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Shenzhen - the New AV Ground Zero, Innoviz + VW deal, NIO's Third Brand - SAI Newsletter - 30

Another interesting week that started with me having another go at the Apollo robotaxi pilot here in Beijing. If you recall, I visited the Baidu Apollo depot in south Beijing about a year ago to try out their robotaxis and it was an interesting experience with their 3rd gen (Lincoln ICE) robotaxi needing a few minutes to get properly calibrated. After a few stops and starts the car performed well although the stopping and starting was a bit herkie jerky which made parts of the ride a bit jarring. This time, I was in their 4th gen (Hongqi HS3 BEV) robotaxi, that’s a picture of me up top with a certificate that I completed their ride – a nice touch, and except for a construction area where the safety driver took over for a few seconds, everything was quite uneventful and the stopping/starting noticeably smoother. We weren’t in CBD or the Sanlitun area, where traffic is some of the most hectic in Beijing, but Yizhuang does still have roundabouts, scooters, pedal bicycles and plenty of delivery people to be aware of and I’d say that there was noticeable improvement in the overall ride comfortability and quality. Much more humanlike. I left pretty impressed but let’s be clear with this - We are still a very long way away from anything resembling a point-to-point L4/5 robotaxi with no pedals or steering wheel that can take us anywhere at any time regardless of weather or any other external, extreme conditions. Still working on some videos for the last couple of weeks so will hopefully have a few of them ready before next week’s newsletter. I may also be down in Guangzhou for a few days next week so if I am and you’re keen to meet up, please DM me. China EVs & More is scheduled this week for Thursday, 08.04 – 9pm EST, Friday, 08.05 – 9am China local time so meet us in our Twitter Spaces room then to get a download on all that’s happening in the space. Those that can’t 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. IN THE NEWS - The PCAOB (US audit watchdog) isn't blinking with regard to booting Chinese listed entities off of US exchanges. This is going to come down to the wire and I think that neither party will ultimately concede meaning that we won’t be trading Chinese ADRs anymore. If that’s the case, chalk this up to another way the US-China relationship is becoming increasingly challenging. Speaking of which… - Reading the fine print on the CHIPs Act. First, it’s a pretty big deal. $52B to help reshore some chip fabrication to the US is something that’s been sorely needed for a while. Is it a bit of welfare to already wealthy companies, of course it is. But is it necessary for competitiveness, that’s also likely a yes. What will undoubtedly make diplomacy between the US & China further strained is that it prohibits any company that accepts the subsidy from investing in manufacturing more advanced chips in China. This is also exactly the reason that China has pivoted towards a more self-reliance stance, so that these types of policies will be ineffective helping them advance their technological capabilities. The key here The US govt needs to treat this like an important first step in multi-step, multibillion-dollar investment over a number of years in arguably the most important sector to the US’ future as a superpower. - CATL’s Vice Chairman Huang Shilin steps down to pursue ‘other opportunities.’ I’ve not heard of any reason for this announcement being strange or peculiar so let’s assume he just has had enough. I’ll keep digging though. Huang did an amazing job of making CATL one of the most important companies in cleantech and consequently China. By doing that, he’s also pushed himself to become one of China’s richest people with ~10% ownership stake in CATL. I really don’t think this materially affects the day-to-day but will monitor for any significant changes. - Pelosi’s visit to Taiwan forces CATL to push out their announcement of a major manufacturing investment in North America. There’s been no definitive location communicated but best guess is that it’ll be somewhere close to AustinGiga to support Tesla. I don’t believe this changes their calculus about manufacturing in the US but with relations between the US and China at almost all-time lows you never know what’s going to happen next. - Does the TuSimple accident point to the CEO moving too fast to commercialize the product before it’s ready? There are a few ways to look at this. First, all AV startups are incentivized to get their product on the road to generate revenues as soon as possible so this is NOT a problem that TuSimple faces alone. The difference between TuSimple and many of their Chinese competitors is that they were able to go public and raise that capital in the US just before that door was closed to their Chinese peers. And don’t let them tell you they’re not a Chinese company because they are. If they weren’t then they would NOT have had to make any agreement with CFIUS. As the WSJ article alluded to, TuSimple’s share price is down ~86% since IPO’ing is now valued at around $2B so you better believe Xiaodi Hou wants that money back. Does TuSimple seem more aggressive than others in the space getting these pilots up and running - Yes, they do. From a regulator’s standpoint, the assumption should be that ALL of these AV startup founders/management are going to try to push the limits of the traffic regulations that are already woefully outdated, in order to prove that their HW/SW stack is superior to others. What adds to TuSimple’s complexity is the fact that they made a deal with CFIUS to lop off their China ops in order to be in compliance with their National Security Agreement. When does that happen and how will their strategy, structure, management, or business model change? We will have to wait and see. - Shenzhen adds clarity to its autonomous vehicle (AV) regulations which now include non-safety driver testing. The latest update to local regulations is for registered AVs to be able to be tested without the need for a safety driver. There does need to be ‘driver’ but they can sit in the passenger seat. The big distinction and advancement for testing in Shenzhen is that liability is clearly identified should there be an accident. With any accident with a driver, the driver’s at fault. Any accident caused by a vehicle with no driver – the owner of the vehicle is at fault. If a defect is identified that caused the accident, the owner can seek compensation from the manufacturer. This actually sounds a bit scary but it’s what is needed in order for the technology to progress. There also needs to be trust across the board and assurance that these cities are still looking out for the best interests and the safety of pedestrians and those in non-autonomous vehicles. This is a good place to show a sample of what is being allowed. DeepRoute just released a YouTube video of one of their driverless robotaxis roaming the busy streets of Shenzhen that’s worth a watch here. I should also remind everyone that Lei and I had a discussion with Maxwell Zhou, co-founder and