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Shanghai in Lockdown, CATL Heads West, Vinfast Beats China EV Inc - SAI Newsletter 12



 

Will keep up top short and sweet. Busy week as we head into the Tomb Sweeping holiday weekend where we’ll have next Monday & Tuesday off. That also means we may or may not have a newsletter next week. Many of you may already know that Shanghai has effectively been locked down – or will be locked down in phases with Pudong currently in lockdown for 4 days. Puxi will begin it’s 4 or 5-day lockdown starting on April 1. For those that aren’t familiar with Shanghai, the Huangpu River runs through Shanghai and divides the city into two sides: Puxi & Pudong. Puxi literally means west of the Huangpu River and Pudong means east of the Huangpu River. A little history, Pudong has only really been around since the late 90s – before it was pretty much just swampland. Pudong is also known for its business district Lujiazui. You could argue that nowadays, the Pudong skyline is one of the most recognizable in the world and I still ALWAYS get chills walking along the Bund seeing those massive high-rises, the Shanghai Financial Center and Shanghai Tower being among the tallest in the world, just behind the Pearl tower as if protecting it. If you’re not sure of what I am talking about, google ‘Lujiazui skyline.’ A popular nickname for the area among the foreigners living in Shanghai - ‘Pu Jersey.’ After working hours Pudong quiets down to almost a whisper since there’s not much going on there after 7-8pm. This makes Pudong the side that’s more family-friendly. Puxi aka ‘Pu York’ takes over for the nightlife and excitement of Shanghai after working hours. Lots of fantastic neighborhoods to explore and the energy of the city is something I’ll always enjoy. It’s one of the coolest places on the planet. I have a lot of friends there so hoping they’re all able to hang in there and stay safe. I had the chance to trade notes with Paul Lienert from Reuters about an article on battery swapping that is worth the read. China is all-in on swapping with OEMs like NIO, Geely, SAIC, as well as battery cell manufacturers like CATL pushing the service. There’s no debate that it’ll be part EV adoption in China but will it gain traction outside of China? Companies like Silicon Valley based Ample believe so. For commercial use, battery swapping is a no brainer on either side of the pond. For consumer use, battery swapping could be looked at as an additional customer service feature for those that aren’t able to charge conveniently or for those looking to take long road trips and don’t want to waste time stopping and waiting at slower charging stations. This debate will rage on but it’s worth noting for Western folks that it is an actual thing here in Asia that’s gaining traction and popularity. And not just for vehicles with four wheels. You can check that article out here. One more item of note that is worth talking about. I was invited out to Shunyi, the Beijing suburbs, to visit Li Auto. I was pretty excited and pumped to check out their facilities but the day I was scheduled to visit, I was told that I’d need a Covid test in order to enter the facilities but by then it was too late so I still went but had to get a raincheck on visiting the main building. I did get to borrow a Li One for a few days and have to say that I am pretty impressed. The Li One is an EREV, which stands for Extended Range Electric Vehicle (read: hybrid). There’s a small electric motor that takes over should you run out of petrol. Li is a bit more conservative when compared with its domestic rivals but the Li One has consistently gained in sales over the two-plus years it's been on the market. Here's a picture of the Blue Beast! It's not a small SUV for certain. Will try to give a more detailed overview in the next newsletter.

