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Tesla Blind in the Dark, ID Series to Sell 80K in China, GM No Confidence in LG - SAI Newsletter 34



The big event going on this week is the Chengdu Motor show and there are a few interesting launches that I am tracking including the VW ID.3, Friend of Sino Auto Insights Lei Xing also has his eyes on the following launches so I’ve pulled the Introducing section up top for this week (links are for those curious to see what these cars look like). Also, all with the exception of the Tank 500 are BEVs: INTRODUCING Chery QQ Ice Cream – A copy’cat’ (see below) …er I mean competitor to the Hongguang Mini EV. No pricing revealed yet. WEY 复古潮驾(Retro Hip Ride?) – A Volkswagen Beetle and Plymouth PT Cruiser had a baby. An ugly one. ORA Ballet Cat – The Ballet Cat joins the Punk Cat as electric copy’cats’ of the Volkswagen Beetle? Audi Q5 e-tron – Not unlike a rebadged VW ID.6 although the folks in Ingolstadt would tell you otherwise. BYD Dolphin/Xia – One of the most anticipated launches coming out of Chengdu (along with the ID.3). Decent looks, low pricing, and fully featured – it should be a high runner for BYD. Tank 500 – Renamed to the 500 from the 600. A hybrid that will compete with Toyota’s largest SUV the Land Cruiser. Great Wall Motors (GWM) is really being bold with some of these vehicles. It’s a bit disappointing to see and there’s still no word from VW about whether or not they’ll pursue any remedies for their GWM’s ‘borrowing’ of such iconic IP. We will discuss the Chengdu Motor show in more detail during this week’s 'China EVs & More' on Twitter Spaces, as usual, this week Thursday – 8:30pm EST. Please do join us. For those who can’t join in real-time but are interested in listening to this week’s or past episodes of China EVs & More, you can find them by scanning the below QR code:

Finally, I wanted to also let you all know I’ve launched a rebranding of sorts. When I started the company a few years ago, I used two generic icons that a hastily put together for my logo. I have quite a few very opinionated friends (don’t we all?), some of them that happen to work in the visual/digital design space that thought I should do better. With this new logo, I think we have. We’d been working on this for some time. I’d thought about hiring a professional agency for a total rebrand but decided that this was pretty personal and wanted to do it myself. I did draw some inspiration from a freelance designer I hired on Fiverr. For those wanting to try that site for outsourcing simple tasks at an affordable price, I will give it the thumbs up! I will be using them again for a few tasks I think the independent contractors on the site would be perfect for. Here’s a brief explanation if I may. The blue and green colors are pretty obvious representations of clean energy and blue skies. Since we play in the space where technology and transportation meet, let’s collectively call that the ‘mobility’ space, the logo represents that intersection. The two arrows that are pointing left to right and vice versa represent our work helping western companies do business here and Asian companies that want to enter the EU or US markets. I still may tweak it a bit more but I am pretty happy with the end result. There has been no let-up over the last several weeks as to some of the crackdowns on data security/privacy, anti-competitive tactics, and after-school tutoring. You can now add gaming to that list. The Chinese govt. has explicitly outlined how much a child can ‘game’ on a platform each week and it’s not much, try 3 hrs on for size. My boys aren’t yet gamers so it’ll have little effect on them but there are many parents who are freaking out about the combination of no more after-school tutoring along with the no gaming rule. All of these really aggressive regulatory moves have wreaked havoc on Chinese stocks and I don’t see any let-up just yet. This gets me back to Didi. The investigation into Didi is still ongoing with no indication of when it’ll end or how severe any of the penalties will be. There was a NY Times article yesterday that didn’t provide any further clarity on those specifics but it does give a bit more color and detail into why it all happened. It’s worth a read for those that haven’t followed it for as long as I have. For those that have, we knew Didi, depending on which cities, was operating in legal gray areas and/or outright illegally while deploying hardball tactics against their competitors to push them out but there wasn’t any indication that they were going to receive anything but a wrist slap for being out of ‘compliance.’ The combination of what happened to Ant and now Didi should leave NO DOUBT in any investor’s mind that no sector is safe, especially if there’s (personal) data or national security involved. TESLA NEWS - Just after NHTSA launches their investigation into Tesla vehicles being blind to sirens in the dark, another Tesla hits a parked police vehicle on a Florida highway in the dark. The driver confirmed that Autopilot was activated. Luckily no one was injured but this is 11, sorry 12 incidents and counting that are being investigated. Most articles focus on the accidents themselves so I am not sure about this, but do the drivers involved get ticketed or formally reprimanded in any way? How ironclad is the liability disclaimer on Autopilot/FSD use? It’ll likely be tested in court if it hasn’t yet been. IN THE NEWS - Don’t let all of the ‘positive’ outlooks from management at VW brand fool