• Tu T. Le

SAI Newsletter #18 - December 4, 2018

Updated: Jan 31, 2019



Now that I’ve added a few more subscribers, someone suggested I add a brief introduction for the folks who are new to the newsletter.


Sino Auto Insights is a Beijing, China based market research and advisory firm that specializes in assisting companies analyze, strategize, and position themselves to take on the future of mobility and transportation through their products and services.


Members of our team have experience working in Detroit, Silicon Valley as well as here in China across sectors and functions as entrepreneurs as well as working at larger companies like Apple, Google, Amazon, GM and FCA and many others.


My name is Tu Le and I am the founder and managing director of Sino Auto Insights.

This weekly newsletter is a collection of articles I feel best reflect the happenings of the week or important trends that will 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 but also sparks debate about how I look at the issues and informs me about what I am missing.


If there are any particular topics you’d like us to cover, feel free to send over your suggestion to tle@sinoautoinsights.com. Would also love to hear feedback or comments on anything that’s been written whether you agree or disagree.


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 #Tesla #salesslump #pricereduction #Ford #layoffs #abouttime #softwaredesign #edgecase #notreallysavingmoney #Trump #nomoretariffs #MAGA #dataprivacy #NOTREALLY #frontdoor #techthestar #autoshows #thenewCES

OEMs

A hiccup in sales for Tesla? (www.inkstonenews.com)

I haven’t heard anything further on this but if the October sales number is anything close to the 200 units that was reported, Tesla’s going to have to spend some money and work a bit harder to gain share in the Chinese market.

I don’t think it was any coincidence that they decided to drop pricing on the two vehicles they currently sell to China as imports, the Model S & X by 12% & 26%. Sales are probably a bit higher than the 200 number but fell enough for Tesla to slash pricing fairly significantly.

This is only going to get tougher for Tesla as they try to battle domestic EV companies with pricing that, in some cases, are half as much as their offerings. At least until they start selling the Model 3 and a bit later when they can get their Shanghai Gigafactory popped thousands of vehicles / month.


Ford next to announce what’s on the chopping block? (www.cnn.com)

As I’d mentioned in last week’s newsletter, because of GM’s announcement of planned staff reduction and manufacturing footprint, there would be too much pressure on Ford and other automakers to not follow that up with an announcement of their own.

Although not an announcement, there was some guidance regarding where some of Ford’s major cuts would come from, namely Europe where they’ve struggled recently.

I also wouldn’t be surprised to hear more major moves to the China operations. For the number of cars they sell in China, the team here is too big as well. Further, many do NOT have the necessary skillsets to contribute to the future that Ford is moving towards, namely mobility services.

In Lujiazui, there are currently a bunch of Aussies expats that have no home since Ford’s already shuttered all significant operations in Melbourne. Of the European expats currently on ISP in Shanghai, I wonder if they will suffer the same fate. Many of those expats still have those lofty full expat packages that have become so few and far between now so they may be in for a tough landing if Ford decides they want out of Europe. They can’t keep paying those people to stay in China, could they?


Approaching vehicle design with software taking the lead. (www.inverse.com)

The title of this article had to have been written by ‘Captain Obvious’ since this approach has been happening for the last few years here in China at least.

Let me be cynical for a moment and make a couple observations about this author’s POV since he’s definitely the guy that creates the dry cleaning pickup app because he’s too lazy or too busy to actually drop it off himself.

In other words, his observations make sense and resonate with a very, very small % of the general population. What some people might say are first world problems that don’t actually matter to normal people.

Tesla has a terrific user experience in their Model S & X IMHO. But that’s also because they are >$100K cars! Many of their customers are early adopters that are technologically savvy or are people who look at mastering the HUGE touch screen as a challenge and not an annoyance. One potential design controversy I see from the Model 3, the vehicle Tesla hopes they can sell 500K/annum, is the center mounted IP / Infotainment / Diagnostics / center console. The people I’ve spoken with LOVE their Model 3 BUT had to get ‘used’ to that center stack. These people also paid >$70K for their Model 3’s, the $35K Model 3’s won’t ship until later this month, beginning of Jan 2019 so they’re more like Model S & X customers than Toyota Camry ones.