Li Auto has been teasing details about its 2nd product called the L9 over the last few weeks on social media. I think I saw a few L9 prototype mules as I was walking around campus. It’ll also be an EREV but promises to build on the L9’s successes. I can’t wait to check it out later this year! Please join Lei and me for this week’s EVs & More Twitter Spaces room. We will be moving the room back to its original time of – Thursday, 03/25 – 9pm EST, Friday, 03/25 – 9am China local time. For getting a download on all that’s h. For those that aren’t able to join, the EVs & More podcast is available wherever you grab your podcasts from. Most of our back pods are posted and the descriptions will be able to tell you what we discussed that particular episode. TESLA NEWS - How NHTSA deals with the mercurial Elon Musk in order to make Tesla’s safer. The author of this article didn’t want to flat out say that in order to get Elon to cooperate NHTSA has to sometimes treat Elon like a petulant child and play his games to get Tesla to cooperate with their investigations and recalls. Not surprising but a bit unnerving considering Tesla has over 2M vehicles on the road which creates a lot of potential for damage should there be any major issues and Tesla can change the features of each car, fix bugs, and/or sidestep major recalls by just flashing of some software. If we take a step back, the types of challenges NHTSA deals with when it comes to Tesla are the same as with legacy OEMs, at least the outcomes that trigger investigations or some inquiries. Normally a major accident or a set of them that seems to point to a pattern of risk to the public. What’s different in Tesla’s case is that these failures, flaws, or purposeful design workarounds are mostly attributed to software which NHTSA likely doesn’t have a ton of experience analyzing or diagnosing for those flaws yet. The politicians that are pushing for more transparency don’t either. And Tesla is just ONE company. As the legacies ALL write more code into their vehicles oversight & investigation could become a real issue unless NHTSA learns VERY quickly how to deal with and investigate any software bugs that aren’t caused by mechanical failures. Tesla may have SW bugs that they rely on their customers to find in order to patch them, like other software companies, but I am confident in saying that Tesla is by far the most experienced OEM in developing code for its own products. Said succinctly, they KNOW what they’re doing most of the time. I am not sure I can say that about some of the other OEMs that are developing and launching L2-3 ADAS and/or L4-5 autonomous for their next-gen products. When software controls most of the vehicles on the road which will happen eventually, will NHTSA still be able to manage? If you don’t believe me, check out the next post. IN THE NEWS - Speaking of software, that’s what the new Volvo CEO wants to get good at. More legacy automotive CEOs need to speak more plainly like Jim Rowan. He states that Volvo needs to be more in control of the software it develops and deploys in its vehicles. The fact is your software will control each and every system in the vehicle, enabling all of the touchpoints designers have set up for the customer while integrating all of them into one seamless UX. And this is the important part – if you can’t do software your UX is gonna suck. Great design only works if the software supports it. Ask Jony Ive. And if your UX sucks, then it’s game over. So get good at software because if you can’t you’ll get beat by the ones who are. - Thailand, an important export market for China EV Inc is starting to wake up. The Thai government has set up subsidies and a reduction in VAT in order to try and incentivize the purchase of EVs. SAIC already owns ~50% of the EV market there and other Chinese EV companies like Great Wall see a tremendous opportunity as well. One thing is certain, China EV Inc is starting to accumulate those passport stamps, and not just in Europe! Will they be able to push the traditionally strong Japanese automakers off of their perch in Thailand, I think there’s a pretty good chance of that happening. THE MOST INTERESTING THINGS THAT HAPPENED THIS WEEK - CATL is welcome in the US. As long as it transfers it’s tech to us. That’s what one lobbyist said when asked whether they would welcome CATL manufacturing in the US. How times have changed. I’ve said this a number of times in past newsletters (or to friends perhaps?), but the pendulum ALWAYS swings back doesn’t it? The US market is way too big and lucrative for Chinese battery & EV companies to ignore and the entrepreneurs that have launched these companies ALL want to be able to say they conquered the West. They can’t say that without the US market. Short term of course, they’ll eat most of the 27.5% tariff on vehicles imported from China that was put in place by the Trump administration just so they can dip that first toe in the water here. Importing small quantities will allow them to launch their brand, establish their positioning while still only investing in a small team and partners to help them get set up. After a short bit of time, they’d likely look to find land for a greenfield site and launch manufacturing in the region. Many of them are likely strategizing as we speak. It wouldn’t necessarily be in the US though. Remember we have USMCA, the new NAFTA, so the cars could actually be built in Canada or Mexico and shipped to the US duty-free. I see that as a much more likely scenario unless the relationship between the US & China thaws substantially between now and 2025 when they’ll begin to enter the market. This model will be the same for Chinese battery manufacturers as well. They’ll find the path of least resistance to enter, there may be one or two companies that fully embrace manufacturing in the US market but many, namely the SOEs, would likely rather avoid it. The US companies they’ll compete with have long memories and haven’t forgotten how they were treated by the Chinese govt when they entered the China market. This is also partly their own faults because in order to access the China market, some of them made deals with the devil. But here’s where it gets interesting. Will the