Tesla is Warned by 5 Regulators, Geely Doing Too Much, Lucid: A Better Tesla - SAI Newsletter 5

Happy Lunar New Year all! 新年快乐! Chúc mừng năm mới! This will be the Year of the Ox so most of China will be shut down for the better part of two weeks. We may still have a short version of the newsletter next week but only plan to take one week off if not. Tom Brady does it AGAIN. Super Bowl championship #7. The 199TH pick of the New England Patriots in the 2000 NFL draft. There were 6 QBs drafted ahead of Tom Brady that year. And he remembers that. None of them are in the league now and none of them played in any Super Bowls. The guy is a machine and there will be many studies and leadership books written about him when it’s all said and done. That’s because there was NO indication in college that he would become the GOAT – Greatest Of All Time. I know because I attended a few of his games when he played at UMich and I was a student at Michigan State. How he’s been able to build himself up over the years and develop the discipline, belief, work ethic, self-motivation, and leadership capabilities to accomplish what he has, is and always will be, an amazing journey that’ll make it into a best-selling memoir at some point in time. Just not soon since he pledged to return for next season right after accepting the Lombardi trophy. The legacy automakers should take some lessons from Brady’s emergence as the best. If he was able to transform himself from an unheralded, just better than average college player into the GOAT then GM, VW, Ford, Toyota, Hyundai, and/or FCA (now Stellantis) could emerge over the next several years to best Tesla no? For some reason, I can visualize some of you readers chuckle as you read that last sentence. It’ll surely take a herculean effort on their parts if they’re to get to Tesla’s relative level of success across multiple regions. Tesla will also find it much more difficult to be the leader for a sustained period of time as the market gets more crowded and competition, protectionism, manufacturing, and management all take center stage in the US, EU, and China. It would be folly to think that the winners are a foregone conclusion and in my humble opinion, some of the winners haven’t even identified themselves yet. There are just too many variables still to make any definitive conclusions about this high stakes race. On a lighter side, I thought the GM EV commercial for the Super Bowl was pretty entertaining with its sole purpose to introduce GM’s new logo and outlook to a hundred million or so of its closest friends. It was so well received that there were some pretty funny and light-hearted responses posted on YouTube to GM’s commercial here. For those that don’t follow American football, the Super Bowl is the one time/year that companies spend millions on advertising and hence try to produce memorable commercials so people are as attentive during the breaks as they are for the games. CBS was charging up to $5.6M / 30 secs. The commercials sometimes outshine even the games themselves. This year, I thought the GM, Toyota (which pulled at your heartstrings), and the Frito Lays commercial with the football legends were some of the more memorable. Oh, and the Edward Scissorhands Cadillac was kinda good? I had a good conversation with Eli Binder of The Wire China for his article – ‘China’s EV Startup Boom’ (it may be behind a paywall) about little-known Aiways, a Shanghai-based EV maker that currently sells its U5 SUV in China and the EU. Eli wanted to bring attention to a smaller Chinese EV player that most outside of the Big 4 do not hear about and the struggles that they have competing for attention and investment RMBs. His writeup is representative of other also-rans that are struggling to make a dent in the China EV market. I visited Aiways Engineering facility in Shanghai about 2 years ago and thought their strategy was a bit curious. There has been speculation that talks of the partnership between Hyundai & Apple are dead. Further, it seems that Hyundai flaked on the final deal. This should be a warning sign to ALL legacy OEMs that have been approached by strong technology companies looking to break into the auto sector. If true, Hyundai was likely NOT happy about becoming effectively a contract manufacturer to Apple for car-building. This could do a ton of damage to their vehicle reputation and brand and it seems the risk to be too great. I don’t see many car brands capable of equaling Apple’s brand appeal so it would likely be a case of always playing second fiddle to them which is NOT what ANY of the automakers want. What I do believe is that Apple is ALWAYS talking to potential partners and when the time is right, they’ll bring them on-board but it won’t be any sooner than that. Apple has MANY options, including doing it themselves which they initially thought to do in the first place. The economics of that transaction has radically changed over the last 5 years so maybe it’s time for them to revisit it? Finally, a friendly reminder that I will be co-hosting a Zoom panel & Clubhouse room this Thursday, February 11TH at 7am EST to talk about the China EV market with Paul Krake of the US-China Series. I am really looking forward to it and it should be fun and informative. Those that are keen to join via Zoom can register here: You can also