• Tu T. Le

Surprise! Tesla slashes prices on all cars, NIO sales flagging, M-Byte preview - SAI Newsletter #9



Lot’s of news from the last week so it was challenging for me to keep it to a manageable number of articles.

As we’re starting to learn through earnings reports and vehicle sales numbers, analysts may have underestimated the severity of the car market slowdown in China and it could get really messy for a lot of smaller, cash poor, carmakers and EVStartups.


One of the articles I’ve highlighted speculates that China is only selling half of their capacity which, if true, should terrify a lot of people, especially since the larger OEMs who own much of that capacity will do whatever it takes, sell cars at a loss or boost sales incentives, to keep those factories running so that they won’t have to lay off workers and close factories.


For you new readers, my name is Tu Le and I am the founder and managing director of Sino Auto Insights. This weekly newsletter is a collection of articles I feel best reflect the happenings of the week or important trends that have effects on the automotive and mobility sectors here and in the U.S. I also provide a point of view that I hope educates and sparks debate. We will mostly divide our articles into these buckets: AI, Mobility/Ridesharing/Ride-hailing/Bikesharing, OEMs, EVStartups, Investments, and Other. If you know of anyone who would like to sign up for this newsletter please have them visit: www.sinoautoinsights.com. Thanks for reading.

The Sino Auto Insights team

OEMs

A deep dive on JLR’s sales slump in China. (www.europe.autonews.com)

Even though the Chinese automotive market shrank for the first time in 28 years, the luxury market bucked the trend and continued to grow with the exception of JLR, which shrank 22% to just 115K vehicles sold in 2018 vs. 2017.

Walking around Beijing, you would think that most of those Land Rovers were sold here since you can’t turn your head without seeing one rounding a corner or picking up/dropping off a kid at school.

Many, including the author of this article point to the fact that JLR have for quite some time had quality and reliability issues and that the pressure to grow in China only exacerbated these challenges.

There’s a joke here in China about Jaguars that you never have to buy one for MSRP, that there’s always some type of discount on them, even the imported ones from England.

As a big fan of Jags and Land Rovers, I hope they’re able to sacrifice some of this growth in order to get the quality issue that’s been following them since forever properly addressed.

#JLR #legacyissues #lostmarketshare #LandRover #Jaguar


Tesla slashes pricing …again on their entire vehicle lineup. (www.futurism.com)

Tesla, in another major, surprising move slashed prices on all 8 of their models. Good for new potential buyers but for those who recently purchased a Tesla, they will not receive any refunds. In Taiwan for instance, the Model S P100D price dropped by almost $100K! Further, the residual values on their cars took a huge haircut by just sitting in their driveway or garage. Price adjustments are nothing new, especially if you’re competing in global markets where pricing can vary widely depending on the region and where competition, or lack thereof as much as anything else, will dictate margin. How this was done though has led to a backlash in the market that will be most important to Tesla’s future, China.

I guess Tesla is calculating that once Chinese consumers are able to purchase domestically made Model 3’s and Y’s, they’ll forget all about the time that Tesla screwed some of its earliest buyers.

#Tesla #pricereductions #onemorething #cohesivestrategy #upsetcustomers


EVStartups

NIO sales fall flat which could be an indication of potentially larger problems. (www.cnn.com)

Was interviewed by Daniel Shane for this story about NIO’s poor sales over the last quarter and a half forcing them scrap plans to build their own plant.

Some fairly alarming numbers for anyone working for a Chinese EVStartup who plans to launch within the next 6-10 months (which is most of you).

NIO sold 1,805 cars in Jan. 2019 and 811 in Feb. 2019. Granted these are slow months due to holidays, specifically Chinese New Year but NIO has had first mover advantage to the market AND their product has received a decent amount of press.

If we peel back layers of the onion would we find that the ES8 is not resonating with the consumer? Something is definitely getting lost as part of the marketing and positioning to the consumer since most analysts would’ve guessed that NIO would be able to sell at least >3-4K units / month consistently by now. At least have an upward trajectory if nothing else.

This must’ve cratered their internal sales forecasts for the rest of the year since they decided to mothball their plans to build their own factory. I read that move as management is not confident that they’ll be able to sell 150K units this year.

If NIO can’t get to at least 10K/month consistently then there will likely be penalties paid to JAC due to insufficient manufacturing orders so they’ll get squeezed on both ends.

Since they have a few thousand ES8’s on the road, they could reassess how their brand and product is being viewed by the market and adjust their positioning accordingly prior to other major EV launches. Unfortunately, due to the slowing economy and lack of consumer confidence, I think Chinese consumers have just become much more price sensitive and with the cheaper ES6 launching soon, they may just be on the sidelines waiting for that.

#NIO #deeptrouble #slowingsales #nofactory #backtobasics


A deeper look at the Byton M-Byte. (www.motortrend.com)

From a car guy’s perspective, this is a pretty detailed and enlightening look at the Byton M-Byte although light on real details about the vehicle and how it actually performs since pre-production models are probably still a ways off.

It would be great now if one of the tech mags could give a review so we could compare and contrast what stands out to them vs. the car guy and how it is or isn’t better than what’s currently out in the market.

I fear Byton may be 5-7 years ahead of their time although most of the scenarios they’ve described in the article can be done already via their phones and are just being repackaged for the car, not that revolutionary IMHO. Mainly, I am not certain these use cases are ready for primetime.

