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Tesla earnings Very Revealing, US AVs in Japan, Closing Chip Loopholes - SAI Newsletter 39



 

We start this week off with no real updates on the UAW strike front. Bill Ford did make an impassioned plea via video to the UAW leadership about coming to the table to end the strike after the UAW last week shut down one of their most profitable factories in Kentucky.

One item of note – Bill specifically called out Toyota, Honda & Tesla for building in the US but not having union employees which is a bit peculiar since Bimmer, Hyundai, Merc and Volvo also build in the US without UAW employees.

Bill was also interviewed by the NYTimes to give more detail to the thoughts he shared in his almost 9 minute speech. I largely agree with his responses in the interview and it’s worth a read for those that have a few minutes.

It’s also eyebrow raising that Bill mentioned China EV Inc wanting to ‘enter our home market’ because he’s absolutely correct with that statement but not many Americans are really aware of the potential for damage that these companies could do to the domestic automakers if they did or more appropriately, when they do.

Let me assure you that the US govt is keenly aware of this fact. So far, the combination of Inflation Reduction Act (IRA) and the 27.5% (25% +2.5%) tariffs on imported vehicles from China is helping to keep them at bay but that’s only going to work for so long – my guess is that before the end of 2025, there will be at least a few Chinese brands that will have either begun to or will have announced they will begin selling in the US market.

We talk about economies of scale being a great friend to automakers and what better way to create them than to sell into the two largest markets in the world? The Chinese automakers ALL know that it’s a long-term play and they’ll eat most of that 27.5% tariff to allow their brand to marinate in the US market and build awareness and trust. If they see success look for them to quickly move to building locally in North America (NA) – am thinking that 3-4 EV cos easily will announce or already have a manufacturing started or completed in NA before 2030.

QUOTED

- Wired. This article has made it around the way and it’s a great piece. It further cements the fact that China EV Inc has woken up the rest of the world. They are ready for their big moment (in the European market followed quickly by the US market) and won’t shrink from being in the spotlight.

My specific quotes in the article aren’t going to win me any fans at the OEMs or Tier 1s but it needed to be said, nonetheless. I effectively questioned why there hasn’t been more scrutiny on automotive management when, during the biggest moment the sector has seen in their lifetimes, they were all caught flat-footed, like an audience just watching everything happen in China the last few years.


They still seem to be paralyzed as China EV Inc begins to encroach on their home turfs. The US govt at least was able to roll out the Inflation Reduction Act to blunt some of the impact to the domestic US market.

The European automakers have no IRA protecting their domestic players, not yet anyway. Will that change, I am not so sure, but we shall find out once the cheap Chinese EV probe is completed.

- Financial Times. Aiways has always kind of been in the European market since the early days of China EV Inc. It’s the market they focused on first, even before China. This could’ve been the case of too early to the market.

Unfortunately, Aiways has never really been able to gain any significant traction in either Europe or China which has made expanding its lineup and supporting expansion pretty tough. Aiways may be on their last legs too with a factory that’s not currently building any vehicles (so no revs being generated) and not enough cash to pay employees.

Employees & founders still hope that the capital can be raised to try and rebirth the brand, but it isn’t looking good.

GET SMARTER

- Closing loopholes in the chip ban to China. Whenever the US govt creates any trade restrictions, there are usually a number of loopholes that companies and countries can use to get around the restrictions. That was the case last year when the US govt decided to ban the sale of the highest performing silicon used to train AI models. There were ways around the restrictions, and they were used.

As the article states, once the ban was announced and put in place, Nvidia quickly retaped its most sophisticated silicon and binned it down so that it would be below the US ban speed threshold.

The commerce and trade department must’ve learned from past mistakes because they’ve circled back to make the ban clearer and for all intents and purposes, loophole free.

Keep a close eye on the Economist, Financial Times, WaPo and other media outlets that specifically track US China relations. If the rhetoric on the China side increases by a few degrees, you’ll know that the tightening or more appropriately, the closing of said loopholes has started to bite.

Of course, the risk here is that China’s silicon national champions, companies like SMIC, Horizon, Black Sesame to name a few are eventually able to design ASICs (application specific integrated circuit) that match the speed of Nvidia & Qualcomm’s which means US & European companies will lose out on future potential sales opportunities. This isn’t over by a long shot BTW; I expect that this won’t be the only sector that bifurcates.

BIGGEST NEWS OF THE WEEK

- The much rumored Stellantis & Leapmotor mashup hit’s a snag. I thought an announcement would’ve been made by now so rather than speculate too much further, what I can say is that the deal hasn’t been completely blown up but that it isn’t looking good. But this was a real deal that both sides needed to happen so curious to know what the ‘showstopper’ was. Likely only one or two snags, but big ones.

- Honda, GM, Cruise to launch an AV service in Japan in 2026. For those of you wondering, this points back to me writing in previous newsletters that Chinese and US AV startups will try to carve up the rest of the world between the two of them since there are no other countries with significant players in the space. This is a case in point. Think about who their allies are and that’ll give you a good idea where loyalties and launches may lie.

