NIO U.S. layoffs, Bikesharing cause & effect, Reinforcement learning - SAI #17 Newsletter
Happy belated International Worker's Day!
Traffic and scheduling challenges this week due to the Belt and Road meeting last week and some last minute scheduling changes by the Chinese govt. which caused some school conflicts. The usual stuff that happens here in Beijing.
Lots of news coming out of Tesla's 'Autonomy Day' but that was covered pretty well by a lot of the media so we won't touch on that too much except for the fact that Elon may be putting the entire LIDAR sector, as it relates to autonomous vehicles anyway, if he proves that Autopilot is as good or better than any other solution to autonomous driving.
Other brief notes:
- Waymo looking to Detroit to retrofit their robotaxi's - Ford dropping $500M on Rivian to partner on tech for trucks - Toyota launching a $100M venture fund to invest in autonomous driving and robotic tech startups
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
EVs & EVStartups
Had a good, detailed conversation with Linette Lopez of Business Insider about some of the recent challenges facing Tesla in China, something I think moving forward could be a fairly frequent occurrence as Tesla gets closer and closer to producing vehicles in country.
There is A LOT of speculation as to what caused the Shanghai Model S garage fire, some of them having NOTHING to do with Tesla and/or the vehicle’s battery or quality, so I hope very soon we will hear from Tesla as to what they believe was the cause of the fire to allay any fears or concerns that Tesla owners have.
I have NOT heard any Tesla owner I know here in China or HK stop driving their Model S or X so most folks aren’t concerned enough to do anything that drastic. Model X’s, at least in Beijing are like minivans in the U.S. albeit $150K minivans, used to cart kids around town. I see as many of them each morning as I did prior to the fire when I drop my son off to kindergarten each morning.
Regarding Shenma’s complaints plastered all over Times Square for that half hour, I have to wonder if they have the foresight to negotiate a separate, formal agreement that would include more favorable pricing and a separate service level agreement (SLA), a dedicated account team even, prior to purchasing all these Model S and X’s. If not, then their complaints would likely still be placed in the general queue for warranty and service issues.
Lastly, regarding the speed of construction of their Gigafactory 3 in the Shanghai ‘burbs, Tesla has had to restart, 3x’s at least, hiring & firing management teams here so they’ve already dealt with small challenges doing business in China. Those past challenges will seem like playing ‘wiffle ball’ if Tesla isn’t able to put some quality control (QC) in place prior to JOB #1 rolling off that line. Their main challenges will be finding that appropriate battery partner, hiring enough staff and training them quickly enough to ramp, qualifying all of their suppliers and setting up their after sales service systems, all this by year end, not an easy task, anyone who’s set up manufacturing ops can tell you.
Wherever you fall on your opinion of Elon Musk, I think we can all agree that he has a tendency to make bold proclamations when it comes to ALL of his companies. With regard to Tesla, his proclamations have mostly never hit their original target dates so this makes you wonder whether the managers responsible for making him not look like a liar ‘buyoff’ on his announcements prior to him going public with them. If not, this makes for a lot of explaining AND overtime that his managers need to do in order to convince their teams, be it software, hardware, quality, manufacturing, or other, to achieve the ‘unachievable.’ I say unachievable because his teams are doing things that have never really been done before in the sector so he’s pushing boundaries for sure.
This is also where I think Elon is unique, his track record and ability to turn his ideas into revenue generating companies, notice I said revenue generating and not profitable, is really unequaled in any sector globally.
I think allows for a bit of leeway from investors, the Street, his employees, and followers, that another not quite as accomplished CEO, would not be given. And bottom line, he might not be that fun to work for but he sure is fun to follow!
From the ‘Surprising no one’ section, NIO has laid off 70 of their U.S. employees and closed their SF office, likely part of the 3% staff reduction that NIO announced earlier this year.
I had NO IDEA they have 10K employees globally, this seems extremely excessive since they outsource manufacturing and hence do not have any plant headcount. Even taking into account retail employees at the NIO Houses, which is why Apple’s employee numbers ballooned after they launched their retail business, that just sounds like A LOT.
I did admire their introduction into the sector 5 years ago and the fact that they had ambitions to build the fastest electric vehicle, participate in Formula E and try to create a lifestyle brand, but it now looks like that they bit off more than they could chew and didn’t focus on actually delivering a product that enough people would actually want to buy.
That attention NIO craved and the early IPO is now coming back to haunt them so the lesson here is that maybe it’s better to stay in ‘stealth’ mode or under the radar like some of these other EVStartups, rather than beat your chest and give yourself the ‘Tesla Killer’ moniker, unless that’s what you’re actually going to be. This is what I allude to in the previous post, what Elon may have gotten away with but other companies and their CEOs may not.