find me on Clubhouse: @pluggingyouin TESLA IN THE NEWS - Tesla gets called into the principal’s office by 5 Chinese regulators concerned with their quality issues. I was interviewed for this WSJ article and Yoko does a terrific job of laying out what’s going on but to summarize, I see this as the regulators using Tesla currently, the biggest and baddest in the China EV sector, to not only let Tesla know that they won’t tolerate significant quality spills but a warning shot across the bow of ALL the players in the sector whether EV maker or tier 1 supplier like CATL. There will likely be >30-40% more NEVs on the road in China by year-end so the last thing that the Chinese govt. and/or the sector needs is any carelessness by the manufacturers or tier 1s ballooning into a major situation that threatens to slow momentum of the sector or worse, put customers in any type of danger. That’s because I can’t pinpoint any series of major issues Tesla has caused but I am also not privy to all the data that the Chinese govt. has either. As a sector, I could see some issues creating cause for concern though. For example, chip shortages will put manufacturers behind schedule on the master production schedules so they’ll try to make that up over the course of a month or so once the parts come in and that’s when, without fail-safes on the sourcing, manufacturing, and testing processes in place, carelessness can turn into problems on the road. - Tesla the ‘most liked’ auto brand among customers in the US according to Consumer Report (CR). This title comes from CR’s owner satisfaction survey where Tesla scored a total of 88 points. 2nd and 3rd place were Lincoln (79), and Ram (76). Other notables that had lower scores than I’d anticipated are Porsche (74), Toyota (71), BMW (70), Lexus (67), and Mercedes (64). I think if there were a survey like this in China we may find that Tesla comes out on top here as well. If this wasn’t the case, the traditional automakers wouldn’t be racing to play catch up on the software side since that’s truly where the difference (read: chasm) between the startups and the legacies are. Master the software, integration, and experience and you get to be first to experiment with how to monetize the data, creating new revenue models kinda like Tesla is doing right now. In other words, dictate to the market where it needs to go. The automakers that can’t develop this core competency within the next 5-7 years will likely not be around in 20 or will be subjugated to building vehicles for the ones that can. Finally, and this is important for the car guys that are reading. Tesla’s customers don’t seem to care about their vehicle’s poor quality. At least not yet, because brand loyalty is off the charts relative to other automakers. - Tesla sets up to sell in Singapore ..again. $145K may sound expensive to the folks in the West and China but at that price, the Model 3 will be cheaper than a Toyota Camry in Singapore! Originally Tesla dipped a toe in the Singaporean market in 2016 but had a false start with the emissions testing. Now it looks like both sides are ready to try again. I just traded messages with my Singaporean transplant friend who thinks the charging network will be a potential roadblock. I can see that in the short-term for sure, but I can also see Tesla quickly becoming the #1 near-luxury EV for the Singaporean market in short order. Enough so that Tesla would look to increase capacity again at Shanghai Giga later this or early next year. Otherwise, lead times will likely be close to unbearable for Singaporeans for the Model 3 & Y. IN THE NEWS - With the news that Jeff Bezos will be exiting Amazon’s CEO later this year, I thought I’d highlight some of the ways that Amazon runs their operations a bit differently than others. First, the meeting memo. I’d heard about this long ago. And it’s something that people that don’t last long at Amazon tell me that they never got but Jeff swears by it. Put concisely, there are no ppts allowed during Amazon meetings, normally just a 6 page or less memo that details a problem, opportunity, or operational issue. The authors sometimes spend a great deal of time preparing the memo and the first part of the meeting is dedicated to EVERYONE reading it. Then the discussion begins. The next thing I’d highlight is Amazon’s laser focus on giving the customer what they ‘want.’ It’s ingrained in employees early and is the driving force for most decisions across the board. Finally, their focus on innovation to push the company forward. They’ve had major fails but one thing I do know is that they’re not afraid to throw it all out there to see what happens, whether it’s a new business, how they operate, or how they manage. I’ve followed Amazon since its early days when it only sold books and I’ve been impressed with its growth and its ability to diversify its businesses, with cloud and peripherals among the most impressive. I can also tell you that it’s not a work environment for everyone. They measure just about everything, and for those that aren’t able to work long hours in a fairly high-pressured environment, Amazon is not likely a company for you. Those that can survive though are normally pretty battle-tested and able to be successful at their next stop should they decide to leave. - SUVs rule the US & will also rule China