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SW forces Δ at OEMs, Gotion to Supply VW Outside China, the Vinfast Money pit - SAI Newsletter 18



 

The big news this week is all about software. How VW Group continues to flail with their Cariad division and how GM went big and bold by hiring an Apple alum. Most of you that have read this newsletter since the early days know that I believe that until legacy OEM management recruits real ‘tech’ talent to be leaders at their companies, they will continue to spin their wheels and lose ground to Tesla and China EV Inc. Here’s a brief reminder of what I wrote two weeks ago:

It’s just really hard to pivot away from a cash cow to move into a space where you’re completely unfamiliar with how to design, engineer and even manufacture the product. On top of that, the heart and the soul of the product, the software that enables the engagement with the customer has always been the afterthought for those automakers. Making it the main course – means that the leadership of these companies need to all look themselves in the mirror and bring on people that have loads of experience in that space, specifically where they do not. Where has that happened? But not just to hire them so that they can be managed but hire them to lead. A hard (in still many cases an impossible) pill for many proud, and previously (unquestioned) management to swallow but that’s what needs to happen. And except for a few younger high potentials here and there, most of these automotive companies have industry veterans with 20, 30-40 years of experience that ‘earns’ them their right to their opinion. Now, look at Kyle Vogt who’s 36 / 37 years old and the CEO of Cruise. That makes him basically an SVP at GM. I wonder how many GM managers with all that experience are like, I’d NEVER want to report to someone that much younger than me, he doesn’t ‘understand my business.’ But GM didn’t hire him, he was acqui-hired when GM bought Cruise. Contrast that with Ford and the Model E team, they hired Doug Field after which he basically hired a bunch of high-tech managers to lead his teams. Look at Ferrari – they hire a Benedetto Vigna who led a chip company to lead the team. Will all these bold moves work, of course not but small, evolutionary moves now are a one-way ticket to exiting the China market. Most of the legacies won’t be able to make the pivot, not in the small window that they need to and unfortunately, in a fit of desperation they’ll likely hire an up and coming tech exec to lead their diminishing operations. It’ll be too late. Allow me to be a bit of a wet blanket here though. Software development isn’t easy. In fact, it’s really f’n hard. For companies with ninja-like SW Dev teams, their expertise is nurtured because it’s part of the company culture and their DNA. For example, at Apple the gods were the designers, SW developers and the product & marketing folks, every other department was a back-office function where warm bodies were shuttled in and out. That was by design too. If you can’t handle the boiler room atmosphere, especially on the Ops side they’d rather you not be there. There are folks lined up 5 deep outside the office willing to take your place. Its why Apple is now the most valuable company on the planet. With Amazon, Alphabet and Meta not far behind. Because they’ve been able to build those ninja SW Dev teams over years of trial and error. Further, a good/great software developer can make or break a team and get a product out the door on-time and (fairly) bug free. A bunch of good software developers can literally work miracles. These aren’t things you buy or develop in a few years’ time. And you’re not gonna get it done with a bunch of car