SAI Newsletter #10 - October 9, 2018
Updated: Jan 29, 2019
I am currently attending the Michigan China Mobility Startup tour in Detroit & Ann Arbor, MI.
It’s a chance for Chinese mobility startups to learn more about what Michigan, specifically Detroit and Ann Arbor have to offer if they decide to either open an office or sell their product into the U.S. market. Chinese mobility startups were invited to apply to attend the event and out of the couple dozen that did, 15 were invited to Michigan to participate. It’s a weeklong event sponsored by the State of Michigan, Denso and Tustar, Tsinghua University’s venture capital arm.
It’s been a very interesting few days. We’ve been able to tour a couple autonomous testing sites and had some great presentations from folks that are plugged into Michigan’s mobility eco-system to learn about the current legal, regulatory and business environments for the autonomous vehicles space.
The week will culminate with the startups doing a 5-minute elevator pitch to a room full of potential investors, customers and partners so we spent this evening helping them refine their decks and presos.
Also got to attend today’s annual Techstars Mobility - Demo day. Came away very impressed with quite a few of the 11 companies. They get some major prep rehearsal and all came off VERY polished.
The current rocky climate between China and the U.S. has affected this event though since originally 15 Chinese mobility startups were approved to attend the event but 5 had their visa applications rejected. Also spoke with someone at Ford China recently who told me that two of his colleagues that were supposed to be a part of long-term projects in Dearborn got their visas rejected as well. I don’t believe those two occurrences are any coincidence. This could become a very challenging environment on both sides.
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The Sino Auto Insights team
Does FF have any lives left? How much of a premium would it take to buy FF out of their current arrangement with Evergrande? Was told by an FF employee that in China, they already started adopting Evergrande’s employee procedures including a finger scan.
Would be great to see what the term sheet actually looks like. Bottom line is that it’s pretty alarming that FF has already manage to burn through $800M and that the one prototype that they did manage to put together has a major design or engineering flaw. This is on top of the fact that YT had buyer’s remorse after he’d signed +40% and all of FF’s IP away to Evergande in order to get that $2B lifeline in the first place.
Is there anyone left willing to take them on? Probably…
I was asked by CNN what my take on the current market slowdown in China. Higher gas prices, a slowdown in the economy, and difficulty in borrowing all play a factor in the smaller growth of the mark. Another factor on the automaker side is whether the products they have in the market have been refreshed recently.
The automotive market is very cyclical and automakers always receive a bump in sales as they launch new vehicles into the market. VW, GM and Ford are priming the pump right now to launch new vehicles including NEVs over the next several years starting in 2019. This will put pressure on the EV startups and before we know it, we’ll a broad selection of EVs at all price points crowding the market.
A broader trend is that the slower growth is probably here to stay. In the past, the market growth was driven by demand for new cars in the tier 1 cities so in addition to the factors above this also could be an indication that the markets are starting to mature a bit in those cities. If that's true, over the next year or so we should see a bit more pressure on pricing and margins as the automakers will need to spend more money to market their vehicles and even offer discounts to keep up their sales.
One of my main areas of focus moving forward is going to be how the Chinese battery manufacturers will support the demand surge in (N)EVs within the next 4-6 years. The market is forecasted to increase in sales to 7M units in 2025 from just ~750K sold in 2017.
The Chinese govt. has pretty much ‘required’ that cars sold for domestic use need to have a battery from 1 of 14 Chinese battery manufacturers.
One of the largest domestic battery manufacturers, CATL has recently announced plans to invest in significantly increasing their capacity in both China and Germany to take on the future demand increase and have announced that they will be supplying batteries to Nissan-Renault, Volkswagen and Ford already for the China market.
Having spoken with people from some of these companies, I know there is concern that CATL will not be able to match the quality and reliability that the Japanese and Korean battery manufacturers can consistently produce in large production volumes. Unreliable or low-quality batteries will also drag down the residual value of vehicles as well should the owner want to sell.
Many of these 14 suppliers currently only manufacture batteries for smaller products like scooters or lower priced domestic EVs. There will be a steep learning curve for them to get it together to support this growth since many will be supplying to foreign OEMs for the first time and have not had the types of quality and reliability requirements that the OEMs will demand.
For instance, Tesla has an 8-year warranty on its battery, which is supplied by Panasonic. Until we see this type of increase in battery warranty we will know that the OEMs don’t trust the batteries yet.
Didi is in a dominant position in China but they’ve been weakened recently due to the tragedies that occurred on their watch with two of their female passengers.
Although I use Didi about 2-3x’s / week, I would definitely prefer to have one or two alternatives in case Didi isn’t able to get their act together. It’s a huge market that keeps growing and Li Shufu has made some bold moves and is starting to see the small bit of that plan coming together with this potential mashup with the company the currently own about 10% of.
More and more of these types of articles have been popping up recently so I thought it was important to share my thoughts.
I am a bit surprised that all of a sudden there is concern from the U.S. govt regarding Chinese investment in American tech companies. I think moving forward there will be a tremendous amount of scrutiny with regards to ANY deal involving Chinese money to acquire American companies specifically in the semiconductor, AI, sensor, radar/LiDAR and other tech related products.
We should remember that although many of the American startups and companies in the earlier mentioned spaces are going after the consumer or commercial markets, these technologies could easily be redeployed for use in military applications.
God bless the U.S. for finally waking up and setting aside their ego to see that there could be someone else in the world that has taken the lead on one of the most significant technologies for the future.
It’s going to be tough to wrestle that leadership position away from them too.