• Tu T. Le

Model Y reveal, BMW cost reductions, Zhongguancun (中关村) highlighted - SAI Newsletter #11



Big reveal last week that ended up being a fairly lackluster launch for the Model Y. The Model Y looks great but isn’t groundbreaking a sign I take that Tesla is starting to mature and not feel like they have to do anything outrageous, like they did with the Model X and its Falcon doors, to get people to purchase their vehicles.


Will keep the intro short this week so drop me a line if there’s anything you don’t agree with or would like as a topic in the future.


For you new readers, my name is Tu T. 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

EVStartups

The EV sector has officially ‘Jumped the Shark.’ ( www.quartz.com)

China Evergrande, China’s 2nd largest real estate developer by sales, having not learned its lesson by investing in Faraday Future (FF) previously, is doubling down on the EV sector by announcing that it added to its recent EV-related acquisitions by taking a 70% stake in Chinese (Tianjin-based) auto parts maker, TeT Drive Technology.

This is in addition to other recent investments:

-          $930M (for 51% controlling stake) for electric vehicle manufacturer NEVS

-          $156M (unspecified majority stake) for automobile battery manufacturer Cenat New Energy  

These three acquisitions will likely all be moved under the Evergrande NEVS, a new company that was recently created to specialize in auto-related products and services. The combination of a maturing commercial real estate sector + FOMO (fear of missing out) + too much money in their ‘pockets’ must’ve led them to the conclusion that they should enter the ultra-competitive and very capital intensive sector.

They’ve also decided to zig rather than zag like the rest of their competitors by vertically integrating via acquisition and in-house development rather than through partnerships.

If Evergrande is able to poach a team of able-bodied execs with the right amount of auto experience (read: not too much but not too little) and are ready to invest another 2-3x of what they have so far, there could be a chance for this late comer to make an impact. Will be keeping tabs on them.

#Evergrande #Iwantsomemore #buyingspree #FOMO


OEMs

OEMs passing the VAT savings on to the customer. ( www.scmp.com)

Not a big surprise here since the govt. VAT reductions are across the board and shared by all. What will be interesting to see once they’ve launched is if one or two EVs are able to gain some traction in the market whether their internal combustion engine (ICE) competitors try to protect share by reducing pricing or offering discounts to keep folks from switching over to EVs.

This likely won’t happen until towards the end of the year when many of the EVStartups have launched their products and have been in the market for at least a few months and gotten the cadence down.

I think you’ll notice that the traditional OEMs will have to perform a balancing act between selling their newly launched EVs to establish themselves (as well as gain credits for NEVs sold) while also selling enough of their ICEs to keep all the plants running.

#VATreduction #lowerprices #maketheswitch


Who will Tesla partner with on batteries for the local China market? (www.businessinsider.com)

Had a good conversation with Linette Lopez for the Business Insider article she wrote about Tesla evaluating CATL as a battery partner for the Shanghai Gigafactory. A lot of variables that would need to be sorted out with quality, reliability, and availability being 3 of the most important.

Also, as previously noted CATL has already announced partnerships with BMW and VW so expectations are already sky high that they’ll be able to significantly increase the quality and reliability part. I’ve talked to a few folks at these firms after those partnerships were announced and they didn’t seem very happy or confident about it working out.

Availability (of supply) will be no problem if CATL isn’t able to quickly bring their battery’s quality and reliability levels up closer to their Japanese counterparts. These partnerships are not likely exclusive, so if there are any major snags, their customers will just abandon them for a better alternative.

#CATL #makinmoves #Tesla #newpartnerforChina #SinoAutoInsights


Another OEM announcing huge cost reductions (read: layoffs and plant closings). (www.reuters.com)

At this time, I will not predict that BMW is going to be laying anyone off or closing any plants but I do find it difficult to wring out €12B just by looking at ways to increase efficiency.

As I mentioned in a few of the past newsletters, this is very typical of the sector and under the cover of smaller revenue numbers and a tougher overall market, it’s much easier to make these types of announcements. BMW, like their American AND Japanese counterparts, are not optimized for the businesses that will be making them money 5-7 years from now so that transformation needs to happen and needs to happen quickly. Who will be next to announce?

#BMW #whoisnext #toofat #needtosavemoney #morelayoffs


Traditional OEMs adopting over the air (OTA) software updates, playing catch up with you know who. ( www.teslarati.com)

This needs to happen and should’ve happened a long time ago, but I hope these traditional OEMs have studied this to death and have thought through all the different, bad things that could happen when they launch this feature in their next new vehicle since this is a very new technology for them AND it’ll likely launch on high sales volume vehicles, making the potential for disaster even greater.

