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NIO Finds Swapping Partner, CA Dreaming, PHEVs & EREVs Find a Place in China - SAI Weekly #43



 

To my American readers, Happy Thanksgiving! I have alot to be thankful for this year and it's always important to reflect on everything good in your life. I am thankful for you readers who spend your precious time each week reading my rants, thoughts and insights. I hope you plan on watching my Lions beat Green Bay tomorrow while you're feasting on some turkey, stuffing and pecan pie! How naïve of me to think that Thanksgiving would allow me to play some catchup (falsely thinking it would be a quiet week) on work and the newsletter. I missed last week’s newsletter due to my travels (to SF & LA for the Auto show), which I will get to this week I am going to post this instead since it’s worthy. Faraday Future visit. I finally did it. I got to visit their HQ in Gardena, listen in on their livestreamed investor pitch and meet and speak in depth with some really great & talented folks including their new CEO, CFO, Design and Product folks, all still with ambitious plans for the company. Those ambitions are being tempered by their severe need to raise more capital. At the current $10M valuation, they are miles away from being an ongoing concern in 2024 and beyond. IF they can raise more capital, they believe they can sell 1K of those FF 91 2.0’s at a starting price of $275K. I was impressed by the vehicle. It is NOT vaporware. It is VERY powerful at >1K HP. It’s also large, too big IMHO. That same day, they’d delivered the 8th production vehicle from their Hanford factory. I rode in the vehicle and drove the vehicle. The backseat is voluminous. This early production vehicle that I drove was just that. It still needs a bit of fine tuning that likely will only come after building the 100th, then 1,000th if they are able to get there. Marketing is also going to be a puzzle that needs solving since the pricetag and associated tech that’s stuffed into the vehicle isn’t likely something that’ll resonate with the .1%ers in the US since their age is likely well into the 60’s. That said, one word to describe their design / customer philosophy was ‘Luxtech.’ I think it resonates more in China than the US for now but it’s something I told them to lean into and build their story around. For the sake of full disclosure, I have some friends that work there and although I’ve been harsh in the past about FF, I would still like to see them succeed, if for no other reason to bring another player / competitor to the US market where I think there aren’t enough of them. As I’d mentioned in the past, I would like all the startups to succeed, I just have an opinion on how and why they will. In FF’s case, I applaud that they’ve reached Job #1 let alone Job #8, that’s more than can be said for numerous other EV startups that were never able to get off the ground. Without significant capital though, they may run out of that 9th life.




As for the LA Auto show. Not near as fun or energetic as last years. I am going have a hard time justifying the trip next year unless of course I spend a few days in NorCal like I did last week. The only exciting reveals were the new Hyundai Santa Fe and the Lucid Gravity. Porsche wasn’t there and their section was replaced by an exhibit of comedian Kevin Hart’s (mostly American muscle) car collection. He has some great taste in American muscle, that must be said. Loved the ’66 GTO the best though.

QUOTED - I had the great pleasure of catching up with old friend Steven Lynch, former Managing Director at the British Chamber of Commerce in Beijing as a guest on his podcast with new friend & Co-host Sam Hogg called Beijing to Britain, Episode 10. We had a great discussion on the UK automotive market, some of the major challenges ahead, the UK’s place in the EV sector and whether China has created a dependency on Chinese EVs & batteries that should be concerning for the UK govt and how they need to address these challenges. The bottom line is that the UK market, in large part to the automotive sector leaving the region and recently the uncertainty created by Brexit, is left with scrambling to find a way to be a leader in the EV adoption. It’s original target of banning the sale of ICE and diesel engine vehicles by 2030 has now been pushed out indefinitely since there was no viable path to that goal. The key to EV adoption is subsidizing their purchase as we’ve seen in China and other countries with the US recently rolling out subsidies via the Inflation Reduction Act. Currently, although the UK is investing in charging infrastructure with an estimated $8B to build out charging throughout the UK by 2030, they do not have any subsidy program for the purchase of clean energy vehicles. Before the podcast, the UK had also not really offered subsidies for FDI into the UK for the manufacture of EVs or batteries. It looks like we may have swayed some influential MPs because soon after the podcast, Jeremy Hunt announced that the UK would provide manufacturing subsidies or grants of up to £1.2B to companies interested in manufacturing batteries or EVs in the UK. Jeremy Hunt serves as the Chancellor of the Exchequer, for those who watch Game of Thrones, think of Jeremy as the Master of Coin for the UK. For Americans, it’s the equivalent of the Treasury Secretary. If you listen to the podcast, this is a bold but very necessary move if the UK plans to stay a relevant and influential member of the international economic community.