The real fight is going to be for the countries that seem more neutral to both countries.

- GM to delay the launch of Silverado & Sierra EV production at Orion Assembly by a year. There’s a slowdown happening in the US market towards EV adoption, yes. A few huge factors at play. The lack of charging infrastructure. This will be remedied within the next 24 months. I promise.

Then, the lack of available cells, specifically affordable ones. This means there will be a lack of affordable EVs. First, the Silverado and Sierra EV pickups were going to be out of reach for most consumers. The China market did the exact opposite.

The bulk of brands and products launched initially were in the mass market so pricing encouraged more folks to make the jump. Here the automakers are doing it backwards because they have effectively no control over battery supply chain.

What’s important here is that as long as more products continue to be launched and investment continues in building charging infrastructure, EV and battery production capacity and continuing to educate and create awareness about EVs, we should see a steady increase and hopefully the hockey stick begin to take shape in 2027-ish timeframe.

If we still struggle with pricing and adoption at that point, the domestic automakers are going to be in a lot of trouble because China EV Inc will be paying close attention to the US opportunity.

CHINA EVs & MORE (CEM)

Back to our normally scheduled programming – 9am ET on Friday. Join us if you’re free.

If you’d like to join the live show, follow me on X: @sinoautoinsight and at 9am at the top where the Spaces rooms show up, you should see our show. It’s an opportunity to ask any questions and have discussions with Lei and I so if are itching to know more about something, join us tomorrow morning!

If you can 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.

TESLA

- A dose of reality from Elon on the earnings call. Highlights. Cybertruck isn’t very manufacturing friendly so taming it will be timely and costly. Clearly Franz didn’t hear, listen or care what his manufacturing team thought about the manufacturability of his design in this case.

Next, head winds mean that we may see lower sales and lower margins in 2024 for Tesla. I think that points straight at the China market and the challenges Tesla faces there where the combined manufacturing and sales make it the most important market for Tesla. Full stop.

MexicoCityGiga is on the back burner for now for Tesla. That sound you hear is the popping of the Tesla STAN bubble, the one that thought they could get to 20M units by 2030.



BY THE NUMBERS

- $240M. That’s how much state-owned enterprise Changan plans to invest to build an NEV factory in Thailand that’ll initially have a capacity of 100K units. It’s a bit dizzying all the brands that are associated with Changan with HQ in Chongqing – hot pot heaven!

Most notably, Changan is Ford’s JV partner and builds the Mustang Mach E for the China market. But there’s more. They also have their own Changan brand, AVATR, Deepal (or Shenlan in Chinese) and recently launched another EV brand – Qiyuan. I do know that AVATR will be their premium brand (for now at least) but aren’t sure how these other brands fit into the portfolio of brands, at least not yet.

If I were Ford, I’d not feel real good about the partnership moving forward BTW.

- 620 miles. The Stella Terra, a university student designed and developed solar car just off-roaded through Morocco and the Sahara that total distance all on a single charge. Of course, it was being continuously charged via the solar panels but that’s kinda besides the point. It’s a funky looking, lightweight car but I like the looks. And I hope automakers are taking notes. And finding out the students that made it possible so that they can recruit them to their companies.

INTRODUCING

- Another Chinese built EV in British clothing. Job #1 of the new MIC electric Mini Cooper rolled off the line in Zhangjiagang. It’ll start China & global delivery sometime in early 2024. Pricing has still not been announced but let’s just say it better be priced to move or it literally won’t move off the factory parking lot because there will be competitors aimed directly at Mini’s traditional market.

- The Hongqi L5. At 6M (or almost 20’ for the Americans) and over $680K, let’s say this IS China’s version of a Rolls Royce. Hongqi was the OG Cadillac for government officials. It’s recently been revived by its owner, FAW and I mean, Hongqi literally means Red Flag so there’s that.

It’s definitely not as cool as the old skool Hongqi’s (pics courtesty of Car News China) from back in the day but there will be buyers for it. And a few, very rich foreigners clamoring to have it shipped to their countries.

- The Grounded G2. For the sake of full disclosure, I know the Grounded guys. They are my friends, so I am definitely ALL-IN on supporting their startup. That said, the latest offering from them is SICK. And is a big improvement from their G1. The biggest improvement you ask? Going from the 120-mile range in the G1, which was cute to a now very respectable 250-mile range.

To properly launch it, the team is on a 1,200-mile tour of Michigan, cameraman in tow and all so the trip should be well documented. Will post the link once the video is available. I hope they also show the challenges of charging in Michigan because it’s still a bugaboo that needs some attention and funding if we’re going to move Detroit /Michigan into the ‘serious player’ category of EV adopter.

Oh, and next time Sam, make some room for me on the road trip!

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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 global automotive and mobility sectors. 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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