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Tesla's Anemic April sales, US Lifting Auto Tariffs (?), (+) Nickel, Lithium - SAI Newsletter 18

Covid positives aren't going down so holding firm here in Beijing (BJ) which means kids and parents still online. Let me also emphasize in general terms, we are nowhere near as restricted as Shanghai (SH). There are some neighborhoods and complexes in BJ that have similar SH style lockdowns. Also, restaurants and non-essential businesses are all shuttered as well but general BJ population are still able to get out of their apartments, walk around and receive package, grocery, and food deliveries. Not a real noticeable difference in delivery times either so that’s being managed pretty well so far. Again, so far. As for Shanghai, the lockdowns have just gotten more restrictive again. To the 上海人, I hope that cases turn the corner and that you can get out of your lockdown very soon. Unfortunately, there is no light at the end of any tunnel yet. This is likely to last through the summer and will have negative effects through the rest of this year for China certainly if not the entire world. A decent number of friends are leaving the country if they've not left already. Most say temporarily, but when/if I was able to see them prior to their leaving, I hugged them as if we may not see each other for some time. The folks that haven’t left are all thinking about it, even if they're saying they aren’t. Many folks unfortunately are 'stuck' here - they built their careers here, their networks are here and their companies likely wouldn't help them make that transfer back. So any major move means they'd have to quit and start over which makes it a non-starter for lots. As quickly as Tesla opened up for business is as quickly as they seemed to have to shut down. More details on that in the Tesla section. Please join Lei and me for this week’s live China EVs & More Twitter Spaces room on Thursday, 05.12 – 9pm EST, Friday, 05.13 – 9am China local time. For getting a download on all that’s happening in the space, you've heard of 'MUST SEE TV,' well this is 'MUST LISTEN TO' stuff. Those that aren’t able to join, the China EVs & More podcast is available wherever you grab your podcasts from. Most of our back pods are posted and the descriptions will be able to tell you what we discussed that particular episode. QUOTED Financial Times. I had a brief conversation with Primrose Riordan about BYD’s pollution challenges at their factory in Changsha and the broad sell-off of EVs on the HK markets this week (they've recovered a bit since). Tesla and BYD are the lead dogs in the EV space and they both had major hiccups this week. Analysts and investors get discouraged when the sector leaders trip up. Even if, in BYD’s case, it had nothing to do with COVID and likely a lot to do with the significant demand they’re seeing for their products. Link to the article here. TESLA - Tesla loses production momentum before it even gains any. This was predictable. This IS predictable and not just for Tesla. As long as Shanghai stays in any semi-serious lockdown these types of hiccups are going to happen. Fingers are being pointed at Aptiv (Delphi in a prior life) who supplies wiring harnesses to Tesla Model Ys (MY). That it only affects Made in China (MIC) MYs is a bit strange because there should be tons of overlap on parts for the MY & Model 3 (M3) and one would assume that the wiring harness would be one of the shared parts, so is Tesla just not producing that many MIC M3s? Has demand slowed that much? Or is it something else? - 1,512. That’s how many cars Tesla sold in China in April. Tesla normally back loads domestic sales to the last period of each quarter in order to close orders European in the first two periods. This will change as BerlinGiga ramps of course. Seeing that number alone is not that alarming, but if we dig a layer or two deeper it only produced 10,757 ALL month, compare that to about ~60K it should produce. This isn’t surprising considering almost every automaker was waaay off their normal trajectory due to the pandemic and the havoc it’s wreaking right now in China. With this week’s work stoppage though and parts shortage due to a worker testing (+) at a supplier, getting those lost April units back in May and June could prove challenging. That means playing catchup to their original Master Production Schedule for 2022 the rest of the year. And that likely means 24x7, 7 days/week, 3 shifts/day for the foreseeable future. As long as they can keep those bodies, warm, healthy and free of Covid. THE MOST INTERESTING THINGS THAT HAPPENED THIS WEEK - Rebirth of Volkswagen’s Scout brand for the US market. For those wondering, VW acquired the Scout brand because one of their commercial brands acquired Navistar last year, which owned the Scout trademarks. This is pretty cool and it indicates that VW is going to