conservative right, who are historically pro-free trade, welcome CATL with open arms? They also are generally more hawkish towards China so we’ll have to wait to see their reactions are. But it could be a moot point if CATL opens its wallet and writes a multi-billion dollar check to the state of Alabama or Mississippi. I don’t think any local politicians would have any problems welcoming CATL with open arms then. TRENDING ON SOCIAL MEDIA - President Joe tweets about Vietnamese EV maker Vinfast inking a deal to build their EVs in North Carolina. It’s estimated to be a $4B commitment that will also include a battery manufacturing facility and employ around 7K people. Man – It’s pretty surreal that the President himself is tweeting about this but it shows the importance of convincing the public that what his administration is doing is getting results. Oh and for Vinfast to beat the Chinese to the US market (potentially) is pretty meaningful. - Chips could become a flashpoint in the very near future. According to a Korean news site, the US approached Japan, South Korea, and Taiwan to try and box China out of the chip supply chain but South Korea declined because of fear of retaliation from China. Cooler heads have prevailed so far but if diplomatic relationships get any worse, the current challenges in the market could seem very pretty trivial. As we’ve seen just over the last couple of years though, the only thing that seems for sure is that the world is completely unpredictable. This brings us to the next post. GET SMARTER - The Split. For those of us living in Asia, this has been a slow burn that ignited when the Great Firewall was initially completed in 2006 if not earlier so what Michael Schuman, the author of this terrific piece for the Atlantic, is saying isn’t much of a surprise to many expats here. The separation can’t be completed until both parties don’t need anything from the other and that’s where it’ll get complicated. The US is doing their very best to decouple from cheap Chinese goods but if they’re to truly begin to source from other, more expensive regions and abandon the factory of the world, they’d better be prepared to take on the higher prices that will come along with it. The current reliance on China from US & European automakers for the supply of batteries for EVs won’t go away anytime soon either. For China, becoming a chip designer and fabricator the likes of the US & Taiwan will also take time and a significant investment but there are companies popping up that are ambitious and want to become China’s Intel or Nvidia. Decoupling from the financial system that is dominated by the USD won’t be an easy or painless task either but that’s another priority for the Chinese govt. But once there is independence on these fronts and more, the world will begin to look quite different than it does today. Worth the read and good food for thought to those doing business internationally. - Listen to Dara Khosrowshahi, CEO of Uber tell you how he’s transforming Uber into the largest local commerce platform on earth. Think rides + food & parcel delivery – all within an hour of ordering. This evolution has Uber butting heads with Amazon which is also looking at making local commerce one of their key differentiators. This could become one of the heavyweight title fights in tech in the US, but then add in all of the OEMs and it then becomes a batter royale! But what Dara describes in this interview sounds eerily like what’s currently happening now with Alibaba via Hema and Meituan via Dianping so how will Uber be different/better, we’ll just have to stay tuned in to find out. Hema is Alibaba’s grocery app and Dianping is Meituan’s takeout app. I use Dianping a few times/week and it’s really convenient. Admittedly, my reading skills aren’t great so I don’t get the full experience when it comes to the China internet but most of my needs are met using the handful of apps that I regularly log onto. - Plastic: Newsflash! That stuff that is used to package, carry, and protect just about everything in a supermarket is not great for the environment. Recycling it is sometimes even harder. This is a great story from Bloomberg who tracked three pieces of plastic that were placed inside a Tesco recycling bin in London to determine where the plastic goes once it leaves that Tesco recycling bin and if it is indeed recycled at all. A good read. And one not unique to Tesco or the UK. If you’re not jaded about the plastic recycling process or circular movement already, reading this article may get you there. Let’s just say that the three pieces of plastic needed their passports to get to their final destinations. INTRODUCING - The Hengchi 5. Evergrande real estate’s financial troubles don’t seem to be discouraging their EV arm from moving forward with possibly taking orders for its first vehicle. The order book will launch imminently according to media reports. There are a lot of quality choices for Chinese consumers in the mid-sized EV SUV/crossover segment so how many will want to buy one from a company that’s clearly not out of the woods with their ‘real’ business? I am not sure, but it wouldn’t surprise if they are able to drum up some excitement and orders. BY THE NUMBERS - 65K. That’s how many reservations GM claims to have received for their Hummer EV. They also claim that the conversion rate from reservation to order is ~95% so they’re pulling ahead manufacturing in order to meet demand. If you order today though, that likely still means you won’t get it until sometime in 2024. There are so many variables that are going into that delivery estimate, not the least of which is battery and chip availability at the supplier side. That’s a MONSTER number though for a >$100K, 4.5 ton beast of a pickup that goes 0-60 in <3 seconds. If the conversion rate is indeed a staggering 95%, GM should be applauded for creating a hit out of an old, abandoned nameplate.

—— 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 automotive and mobility sectors here and in the US, we also provide a point of view that we hope educates and sparks debate.

The Sino Auto Insights

 

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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