guys still calling all the shots because they’ll be talking an entirely different language to the dev teams and there won’t be that respect because the car guy has no idea what the dev is building or how it’s built. But this is where we are. If YOU wanted to build a product that could compete against not only Tesla, but BYD, NIO, Zeekr, XPeng and Li Auto would you start with putting a car guy at the top of the ticket? Now let me be clear – I think the current leadership at the automakers can get it done. They must get it done. Or else. But the management teams are carrying a lot of dead weight and dead weight ALWAYs slows you down. They want to make the sizes of the companies smaller, but they want to keep all of the management? Don’t listen to what the CEOs are saying but keep an eye on what they’re doing. Software development costs should be one of the expenses that continues to grow – find out where they park it on the financial statements – Where does it sit? Is it part of the product costs? Or is it allocated out across products? A quick look will tell you how they really think about how important software development is. _________________ Having written all that just a few weeks ago and believing real change at the OEMs means new leadership with the right experience it’s not surprising what has transpired this week with two of the major global OEMs. Cariad was basically gutted. CEO, CFO, CTO all got GOT. This is like the 27th reorg for Cariad if we’re keeping score (I kid…) but what do reorgs tell you and the market? That management doesn’t know what it’s doing. This was Blume’s opportunity to bring in a hardcore tech guy, but what did he do? He brings in another lifer, Peter Bosch. Per Blume "He is a strategist, an enabler and a team player.” Unfortunately, nowhere in that statement does it say that Bosch is a high tech/software ninja, which is what that role needs. This tells me that Blume would rather surround himself with lieutenants that will protect him rather than actually getting shit done (GSD). That they continue to flail in the future is a real possibility. Let me also add that this is totally disheartening for the VW Group China folks since it’s crystal clear to see that VW needs to move faster and get the ‘right’ people in place. And no offense to Bosch, but his ascendence does neither. Alternately, GM has shown through it’s acquisition of Cruise in 2016, kicking Apple out of it’s vehicles a few weeks back and just this week it’s hiring of an EVP of Software that they’re much more open to technology being a major, strategic piece of their future. Volkswagen has shown that it loves to reorg Cariad. This tracks with Ford’s hiring of Doug Field to lead it’s EV business. How much leash Michael Abbott gets from Mary is still in question, but it looks like she’s rolled a few of the other disparate digital / software leadership roles under Abbott. Now, how uncomfortable is it going to get there? If Abbott is doing his job, things should get pretty uncomfortable in Detroit and Warren before the end of summer. Abbott has an extremely challenging job ahead of him and his team (some new some current likely) but I would have to believe that he wouldn’t take this role unless he was assured that he’d be given the freedom to do what was necessary to get things done right the first time. That’s what I heard Doug Field get from Farley anyway. Why would Abbott accept anything less? Since they’re both Apple alums, I wouldn’t be surprised if Abbott contacted Field to talk through this career change. Things are starting to heat up at the US automakers, but the Germans still think they can get it done with the team that got them into the mess. I believe them to be wrong.

