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SAI Weekly #11 - 24: VW Annual Media Day, Rivian High Runners, Geely (brands) Going Down



 

Big event this week was VW Group’s Annual Media Conference. TLDR.

 

Some of the takeaways from the update. 2024 will be the most ambitious global vehicle launch plan in their history with over 30 products being launched globally. They are willing to concede sales in China as they execute their strategy. They are confident they can take back share they lost starting in 2026 when the plan is fully realized. This will happen because of 3 things according to their CFO.

 

  1. Up the ante on their ADAS in partnership with Horizon Robotics

  2. Up the ante on their in-car entertainment capabilities with Thundersoft

  3. Lower vehicle BOM / manufacturing costs by reducing battery costs in partnership with Gotion, a battery company it invested $1.2B in 2020.

 

This is all fine and good  …for the Chinese market, in theory. First, I am not sure they had a choice in conceding sales, but its a great way to spin it. They even made it a theme for their strategy - Value over Volume.

 

My biggest concern for VW Group & Legacy Auto writ large isn’t necessarily that it’s too difficult to get good enough at software in the timeframe they need to in order to compete, but culturally will they recruit the right leadership, and if they do will they give them the autonomy to make all the tough decisions? See Mike Abbott post.

 

Software is hard enough (especially when you’re close to starting from zero), but it’s about impossible if the politics inside the company doesn’t want to embrace the (necessary) changes.

 

Another unknown to VW Group’s China strategy working is not just the ability to ‘catch up’ to their Chinese counterparts. If we assume that Gotion, Thundersoft and Horizon Robotics can work fast, can VW Group keep up? Can they move as quickly as Tesla and THEIR Chinese competitors on the OEM side, that’s something we’ve not seen them be able to do so far.

 

Next, how will VW Group reconcile the use of these Chinese companies in the rest of the world (ROW)? Will they utilize these companies to enhance their capabilities and vehicle features in Europe and the US? Is this even that important for those markets?

 

Let’s all agree that #3 is important for ALL regions. But for the US & EU markets, getting pricing down could be much more challenging, especially in the US where the IRA looms large. I’d think they’d need a strategy for China and likely a different one for ROW, which complicates things significantly.

 

The Street is looking at VW’s strategy a bit swirly as well. It values VW Group at the same level as its 75% stake in Porsche. VW Group sold about 9M cars last year. Porsche sold about 325K. It’s not an apples-to-apples comparison but it also clearly points to the Street not valuing the rest of VW Group’s businesses at all.

 

Interesting times to be in the space, especially when your ~50% of your profits and hence your ability to execute the global strategy depends on a region where many are waving the white flag on and saying ‘no mas!’

 

Oh yeah, and an old friend sent me that photo posted above of a Bronco on Guanghua Lu in Beijing. I told him it could be one of the first locally built Bronco's that he's seeing. He responds "Yeah, like a cool knock off Land Rover." My response - Not everyone can afford a premium off-roader that's in the shop more than it is on the road! I'll let you guess what nationality he is...

 

 

CHINA EVs & MORE (CEM)

We are throwing a curveball this week due to Lei being in Germany for Porsche’s media event. Join us tonight 9pm ET for the live show. Bring any questions or topics you want us to chat about.

 

If you can can’t join the live show, I invite you to listen to our recorded China EVs & More episodes at this site. And as always, we appreciate any feedback that will make the show better.

 

 

INTERVIEWED / QUOTED

-   BBC World Business Report: I answered a few questions about Xiaomi’s foray into the EV sector and talked a bit about what Xiaomi’s supposed superpower is vs. their competitors and what I am expecting to see from the vehicle. It’s a 5-minute audio interview for those with eye strain from reading this newsletter.

 

-   FT. Had a chance to chat with Ed White from the Financial Times about some of the pressures on Geely and its poor performing, publicly traded brands. See the chart below to see more of what I am talking about and reading the article to get more of the details.

 


NO WORDS


 

BIGGEST NEWS OF THE WEEK

-   GM’s big loss. Mike Abbott is leaving his role as head of Software & Services at GM after just less than a year in the role. I was told by a number of people that Mike was the real deal, so this is likely going to sting pretty badly for GM. He recently had open heart surgery and is understandably leaving because his health has recovered as he’d envisioned.

 

I’ve also heard that he’d been dealing with a lot of politics inside the company due to all the changes and new leadership on his team. He’d been even called out for his working remotely – he lives in Silicon Valley – by the rank and file on his team.

 

I kinda get why people would be upset about having to go back into the office to physically work, but honestly GM is going through the biggest changes to the sector it’s ever seen with threats coming from China, Silicon Valley and yes, other legacy automakers. Why there seems to still be a sense of entitlement from some employees is a headscratcher.

