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Shanghai Opens (Slowly), Bageled: Shanghai April Sales, Another Recall for Tesla - SAI Newsletter 19


Beijing seems to be in a holding pattern with regards to Covid, so we are testing every day now. I was told the magic (arbitrary) number is 50 so if we are over that amount of cases/day for a few days it could get a bit more restrictive here. How they came up with that number is anyone’s guess. BUT I hope we don’t have to see if my theory rings true. There have been media reports that parts of Shanghai have begun to open up but when I speak with friends and associates there, which I do on a daily basis, the areas they live in still have not, so although this is good news it’s still likely a couple of weeks away before any citywide opening occurs. The focus on Shanghai seems to be to get the machine to start running again. Last month there were ZERO cars sold in Shanghai, China’s largest vehicle market so that should give you an indication of how dire the situation was/is and how important it is to get the manufacturing sector as well as the port running again. In lieu of making announcements and product introductions at the April Auto Show Beijing 2022 which has postponed indefinitely, companies like Denza, BYD, and others are making vehicle introductions and trying to operate under the ‘business as usual’ theme. Trying to piece together a couple of weeks’ worth of solid production could be out of reach for now. Masses of people having been released from lock down seem to be literally heading for the exits in Shanghai, jumping on trains for their hometowns since there’s no work for them there. This could lead to a dragging out of the recovery because if there are no migrant workers to fill the jobs that make Shanghai vibrant, think service, taxi & delivery type jobs, getting them back to Shanghai so it can fully open up could be another major impediment. Let’s remember that Shanghai is the most expensive city in China so in order for them to live there, they need incomes - no incomes means they need to go back to their hometowns with a chance that some of them will never come back. Adventures in traveling. I started looking for plane tix to head back to the US and as I’d surmised, it not easy. I live in Beijing so there aren’t many flights that’ll take me to the US let alone Detroit from here. There are a lot more flights headed to the US (and other countries), flying out of Shanghai but…. I thought I had it figured out and read all the fine print. I found an affordable ticket that flew me to Detroit out of HK, once one of the nicest and most bustling airports in the world now reduced to a shell of itself, so I purchased said one way ticket for what I thought to be a reasonable price. I just needed to get a flight from BJ to HK which wasn’t part of the itinerary. Turns out that if it’s not ticketed all together, then I would be considered a traveler TO HK and the current policy is a 7-day QT at a facility/hotel. That’s no good. So, it’s back to the drawing board to see which countries do not have QT policies that I can fly to so that I can get to my ultimate destination of the US. I am not looking to get to Detroit anymore just to either LA or SF and then find a domestic flight from that point which means I’ll likely pay through the nose for baggage fees. I hope to have this sorted by next week’s newsletter and will update accordingly. Wish me luck! Please join Lei and me for this week’s China EVs & More Twitter Spaces room on Thursday, 05.19 – 10pm EST, Friday, 05.20 – 10am China local time. For getting a download on all that’s happening in the space. Those that aren’t able to join, the China 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. QUOTED - Le Monde. I had a chance to speak with Simon Leplâtre about the production disruption and what it means for the Chinese auto sector. For those of you wondering whether Sino Auto Insights is an international consultancy, this article is specifically for those who can read French. BUT it also may be ONLY for paid subscribers of Le Monde. - Carsales AU. Another international piece, this article focuses on Chinese auto exports to Australia. I spoke with Mark Andrews for this piece that is great for those interested in learning more about how important Chinese production is to Australian vehicle sales. It’s worth noting that ever since GM & Ford left Oz in 2016 & 2017, all the vehicles sold there are imported from overseas. In the short term, this really jams up the importers, but it’ll ultimately be the consumers that pay the increased cost to purchase vehicles. Tesla currently holds the crown for largest EV maker in Australia but they did not ship any vehicles to Oz since March so wait times for the MIC Model 3 will inevitably push out even farther. Read the article here. TESLA - Tesla recalls another 107K cars due to SW glitch that could shut the infotainment system down. I’d not heard of any major accidents because of this issue and a ‘recall’ again isn’t likely the most appropriate verb to be using since Tesla will just push out an OTA update to each of the vehicles affected and voilà all patched! What’s notable is that this is the 2nd recall Tesla has issued in the last month or so. This is likely due to a combination of factors including more Tesla’s generally on Chinese roads, more scrutiny (overall) on EVs (not likely JUST Tesla) although with Tesla being the BIG DOG, they’re likely being made an example of, and perhaps a reflection of Tesla’s mid-term (poor) reliability. - ShanghaiGiga is running at >50% utilization currently. For those that regularly read this newsletter and/or listen to the pod this shouldn’t be a surprise at all. I’ve said in previous newsletters that manufacturing needs to ramp and that takes time. Supply pipelines need to be replenished and that takes time. In the case of Covid, employees need to be tested and re-tested before they enter the closed loop and guess what – that takes time. My expectation is that we won’t get to near 100% utilization rates until the end of summer. There are still too many unknowns and my contacts throughout the auto sector here do not see how this completely recovers. Finally, an easy way to think about this if the %ages seem confusing, think 60K vehicles/month are produced so if they’re running at 50% they are building chabuduo 30K vehicles/month. If ShanghaiGiga can’t get back to full production in the next couple of months, could we see BerlinGiga vehicles imported to China to keep the sales funnel moving along? I doubt it but I think everything needs to be considered if Tesla still plans to reach its goal of 1.5M units produced for 2022. - Tesla accuser’s mea culpa. A Tesla buyer was forced to admit that they lied about their Model 3’s brakes failing after it was shown that he’d inadvertently pressed the gas rather than the brake pedal while driving into a mess of cars. What I haven’t heard any more about is that