CHINA EVs & MORE The China EVs & More live show will be hosted on Twitter Spaces at 3pm EST on Thursday. For those that 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. Also, if there are any companies you want our thoughts on, let me know. I’ve just posted episode #110 and we’ll get #111 posted this week as well if not #112. Apologies for getting behind but we’ll make up for it. INTERVEWED/QUOTED - I had a nice chat with Sinocism’s Bill Bishop for his podcast that just posted yesterday. For those that aren’t familiar, Bill is one of the most respected China analysts in the world – full stop. He’s what we call 老北京 or an old China hand. I met Bill while we were both living in Beijing and I consider him a good friend. He literally has thousands of subscribers for his almost daily newsletter and is someone govts, diplomats and CEOs alike follow. Bill wanted to catch up and get my thoughts on the Shanghai auto show and talk more generally about how the Chinese automotive market turned into the EV hotbed it is and the roles of China EV Inc and Tesla in it. I invite you all to have a listen. You can find the pod here. - Reuters. Some stats from the linked article that I was interviewed for:

  • Currently 90 EV SUV models in the China market

  • 20 new products launched in April

  • SUVs represent 40% of all vehicles sold in China market

This creates a bit more context as to why the China market is so brutal. Can you imagine trying to get someone’s attention when there are literally 100 other products in the market also trying to elbow their way onto your screen? This is also one of the primary reasons the export market is going to be key for a number of these brands, specifically if their products don’t resonate or sell well in China. Always keep in the back of your mind that there are assembly factories that are either idle or running that either need to be paid for along with the employees at those factories. Now imagine there are 3, 4, 5 levels of suppliers that support each assembly factory. So not building equals crippling costs that can close the doors fast on an ailing company. TESLA - Tesla sold ~75K with about 35K (~47%) of them exported to foreign markets. Still solid numbers and Tesla’s MO has always to hold off to period 3 in each quarter to mass ship domestically. Another statistic worth noting is that the MIC MY sold in an almost 2 to 1 ratio to the MIC M3. NEWS THAT GOT OUR ATTENTION THIS WEEK - Semi solid-state batteries coming from NIO in the near future? NIO has filed paperwork with the Ministry of industry and Information Technology (MIIT) in order to use this new technology on three existing vehicles. Those vehicles were not identified outside of vehicle type (two SUVs, one sedan) but using semi solid-state batteries should increase range with adding very little weight. It’s also unclear how much cost this may add to those vehicles as well. HuZhou WeLion will be supplying the batteries. - Gotion to supply VW Group with both NCM and LFP battery cells outside of China. This would mean that the PowerCo facility that was announced last month will be run by Gotion. This is a BIG bet on Gotion from VW Group but I can’t help but think that if Gotion falls down, they’ll also have CATL or BYD supplying a decent % as well, either via exports or eventually through local production/fabrication. Recall that Gotion also announced that they would be building a battery component factory in southwest Michigan which has received a ton of pushback. GET SMARTER - As EV adoption increases in China (and the rest of the world), political tensions create opportunities for domestic Chinese chip designers to onshore supply for China EV Inc. Tensions between the US and China along with sanctions on chips shipped into China by the US govt has created an opening for the next set of ambitious founders in the EV chip space in China. The article points out that there are >8.9K car chip makers at the end of 2022. Car chips aren’t the same as the Nvidia & Qualcomm AI chips but with competition pushing cutting edge technology in EVs forward, the foreign chip designers loss is the domestic chip designer’s gain. That’s because the Chinese EV companies are looking to mitigate some of the risk of getting shut out of supply from the foreign chip companies and the domestic players are happy to oblige. We’ll also likely see further reliance and pressure on Chinese chip designers like Black Sesame and Horizon to try to catch up to Nvidia on the AI chip side, a herculean task at best and an impossible one at worst. Will they be able to step up? Not before the end of this decade likely. TRENDING ON SOCIAL MEDIA - VW and China’s long history. For those that don’t know all of the history between VW Group and China, we have to go all the way back to 1984 when SAIC VW Corporation was established. I don’t want to get into too many of VW’s challenges in China since we’ve done that ad-nauseum in past newsletters but there isn’t any sign that the bleeding will stop anytime soon, especially now that they’ve blown up the (software) shop and are effectively handing it over to another software neophyte. VW Group will have to navigate some choppy waters in China and the EU (at a minimum) in order to salvage their global footprint. They’ll not likely reclaim their sales volume but the China market is still their most important in terms of profitability so they have to be ‘all-in.’ Unfortunately, being all-in on China is right where the Chinese govt wants them. A lot of great insights and data in this FT article so it’s worth the click and read for those wanting to learn more about VW. - Porsche will use Mobileye for it’s L2/3 ADAS system. Now, if I had a 911 or Taycan or Cayman, I’m not sure I’d give up driving for any reason, too much fun. But it seems that even a brand known for it’s iconic sports cars believes that their customers want to be hands off here and there. It’s likely more for their SUVs but it’s a necessary feature that will be part of every major automaker’s set of standard features. Now, how much will they charge for it? Because I bet they’re looking at the economics of doing just that. And will ADAS be calibrated to Porsche spec because if not, what’s the point?


BY THE NUMBERS - $8.2B. That’s how much capital Vinfast has burned through over the last 6 years with no end in sight and no relief from a now delayed IPO. Pham Nhat Vuong, Vietnam’s richest person who also happens to be footing Vinfast’s bill is doubling down and lining up another $2.5B in capital, of which $1B is his own money to get production rolling on the already revealed EVs. Deliveries have already begun but unless there is another large capital injection, production is going to sputter and the company will flail. See Faraday Future. I love the ambition but for Pham, his entire fortune is something that Elon loses in a day after a harsh tweet. At this point, there’s very little chance that North Carolina factory ever gets built.

___________________ 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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