you, ID.3 sales in China are key to the ID. Series vehicles becoming a long-term ‘thing’ here. Right now, ID.4 & ID.6 sales in China aren’t where VW would like them to be. Sales were reported to be at 5.8K in July combined. VW earlier this month doubled down and reiterated that they expected 2021 China sales to be at 80-100K units total despite the challenging first few months of the year. Assuming they’ve sold 15K combined year-to-date (they haven’t sold that many but follow me here). That means they’d need to sell an average of 13K units/month (65K/5 months) through December to hit 80K, the low end of their target. Now, ID.3 won’t begin delivering until October at the earliest, so the two vehicles that have lagged significantly in sales will need to carry the weight of expectation until reinforcements arrive. The bottom line is that this is going to be an extremely tall task since the predecessor ID series vehicles have received a fairly lukewarm reception from Chinese consumers. That’s unless they plan to cut pricing on either or both vehicles. We’ve heard at least one of them, the ID.4 will get a haircut later this year so we will continue to monitor for that. Let’s game this out a bit. First, VW is converting 2 factories here in China for dedicated EV manufacturing. That’s a total of 600K units of capacity. These factories are already running so most of the employees are already hired and working. Second, the current NEV market is forecasted to hit 3M units this year. That’s an average run rate of 250K units/month sold! So you’d think that a goal of 2021 sales at 80K would be doable. VW's current market share of ICEs is ~20%. We’ve seen companies like BYD take share in this market but so far no good for VW. Management will tell you that it will take some time for the market to learn about their new EV products and they’d be correct in pointing that out. But VW doesn’t have the luxury of time for their electric-powered products to gain traction over a long period of time. More serious competition is on its way in 2022 & 23 (think: Jidu, IM, the Mustang Mach-E, and others). If VW can’t establish a beachhead in China now while competition is intense but not yet to full, mature all-out war levels, it’ll be hard-pressed to do so, no matter the amount of money they want to spend to acquire customers. That also means that the sub-brand ID will have a really difficult time of positioning itself among the more established players as well as the newer ones, which will likely get the bulk of the press in 2022 and beyond. Worst case scenario, by the end of 2023 VW brand will be strapped with overcapacity, a sub-brand that doesn’t resonate with Chinese consumers and consequently can’t sell vehicles, and competition that is guaranteed to get even more fierce. I bet the folks in Wolfsburg are looking at this scenario as well. Because it’s a real one they could see themselves in very shortly. And this is even before we calculate any supply challenges due to battery or chip shortages. VW leadership may need to load up on that Pepto Bismol since it looks to be that type of situation until at least the end of this year. - Report says that Tier 3 & 4 cities will drive a lot of the growth in the automotive space both in-vehicle & aftermarket sales with the Digital Natives or those born >1995, being the main buyers. According to the 2021 Automotive Consumption Report of Gen-Z by JD Bid Data Research Institute, there were 281M automobiles in China at the end of 2020 about equal to the US so China is poised to overtake the US in the coming years. They’ve already surpassed them in NEVs on the road. One big takeaway from the report was the convenience of having an O2O customer engagement strategy as consumers surveyed preferred booking test drives and services online but test-driving or receiving the services in-person. Another surprising statistic is that there are more women currently in 2021 that purchase motorcycles than men. One thing I will note is how loosely defined motorcycles is so that could include mopeds. This tells me that we are still in the VERY early innings for EVs, car accessories, ride-sharing, and anything else related to mobility and that we could still conceivably hit 30M units of total sales (ICE + NEV) before 2030. - NIO invests in Lotus Technology, which develops EVs for the Lotus brand around the world. Lotus Technology this week broke ground on their global headquarters in Wuhan and looks to launch a number of vehicles by 2025. Lotus has historically had a rich heritage in racing but an equally frustrating history of not being able to make money consistently. They’ve already broken ground on a factory that is supposed to have an annual capacity of 150K in Wuhan and will come online later this year. Lotus’ high-end hypercars will still be built in the UK but its more affordable, soon to be electric products which include a future SUV, will all be built in China. For those keeping score, Geely has owned a 51% stake in Group Lotus since 2017. So it looks like Geely and NIO are indirectly sharing in the duties of moving the Lotus brand into the EV era. Let’s see if they’re any better at it than their predecessors and whether or not they pursue any further tie-ups? - Jidu product development moving along quite well, thank you. Wind tunnel testing means that Jidu has effectively frozen design, at least the general shape of the vehicle, and are now going to work on the finer details. Buying (or licensing) the platform from Geely makes things a lot easier and