SAI Weekly #06 - 24: Tesla Layoffs, Ford's Non-Revelation, VW Back on Top in 🇨🇳

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Above picture courtesy of CarNewsChina

With the Lunar New Year right around the corner, travel season for visiting families has hit full swing and snaps of train stations, roads filled with cars and lines of cars waiting for chargers have been popping up on China social media.

With the real estate sector still struggling, the equities market at near all-time lows and the overall Chinese economy in malaise, this is likely a great time to get away for a couple weeks. There have been memes also floating around China social media about Giraffes and Olympic divers.  

When everyone is back in or around the end of February, look for the carmakers to make some dramatic moves to get their sales kickstarted, likely continuing a price war that started over a year ago now.

The Chinese govt has promised to try and create stimulus to pick up the economy but it’s going to be a HUGE challenge that will not be fast or easy. Some folks are saying this could take multiple years and I am leaning that way as well.

This means that fallout in the EV space will likely be pretty big and the major players (read: BYD) will stay aggressive with pricing and expansion outside of China to make sure to keep their factories, the chip, battery and vehicle ones >75% utilization rate.

Also, some random thoughts that could be another major challenge for the legacy automakers. The premium used car market in China is growing by a lot because they’re being discounted by A LOT. Someone I know bought a used Porsche 911 Turbo S Cabriolet (a very rare find in China) w/ less than 12K km for about what it would cost in the US. THAT is unheard of in China. This is going to be another pressure point for ABB, as more and more attractive secondhand vehicles make their way to market.

Traditionally, premium segment vehicles have been in high demand / low supply in China. Back in the day, you’d likely have to pay 2x for a 911 Turbo compared to what you’d pay in the EU or US.

CHINA EVs & MORE (CEM)

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INTERVIEWED / QUOTED

-   “I just don’t believe Volvo has the capital to lift up Polestar without taking itself down.” I spoke with Axios regarding the announcement from Volvo that they would move responsibility for Polestar over to parent Geely. This raised some eyebrows but took a huge burden off Volvo’s hands.

I’ve always wondered where the separation between Volvo and Polestar was since I think most people see them very similarly. For those that don’t know, Polestar was the performance division for Volvo, think AMG and M.

I actually really like the new Polestars launching in China and the US but will they find sales in China and the US? That’s ultimately the question that needs to be answered since the Polestar 2 really only sells in Europe. And not that many of them over the last two years.

TESLA

-   Tesla to lay off some folks? It looks likely and necessary. Why, because this (pulled from the Bloomberg article):

“Tesla has roughly doubled its workforce since 2020, ending last year with more than 140,000 people on staff globally. The company employs about eight times as many people as it did in 2016, the year before the Model 3 sedan launched.”

The Cybertruck will not rescue them in 2024. And they have no new products they are launching. Add to that any refresh isn’t really going to move the needle the way they need it to, specifically in the China market and it all leads to getting leaner to preserve margins and lower fixed costs. Share price is taking a beating too. But maybe it was never meant to reach the heights it did.

NO WORDS NEEDED

BIGGEST NEWS OF THE WEEK GET SMARTER

-   Ford’s Skunkworks team is working on an affordable, profitable small car. I want Ford to be a winner in the future of mobility, I really do. But several questions pop up when I read the TechCrunch piece this week. Jim seemed to make a few small bets I assume to mitigate risk and nurture a multiple path future. If they are hedging bets, what’s their real critical path?

For anyone that thought Ford was going to profitably fulfill their original sales forecasts by selling a $40K F150 Lightning has not been paying attention to the battery space. At all.

This revelation by Jim Farley during their earnings call that Ford has a skunkworks team in Irvine, CA that is developing a small EV platform is a bit of a headscratcher. Why do they have to do it Irvine? And shouldn’t they have been doing this all along? What do the Model e engineers do if they’re not developing EV platforms? And if a handful of people can develop it, do we need an entire Model e division?

This whole idea of Gen 1, Gen 2, Gen 3 also makes no sense to me. They should focus on moving faster so they don’t need 3 iterations that take multiple years each to get a product that’s competitive with Tesla and China EV Inc on the road.

If this vehicle is profitable, it likely has a single front and rear piece with structure and rigidity coming from the pack. Unless they come up with some revolutionary new chemistry or battery tech that drives costs down, then why do they need a skunkworks team to copy Tesla? We will find out soon enough I guess.

-   Hesai added to a list by the Department of Defense and they aren’t happy about it. This list identifies Chinese companies they believe are working with the Chinese military. It’s not just Hesai that has been ID’d by the DOD, but they are one of the one’s that will go to court in hopes of being taken off the list.

This will cause some consternation with the US govt’s counterparts but will it lead to retaliation, there is likely one company that starts with an L and ends with an Uminar that is hoping there won’t be.

OEMs should monitor very closely as well.

-   Let’s play nice. The Chinese govt has formalized a framework for NEV exports to foreign markets in order to try to make it easier for Chinese EV brands to export to international markets. This is clearly an attempt at diplomacy and transparency because they’ve likely heard from the brands about the challenges they’ve come across and perhaps are trying to reduce / eliminate the chance of having a European IRA set up.

Remember that there’s a chance of a slowdown in the growth of NEVs domestically so sending excess capacity will be an important alternative for China EV Inc.

GET SMARTER

  Bifurcation is real and it’s happening NOW. In the semiconductor sector. With restrictions on AI chips from US companies, the Chinese govt is prioritizing self-sufficiency in the entire space because the risk that’s currently posed due to IP & tooling belonging to the US and its allies.

It’s not just the top end AI chips that are used to train machine learning algos, but also automotive specific ASICs from companies like NXP, Infineon, TI and Renesas, none of which are Chinese that are identified should be sourced domestically. These companies may need a hug since that’s eventually a decent sized chunk of their annual revenues they’ll eventually need to replace.              

This won’t happen overnight and we’re seeing companies like Nvidia try to accommodate the limitations by fab’ing silicon that works under the current set of restrictions set by the US govt, but long-term they could potentially be shut out of the China market, but only if and when domestic Chinese silicon designers and foundries are able to fab chips that can (almost) match those from the West and Taiwan. That could be a while, literally.

-   Solid-state and other battery technologies still have a long way to go. Lithium iron phosphate (LFP) will be the dominant battery chemistry for the foreseeable future, and I am talking 2030 and beyond. The OEMs that will win in the future are the one’s investing heavily into new battery, charging and range extending (think swapping, EREV) technologies while also trying to optimize for an LFP filled future.

This is a really great piece by the Guardian that’s worth a read for those wondering about the types of hurdles still in the way of solid-state batteries being commercialized in any significant way.

BY THE NUMBERS

-   209,476. Volkswagen outsells BYD (191,122) in January 2024. Volkswagen with ICE + BEV while BYD with PHEV + BEV. I see BY retaking the lead in March and likely extending it throughout 2024.

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Sino Auto Insights is a Beijing, China-based market research and advisory firm that specializes in assisting companies analyze, strategize, and develop products and services that will shape the future of mobility and transportation.

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