soon. The sales from the legacy automakers in the US tells us that sedans are NOT on the radar for most car buyers there. They made up ~8% of GM’s sales in 2020, with Ford and FCA also hitting high single-digit (%) sales. This is happening in China as well and is one of the main reasons why VW has effectively planned to phase out most of its sedans over the next several years in China. And they’re all doing this gladly as SUVs tend to return higher margins than their sedan counterparts. That makes you double-take on XPeng, NIO, and other's strategies toward launching sedans over the last couple of years. If we look at two-door coupes, it’s even more drastic and likely a big reason for the struggles of two other EV startups, Qiantu and Leap Motor. A big reason but probably not the ONLY reason. - Is Geely tries to be everything to everybody? It sure does look like it and I am not certain it’s going to work. Actually, I am pretty sure it’s not going to work. Partnering with everyone and their brother to me is NOT a strategy. I appreciate Chairman Li's ambition and bold moves but it seems that Geely’s everything to everybody approach may be biting off a lot more than they can chew. Integrating one major partner is challenging enough for any company's management regardless of the sector so asking the management team to successfully launch all of them seemingly all at once is a pretty big ask of the team. This is just at the Geely level, their subsidiaries and partners also have partnerships! Not all of these partnerships will work – full stop. None of them may work to be quite frank but let’s say for the sake of argument that a couple of them bear fruit. Could Geely have used the resources dedicated to those failed partnerships, both capital, and human, to strengthen the most promising endeavors. Of course and therein lies the rub. It’s not that they’re partnering with external parties as ALL OEMs and tech companies are, it’s the fact there are so many, and there’s NO clear indication of who’s the lead for any of these relationships. For car companies, partnerships work when there is little overlap between each entity’s core competencies, and major efficiencies can be gained when combined. For instance, engineering resources and parts shared, consolidating back offices, etc., and that’s auto + auto. The level of complexity is kicked up another 15 notches when you partner with tech companies. They want what you want and believe they can do it better, just not as cheaply. When that reaches equilibrium they’ll find a way to move you from partner to contract manufacturer or competitor. Hyundai knows this and that’s why they’re hesitant to enter into that partnership with Apple. They know that Apple will suck all the air out of the room and have trouble getting any attention for themselves or their products. Car guys just don’t get it, or at least don’t want to acknowledge it anyway. - Ford finally on the same planet as GM, VW and that’s planet EV. Details are still scarce but what we do know so far is that Ford has allocated $11.5B for investments into EVs and digitization, much less than GM and VW Group BTW, but it’s a start. Also, the Mustang Mach-E has received very warm initial reviews but the proof will be in the pudding, so we’ll see what the long-term quality ratings are. I think it’ll also have some growing SW + HW pains so we will see. Ford has also announced that they’re going to build the Mach-E in China and that’s HUGE since China will likely be an albatross for the company until they can get things turned around there for good. That’s a good initial first step towards getting the product right. Investors need to know that Ford can only be successful if they’re successful in China, otherwise, they’re just a regional / US automaker. - Lucid has a great story and I believe it will be a successful EV maker eventually but can it really be Tesla’s kryptonite? Lucid is using the EXACT same strategy that has made Tesla the largest EV maker in the world, the problem is Tesla began this strategy almost 18 years ago and have really established itself as the EV company to beat. The market, customers, technology, and competition are completely different now so will taking the same path as Tesla lead Lucid to victory? Perhaps. At $169K, the initial run of Lucid Air’s need to be bulletproof and free of defects, both SW & HW. It not only needs to NOT be buggy but it also needs to beat ALL those numbers being thrown around, specifically the range, speed, and re-charging numbers. Otherwise, the Plaid Model S and the Taycan will eat their lunch. It has a VERY conservative 6K unit forecast for 2021 that it SHOULD be able to achieve even with its ridiculous price. But when you’re up at that stratospheric price point, expectations are sometimes impossible to meet especially if your competition can walk on water. - 2021 will be the year of consolidation for the EV sector according to the Arrival CEO. So as the rest of the world wakes up to EVs, there has already been a wave of consolidation and closures in China that would make your head spin. Hundreds of so-called EV startups have closed their doors and gone out of business because of the lack of funding and any real business being in the sector in the first place. Where I may not agree with the CEO is that there will be consolidation. Companies