quite a bit faster but it also creates constraints in how a vehicle can be designed. That said, with their aggressive timeline, Jidu wouldn’t have been able to start from scratch to hit that target date of a 2022 Beijing Auto show reveal. Can’t wait to check it out! - The Chinese economy is weakening. Except for electric cars & luxury goods. With all that’s happened in China recently, whether it’s flooding, Covid, or the clampdown on traditionally important sectors to China’s economy, it’s probably not that surprising that the economy is slowing. Although the passenger vehicle sector is shrinking, the bright spot is the NEV sector, which has sales forecasted to hit 3 million units this year, or almost 50% higher than originally forecasted late last year. I don’t foresee that changing either. Both the uncertainty of what’s happening in all of these sectors and the continued strength of NEV sales. That’s unless chips really start to choke production which seems more and more likely. - GM Not confident that LG can currently build a defect-free battery cell. GM has issued a recall of their Chevy Bolt because of the risk of a battery fire due caused by a manufacturing defect. That is what they know. How that manufacturing defect came to be and whether or not it’s on all of the battery cells currently inside bold battery packs is unclear, and therein lies the rub. Because the battery is manufactured by LG, and they also package the cells into a module and then into a pack. That’s a lot of handling and a lot of areas that can go wrong. It seems out of an abundance of caution (and potential liability) GM has decided to halt Bolt production and NOT repair current recalled Bolt’s until they are ‘confident’ that LG has been able to root cause the defect and eliminate it from the current manufacturing process. The reality is that GM accepts a small amount of risk because there is always a chance for failure. The key here is that LG is not able to meet GM’s acceptance rate. This is extremely meaningful since not only will the recall cost them >$1B but anytime an auto manufacturer idles a plant, they’re not making money at that plant and are in fact losing money since they’re still paying for those employees to not work and all of the fixed costs associated with that factory. This is a HUGE black eye for LG, who was one of the frontrunners in battery technology and manufacturing. Not only due to being called out in such a public way by GM likely one of their largest, most important customers but to have this quality spill hang out there for so long without any resolution in sight. I’ve said this before but it bears repeating. As more capacity comes online, new software is developed to optimize range, and BMS systems are tweaked to maintain cooling on the battery packs, there will be issues like this in the future from other battery manufacturers. CATL could be one, likely if only because they’re the biggest dog around. Let’s hope that both GM and LG learn from this situation and can build further quality into their system so that these issues can be caught before the parts are actually bolted onto the vehicles. TRENDING ON SOCIAL MEDIA - Alfa Romeo plans to be ALL-electric by 2027. There is a good chance that it can beat all its other rivals to the punch mostly because there are currently only two models in its lineup. The Stelvio SUV & the stunning Giulia sedan. - Dodge to revive the Fratzog logo for their first foray into the electric muscle car era. I had to do some googling since I’d never heard of this logo myself. Turns out it wasn’t that significant historically. Let me take that back, maybe for the MOPAR nuts out there it was meaningful. Nostalgia for an EV? Let’s see how Dodge squares that circle. That said, I am keen to see how they define the obnoxiously loud, burning rubber image that Dodge has carefully cultivated over the last several years with the move to a battery powering their muscle cars. JUST THE NUMBERS - -$80B. That's a negative number. That’s how much value has been erased from China Evergrande New Energy Vehicle Group’s (NEV) market cap over the last 5 months due to its parent company’s debt woes. It’s not just the parent though because NEV talked all kinds of smack about launching 9 vehicles in a few year’s time with a goal of being the largest EV maker in the world. They’ve shown us nothing. Even at the auto show, their chance at a coming-out party, nothing but mockups and vaporware. This was not surprising and years from now, we could be pointing back to this being China EV, Inc’s Luckin moment. - $80B. That’s how much Rivian is pushing for as a valuation when it goes public sometime around Thanksgiving. Let’s recap some current stats: Rivian = 0 cars sold, est. $80B valuation Lucid = 0 cars sold, $33B valuation XPeng = 27,041, $35B valuation NIO = 43,728, $62B valuation Tesla = 499, 495 cars sold in 2020, $724B valuation GM = 6.8M vehicles sold in 2020, $71B valuation It seems like someone’s calculator isn’t working properly or someone has fat-fingered a cell in the excel spreadsheet being used to value these startups. I don’t believe they’ll get to $80B but anywhere close and you better believe all of the early investors and founders are VERY happy. They’re entering when they still have a lead but with Hummer and Ford launching into the lucrative electric pick-up/SUV sectors <1 year, Rivian doesn’t have time to make that many mistakes. —— 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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