• Tu T. Le

SAI Newsletter #19 - December 11, 2018

Updated: Jan 31, 2019



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

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EVStartups

Showtime for Xiaopeng (Xpeng) Motors. (www.interestingengineering.com)

With Xpeng ready to deliver its first set of G3s, the EVStartup market is really starting to heat up with 2019 becoming the make or break year for many of them.

NIO, the first out of the gate with a product and IPO, clearly has the first mover advantage. NIO’s CEO has some ambitious plans and they’ll most likely need to tap the capital markets in order to fund their expansion which could be more difficult after Xpeng, Byton, WM, SF not to mention the traditional U.S. and German OEMs launch their own competing vehicles.

It’s obvious who Xpeng is going after with their G3 vehicle since much of it has been heavily shared with Tesla vehicles. Aside from the weird camera that’s mounted on top of the vehicle I think this could sell a lot of units. The price point is right and the prototype I saw in Hongqiao airport last month had a much better fit and finish than what I saw from Byton in California a few weeks back.


OEMs

VW and Ford in final negotiations on how they will partner to win the future – together. (www.cnbc.com)

Lots to chew on in this article so I’ll move to bullet point format to make it easier to follow along.

- VW + Ford already agreed to jointly develop commercial vehicles

- Will likely also partner and jointly develop platforms, products, manufacturing, and sales and distribution

- No equity or financial commitments made

- Potential partnering on next gen EV & autonomous vehicles

On paper this seems to make a ton of sense. First of all, their regional strengths have little overlap (Ford w/ U.S. and Africa, VW w/ EU + China). VW currently does not have a viable truck in the U.S. market, arguably Ford’s best product in its best market so that would make sense as well.

Ford and VW aren’t in great positions financially with VW losing a few dozen Brinks trucks worth of cash due to the dieselgate scandal. There’s still on the hook in the U.S. and Europe for civil claims too so the bleeding hasn’t stopped.

The priorities for this alliance have to be saving money, getting to market quicker and strengthening traditionally weak markets and product segments. Ford has been in a challenging position for quite some time in about every region with the exception of the U.S.

If we’re looking out a bit further though, it gets a bit murkier. VW has a partnership with Aurora in the U.S. to develop self-driving cars while Ford has made a $1Billion bet on Argo.ai (the article mistakenly states that Ford acquired Argo, the Argo folks will tell you it was an investment not an acquisition). The founders of Argo and Aurora go waaay back as a few of them were co-workers at Google and Uber prior to leaving those companies and founding their own because rumor has it that they couldn’t stand Levandowski or Krafcik when they joined Uber and Waymo.

In China, they’re both partnering with Baidu on the self-driving software so this makes it a bit cleaner that way. Partnering on platforms and vehicles here may be a bit dicier since they each have to also contend with their 2 local Chinese JV partners each. In addition, Ford has partnered with Zotye on electric vehicles and VW has partnered with JAC who also happens to be NIO’s contract manufacturer, yes quite a tangled web.

Another area that could save both costs and time is to leverage VWs substantial commitment to CATL on batteries to power the EVs.

The announcement will probably come around the Detroit Auto Show timeframe so let’s see how far they decide to push their alliance.


Other (Outsourcing, Technology, China auto market, Import duties)

Make or buy, that is the question. (www.usa.chinadaily.com.cn)

The age old question that was recently pondered by many of the Chinese EVStartups was whether it made the most sense to invest in a facility and build their own vehicles or outsource to an established player. The Chinese govt. over the last two years has been pretty stingy about who to give their manufacturing licenses to and have now taken a further step by ‘supporting’ the outsourcing of EVs to established carmakers who’ve already capacity to sell. With many already deciding to partner with more established car makers and ‘outsource’ manufacturing their vehicles, the path to launching for them is much shorter and quite a bit cheaper.

Two of the biggest things that you give away when you outsource are cost and control. Control of quality, control of speed, control of operations. If the partner has a larger customer, you’re ALWAYS worried that all their best people are working to build the other customer’s vehicle.

And since you’re technically their customer, they will always hide any bad news they have until it jeopardizes launch or production. In order to avoid that your team has to constantly babysit them.