woman dancing on a Tesla at the Auto Shanghai 2021 since she had a similar complaint. Will dig further… GET SMARTER - Where am I going to land this thing?? I am a fan. I want one. I want to subscribe to a platform that provides the eVTOL (electric Vertical Take Off & Landing) services. And I do see progress from the eVTOL startups in regard to the actual vehicles with lots of different form factors, sizes, and styles. But do I really want these things flying over my home or flying next to me if I am in a high-rise office? Where will they land and take off and how will enough of what experts call ‘vertiports’ be made to make these services numerous enough that price will be driven down and more affordable to the masses. And once they are affordable to the masses, will we need an air traffic controller for each major city to manage air traffic? I want these to be real and soon but implementing eVTOL’s in any sort of critical mass quantity will be like, well it’ll be like launching robotaxis I guess. THE MOST INTERESTING THINGS THAT HAPPENED THIS WEEK - Merc partners with Sila Nanotechnologies, who will provide the anode to their battery cells. Sila, a Silicon Valley startup whose founder was employee #7 at Tesla, is working on a higher efficiency anode that claims to increase energy density and hence driving range which in turn should eventually lower the price of li-ion batteries. Merc has announced that Sila’s anode will be used in its electric version of the G-Wagen (due out in 2025), one of what must be one of Merc’s most popular vehicles sold in China. Since the G-Wagen is one of Mercedes’ biggest money makers but is known to be very heavy, using the Sila anode is likely necessary in order to provide an acceptable range. You can also bet that the initial run of Sila materials isn’t cheap and that the cost reduction path could be long making it not viable for mass market vehicles for some time. That’s if Sila can execute on their product’s promise at all (see 4680). It seems more promising than other battery startups since I believe some Sila materials technology is already being used in some consumer products, but a computer or mobile phone is a bit less complicated than an EV. This is interesting because in our latest double MAX episode with guest Steve Levine – Editor at The Electric, we talked a lot about batteries. Specifically, we talked battery production, raw materials supply, pricing, innovation, and a bunch of other stuff. If you want to know his opinion on whether solid-state and companies like Sila provide the answers to lower priced and plentiful battery cells, I invite you to have a listen to Parts I & II, available now. IN THE NEWS - Getaround car-sharing platform to go public in the US via SPAC. Mobility companies just have a tremendously difficult time giving up on the SPAC. Getaround, a carsharing platform in the same vein as Turo, has announced they’ll go public by merging with blank check company InterPrivate II Acquisition Corp with a valuation of around $1.2B. Funny enough, I’d read about Turo looking to go pubic earlier this year, I may have even written about it, but have NOT heard anything since. I’ll see if I can’t find Getaround’s pitch deck to see how ‘sound’ their business is. - VW considers further investment & increasing capacity in the US market. This may be older news, but I want to hammer home the point that the China market has become riskier for Volkswagen group. For those that aren’t up to speed, currently the China market is about 40% of VW Group’s annual global sales (revenues) and 50% of their annual profits. To put it more succinctly, VW Group currently have 9 of 12 eggs in their China basket. The real reason it’s risky though is because ICE vehicle sales, which makes up the lion’s share of VW Group’s sales volume in China (and globally), is shrinking at an alarming rate while the reception for their ID Series EVs has been frigid. This means they’re getting squeezed on both ends. If things don’t change quickly here for them on both the EV & ICE side, they could be straddled with too much capacity, high fixed costs, and EVs that can’t compete. That would weigh down their entire global operation. I should also remind folks that VW Group, aside from Porsche, hasn’t made many popular cars for the US market. I think the ID Series vehicles have a chance because American consumers don’t have the ‘Jones’ for connected features like the Chinese do but they’ll need to increase their share from an anemic ~4% of the US market to 2-4x that in the next several years if they can’t turn China around. It’s a toss-up right now on which one is the taller order because they’re both daunting tasks. Ultimately, I think the China market is going to be much less forgiving, specifically towards the future with EVs. Remember that this is a market that Tesla isn’t necessarily the technology leader and the number of competitors up and down the various price segments is substantial. Think BYD, Toyota, Geely, and several SOEs that believe they can compete and win the customer battle vs. the current set of ID Series vehicles. The Covid & supply chain issues just add to their challenges in each of the markets they need to perform well in. We could be seeing Toyota taking back that crown for largest legacy OEM (by sales volume) within the next few years …and keeping it for good. TRENDING ON SOCIAL MEDIA - NIO & Baidu become partners! Do I now have your attention?? Relax, it’s only to improve NIO’s voice service for their vehicles. THIS is something that if carmakers can get right, WILL be a difference maker. Screens and UX will only complement the voice once someone nails this. BY THE NUMBERS - 0. That’s the number of vehicles sold in Shanghai for the month of April. Shanghai is China’s largest vehicle market, so this number hurts pretty bad. It’ll take a massive effort to get the machine running properly too which will take time and likely some heavy incentives so expect a pretty challenging summer both from a production and sales standpoint. - 500. NIO reaches that sales milestone in Norway, the most favorable market in Europe for EV purchase. As stated in previous newsletters, Norway is a feel-good story for NIO and other EV makers to use for marketing purposes, but it really won’t move the needle in terms of vehicle sales long-term. For context, in 2021 the city of Shanghai bought ~760K cars last year along while Norway bought just ~212K. Norway April sales were led by Volvo – 721, then BMW – 660 while NIO – 82 units sold. - $10K. QCraft, another AV startup based in BJ has matched DeepRoute with promising a $10K L4 HW/SW stack to be used with OEM partners including buses and shuttles. There’s no article yet about this because I learned about this during their Product Day this AM. Stay tuned for further deets! —— 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 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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