I am writing this week’s newsletter from Austin, Texas having just finished Day 2 of the MOVE America Conference. What a great town! Friendly folks, great food and the weather was mild enough that I wasn’t out there sweating my butt off!
I’ll definitely be back to Austin sometime in the near future. As for the conference, there was some great panels and keynotes and quite a few interesting startups that I was able to speak with at length. Many of the usual suspects I’d seen and spoken with at other conferences too including the recent Detroit Auto show. While I was in Austin doing my best every night to get a food coma the China EV/mobility space was on FIRE.
And what a crazy last few days it’s been!
- Li Auto L8 launches while pre-order for he L7 were opened with expected deliveries to start early next year.
- Li Bin’s European vacation being broadcast via social for all of the world to see and western media eating it all up.
- Deliveries beginning for the NIO ET5 – a vehicle that many are anticipating will upend ABB (Audi, Bimmer, Benz)and the German trio’s stranglehold on performance sedans
- NIO launching the Norwegian website for their flagship ET7 sedan’s order configurator with one big surprise
- Porsche IPOs reinforcing the hope of all of Germany Auto Inc that there is still a brand that can hold off Tesla & China EV Inc
- Leapmotor’s debut on the Hong Kong stock exchange
- Ford creating a separate entity that will sell EVs exclusively
- BYD’s unveiling of pricing for their highly anticipated products for the European market
- Rumors that Tesla will slash pricing of their MIC Model Y/3 models just in time to start the last quarter of 2022 – a likely record smashing quarter to a record demolishing year
- Still no peep out of the state of Michigan or Gotion out of the news about Gotion choosing Mecosta County as the location for their Gigafactory
We hosted our China EVs & More Twitter Space last night and went over some of the above but boy oh boy there are bylines and implications on each of those bullets that I need to unpack.
For those that weren’t able to join last night, the China 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.
- I spoke with Ed White of the FT about BYD’s aggressive moves into Europe and why now is a good time for them to do it. The article gives further background on the Buffett investment into BYD in 2008. For the BYD followers (which should be everyone in the automotive space), you can read the article here. It is likely behind a firewall though.
- Tesla decides to not run ShanghaiGiga at full capacity. Tesla recently upgraded ShanghaiGiga so now it can produce ~22K vehicles/week. If we assume 50 weeks/year (I am taking out time for holidays), that’s 1.1M vehicles/annum. A massive number since ShanghaiGiga has only been open for just >3 years.
Currently, the rumored plan is to run the factory through the end of the year at 93% capacity which would be about 20.5K/week. In and of itself, running at 93% is still a pretty good number for them and for other factories.
What makes it curious is that along with that decision, lead times have shrunk for order to delivery of vehicles to its Chinese customers down to just 1 week for everything rolling out of ShanghaiGiga. That means that any backlog has been cleared and that they’re effectively running a Just in Time system for vehicle manufacture. This is a good thing for the customer as many of their domestic Chinese competitors still have lead times of up to 8-10 weeks including NIO.
I’d alluded to the fact that due to how fast AND competitive the China market is, we would see demand for the Model 3 wane around summertime and the Model Y perhaps later in the year. I think that’s what’s happening now, but the wildcard is understanding how much they’ll ship out for export and whether BerlinGiga will be able to ramp soon.
I’d speculated that BerlinGiga may be slow ramping so that they can keep ShanghaiGiga running closer to full capacity and I’ll stand on that theory for now.
- Price cuts in MIC Model Y/3’s future? That’s what the current rumor is, one that is being denied by Tesla BTW. Let’s quickly reflect. ShanghaiGiga is now Tesla’s largest (of four) factories with annual capacity of ~1.2M units. The main pressure release valve they had in 2021 now has its own (Berlin)Gigafactory so dumping excess capacity isn’t something they’re able to do anymore.
I think Tesla knew way back when they planned this expansion (likely >2 years ago) that they’d see some slack in their demand/supply equilibrium but they thought they’d also find the right balance after a couple of months and that the flexibility of having increased capacity would allow them to make aggressive, offensive moves like lower pricing to gain share vs. their rivals and overall maintaining the pressure.
Fast forward to today. They were right about one thing, their price cuts allow them to sell incrementally more units, but the price cuts are now to play defense and NOT offense since they didn’t anticipate the level of competition in China to be so high. This is one of those situations that excess capacity without the underlying increased demand may hang like a weight on Tesla’s neck forcing them into decisions and moves that affect their strategies in other parts of the world.