 

I don’t see Ford, GM or Stellantis being able to profitably operate at their current sizes so perhaps some of those people that aren’t willing to head back into the office can voluntarily separate themselves from those companies, but I don’t see that happening either.

 

-   Italy is welcoming China EV Inc. Kinda sorta. According to the linked article, it’s approached Chery and BYD about hosting factories there which would help the two companies move closer to shipping product to the Middle East and Africa. Stellantis is also considering rehabbing an old Fiat plant in order to build LeapMotor vehicles there.

 

As increased EU tariffs move from maybe to likely, the attractiveness of building locally becomes more of an option for China EV Inc. I’ve mentioned this before – you can only become a long-term sales leader in the EU, US & Chinese automotive sectors if you build there locally. Higher tariffs may make that a reality sooner.

 

To China EV Inc – Caveat Emptor. There are likely several countries in the EU vying for your investment and jobs, the things that need to be factored into your decision – supply base, labor costs, local market, nearby export markets and of course strength of unions to name just a few.

 

-   Italy isn’t the only one welcoming China EV Inc. Ola Källenius, CEO of Mercedes says that the EU should be open to competition and NOT increase tariffs on Chinese made vehicles. He echoes what Carlos Tavares said recently about having an open market and letting competition decide the winners and losers.

 

First, Merc doesn’t have too many horses in the EU mass market race since Mercedes is a premium brand so it makes sense that he’d welcome the competition since there aren’t as many competitive products on the China side in that space. Next, he knows where its bread is buttered with China since, according to the article, 1 of every 3 vehicles Merc produces is sold in China.

 

Automotive CEOs have never been shy about trying to ingratiate themselves to the Chinese govt. and this is no different. But he should be very careful of what he wishes for because China EV Inc will be coming for Merc on their turf soon enough.  

 

-   The Korean battery makers back in the lab. Their goals, to achieve faster charging batteries that do not lose their range in cold weather conditions. For someone who lived in BJ and now MI, the need to have cold weather capabilities that isn’t just about warming the battery up is real. What’s great here is that they are trying to innovate on LFP batteries, which ALL automakers need in order to get their mass market EVs around of below $45K.

 

I’d mentioned in past newsletters that I expect to see a ton of innovation in the battery space so it’s not surprising that SK ON and Samsung are two of the companies looking to address these current deficiencies. When they do, it’ll strip another reason away for not buying a clean energy vehicle.

 

 

BY THE NUMBERS

-   12.5x. That’s how much more Chinese companies use robots to supplement / replace workers than originally estimated according to US think tank Information Technology and Innovation Foundation. Just like just about everything else in China, the Western world hasn’t bothered to pay enough attention to what’s happening there. Catching up is not an option anymore for most things and protectionism is just a band-aid and not a great one at that. The only game in town is to out-innovate.

 

 

INTRODUCING

-   Rivian R2 & R3. As one of the few true US EV startups (Lucid being the other survivor so far), there’s a ton of pressure on RJ Scaringe and company to make it through the next few years and come out on the other end ready to take on the US Three on their own turf. These vehicles they’ve just unveiled are meant to do that.

 

I am a fan of the R1S & R1T. They are both just crazy expensive, meaning that for what I need a car for, I wouldn’t get the utility or value needed to make the transaction make sense, hence my lean towards the R2.

 

Timing is a bit peculiar because by 2026, there will be other competitors already vying for the same customers including Volkswagen’s US heritage brand Scout. And of course, GM, Ford and Ram aren’t going to concede this market, the meat of the US market, without a significant fight and product (hopefully) to back it up.

 

We will likely have at least a handful of Chinese brands in the US market by then is my guess as well. We here at Sino Auto Insights welcome competition, but unfortunately a snapshot of today also tells us that no one outside of China EV Inc is ready for it. That could change by 2026 of course. For the US Three, it better. The US govt is doing everything in its power to insulate it from the very competition that, in Elon’s words, would demolish them. I hope the US Three appreciate that and make the tough decisions and put products we want on the roads. And I am not talking about a 9K lb. Hummer EV either.

 

Rivian has produced just over 85K vehicles on US roads as of the end of 2023. There isn’t a breakout of R1S / R1T and delivery vans, but I assume the delivery vans take up a large portion of that number. If Rivian is to be successful long-term, they’ll need to sell at least that many for the R2 + R3 combined each month. The R1 can be their Halo for the time being since at the current price, it won’t ever be a high runner for them, it’s too niche.

 

They’ve not showed that they can get the pricing and manufacturing right yet. Will they have it dialed in by 2026, let’s hope so. Ford and GM need to be pushed in a big way. And I honestly don’t know who else would be able to do it.

 

 

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This weekly newsletter is a collection of articles we feel best reflect the happenings of the week or important trends that have effects on the global automotive and mobility sectors. We also provide a point of view that we hope educates and sparks debate.

 

 

The Sino Auto Insights team

 


 

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.


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