If Tesla is trying to sell to someone who only wants a kinda cool looking car to drive and is NOT purchasing a ‘roadmap’ as the author suggests, he or she may look at this console as an annoyance that they can’t get past. Further, if the user experience isn’t designed for these people, the ‘meat’ of the normal distribution curve, and only for the edge cases, a lot of people will have a hard time looking for gauges and instruments that would normally be part of the instrument panel. There goes the initial quality score.

The traditional OEMs, in their defense, purposely design many of their cars to be bland and not very controversial. Bland design and the cheaper price point is how they can sell a gazillion of them each year. Earlier this decade, Ford was selling about 1 million Ford Focus’s globally and if there was a HUGE touchscreen or the car was designed too edgy, I am certain they wouldn’t have hit those sales numbers.

That’s also the only way Ford could justify the business case for actually building it. With such razor thin margins, they’d need to sell a boatload of them to recoup their capital investments, and hopefully make some cash towards the end of life.

Second, that concierge service or what the author called the ‘Tesla Rangers’ will NOT be possible if Tesla hits their sales target for the Model 3. It’s the EXACT reason you need service centers. AND it’s a bit ironic that he says that the service is cost effective because at scale, it certainly would not be.

Tesla has done some great things for the sector, the MOST important being scaring the HELL out of the traditional OEMs. Elon played EVERY angle he could, in order to push out the timeline for putting a viable product on the road. He accomplished his initial goals of being able to sell at volume a better electric vehicle. The Model S & X were proof of concepts for all the traditional OEMs who most, have now declared that they will be phasing out ALL ICEs in the future.

Elon is still trying to play every angle, but this time he’s going to have to contend with a more competitors.

I just hope Tesla has course corrected on every issue they’ve had in the past and have a game plan w/ contingencies posted up in some war room in Fremont for when they start shipping consistently, 2-3x current volumes while manufacturing in at least two different time zones. That way, it’ll be a contest between the auto companies for who has the best product as opposed to who makes the fewest mistakes and can make their capital go farther.


Other

Trump declares elimination of duties for American imported automobiles to China. (www.cnn.com)

Lots of reaction from Trump’s tweet of a couple days ago regarding a ‘reduction & elimination’ of tariffs for automobiles imported from the U.S. to China.

Was asked by CNN what the implications were and what effect they might have on sales for the U.S. carmakers.

The markets also reacted very negatively to the lack of details regarding this proclamation after initially popping right after the tweet.


Knowing where you are …all the time. (www.theverge.com)

This has been covered quite a bit last week so won’t get into too much about this.

Bottom line here in China is that this isn’t really that big of a news story. Most people in China use WeChat which also doesn’t protect your privacy. If you want to do business in China, just like if you want to do business in the U.S. or the EU, you need to comply with the local relevant laws.

Now let me be clear - I don’t necessarily agree with what is happening here since I don’t know what they’re doing with the data and whether or not it’s truly anonymous plus the fact that there should be some form of compensation for collecting it.

I also think that all the foreign brands selling vehicles here should get pressure from their home markets & govts. about this but this is really just the cost of doing business in the largest automotive market in the world.

Will this change here, probably not for the foreseeable future.


Tech becoming the Stars at some of the Auto shows. (www.axios.com)

This already started at CES where auto ‘tech’ took over a lot of the buzz a few years ago but what I think we’re going to find is that there will be certain global auto shows (Geneva, Tokyo, Detroit) becoming less important for the automakers to invest in with more of the smaller shows (Chicago, New York, LA, Guangzhou) to steal some of the thunder.

With the ascendance of China becoming the #1 auto market in the world, there will be a lot of press and attention focused on the annual Beijing/Shanghai Auto shows.

We may even start to see co-branded booths that focus on digital services the automakers will start to provide with their partners.


Mobility & Ridesharing

Didi still struggles after passenger tragedies. (www.techcrunch.com)

Due to increased scrutiny in the form of regulations for ridesharing drivers, Didi continues to adjust to the oversight requirements posed by the Chinese govt. on mobility companies.

With more competition on the horizon, this will make it even more difficult for Didi to maintain, let along increase their valuation in order to IPO prior to future, competing ridehailing services come online over the next 18 months.

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