CEO of DeepRoute that you can listen to here. I know he’s very excited about these new more AV friendly policies taking place in Shenzhen. TRENDING ON SOCIAL MEDIA - Innovis + Volkswagen to collab on LiDAR for VW Group ADAS systems. When Lei and I interviewed Omer Keilaf for our China EVs & More MAX Series which you can find here, we all kinda knew Innoviz had won this contract but he wasn’t able to formally announce it on the pod. That said, this is a HUGE win for the Innoviz team so congratulations to them! The numbers that matter, and they’re HUGE – Innoviz could be supplying up to 8M vehicles over 8 years and the entire deal could be worth >$4B. It moves them from a tier 2 supplier to a tier 1, one of the first times I can think of a technology partner moving upstream like this. The Volkswagen seal of approval should also open even more doors for them to add customers. - EV companies like Hozon, Aion, Leapmotor taking it to China's Big EV Three. While their much less famous domestic competitors continue to build on their sales NIO, XPeng, Li Auto are still trying to find their groove. Sales of China’s Big EV Three are down month/month by at least 20% with NIO coming out blaming a lack of parts. That’s just not gonna get it done! Will operational issues plague the ET5 & ES7 launches? While at XPeng, the G9 launch should help XPeng get back on track if the G9 can win most of its battles against the L9 & ES7 & Model Y. I’ll need to see the ES7 & G9 in the flesh to let you know if it’ll be able to do that, so stay tuned! - Stellantis blames government meddling, but their results point to something else. Carlos Tavares calling out the Chinese govt for meddling in their business was a bold move since they still plan on trying to sell imported vehicles to Chinese consumers, but the reasoning rings a bit hollow IMHO and needs to be unpacked to get the full picture. Have China sales of the foreign automakers generally declined over the last few years across the board? Yes. Has FCA/Stellantis invested into new products over the last several years to try to maintain or grow share? No. And therein lies the rub. FCA had been in limbo for a couple of years as the merger was being formed and really didn’t do anything to improve their standing in the market. Tavares has shareholders to answer to, so he needs a boogeyman to point to to help justify his move to effectively ignore the largest vehicle market in the world and this seems to be the most convenient. Journalists should ask him to point to specific policies or actions since he already said it’s largely the government’s fault. Otherwise, he should tell the complete story about how a lack of investment and new products, the domestic players being much more competitive with their offerings, along with a meddling Chinese govt. forced his hand. INTRODUCING - NIO’s third brand? NIO’s strategy seems to be having brands/products that cover most market segments and this rumored third brand would likely move even further down the price ladder towards the sub-¥100K/$16K price point. For those that are confused, there will be the NIO brand, codename: ALPs brand, and another brand that’ll slot below ALPs - codename Firefly. Will this mean that they’ll also enter the ultra-luxury market to compete against Bentley, Rolls, Aston and others? They seem to have A LOT on their plate already, but Bin Li’s ambition hasn’t diminished at all. These brands would occupy segments that are brutally competitive. It could be really tough for NIO’s mass market brands to resonate unless they are providing real value AND features that aren’t available on similarly priced competitors. Remember how much capital they expended to spotlight the NIO brand, so much that it would’ve bankrupted them had it not been for the Hefei govt. Can they be smarter, more economical while still carving out legit positioning in two more segments of the market where they don’t already compete? Seems dicey. GET SMARTER - Do you know how much, the type, and ultimately where and who sees the data your car collects? Generally speaking, this is a borderless issue with some countries & regions who may be a bit more on top of or restrictive of how your car’s data is handled. But most countries can’t keep up with the technological progress and as the months and years go by, more as well as different types of data is able to be collected. That said, if you want to create the best user experience for yourself and your passengers, you normally must give up some privacy since the apps/services can’t predict what you’ll want/like unless it has access to this historical data in order to ‘predict’ what’s next for you. These companies all assure us that the data is ‘scrubbed’ or anonymized but ultimately, it’s OUR data so the notion that we are giving it away for free so that companies can bundle it, analyze it, create new businesses from it to grow their revenue share from us is a bit of a headscratcher and is something that needs to be addressed. Think about it, they are making millions off the data we provide them for free in most cases. In the least, if they’re to use our data then we should demand to be compensated for it, right? Or at least have the choice to opt out, even if we use their product. Maybe this isn’t the best analogy but the one thing I think about recently where the standard operating procedure was turned on its head was the enormous change precipitated by the college athletes and the NIL change. NIL = Name Image and Likeness. In the past, universities would make billions of dollars from student athletes, mainly from the basketball & football teams without having to share a dime with the athletes outside of the scholarships + room & board provided to them. With the implementation of the NIL rule, players can now be their own brand. It was empowering and took A LOT of power out of the hands of the NCAA, the organization that oversaw college athletics. Is the NIL rule perfect – No. But it’s a good start and it was long overdue. I hope we as users, consumers and most importantly generators and providers of data can get our piece of the pie as well sooner rather than later. Then at least we’d have a say in whether our data should be used to generate revenue for these companies. This article is worth the read – click on that link. BY THE NUMBERS - 11%. That’s the value of Romeo Power now when compared to its $1.33B valuation when it SPAC’d two years ago. It’s also consequently what Nikola Corp is paying ($133M) to acquire them. Two struggling companies joining forces may sound like a recipe for disaster, but Nikola is currently Romeo’s biggest customer and if Romeo Power (a BIG if) has legit technology/IP we could look back and say it was a bargain price. This also means that cash rich startups looking to bolster their technology stacks should go shopping looking specifically for pre-revenue companies that, for whatever reason, have struggled to gain traction in the market. There ARE companies with legit IP/teams with the right leadership that can be had for a song right about now. ——

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

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