CHINA EVs & MORE (CEM) We just had our Thanksgiving day edition of CEM so thank you to those who joined us. We will be back on our normal 9am ET schedule next Friday. I am also behind getting back episodes out so my apologies, Ill get those out over the next week. I appreciate your patience with that. If you’d like to join the live show, follow me on X: @sinoautoinsight and at 9am at the top where the Spaces rooms show up, you should see our show. It’s an opportunity to ask any questions and have discussions with Lei and I so if are itching to know more about something, join us tomorrow morning! If you can can’t join the live show, I invite you to listen to our recorded China EVs & More episodes at this site. And as always, we appreciate any feedback that will make the show better.


BIGGEST NEWS OF THE WEEK - NIO finds a swapping partner. As the ink still dries on this deal, I see Changan as a significant partner and this resulting in a HUGE potential win for NIO. Changan is one of the largest SOEs (state owned enterprises) China has and sold 2.3M vehicles in 2022, virtually all of them in China and all of them ICE, BUT they have a promising new brand EV brand AVATR that have some promising new vehicles and seem to be going full speed ahead into clean energy vehicles. I say ‘potential’ because the devil is in the details. Will Changan turn its entire fleet of EVs over to swapping? That would make the most sense. But I’ve seen deals like this announced then a year or two later wonder what ever happened to said deal. Since Changan was the first, they are likely getting a sweetheart deal. Changan EVs could conceivably outnumber NIO’s on Chinese roads in coming years unless NIO is able to successfully launch their other two brands and can get NIO moving in the right direction over the next few years and if that’s the case, it could get awkward since demands from customer to supplier could diverge. This gives NIO another revenue stream and amortizes their investments in swapping stations over a larger number of transactions if all goes right which should alleviate some pressure on the vehicle sales side. I didn’t believe that NIO would be able to convince a legacy automaker to be the first, but I did see them convincing one of the SOEs. This opens the door to more OEMs, mostly likely still SOEs but I’d say by the end of 2024, depending on how sales continue to drop on the ICE side and struggle to gain on the EV side, I could see a foreign legacy desperate enough to make a move. - CATL sells as many batteries as anyone outside of China now too. LG used to be the clear leader in battery cell sales outside of China, now it’s a dead heat with CATL geared to take over the lead in AND outside of China. The global ranking is as follows: 1. CATL (36.8%) 2. BYD (15.8%) 3. LG (14.3%) This should be unsettling for everyone in the UK, EU and US govts since they’re trying their best to break that reliance on Chinese batteries, especially since …see next post. Chart courtesy of Bloomberg

- Stellantis and CATL announce a sourcing deal for Europe. For Stellantis, this should complete a stunning 180° turn from complaining the China market and abandoning it almost a year ago to now having a significant investment (21%) in LeapMotor and a major battery deal for their European manufacturing with the BIGGEST dog on the block. All these things needed to happen, but the things that were said earlier by Tavares didn’t. He's really putting the EU in a tough, tough bind. If the EU decides it wants to protect, there will most certainly be retaliation by the Chinese govt on EU exported goods to the China market in sectors like aerospace, pharmaceuticals and luxury goods. - Hybrids and EREVs taking their rightful place among the BEVs in China and other places. As the first mover EV adopters having been mostly accommodated by the price war, we’re seeing a surge in PHEVs & EREVs with BYD and Li Auto making BIG gains in 2023. For those that aren’t keen on EVs just yet, the other NEVs can offer longer range while sometimes being cheaper than ICE vehicles. Double bonus or whammy depending on who you are. This puts legacy automakers with strong PHEV lineups in a much better situation than say those without. This makes the global slowdown in EV sales outside of China a HUGE win and validation of Toyota management’s confidence in the PHEV’s place in clean energy vehicles. At least for the foreseeable future. There is one main player each in the PHEV & EREV space for China and they both happen to be Chinese – BYD for PHEVs and Li Auto for EREVs. For those unfamiliar with EREVs, they have both a gas engine and electric motor but the gas engine does not power the wheels, it only recharges the battery that powers the electric motor. For most, that’s a distinction that doesn’t make a real difference. But in Li Auto’s case, their bet to go ALL IN on EREVs means that their entire lineup is in high demand by the Chinese consumer. It also means that both companies have great chances of pushing costs down giving them a HUGE advantage in foreign markets. Li Auto has yet to sell any vehicles outside of China but I see that changing within the next 18 months or so. BYD on the other hand has take full advantage of their PHEV lead and is leaning heavily into the low priced BEV + PHEV lineup to take leads in many of the over 60 markets it’s entered. Be scared, be very scared legacy auto in your home markets. There is really nowhere to turn for legacy auto as they try to move their lineups over to clean energy. They’re being sieged by all sides.

