Tesla hits $420, NIO Q3 sales bump, Nike's omnichannel appoach - SAI Newsletter #01
Chúc Mừng Năm Mới! 新年快乐! Happy new year / decade all!
May 2020 and beyond be filled with success, excitement, adventure and lots of laughs for all of you!
It’s been a busy last couple of weeks for me and there’s a lot to talk about, most of the important stuff I’ve highlighted below. Taking a moment to reflect on the year and the decade, something I encourage you all to do, a lot has happened in my life, both personally and professionally, some challenging but most of it good to great including my decision to start Sino Auto Insights.
My plan this year for Sino Auto Insights is to take it a couple steps forward in order to grow and evolve. You’ll be seeing a bit of that evolution via some of the exciting stuff I have planned that I’ll roll out later this year. Will keep seeking out projects that push boundaries and encourage our clients to continue to increase their risk appetites with the goal being to help them develop products/services that move the automotive and mobility sectors in the US and Asia forward. If you’d like to discuss how we can help your team do this, get in touch: email@example.com.
If there is anything in particular you’d like to see out of me or this newsletter in the future, whether it’s more (or less) analysis, newer topics, whatever it is let me know. I look forward to all your suggestions and constructive feedback.
One of the cool things I spent my time on last week was being the guest of Technode’s China Tech Investor podcast. We talked everything China EV sector for 2020 and beyond. I had a blast with the hosts, Elliot Zaagman and James Hull and we covered a lot of different topics from subsidies, competition, investment, to innovation and even NIO so I invite you to have a listen. I hope I’ll be able to do something like that again very soon.
A correction I’d like to make about an answer from the podcast was my statement about there being only two main Chinese, non-state owned auto manufacturers. I should’ve also mentioned Great Wall Motor, who is the 2nd largest privately owned auto manufacturer and the largest manufacturer of SUVs in China. They’ve been able to buck the trend of slowing sales by growing ~7% year-over-year so far in 2019. Thanks Werner for bringing this oversight to my attention!
I’d also like to take this time to thank all of you for subscribing and supporting this newsletter. I strive to keep it interesting and filled with information that is easily digestible so that each time you read it, you’ll learn something new. Distribution has grown but I’d like to ask for your help, if you feel there’s value in reading it, please do encourage anyone you think may also enjoy reading it to sign up.
IN THE NEWS THIS WEEK:
- Tesla hits $420 (in my best Beavis and Butthead snicker) last week & begins shipping China made Model 3s (to employees first). With Tesla hitting this nebulous target price, I wanted to compare their stock price performance over the last 10 years & its current market cap with some of their main competitors.
If you believe that markets are efficient, then this is definitely one of the main storylines of the decade in the automotive space.
- The sweet deal Tesla was able to negotiate for its loans in China. I spoke a bit about it with Ryan McMorrow of the FT who’s written about it here, you may need a subscription in order to read it.
- NIO EC6 – The Model Y fighter.
TRENDING ON SOCIAL MEDIA THIS WEEK:
- Carlos Ghosn – international fugitive, how he evaded Japanese authorities is a MAJOR headscratcher and a movie will likely be made because of it. Dials the ‘intrigue’ and the ‘this is starting to get interesting’ factor up a couple of notches so I’ll be tuning in to find out what happens next!
- NIO’s reported some really good news for Q3 earnings. More on that below.
- The top apps, games by download and consumer spend this past decade.
- 2019’s top defining moments in venture capital.
- Rivian secures another $1.3B investment from T Rowe Price, Amazon, Ford and Blackrock mainly valuing them at ~$4B
- Most memorable sports photos of the decade.
- The biggest disruptors in transportation and mobility.
- The cheeky, but awesome WM Motor product sneak peak, a sedan to be intro’d at this year’s Beijing auto show, that popped up on LinkedIn during the NIO Day event in Shenzhen. A bit out of character for WM, but I love it, now they just need to bring it with the actual product.
2020 PREDICTIONS (will add more to this list all of January):
- This will be the year of the electric bicycle.
- Data. It’s use and protection will be clearly defined but still misused.
- One World, Two internets will be clearly defined.
- Huawei will find it VERY difficult switching out American made chips and software but will be thrown a lifeline by the US govt.
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 US, I also provide a point of view that I hope educates and sparks debate.
The Sino Auto Insights team
Here’s a statistic that should get your attention. 1.15 Billion (with a B) people use WeChat. I, along with ALL of my friends that live in China, foreigner and local, use WeChat for everything from chatting with people, posting about our day, sending and paying for things, ordering food, hailing a cab, unlocking a shared bicycle and paying for my coffee. And that’s just off the top of my head. Nowadays, most vendors will give you this squirly look if you try to pull out钱 (real money) to pay them. Homeless people even have QR codes to scan so you can send them money to their WeChat pay.
You name it, it can probably be done via WeChat. For those in the West that aren’t that familiar with WeChat but use other chat apps and think that ‘WeChat is ‘kinda like WhatsApp,’ they’d be wrong - completely. None of the western apps have the power, ability, flexibility and/or data that WeChat has of its users. They wish they did. I am looking at you Facebook. Whether having all this information about me or the other 1B+ users is a good thing is an entirely different conversation that we can have at another time. And that’s just ONE app.