Software is already a part of most vehicle’s systems but these software updates can instantly improve performance, safety or can add/subtract features.

The fact that it’s taken until now for the OEMs to acknowledge and finally begin to introduce something that was native on most Tesla’s in the very beginning is another example of the lack of urgency and speed on the part of the automakers. There’s just no excuse for this. AND once they begin introducing these types of features on future vehicles, they begin to play on Tesla’s turf who have much more experience with this and OTA software updates are totally in Tesla’s wheelhouse.

#OTA #instantnewfeatures #Tesla #OEMs #playingcatchup


The Model Y has officially launched. ( www.wired.com)

Without having driven any of the vehicles, Wired does a good job here of doing side by side comparos of all of the Model Y’s potential competitors. The SUV market has always been strong in the U.S. and is gaining A LOT of momentum in China as well so expect that at least 2-3 of the vehicles listed by Porsche, Audi, Jaguar, Merc, etc. to grab a decent piece of market share (in the U.S. and in China) when they launch if they’re able to get favorable press coverage.

Aesthetically, some of these aren’t great looking vehicles but there are a few that I could see parked and plugged into my garage. 

Once you’ve studied this article, you only have to wait for the test drives to see what YOUR preference is.

#ModelY #thecompetition #EVsarecoming #Illtakeoneofeach


ECONOMY

An argument to keep the immigration doors open to the U.S. ( www.qz.com)

Virtually all companies (~95%) surveyed in the 4th annual Immigration Trends report state that foreign nationals are an important part of their talent acquisition strategy.

As an immigrant myself and someone who has been able to work and live abroad, there is tangible value in having foreigners as part of a company’s staff. Especially those that have either studied there and/or want to be there (‘there’ being a foreign country) to contribute to the company’s products.

In Silicon Valley, I worked alongside MANY immigrants and/or foreigners on work visas. This is reflected in the statistic that foreign workers make up more than 12% of tech employees vs. 1% for the rest of the U.S.

They loved and hated the same things I did about the U.S. and were generally very proud and happy to be there. As products and services will need to become more global, different perspectives are not only valuable but foreign perspectives will be difference makers in designing products for multiple markets. I am certain of this.

My aim to highlight this article is not the be political, but to emphasize my belief that to truly create products and services that resonate across multiple sets of consumers, one should have a team that reflects the audience your product is meant to reach out to.

#immigranttalent #needyourhelp #itsgettingtougher


A day in the life of a startup employee in Beijing’s ZGC (Zhongguancun). (www.scmp.com)

Let me first clearly state that I do not advocate people nor companies to push their employees to work as hard as it states people in the article do, it will lead to burnout and possibly worse health conditions.

I do think this article is fairly representative of the experience I’ve had both working at and consulting for startups here in China.

When I first worked in Silicon Valley I saw a similar ethic and will to work ‘as long as it takes’ and do ‘whatever it takes’ to succeed. To be quite frank, and this is a bit disconcerting for me to say, although I do see some pockets of excitement and the willingness to work long hours when I visit Detroit, it’s just not close to the levels in China and Silicon Valley. Again, I DO NOT think that living at the office and working 12hr days is directly correlated to making a successful product but if I were fighting for my life I might work with a bit more urgency.

#workingforaliving #allday #whenisbreaktime #nothealthy #Detroitplayingcatchup


BATTERIES

Just as Tesla gets its battery production sorted in one region… ( www.thestreet.com)

I have not seen this report but from the article, there is definitely a U.S. bias since the author discusses Tesla’s battery issues in the U.S. being sorted which is one of the current bottlenecks to be resolved in order to speed up their production in Fremont.

This analyst has to know that China is actually the market that Tesla has its sights on, not the U.S., and is where the bulk of their growth will be coming, right? My prediction is that the Model Y, when it does launch could potentially double their overall sales AND will be primarily made in China along with the Model 3. Hence the importance of finding a second battery partner that will likely give them a cost advantage vs. Panasonic. 

We already know that they’re having a difficult time making money on the Model 3 at current costs and pricing and since the Model Y shares a good number of its parts with the Model 3, it would make sense that they move to a low-cost region to manufacture since it’s also likely the place where a good majority of the 3 & Y will be sold.

Another scenario could be that the high-end Model 3 & Y could be built in Fremont while the low priced versions with different battery configurations are built at the Shanghai Gigafactory. I currently don’t see that as likely since it’ll create a more complicated situation for the Fremont factory.

Tesla’s decision of what and where to produce will likely be highly influenced by import duties to the U.S. so let’s see how that shakes out in the next 6 months.

#moveoverPanasonic #Tesla #Gigafactory3 #CATL #RiskyBusiness


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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