 600K metric tons of lithium carbonate/year coming out of that lake - that’s more than what the entire world produced last year. But the companies that want to extract it are still in ‘exploration’ phase so getting it out in mass quantities, then extracting the actual lithium could prove to be the two biggest (and expensive) challenges. Folks seem to be hopeful but the US is still waiting on a happy ending with regards to securing lithium supply on its own. Those that follow the EV sector know that this has always been a risk that the Chinese saw coming a mile away. That’s why two of the largest lithium mining companies in the world by market cap are Chinese, Ganfeng and Tianqi. If the US plans to compete on the global stage across multiple dimensions: EVs, chips, technology, batteries, then they can’t be asleep at the wheel like they were when China Lithium Inc bought up all of the mining rights. - What do lithium extraction fields look like. In a word ‘beautiful.’ The beauty belies the complicated process and the amount of water needed to extract the lithium carbonate. These aerial pictures are of the Lithium Triangle, where the borders of Bolivia, Argentina, and Chile meet. And just like any other non-renewable energy source, extracting it has a negative impact on the environment. In a nutshell, it takes a non-renewable mineral to produce a renewable energy product. Something I didn’t know – it takes ~12kg of lithium (or about 26.4lbs for the American readers). And Tesla built almost 1M cars last year. TRENDING ON SOCIAL MEDIA - Check out how a Porsche Taycan is built. For those of you who’ve never stepped foot in an assembly plant, this is a cool, next best thing. This 48 minute YouTube documentary takes you to Stuttgart into the Zuffenhausen factory where Taycan’s are built! A little long but really educational. I had the pleasure of visiting Porsche HQ when I did a study abroad during grad school and let me just say that visiting that factory & the museum was one of the most memorable parts of my study abroad. Very cool indeed. - CliffsNotes to catch you up on the history of EV batteries and the types that are in use now and/or could be in the future. I had to google to make sure I spelled CliffsNotes correctly (I didn’t). Those unfamiliar with CliffsNotes, they’re study guides or summaries, normally of books, that are used to help students study. It was also a way for the lazy students to pretend that they did their assignments so using them was actually frowned upon. This article is by no means an exhaustive look or review of the history of EV batteries or an intro to the most widely used battery technologies BUT if you’re new to EVs, this is a good primer. Click on the link and you’ll figure out exactly what I mean by CliffsNotes. - Ford and Detroit are laying some pavement that has the ability to charge your vehicle while you are driving over it. The technology is being developed by Electreon Wireless. Think wireless charging like most of your newest iPhones and Samsung Galaxy phones are capable of but on a much, much larger scale. This is not cutting-edge technology but the fact that Ford and Detroit are experimenting with it means that it may be close enough cost-wise and quality/reliability-wise to become a reality in the near (<5 years) future. BY THE NUMBERS - 1,000 – That is the number of robotaxis that AutoX has deployed in China and the US. They’ve also just recently opened a new Ops center in SF as well. The article says that this surpasses Waymo’s 800 or so but I thought Waymo had about 1K on the road too. Will need to do some checking on that number. The most peculiar thing about all of this? Plenty of China-fornia AV startups have significant operations in Silicon Valley but there are currently no (that I know of, and I make it a point to know these things) US AV startups are testing or piloting programs here. Something has got to give on that, right?? - 53% - That’s the % of global share China accounted for EV sales in 2021. Staggering. If Biden thinks he’s gonna catch up to this, he better rethink that strategy. Because China isn’t slowing down, neither is Tesla. The US needs different KPIs to define success be quite frank. Because chasing volumes is going to be a losing proposition. —— 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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