Charts courtesy of Reuters


- Cruise blows up. And so do GM’s dreams of leading the world into a robotaxi filled future. Vogt out. The crash into a random building in Austin, TX of a Cruise Origin prototype. Internal comms that showed that folks were under pressure to get the robotaxis to market. Software updates to fix bugs that could create disastrous and dangerous situations on streets where Cruise robotaxis were deployed. A (virtually) complete pullback by GM of the pilot programs and re-assessment of the business. Reassurance by Mary that Cruise is still a BIG part of GM’s future success. Oh, and a moneyloser to the tune of $2B this year or 16% of GM’s expected profits for all of 2023. Before all of this hulabaloo, I’d heard that Mike Abbott, EVP of Software and Services was going to reorg the UltraCruise and SuperCruise teams since he felt that the three GM Cruises were all going to end up at the same place ultimately, however long that took. How the recent events with Cruise affects the reorg is still unclear. BTW, reorg = shut down one of the divisions, consolidate the teams and eliminate redundant roles. Keep an eye and ear out for future news about that, although it won’t likely be highlighted anywhere by GM since it’ll just cause more questions to be asked. GET SMARTER - For those wondering about eVTOL, it’s already happening. The linked Bloomberg article does a decent job of summarizing the challenges and opportunities. First off, if you didn’t know this, commercial aviation is a HUGE polluter so the push to electric and clean fuels is warranted. The challenge for fully electric is the same as it is in the electric passenger vehicle space, the batteries are heavy with shorter ranges. That means that short hops, think Boston > NYC or SF > LA and vice versa makes for great initial launch of electric aircraft. Regulators need to get on board which we are starting to see happen across the US. United Airlines has gone as far as to say they will be using fully electric aircraft out of SF by 2026. In addition the EU is mandating the use of sustainable aviation fuel (SAF) by 2026, albeit in small volumes. Many of the major startups like Joby, Archer and others in Europe have also already gone public so you can check their valuations to get a sense of the long / short of how the Street values them, their potential and the overall market opportunity moving forward. It's a VERY exciting time to be in the mobility space and specifically the eVTOL space even if the current US AV sector’s star has begun to dim a bit. - China EV Inc in Mexico. MotorTrend again had a new documentary they viewed for us during the LA Auto show and one that I think is VERY relevant to US automakers and interested parties. It was all about China Auto Inc’s recent and aggressive moves into the China market. The documentary stated that there were 9 Chinese brands that have entered the MX market. Relative to the US market, the MX market, at 1M units / year is tiny. So why would they want to enter the MX market? To get to the US market. Full stop. This documentary articulates the Chinese auto industry’s thinking and it aligns much with what I’ve been screaming. Enter Mexico to get to US consumers. If they build in Mexico, they can bypass the current onerous 27.5% tariff slapped on Chinese built vehicles entering the US market. One that GM and Polestar mostly eat with the Buick Envision and Polestar 2 vehicles that you see on US roads. Yep, all of them are built in China. The US Three need to get moving. Because China EV Inc will be coming from all sides. BY THE NUMBERS - 20GWh. That’s the current forecasted capacity of the planned Ford CATL joint factory in MI. That’s down from the original 35GWh. Ford says its mostly about reconciling its forecasted need of battery supply due to reduced demand of EVs in the US. First, this deal was ALWAYS going to go through. Ford needs it. Badly. I’ve said this before and I’ll say it again, they are virtually a single market, single product company. If they struggle in the US later this decade it will be because they weren’t able to get the EV product mix / pricing right. The US govt does NOT want to see Ford unsuccessful but that’s a distinct possibility, hence the importance of this LFP cell factory. GM, Stellantis and Ford can ONLY build in volume if they use LFP batteries. They can’t reduce pricing enough on their products without it. The IRA has given them all some breathing room but China EV Inc are still coming soon. See the Mexico post in the GET SMARTER section. And if Ford, GM and Stellantis can’t design, manufacture and price their EV products competitively, China EV Inc will win more battles for the US consumer than it loses. That means Ford, GM and Stellantis needs to be able to sell profitable sedans and small crossovers, something that Ford at least hasn’t been able to do in a very long time. Trust me on this. INTRODUCING - Lucid Gravity. The only real world debut at the LA auto show was the Lucid Gravity. It was the first media event of the day and was unveiled to a very large crowd. I like it. I don’t $80K like it and think it’s more of an MPV at worst, crossover at best than a real Rivian R1S SUV. The interior is more impressive than the exterior which, if you squint kinda looks like a circa 2004 – 2008 Chrysler Pacifica. I really like the driver’s side design and how the screens aren’t stuffed into the cockpit as an afterthought like many other vehicles these days. That said, doubling the product lineup should help them fill that capacity in the AZ factory if they can finally learn how to build the damn cars. It’ll lead the sector in range and likely have some very interesting features that weren’t revealed during 20 minute unveil but I can’t wait to go for a spin when it finally delivers in 2024.




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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 global automotive and mobility sectors. We also provide a point of view that we hope educates and sparks debate.

The Sino Auto Insights team


 

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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