I’ve thought about this challenge before and wondered how the numbers would work but it looks like Zagster has taken it a step further creating a company around this market and the ‘mobility’ economy.
Maybe some of the ex-Ofo, ex-Uber, ex-other mobility startup employees should get together here in China to see how it launching a similar business may work for them in this market? I mean, being profitable seems like a VERY low priority so they could ‘blitzscale’ to unicorn status and then work out what to do next. There is lots more potential here in China and they could extend this out and work with the AI & AV startups to see which cities are willing AND ready for AV services since it's likely China will beat the U.S. to commercializing that space.
I can’t help but think hiring Zagster would create a bottleneck if you’re trying to quickly build that valuation by ‘blitzscaling’ so maybe their target client is a post ‘unicorn’ startup?
This particular article focuses on the bike manufacturing city of Wangqingtuo (王庆坨) and how the meteoric rise and epic fall of the bikesharing unicorns benefited and then just as swiftly decimated the city and its factories. It’s not unusual for Chinese cities to champion manufacturing one type of commodity, there are Chinese cities that specialize in certain garments like underwear, athletic shoes, even wedding dresses as well as low-tech and high tech products, and Wanggingtuo’s specialty just happened to be manufacturing bicycles.
One fact from the article that stood out was that there was a ‘unicorn’ minted in China in 2018 every 4 days! It’s really difficult to appreciate the orders of magnitude larger most things in China are when compared to many western cities hence the importance of traveling here to see for yourself!
I’ve followed stories like this for other sectors but this one in particular resonated since I saw ALL the bikes piling up every day here in Beijing just a year ago. They’ve since now been ‘cleaned up’ for some time, both physically and policy-wise, but back then it was difficult to walk the sidewalks without having to step aside for someone on a Mobike or Ofo or navigate through blocks of parked bikes.
I also wanted to highlight that with all the users that downloaded their app and utilized their service, these bikesharing companies still have not made any money. It’s why I think it’ll be close to impossible for the western scooter companies to be profitable as well since they’d NEVER be able to get an American or European city to take on the volumes of scooters or bikes that would be needed in order to hit critical mass to become profitable. But, for those who manufacture bicycles, I know a place where you could get decent parts for them for pennies on the dollar.
This announcement was made about a week ago, but I thought it was significant enough to highlight still. Ex-Faraday execs launched this company and recently revealed that their business will revolve around a subscription service as the primary revenue generator and will initially target LA & SF as their beta testing/launch cities, likely beginning of next year.
This is interesting due to the fact that OEMs have already launched subscription services but for existing vehicles in their product lineups whereas Canoo will simplify their vehicles and rely on design, user experience and affordability as their unique offerings. This subscription business will need to stand on its own for profitability as well since they have not announced any other type of business at this time. Look forward to tracking their progress since getting EV prototypes on the road won’t be that challenging for them.
AV and AI
There are currently a lot more questions than answers regarding the evaluation and regulation of AVs in both the U.S. and China. This means there’s also a lot of opportunities to influence outcomes and policy so you know that OEMs and mobility companies will be ‘all in’ on leading some of these consortiums.
Bottom line is that if there isn’t a consensus on goals for the entire system be it: safety, efficiency, pollution, affordability, operability, cost, etc. then it’ll likely be who has the biggest voice that bends the policy towards their favor.
Evaluating small vs. medium vs. large cities to determine if a ‘one size fits all’ solution would work is another challenge/opportunity to get the best, customized product working out there. Most analysts would agree that this should be a public + private collab, but who should own what? Data management, ownership, and security will play the last crucial piece for the system so who decides what is private and what isn’t, and what are the opt-in/opt-out options? Lots still to analyze, debate and decide before anyone can develop a proof of concept that can be studied for future iterations.
I’ve discussed in prior newsletters that in order for people to get comfortable with autonomous vehicles (AVs), let’s say - Rule #1 will be that AVs would need to be as safe, likely safer than people actually ‘driving’ themselves.
Another challenge for wide adoption is going to be - Rule #2, providing a terrific ‘user experience.’ Although a lot of current iteration AVs out there do a good job of keeping you ‘generally’ safe, sometimes their handling, including breaking, can be a bit herky-jerky which could lead to a type of land ‘seasickness’ especially if you aren’t facing forward in your seating position, so mastering the ability to provide a ‘comfortable’ ride will be a HUGE part of that terrific user experience.
I hope that in all the internal meetings at these AI / AV companies, that’s not being lost as part of the design and engineering tradeoffs since it’s going to be a differentiating factor, likely a BIG one.
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.