My theory on Byton is that it’s a couple of car guys trying to cram as much tech into a car as possible so they can market it as a ‘mobile device on wheels.’ Even if they’re able to develop a terrific, integrated and customized user experience, they’ll need to convince consumers that these combined experiences have been missing in their life all this time, neither task will be easy.

#Byton #Mbyte #toomanyscreens #lotsoftech #mobiledeviceonwheels #toosoon

Economy

The China automotive market finally falling back down to earth. (www.nytimes.com)

Car companies reliant on China for growth are scrambling to react to the drastic and swift slowdown in the Chinese automotive market. In January alone, car sales fell 18% year over year.

Ford, in particular, is having a tough go of the China market with cars sales falling 70% vs. January 2018.

A slowing economy, young potential buyers that have an affinity towards ride-hailing services, a robust used car market, domestic competition that has risen to challenge the foreign automakers and a trade war has made this year a turning point for the Chinese automotive market.

If these numbers are correct, there will be MUCH more pressure on the U.S. govt. to exempt Chinese made cars imported by GM, Ford and FCA from tariffs, if only to keep the factories running in China. Further, if China is running at ~50% capacity you can expect Chinese made vehicles to be exported to MANY other markets as well if allowed to.

This does not include any additional capacity being currently built out for EVs. The government has recently made it more difficult for EVStartups to gain manufacturing licenses and you can bet that some large OEMs will re-fit and re-purpose older factories in order to manufacture EVs but the China automotive market, once a reliable engine for growth and jobs, looks like it has begun the very painful process of rightsizing itself as it will likely never reach the growth rates of the past.

With dealer lots at record inventory levels and the need to keep factories running, expect margins to get squeezed. Should this last through 2019 and into 2020, look for automakers to permanently close factories to force some of that extra capacity out of the system.   #tough2019 #survivalofthefittest #needmorecapital #pleasebuymore #chineseeconomy


The real deal on car ownership in China’s largest, most polluted and congested cities. (www.bloomberg.com)

Whenever I travel to the U.S. I have frequently been asked about China’s ‘vehicle lottery.’ Truth is, I’ve been in the lottery pool myself in Beijing for over 5 years with still no luck. For those who aren’t clear on how the system works or why China has it in the first place, this article does a nice job of explaining why vehicle license plates are constrained purposely.

Not all of the Chinese cities use lotteries to determine who gets a license, Shanghai and Shenzhen for instance, use an auctions to grant license plates and they have been known to cost up to 95K RMB or about $14K USD.

This license plate restriction inadvertently has also pushed, what would be car buyers to ride-hailing services like Didi here in China. Since they aren’t able to readily purchase a car, many young consumers only know ride-hailing as the way to get around town and now have no desire to own a car since to them cars seem like burdensome and costly non-essential things.

#licenseplates #lottery #auction #Shanghai #Beijing #longqueue

AI/AV

Interesting take on when robotaxi’s will actually be able to perform better than a human. (www.medium.com)

Ed does a good job of breaking this down simply so people like me can understand how he came to his conclusions.

His prediction on when robotaxi’s will actually become the norm, based on simple math and decent sized list of assumptions is 2035. In prior newsletters I predicted that it would take between 15-20 years before fully autonomous, level 5 vehicles hit the road so it looks like I am in the sweet spot.

One assumption I have that he doesn’t is that in order for people to truly feel safe in these vehicles, they’ll have to be statistically safer than a human driver, not equal in safety so that could add a few more years as well.

#MayMobility #robotaxi #mooreslaw #2035 #simpleexplanation


Mobility

Subscription services will slot between ride-hailing and vehicle ownership as a viable transportation option. (www.autorentalnews.com)

This article is a bit wonky but for those that want a deeper dive into how the economics could work they should click and read the article in its entirety.

As the market changes I can see subscription services being a more flexible option for customers who don’t want to commit to one vehicle for multiple years, but is happy to pay a fixed, if reasonable, monthly payment that allows them the benefits of ownership with the flexibility to swap out cars as their mood sees fit.

On the company side, I see this as a very viable business for the large OEMs with multiple, uniquely positioned brands in their portfolio like a GM or a VW. Land Rover could do it as well with their segment of SUVs that touch the spectrum of kinda expensive to very expensive.

This nut will get cracked by someone within the next 5 years so if you think you have a better way or more appropriately, a profitable business model, then maybe its time you placed that bet on yourself and get it to market! I am happy to help in any way I can should you need some industry connections or introductions.

#subscriptionservices #makethenumberswork #whowillcrackit #newbusiness


Investments

With a $1.5B USD investment in Chehaoduo, Softbank believes there will be major growth in China’s used car market. (www.techcrunch.com)

Used cars have only recently begun to be a viable option for Chinese consumers who want a Bimmer but couldn’t afford or didn’t want to pay full fare. Acceptance has been accelerated due to the economic slowdown and so Chehaoduo is in a good position to really take advantage of these changes in consumer acceptance and with many more options available to consumers, they should be able to capture a large share of the growing used car market.

We’ll keep an eye on whether investing in bricks and mortar retail locations become a drain on their capital though.  #usedcarmarket #secondhand #growing #biginvestment #chehaoduo #manycars #Softbank

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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