Now, this is ALL speculation but if we do see price cuts (very likely) for the China market, let’s also watch closely their moves in other regions like Japan, Korea, SEA and Oz. Price cuts could follow in those places as well.
BIG NEWS OF THE WEEK
- Ford’s big moves are just rumors so for now I’ll put a placeholder here until I hear more definitive news. Stay tuned but what I will say is there could be new leadership at the Lincoln brand and the folks Ford is considering don’t have great reputations in the China automotive space.
IN THE NEWS
- Ford launches a new entity in China to manage the sale and development of smart, connected EVs. Ford is getting more aggressive with its approach to EV development and sales in China. After a frustratingly challenging time growing sales of the China made Mustang Mach E, <2.5K have been sold since Oct 2021, Ford believes that the reorg will ultimately help drive sales of the brand’s EV products.
My question is which EV products will be next for the Chinese market? It won’t be the F150. There are even rumors that Ford will begin local production in China of the Bronco and Ranger but those will be ICE versions, at least at first. There are no clear winners in Ford’s portfolio for the China market and they seem to just be losing more and more ground year by year and their #1 product is still restricted on many Chinese highways.
TRENDING ON SOCIAL MEDIA
- Porsche IPO was a big nothing burger. Publicly traded Porsche AG becomes one of the top 5 biggest car companies in the world instantly behind Tesla, Toyota and among giants VW & Mercedes but it’ll still mostly be controlled by two families and the Volkswagen Group. That has served them well historically, but times are different now.
The person that WAS trying to inject some urgency into the brand was unceremoniously let go by those same families and the VW board. Change needs to happen now. It needs to be major and it needs to be drastic. See Ferrari, which it could be argued is Porsche’s biggest true rival, hiring a chip guy as their CEO. If the families and the VW board can’t stomach bold moves and a bit of ‘in your face’ real talk, they’re going to like slowly becoming a niche brand a lot less. Elon famously said that he didn’t want to make the best ‘electric’ cars he wanted to make the best cars and THAT would be the only way to convince consumers.
That plaid Model S is pretty sick. And that was mostly done through software. For the traditionalists that argue you can’t compare a Porsche to the Tesla because it’s not the same, don’t tell me you like speed. You like ICE’s plain and simple. If you liked speed you’d jump on the bandwagon and stop looking in the rearview mirror wishing for past glory. You’d root for companies like Rimac to redefine speed, sport and luxury.
- The NIO ET7 priced aggressively for Norwegian market. In a strategy that is opposite of their countrymen BYD, NIO looks to keep Norwegian pricing of the ET7 close to parity with the China price. It’s actually currently cheaper to purchase an ET7 in Norway than China so there will likely be SOME backlash on that but it’s not a huge difference. For BYD’s pricing strategy see the next post.
- BYD pricing in Europe for their top two vehicles nosebleed steep. We are looking at a 50% lift from China prices for the Han & Tang. I think this reflects a few different things. Their confidence in their own products. The weakness they see in the European market from a competition standpoint. Their satisfaction with not being an immediate volume seller in Europe. It’s risky and they did miscalculate the Australian market with the partner they currently have and the warranty issue that they’re currently dealing with.
Let me assure you, if BYD makes ANY major mistake similar to what happened in Oz, the European market and its customers will not be very forgiving and it’ll actually set them back so they need to tread lightly and make sure they have all of their ducks in a ‘row’ so to speak before they go launching their products.
Oz is easy too – they only needed really a handful of partners and they weren’t able to get it done there. For the European market, they’ll need partners in each of the countries they operate, likely on the sales, service, marketing, and perhaps even comms functions. Operating in different languages. Yeah – not easy.
- Baidu Apollo goes to the Hu. The unmanned Apollo Moon ARCFOX versions are now piloting in Shanghai. Check the box for Baidu with unmanned pilots in the two largest cities in China. The pace and depth of expansion for many of these AV startups is breathtaking. Not sure how the US counterparts keep up.
- Introducing the L8 & L7. I can’t tell you which one is which though so you’ll have to look at the actual sticker on the rear to figure that out. Seriously, side by side comparisons on a screen makes it about impossible to tell them apart.
BY THE NUMBERS
- 10K. That’s how many LiDAR Hesai shipped in September to its customer Li Auto. That milestone took just 3 months. Hesai had a booth at MOVE America so we stopped by to chat with them. They seem very long the opportunity in the US market and were quick to point out that they’re out there shipping product while many of their competitors haven’t even shipped Job #1 yet. Now we know how much farther ahead Hesai is to its competitors.
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 Team