NIO'S earnings, Mary Barra & GM, Canoo intro - SAI Newsletter #36
Final preparations for the National Day parade are taking place in Beijing so traffic here is a bit more hectic than usual as roads are closed or redirected. We will have next week off so there may or may not be a newsletter depending on if anything major happens outside of China.
I've moved two topics that I think are pretty important into my intro. The first topic being a one-off while the other will stay up top until its resolved.
I think there were many folks paying attention to the NIO earnings release so want to make sure it's given the attention it deserves.
The GM strike is also a pretty important issue since GM is such a large player here in China and in the US. I hope by this time next week, I will have good news to share about it.
Many folks in the industry look at NIO as a bell whether for the entire China/EV sector so there has been a lot of ink covering NIO’s earnings release and call so I’ll just link you to the article I was interviewed for by Technode’s Jill Shen. It covers A LOT of the bases about their Q2’19 results and the cash crunch they’re currently in.
If they’re able to turn this around on their own, it’s going to take a MASSIVE team effort - soul searching from management, leadership that has likely been lacking, continuing to make ‘tough’ decisions, executing with precision to the revised plan (I hope there IS a revised plan), A LOT of OT and heavy lifting from the staff, focus from all and a TON of luck. In hindsight, it’s easy to see that NIO just had a lot going on, working on things that didn’t really help their bottom line.
A lesson can be taken from Steve Jobs, who said that one of his greatest skills was his ability to say ‘NO.’ For those of you who are in the middle of working through this most challenging automotive market in China EVER, here’s a 3min MUST WATCH video of Steve talking about just that (it’s on YouTube unfortunately for the folks in China). Use it as a motivation speech or your Call to Arms!
An easy way to see how serious NIO is about digging themselves out of this mess is to go to the Anting area of Shanghai where NIO is located at around 8 or 9pm on any night including weekends, to see how many lights are still on in their buildings. That’ll give you a good indication whether or not they’re going to get through these challenging times.
One area NIO should focus their leadership, marketing, marketing research, and pricing teams on is re-visiting who they believe their customers and target market are, what they want, how much they’re willing to pay for it and then re-positioning the company and product(s) before any other competitors launch their products into the market and crowd them out of that new positioning. I may even hire an external consultant to ensure the ‘right’ questions are being ask and to avoid ‘group think’.
There is NO AMOUNT of cost cutting that will rescue NIO if they can’t get their monthly sales increased significantly and it HAS to be without incentives or discounts. This is the FIRST ‘trick’ car companies use to bump up their sales, it has lasting negative affects to premium pricing, residual value of the vehicle and margins though so even if it increased sales, which it likely would, they’d just be ‘kicking the can down the road.’
Having spoken with folks from other EVStartups and OEMs, I know they are watching what’s happening with NIO very closely hoping to avoid these same challenges when it’s their turn in the spotlight.
Look, Faraday Future has been able to keep their doors open this long, so NOTHING is impossible!
We are entering Day 12 of the strike with still no end in sight. What GM agrees to with the UAW will be the blueprint for what Ford and FCA’s contracts will look like so any changes to wages, bonus and benefits will be felt at all three automakers and their workers that build vehicles in the US and Canada.
For some context, there are also non-union assembly plants in the US which are owned by mostly non-American OEMs including VW, Honda, Toyota and Mercedes and BMW. The one American exception is Tesla. For those that have a Netflix account MUST SEE TV is ‘American Factory.’
Those non-union plant employees make on average, including benefits, $13 less / hour than their union counterparts. That means that before 1 part is put on a car, the US automakers are already at a cost disadvantage. I am not taking sides here, this is just a FACT.
I can’t and won’t try to predict the outcome but it seems like this could last some time. The two sides seem to be quite far apart with no indication of give on either side. The UAW is having internal issues, including some of their leadership being accused of corruption so they’re using this strike to galvanize their members in hopes of great news on the other end when this is all said and done.
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 US, 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/Ride-sharing/Ride-hailing/Bike-sharing, 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
GM CEO Mary Barra, like other global automotive CEO’s, has a tough task ahead of herself. In addition to currently trying to get through a 47K employee strike that has crippled all manufacturing in North America, she’s responsible for steering GM into an electric vehicles (EVs) / autonomous vehicles (AV) / mobility services filled future. She's also promised that GM will sell 1 million EVs in the near future.