Unit costs also become a factor since you’re essentially sourcing a finished good from a contract manufacturer (CM) that slaps your badge on it once it hits the end of the line. If you don’t hit your Minimum Order Quantity (MOQ), you’ll likely pay a hefty premium/unit because the CM will be underutilized and that has opportunity costs for them.

You’ll also not see a great upside on the other end if your demand goes through the roof since all the leverage with suppliers, etc. will reside with the CM.

One thing that should also be considered is the effect on company culture and how they see themselves in the market. Apple and other high tech companies have done well with all of the above despite mostly outsourcing their manufacturing to Chinese & Taiwanese CMs.

They don’t build cars though. Will you be taken seriously if you just design the car? If you work with that model, how much will actually be done in-house? Wouldn’t it just be easier to hire a design agency and outsource design too?

With manufacturing the biggest factor is runway and capital. Building greenfield manufacturing sites take time, and a ton of capital investment but upside is that’s it’s your facility that can build ANY vehicle you want and run 2 or three shifts doing it, manage all quality issues in-house and the team that’s designing the vehicle also reports to the same boss as the people that manufacture it, that’s the CEO of the company which should in theory help with communication and problem solving.


December 19th could be a very important date. (www.axios.com)

The technology needed for EV/AVs could be quite difficult to purchase for Chinese automakers and EVStartups if nothing changes between now and December 19th. I don’t see the U.S. doing anything extreme but it could use this as leverage for a better overall trade deal.

You can bet the lobbyists for the companies affected and that are large enough to have lobbyists are knocking on Congress’s door to make sure this doesn’t include their commodity.

Lot’s will be decided within the next 3 months as that’s also when the trade negotiations are supposed to end. If there is no deal in place by then you can bet the U.S. will take a much longer, harder look at the technology piece of trade between the two countries.


China auto sales slide again for November. (www.reuters.com)

From the article:

- Down 14% from November 2016

- 5th straight monthly drop and steepest since 2012

- Sales of NEVs increased by 37.6% from November 2016

This is big news and whether the Chinese govt. wants to admit this or not, a factor playing a major role is the uncertainty due to the trade war with the U.S.

This is exactly why automakers need to be global or at least multi-national. Relying too much on one market or region leads to overcapacity and underutilization of plants in down years and missed sales in good years. That said, the ‘art’ is to find all the regions your product resonates and hope that a slowdown in sales in one place doesn’t affect the other. That’s unless the other region is the U.S. and/or China.

It would be interesting to see NEV sales a sales broken down by city (tier 1, tier 2, etc.) and by price point to see what’s really driving the growth. I still feel that a lot of the ‘true’ growth is hidden by the license plate restrictions and incentives to purchase an NEV. Will see if I can’t find more data to drill down into.

A reduction in import duties for American made autos. (www.bloomberg.com)

Again, this helps the German automakers mostly & Tesla if EVs are included in this reduction.


Mobility & Ridesharing

Robotaxis are here, well at least in Phoenix in a limited capacity. (www.axios.com)

As expected the first company out of the gate to offer a paid driverless taxi service is Google’s Waymo which they’re calling ‘Waymo One.’ They will start offering this service first to those who participated in their beta program that provided free rides around Phoenix.

Companies, both in China and the U.S., will be watching closely for two things. First, they’ll be watching for the vehicle’s safety record as any accidents the vehicles will be involved in will be scrutinized immensely, hence the launch in Phoenix, where weather is pretty limited to ‘sunny’ and sunnier.’

Second, companies will be watching for how well the service is accepted and adopted. Specifically, companies will look to see the attach rate over time of customers after the early adopters. What I will be curious to see is whether this really helps traffic, makes transportation cheaper for the individual and how fast they can ramp.

Waymo has put in order for a number of Chrysler Pacifica’s & Jaguar I-Pace’s so if this is successful, they could try to ramp to another warm weather city pretty quickly.

E-scooters, sharing and likely futures. (www.electrek.co)

At this point, I don’t believe ANY of the current e-scooter companies will ever be consistently profitable so I think the only way the e-scooters companies survive is through acquisition by another entity, either an OEM or a ridesharing service.

The other likely scenario, IMHO is that alternate forms of transport overtake scooters as the method of choice. Namely e-bikes. These are much safer, can go farther and we already know, at least in China, that people will ride bikes all over the city, if it’s cheap of course.

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