have to have one of two things in order to be attractive to other companies. Unique IP or entire departments that do what they can’t and I don’t see a TON of EV startups that have a particular secret sauce that would make them attractive to acquire, at least not at an affordable price. And that’s the issue at this point, the number of SPACs, the demand for investment into the EV sector, and hence the cheap money available isn’t letting up anytime soon IMHO. That’s because output from these investments take time, unlike in the tech sector where apps can be launched in months. Moreso, good money is thrown after bad at companies that promised products and services by certain dates but then aren’t able to deliver on those deadlines or within the previously raised capital. Further, the days of acquiring startups for their built-in install bases or customers are likely over as well. I can think of a number of great ‘potential’ companies, just not at valuations that would make them attractive acquisition targets. Let’s just say that the Zoox situation was an anomaly for this sector at this point in time. TRENDING ON SOCIAL MEDIA - The 25 best sounding cars of ALL-TIME. There will be regional differences since I didn’t grow up with many of the cars on the list but I generally agree with most of it. Universal agreement from most car enthusiasts on the 2010 Lexus LFA, 2017 Porsche 911 RSR, 2016 Ford Mustang GT350R, 2004 Porsche Carrera GT, 1962 Alfa Romeo GTA, 2019 Chevrolet Corvette ZR1, and the 1987 BMW M3 DTM. - ‘Roads aren’t ONLY for vehicles…’ Mayor Pete, now Transportation Secretary Pete Buttigieg talking about modernizing our transportation system, building viable high-speed rail systems, and being inclusive towards neighborhoods of color. All things I can get behind. Let’s just hope his ambition is equaled with the budget and appetite by Congress to move the US infrastructure into the 21st - Clubhouse no longer accessible in China. It was only going to be a matter of time and it happened yesterday. This app will only go one of two ways. It’ll replace podcasts as a dominant new platform or it will fade like many other highly desirable apps that started out as ‘invite-only’ to build excitement for its launch. There are definitely some vibes like that about Clubhouse but I do think it’ll end up as a viable alternative to podcasts and Twitter. - The ‘real’ reasons the $160K Mer Maybach GLS600 is being built in Alabama? It’s Merc’s only non-union facility and one of its lowest-cost factories in the world. JUST THE NUMBERS - Mark it down. Another $100M in the books for as part of their extended Series C round. This pushes their valuation to >$5B and with operations and pilot programs in both China and the US, they could give Waymo a real run for their money if they’re able to combine that data from both China and the US. But therein lies the rub since guidance on how that will be handled is still murky. Will those companies straddling the two regions be able to take advantage of their scale and combined data? If not, it could hamper them in the US vs. their American competitors. Another important note, the only other AV companies that have outraised them globally so far are Nuro, Waymo, Argo, and Cruise so they’re in pretty rarified air. BTW, Waymo is WELL ahead of their competitors when it comes to the # of miles driven, both real-world & simulated so it’s going to take much more capital if they’re planning to go head-to-head with the likes of Waymo. It’s not clear how this would be financed and what the ratio of public vs. private money is estimated to be but combined with SEA’s desire to roll out EVs (also mostly 2 & 3 wheels for now), there will be A LOT of competition for capital that should mean more innovation in the sector. For a lot of these countries though, that means getting their infrastructure sorted out, which in some cases is a real mess. - 65% of all lithium-ion (Li-Ion) batteries come from China. That’s a massive number and a HUGE national security risk to the countries that rely solely on China to provide them those batteries. 2/3s of all the world’s Li-Ion batteries are used in electric vehicles. Great WSJ article that does a good job of framing the Li-ion situation around the world and as it relates to EVs. It’s NOT just an EV thing anymore and there will be further investment and innovation resulting from this investment. There are countries, like the US for instance, that are very uneasy with the reliance on China for such an important commodity. So you better believe the new Energy Secretary will be pushing for funding for research as well as significantly increasing manufacturing capacity in the US over the next 4 years. The countries that are able to drive breakthroughs in battery technology will likely have the easiest paths toward a bright economic and national security future for themselves. PRODUCT & SERVICE INTRODUCTIONS - This SWEET resto-mod 1969 Chevy Blazer just sold at auction for $165K! First, it was Defenders, then Broncos, and now Blazers. I need to think about which one vehicle will be next and get on ebay to buy a bunch of junkers to flip once the demand spikes. —— 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.

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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