In order to complete these tough tasks, Mary has been and will continue to need to make SOME CRAZY WAGs about the future of the automotive sector and GM’s place in it. For those that have worked with me before, you know what WAG means. Those that have NOT, it’s a very, very technical, business-oriented acronym only used when strategic thinking is required - if you are still reaching for the answer …WAG stands for ‘Wild Ass Guess.’
Mary has already decided that EVs and AVs WILL be GM’s future. She believes that AVs will be such an essential part of ‘future’ GM that she bet $1.6B on a startup, Cruise Automation, hoping that together with Cruise, GM can take a leadership role in a sector that is a good 10 years away from bearing any real fruit.
Mary has also taken an aggressive stance about dictating to the market and influencing when the tipping point will be reached on pricing parity and hence mass adoption of EVs vs. internal combustion engines (ICEs). This is where Mary is aligned with Herbert Deiss and VW Group.
Both have decided that sitting around reacting to how the EV / AV markets evolve makes GM and VW sitting ducks since there are new, talented and very motivated competitors in the EV & AV space, namely ambitious & nimble EVStartups, AI startups, and deep pocketed tech companies.
They have decided it’s better for GM and VW Group to drive changes to these markets and being the #1 and #4 carmakers in the world, they have the scale and ability to do that. This is in stark contrast to other OEMs such as Toyota, Honda and FCA, who’ve decided they’d rather take the ‘wait and see’ approach.
For GM, success in its two most important markets, China and the US, will determine its future specifically whether it will have one or not. To add to the degree of difficulty, it’s likely that one market, will switch over to mass EV adoption before the other, China being that the early adopter. If that’s the case, GM will have a global footprint of assembly plants churning out a mix of EVs and ICEs with one footing the bill for the other which will complicate everything significantly while keeping costs high.
Mary’s decisions have put GM in what many consider to be a ‘good’ position for the future but it will ultimately be innovative new business models, the ability to analyze data, execution to a plan, the flexibility to quickly course correct, and how they can work with the Chinese, US and local govt’s that will determine whether those decisions were prudent or not.
I admire Mary for the bold decisions she’s made in her attempt to remake GM but it will be her leadership on all those fronts that will be the key. Oh yeah, and being able to do it all faster than everyone else will be important too.
EV / AV
A few observations on the Canoo prototype that was released to the media this week.
- The vehicle exterior looks like it has bilateral symmetry where the right side is the mirror image of the left side and in this case, the front could be a mirror image of the back. If that’s the case, Canoo could take advantage of modular (front/rear and side) assembly, reducing the overall number of unique parts making it much less complex and consequently cheaper to manufacture.
- The current prototype would not pass US/EU/China crash testing standards so I’d expect a roadworthy, from production tooling version to look a bit differently, at least the front and rear ends.
- The interior could also be assembled via modules and the interior design could completely be outsourced depending on customer and occasion. Different interiors could be ‘leased’ as part of the subscription service.
- Most difficult part to manufacture/assemble would likely be the ‘skateboard’ battery platform that underpins the vehicle but if sold as standalone, engineering and R&D costs could be recouped quickly.
- Going the ‘contract manufacturer’ route hasn’t worked that well for NIO but maybe being easier to assemble helps with the cost side (hopefully)? I am still not convinced the tech model of only designing the product and paying someone else to assemble it is the ‘right’ one yet. If it was, you’d think the traditional carmakers would’ve jumped on board a long time ago. If they use contract manufacturing as a bridge then I could see the logic, but if they never get the volume, it will become an unbearable burden.
The Canoo team must’ve thought the EV/SUV premium segment is a crowded mess littered with near lifeless companies (think NIO) and decided to take a much different approach than the other EVStartups. The subscription service is being experimented by with other carmakers such as Volvo, Porsche and GM (who shut down their experiment Maven a few months back) so the business model isn’t innovative in and of itself but it does get them out of the business of selling cars.
I am also not sure how big or lucrative the market is for shuttle services unless they feel they can nurture and create one themselves. The risk is that they don’t know what miscellaneous costs like insurance and maintenance will be so the price the market will bear for the service could very well be less than the costs to maintain the service.
