• Tu T. Le

SAI Newsletter #11 - October 16, 2018

Updated: Jan 31, 2019



I am finally back in China fighting jetlag and have to apologize for not getting the newsletter out on time this week. Will definitely be back on the Tuesday timeline again next week.


Lots of articles about the slowing automotive market in China so have tried to outline some of the implications of that being a long-term (which I believe it will be) issue.


If there are any particular topics you’d like us to cover, feel free to send over your suggestion to tle@sinoautoinsights.com. Also, 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


#SinoAutoInsights #Baidu #Tesla #Shanghai #Ford #BMW #Audi #Huawei #electricscooters #swappablebatteries #Kymco #Gogoro #salesslump


AI

Baidu to help ease fears about AI via a U.S. led consortium. (www.theverge.com)

Makes sense to add Baidu to this group but is this organization really a global group? If so, will they be the ones that will create a global set of guidelines on how AI should ‘act?’ Will Baidu or any other Chinese company that utilizes AI be able to adhere to the 8 key tenets of the consortium?

This goes back to my thought about China and the U.S. headed towards two separate internets.

On a cynical note, this group just seems like a group of pretty smart, rich people coming up with what they believe to be best for the rest of the 99%ers.


EV Startups

Tesla finds a place to put its Shanghai factory. (www.reuters.com)

Comes at a cost of ~$140M. The countdown clock has officially started for the EV startups that thought they were going to dominate the China EV market. This puts more pressure on the EVs to first build excitement about their vehicles and turn that excitement into reservations and orders prior to launching their vehicles. Then they must have flawless launches in order to build credibility once the OEMs products hit the market.

There are now several factors playing against these startup’s success including:

- Tesla’s will be cheaper once they’ve launched their manufacturing site

- Subsidies in China for EVs will be going away soon

- The overall automotive market is slowing and will actually shrink this year, per forecasts


OEMs

How will this go for Ford’s? (www.autonews.com)

Sounds like the uneasiness of what’s going on, or lack thereof, in the eyes of Wall Street is starting to creep into the rank and file at Ford, especially now that they’ve announced that there will be layoffs and early buyouts.

A bit ironic that Hackett says that Ford needs to make decisions much faster yet this reorg hasn’t been fully formed after over a year of him taking control of the company. You could argue that Ford has decided to keep details of their plan ‘under wraps’ but I’ve spoken with enough Ford folks in Dearborn and in China to believe that management hasn’t fully formed their thoughts on this.

In this article, dealers specifically are trying to understand the Ford strategy a bit better and the truth about that is that with the shifting tastes of consumers globally toward transportation services, Ford should be focusing on reducing the number of dealers so I hope that the dealers realize this as well, but they probably don’t and will fight to remain part of the problem and not the solution.


Too little too late? (www.thestreet.com)

Ford just announced that they will be launching an all new SUV beginning of 2019 that will be manufactured by their JV partner, Jiangling Motor Corp, yup the same one that has a contract with NIO to build their ES8.

Ford sales this year have fallen significantly and they’re very concerned about falling too far behind its competition in China, namely VW Group and GM as well as some of the domestics. In order to regain competitiveness globally, they’ve announced that they will be restructuring the business which should include a great deal of layoffs in China. They just have too many people relative to the number of cars they sell, when you compare them to their rivals.


Could this be the first domino? (www.cnn.com)

BMW has announced that they will increase their stake in their Chinese JV by 50% up to a total of 75%. They have also announced that they will upgrade and increase capacity of their China manufacturing in order to shield itself from some of the trade volatility since many of their imported vehicles are actually built in the U.S.

Since the China market is still growing, albeit more slowly and without any signs of significantly speeding up, these increases in capacity would still most likely be gobbled up by Chinese demand.

The increase in their JV stake indicates that they are seeking more control and more of the profits, but the downside is they are responsible for more of the cost.

I haven’t heard too many complaints about their JV partner so I believe the relationship to be pretty solid. This solid relationship has been during time of continued growth and hand over fist profitability. As the market gets more competitive and growth slows, will more car manufacturers want more control of their own operations in China? I think this could be an indication that more will. I am certain that the strategy teams at each are reviewing all the scenarios.


Audi partners with Huawei on self-driving tech. (www.theverge.com)

Audi has decided to hitch its wagon to Huawei to help it with the hardware that’ll drive its autonomous vehicles in China.

Quite frankly, I have not heard very much about Huawei in this particular space so I don’t know what their capabilities are from a hardware stack standpoint. Not many details on this partnership so maybe Audi doesn’t either.

I think what we’ll see over the course of the next 18-24 months is the realization of some of these OEMs and tech companies that have formally agreed to work together is that it’s not working out.

It will probably be due to one of three things:

- Control

- Capabilities

- Cultural fit

Audi is going to definitely have to qualify a different partner for the vehicles they will sell into the U.S. market since if the current attitudes toward Chinese companies remain, which I think they will, they won’t be able to use Huawei’s hardware.


VW launching EV products with aggressive pricing. (www.carbuzz.com)

VW has announced that pricing for the EVs will be similar to their diesel engine products. If this is the case, their main goal is definitely not to make money since they’ll lose money for certain on each and every one of their EVs for the foreseeable future.

That does cap pricing for their competitors though since they’ll need to also price aggressively to keep pace.


Other

First step towards standardization of swappable batteries for scooters? (www.electrek.co)

The idea of swappable batteries for cars has been around since Shai Agassi launched ‘Better Place’ way back in 2007. That company has since gone bankrupt but now may be the right time for the tech to gain traction, especially in the Asian electric scooter sector.

Although Kymco did not introduce the concept of swappable batteries for electric scooters, that honor would go to Gogoro, they are pushing for standardizing the tech and may have the scale and relations to do what Gogoro has not been able to.

Eerily similar in design to Gogoro swapping stations, we will see if Kymco can move faster and attract partners to push their standard forward across Asia.

Gogoro, what’s next?


Weakening car sales to continue through the CQ4’18. (www.scmp.com)

Believe who you will about the effect of the U.S. tariffs but combined with the slump in the stock market it’s enough to push Chinese consumers to the sidelines as September sales dropped ~12% year on year vs. 2017.

I don’t believe the EVstartup companies (EVstartup) were anticipating this when they created their internal sales forecasts so look for them to do a bit more fundraising. Weapon #1 for the automakers to combat any slowdowns in sales is to discount their vehicles to keep the volume from falling off a cliff.

This puts pressure on pricing which the large OEMs have no problem taking a hit on for prolonged periods of time.

Since none of the EVstartups make money on their vehicles as it is, they will have to make tough decisions including spending more money on marketing, reducing pricing on their vehicles or both.

The govt. has the power to also incent consumers to buy now but they won’t normally dictate which brands consumers should spend their money on so would not likely help the EVstartups.

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