Since I believe living in China allows me to ‘look around corners’ or in other words spot trends that will likely move West in the near future, ALL companies should assume that people in the EU & US will also begin to rely much more heavily on their mobiles for just about everything they do, especially once 5G gets implemented widely across the US and EU which I predict will be within the next 5-6 years. This should be incorporated into their product/strategic/business planning if not already.
Over the last couple of years, new apps have popped up, most notably TikTok, that have landed on US shores and has captured a major audience there. Expect more to follow. Unless US / EU tech companies can develop their own, similar apps to capture share.
Of course all countries and cultures are different and how quickly they embrace new technologies and/or new ways of doing everyday tasks will differ, but it WILL happen. The question that needs to be answered is, will your company be the one creating these new ways of engaging your customer or risk losing them to someone who is?
Those that have followed the newsletter for a while may think – OK Captain Obvious - but as this article suggests, the days of pushing profits aside and blitzscaling to grow at all costs are pretty much over, unless your name is Luckin that is. That means that the EVStartups that are currently selling into this market or about to introduce vehicles in 2020 are going to find it pretty challenging to raise any further capital, let alone at their current valuations, to support their launches and production.
For the EVStartups, that could become a BIG issue since most of the capital that many of the more recognizable startups have raised went to R&D, engineering, designing their new products, hiring and building out infrastructure and support.
It normally takes another round of fundraising in order to get the vehicles into production, not to mention if their product plans call for them to introduce new vehicles straight away back-to-back. For those startups that thought outsourcing production was a smart play but weren’t able to get their sales volumes right (which is most), that decision is coming back to haunt them.
We will see companies, even established ones here in China run into cash crunches. With that said, the large domestic OEMs are mostly state-owned anyway so let’s not count them, and the large multinational OEMs have generally pretty healthy balance sheets and can weather the current storm for an extended period of time.
This puts the startups at a real disadvantage as they all now clearly understand how truly capital intensive the business of building cars is, the ones who are the least viable will close their doors, the ones that have been smart with their money and also have the most potential may be able to survive until summertime before they need to find more cash. But where will it come from?
The continuing challenges between the Chinese and US govts., including the increased scrutiny of some of China’s largest and best known tech companies will not likely decrease in 2020.
Companies will continue to move operations outside of China to protect from tariffs and increasing costs and TikTok will find it about impossible to please the US govt. 2020 will be ‘Must See’ TV due to the unpredictability of the Trump Administration and the repercussions and responses from their actions.
The China market is still way too attractive for most companies looking for growth to avoid altogether but times are different so do some MAJOR vetting if you plan to partner with a local agent, especially if they claim they have the 关系 or relationships to make things happen.
In a not the same but same same scenario, like Shenzhen has done with their taxis which are 99% electric, LA is evaluating whether to require Uber & Lyft drivers to use ONLY electric vehicles. It’s in the idea phase but the LA Mayor is looking at ways to combat climate change in his city and this would definitely be one way to do it.
They are also looking at switching all their public buses over to electric as well, sound familiar? Since American cities are copycats, you can bet that there will be other cities like NYC, SF, San Jose, Seattle thinking about new ways to make their cities less polluted. This could be a catalyst for the car companies to take a step closer to NEVs for the US, whether they like it or not.
First off, congratulations to NIO for having a terrific Q3! They were able to grow their sales to 4,799, up from 3,553 in Q2.
The announcement they made during their earnings call that stands out though is that NIO is forecasting Q4 sales to be around 8K units. If the ratio of ES6:ES8 sales remains at 7:1, future profits will remain a big concern. My guess is the ratio needs to be closer to 4:1 in order to move that profit needle and increase their working capital.
That said, if they can reach that lofty sales number that would by far be their best quarter since production began in CQ4’18. Let’s take a closer look though since an increase that significant in that short of a time period usually means they’ve changed something major to the sales formula.
For this to be considered a trend, they’d need to do this for at least a couple more quarters but the cynic in me wonders if they’re incenting consumers to pump up those sales numbers short-term in order to prop up that valuation (see share price bump) for a buyout mid-2020.
The first place you may look is how much they are discounting their vehicles? If they’re not discounting the vehicle, are they offering other types of incentives (like free battery charging or upgrades) in order to ‘move the metal?’ If either is the case, they are likely moving further away from profitability not closer.
Finally, they also could’ve really focused on studying the market and their customer and this could be the fruit of their labor finally showing up in the results.
I am a sneakerhead. That felt good to say.
I don’t feed my addiction as much as I’d like because it would take up too much space in my small BJ apartment AND my wife wouldn’t take so kindly to it either.
All kidding aside. ALL the mobility & automotive companies, the ones that are trying to develop non-vehicle sales related revenue streams through value added services should study up on Nike’s approach to where their customer loyalty and customer experience intersect using an omnichannel approach. Ever since I downloaded the Nike SNKRS app, I probably browse it at least 8-10X’s / week (probably more frankly) for the latest releases and offers. Call it a combo of FOMO with nostalgia from my childhood where I knew about every shoe release, just like I do now with the app.
These companies would be well served to try to find a way, within the framework of their brand, products (current & future), competitors and market, to develop this type of interaction and loyalty that Nike gets via this app.
Nike has historically had some fits and starts when it comes to their digital strategy but what they’re doing now works.
It helps to have interesting and ‘must have’ products that get launched in limited runs, it seems like every few weeks but it is something that all companies that want to play in the digital space with their customers should be studying up on.
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.