I believe they’ve raised about ~$1B in funding but it will likely take closer to ~$3.5B (a WAG) to get these Canoo’s into mass production so for now, let’s put it in the category of terrific potential ‘concept.’
They do have first mover advantage over VW who’ve shown to the media what their Microbus concept will likely resemble so let’s hope they’ve left all the Faraday Future drama behind them and are head down fundraising, vehicle testing, building a team that can support their vision, and most importantly trying to make the numbers work.
Baidu, DeepBlue Technology, and Shenzhen Haylion Technologies, were all granted licenses (Baidu – 5, DeepBlue – 1, Haylion – 1) to operate autonomous, commercial transportation services (read: buses) in Wuhan, the capital of Hubei Province. To begin, there will be 28kms worth of Wuhan roads that these vehicles will be able to operate on with plans to increase to 159kms as the 5G infrastructure is fitted and as long as the autonomous vehicles are running smoothly without any safety concerns.
This is the first place in the world that 5G V2X infrastructure, from Huawei, will be used as a communication standard for autonomous driving. Also, these are the first licenses granted for commercial use that are not on a ‘trial’ basis.
You may recognize the name Huawei since that’s the telecommunications company that has been ‘blackballed’ by the US govt. This should also point to why Huawei is SUCH an important company for China. Huawei will likely be providing the backbone for much of the 5G infrastructure for ALL of China, once they’ve worked out all the kinks from testing the services in Wuhan.
This is a first major step for China towards their ambitions to lead the world in electric & autonomous vehicles and as long as there are NO MAJOR issues you can expect that more cities here will open their roads to these vehicles very quickly. ALL eyes will be on China regarding these pilot programs so there’s a lot of pressure on these companies to get it right.
LAST MILE MOBILITY (< 4 wheels)
Gogoro made two HUGE announcements this week, the first being that they’ve SUPERSIZED their GoShare stations adding 50% more capacity to them. That’s not all though, they’ll run on their own batteries in case there’s a power outage, which tends to happen in Taiwan during monsoons. The GoShare stations can also be used to power the grid in case of emergencies and power outages.
The other news is that they’ve just announced a petite version of their Gogoro scooter called the Viva. The Viva is much smaller and cheaper than their S series mopeds which should make them attractive to the international markets which they’ve also announced they’ll be entering in 2020.
No specifics yet on what particular international markets but I know they’re going through the approval processes in order to get their scooters road worthy so let’s wait to see where Gogoro is going to land in 2020.
Horace and team have been very careful about growth and market entry strategies so I am certain that they’ve analyzed which countries and which cities in those countries would work best for their system.
Facial recognition is being experimented with right now in 10 Chinese cities as a way for riders to pay or in some cases, be exempt from payment of subway fares. Within 5 – 7 years, likely longer in the West, due to data privacy concerns and the laws that would need to be revised and updated to cover the new ways data will be used, I think biometric systems will be a part of most people’s daily lives. Cameras are everywhere, people have them on their phones, they are often on many street intersections so this is just another extension of their use. There are some people, likely in the West, that are reading this and thinking ‘Wow, this seems intrusive’ right before they go post a picture of themselves on Insta. Whether you believe this to be progress or not, this is a very likely future not just in China.
The article also states that India plans on building one of the world’s largest facial recognition systems without even having any data privacy laws in place, which potentially makes for a very dicey environment but that’s never stopped the Indian govt. before from making bold decisions so expect biometric systems to be a very Eastern hemisphere tool, at least in the beginning.
AV / AI companies in Silicon Valley that were counting on the mass adoption and use of autonomous vehicles and the revenue generated from it being just around the corner have had to pivot in order to find new use cases for their products as pressure grows from investors to book revenue and move towards profitability.
We are starting to see this in China as well as investors take lessons from what’s happened with the Uber, Lyft IPOs and what was about to happen with the WeWork IPO. Investors have stopped being willing to throw good money after bad, even at lower valuations in some cases.
Venture capital in China has just about completely seized up and not just for the EV / AV sector. There are a few different factors for this that I won’t get into here but that creates even more pressure on these startups and unicorns to find a path to profitability even as a lot of investors mark down their investments in these companies.
The companies that are able to grow and create that clear path to profitability will be rewarded, but for the other startups, the easy money days are probably over. One thing to note though is that a lot of that money didn’t disappear, it just moved to Southeast Asia.
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.