SAI Newsletter #13 - October 30, 2018
A lot of focus recently has been placed on the fact that the Chinese car market will likely shrink in 2018 for the first time in over 20 years.
I am certain that the planning folks at the OEMs and the EVStartups did not foresee this when they finalized their 2018 sales forecasts and budgets at the end of last year and there still isn’t any indication on how this may affect the move towards EVs here in China although it probably doesn’t bode well for those startups that are going to launch in 2019, which is many of them.
The main culprits of this slowdown seem to be confusing signals from the Chinese govt with regards to continued and increased tariffs on some vehicles and reductions of taxes on others in combination with the trade with between China and the U.S.
Tesla finally had some good news about its earnings so can Elon stay out of his own way? Tesla has some capital investment requirements coming up, including for a plant to be built in Shanghai, so let’s see if they can keep this momentum up for at least a few quarters.
Will be looking next week at NIO’s earnings report to see where they come out but it could be pretty ugly unless they were able to move a lot more metal the last couple months. I’ve seen more and more of ES8s tooling around Beijing, which you’d expect since it’s probably the only way owners can get their hands-on license plates here.
Had a chance yesterday to attend the PwC China Automotive Innovation Day with the highlight being the Roadstar.ai CEO, Guang Zhou, talking about their solution for autonomous driving. A very young startup, they seem to have made a lot of good moves and I came away pretty impressed with what they’ve accomplished so far in terms of progress and maturity of the solution as well as some of the win’s they’ve gotten on the business side.
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GM, Softbank and Honda have made a HUGE bet on Cruise being the team that can bring them the level 5 autonomous vehicle faster than Waymo, Uber and Lyft.
If this article is at all accurate about some of the current challenges Cruise is facing, there’s a high likelihood that they’ll not be the first. The AV system being able to tell if an object is moving or not is like basic blocking and tackling, meaning that a company with multiple billions of dollars of investment should already have that cracked.
Let’s not kid ourselves and think that Cruise is the ONLY AI company that is having issues with its hardware and software, but the idea that it would be ready for a 2019 launch was always a bit optimistic.
Way back when GM initially acquired Cruise for $1B, I heard that the Cruise team was the least talented team with the weakest bench strength out of all the new AI startups, including Argo, Uber and now Aurora. This was from someone who was very familiar with the past DARPA challenges that most of these AI pioneers started their careers in.
Seems like the Cruise backers are trying to temper expectations a bit, the same ones that they created for themselves.
I am a bit confused with Dyson’s decision to manufacture his EV in Singapore. The only way this makes sense:
1. He’s planning to sell most of his capacity to Southeast Asia and not China.
2. He got a smokin’ deal from the Singaporean govt. to revive auto manufacturing there.
3. If Dyson believes that the suppliers that he’s going to utilize for his ‘bad shippers’ will all open facilities close to his manufacturing site. ‘Bad shippers’ are parts like instrument panels, seats, overheads, etc. that are either large or heavy or both, that would be cost prohibitive to ship long distances so the suppliers for these parts normally opens a factory within a few kilometers from the assembly plant to avoid those costs.
I do not know which, if any suppliers, have manufacturing in Singapore but Dyson can’t have already ID’d who the suppliers for their ‘bad shippers’ will be so even if they’re located nearby in Thailand or Vietnam, their logistics costs on those parts would make it difficult to make a profit IMHO.
FAW announced that they received a $145M line of credit from the Chinese govt. via 16 banks. This rainy day slush fund will most likely be used to acquire smaller, non-competitive Chinese players as the Western OEMs move away from the JVs they were initially required to have in order to do business in China.
This is the equivalent to a bailout before a bailout is needed and may lead to needless spending and / or bad investments. Also, isn’t this the type of thing that Trump has railed against? Unfair support for SOEs that discourage competition in the country?
FAW is famous because of its Red Flag brand, the equivalent in the U.S. to Lincoln or Cadillac, which shuttles its most important govt. officials around in.
Was asked by CNN about my thoughts on Ford hiring Anning Chen.
This seems to be a good hire for Ford. There hasn't been any real leadership in place for China in well over a year even though Jason Luo had the role for 5 months. I pinged a couple ex-Ford colleagues this AM when I saw this and both said it was a good move with more to come so this will have a domino effect on the management in China. It's bonus that Anning spent more than 15 years working in Dearborn so he gets the culture even if it's evolved in between the time he left and came back.
If were Anning, I would prioritize the following:
- Fight for more product & budget, pull ahead product launch schedules
- Right size the company and rebuild morale, the company has too many employees for the number of cars they sell
- Repair and rebuild relations with their JV partners; Changan & JAC
I wouldn't have taken this role unless there were some assurances from Hackett and Farley that I was getting the right product and would have influence on future product, more budget market and sell that product as well as add capacity, and room to make some drastic moves quickly.
Li Shufu’s plans for his 9.69% investment into Daimler earlier this year is starting to become clearer. The ridehailing market is too big to ignore for most of the traditional OEMs and this will not be the last OEM to announce that they’re entering the market to take some of Didi’s ~90% share of the market.
I heard a crazy stat that over 500M people have downloaded the Didi app so if they’re to be challenged and innovation is going to continue to happen, viable competitors must emerge. Ridehailing customers are very price sensitive so these new competitors better be ready to not make money for a while as they establish their brands and carve out a following.
This could be risky for Merc unless they’re very careful with the types of mobility services they will provide. Not many Chinese will want to spend $120-150K on a car that they can get a ride in for not much more than being driven in a VW, Nissan or Buick.
Pretty astounding how even good news from Tesla can confound and confuse the folks who are paid a bunch of money to analyze the auto market.
In the article they’ve quoted 18 analysts tracking Tesla stock and here’s their collective opinions:
5 – rated it a Buy
8 – rated it a Sell
5 – rated it a Hold
Tesla isn’t as bad as they say nor as good. What’s most compelling is that when Tesla’s vehicles are compared to the products that have been announced and will launch in the next few years from the StartupEVs and OEMs, they’re head and shoulders better in terms of technology, design, and user experience IMHO.
They’ll need to maintain a high level of investment if they want to keep their vehicles fresh as well as launch products for other segments, but if they’re truly past their design and manufacturing woes, it took 30% less time to build a Model 3 in Q3 vs. Q2, this quarter could be pointed to as their turning point towards dominating the U.S. and China markets.
What I hope they were doing last quarter since they saw an uptick in demand was ‘priming’ the supply pump by identifying any potential parts shortages, and working with each of the suppliers that could potentially have gating parts, to pull in supply so that they can accommodate and capture these increases in this demand with vehicles sales.
Another indication that they seem to be serious about streamlining production for their entire model lineup is that they will be limiting options, or de-contenting, their Model S & X. Just reducing a color option on a vehicle could mean that hundreds of parts from the supply chain so every little bit helps.
I’ve been sent a few different articles discussing the demise of the European automotive sector, specifically with regard to how the EU countries and specifically the German OEMs are not able to compete in the quickly shifting market due to the companies resting on their laurels and prioritizing profits over innovation.
A sad commentary that I hope does not ultimately come true. There’s still time for Europe to make themselves a major player in the EV / AV space within the next 10-12 years.