swallow some pride and rather than force-feed the US consumer products they think it should like, it’s going to the US’s way of thinking and building a product that’s tried and true in a segment that drives auto sales in ‘Murrica. We should give some credit to Diess who looks like he's loosening up the old, staid, centralized decision-making that drove VW Group into a leadership role in global sales but also led to diesel-gate AND it’s recent struggles in China where currently 50% of its profits come from. Looking at this move along with opening a China office for Cariad, management has to see these markets slipping from their grasp and realize that due to digitalization, capable competitors in the EV space from the US (read: Tesla) and China, they might not be able to catch up if they get too far behind. I could see GM (or others) and Tesla overtake them on sales before the end of the decade if they maintain the current path. This ‘come to Jesus’ moment for the 2nd largest automaker in the world means that they need to make these decisions pay off BIG. Whether they can design an SUV or truck that can really compete with GM, Ford, or Ram remains to be seen (I doubt it) but they're starting to get more outside of their comfort zone. And I tell my boys, that's where growth happens and for VW that's needs to be in the literal sense. - Car import tariffs on the way out? In order to fight inflation, the Biden administration is considering getting rid of of Trump administration tariffs set on a number of products imported from China. There is currently a 27.5% tariff on vehicles imported from China set back in 2018 so that could be lifted as well. One major reason the Chinese EV startups all decided to enter Europe first was that the tariff would've made their products uncompetitive vs. non-Chinese made EVs and they weren't ready to fight that uphill battle. If the tariff was lifed, this would likely change alot of the calculus for those same companies, it would have to. They will be waiting intently on what Biden's final decision will be. And expect a march of Chinese brands hurriedly hiring staff to support entry into the US market if the tariff is ultimately lifted. Believe me here. IN THE NEWS - Are large infotainment screens in vehicles just a passing fancy? According to a couple of European designers they are and that the era of large screens will soon fade. I am not so sure about that though because in many western vehicles, there’s still the little low res infotainment screens that do little more than tell you the temp your aircon is running at, what song you’re playing, and the direction you’re going. There was a #FOMO moment on 'coast to coast' screens that started with Byton, continues with numerous Chinese EV startups, and Merc with the top end EQS. What these fellas are forgetting is that the people they’re designing for are getting older and are becoming smaller, less relevant portion of the market while the people they SHOULD be designing for ‘live’ with a screen in their pocket, on their desk, or in their lap and it connects everything they do together into one, seamless experience. This SHOULD be who they're designing for anyway. I wonder if there is also a little UX envy? Traditional automotive designers are used to designing for discreet actions, it's what they're great at. Opening a window, turning on the lights or windshield wipers, etc. Many of them don't have a ton of experience with UX design. It's NOT the same. So they can design beautiful cars with a bunch of knobs, switches and buttons but can they design compelling user experiences utilizing a screen and just a handful of buttons? From the early returns in China for VW, BMW & Polestar’s sales, maybe not. As my good friend and co-host of China EVs & More Lei Xing recently stated, premium is being redefined by the Chinese EV startups so maybe those European designers should sit back and take some notes. - Is the US looking to restrict access to chipmaking equipment to a broader set of Chinese companies? It seems that they’re at least kicking the tires on this new policy. The Commerce dept really needs to take a step back though because any move to restrict raw materials or capital equipment could also harm US firms as well, those that operate fab’s and factories in China. When supply is already tight and prices are pushing higher, this will only make both of those issues worse and make folks on this side of the world pretty upset. TRENDING ON SOCIAL MEDIA - The iPod is dead. LONG LIVE THE IPOD! After an EPIC 21 year run, the folks at Apple are pulling the plug on the iPod Touch. What a GAMECHANGING product. There were already other MP3 players out there before the iPod was launched, some were even pretty expensive, fancy with larger hard drives. But as I’ve stated many times before, Apple will not be the first to market with many products but they’ll likely be the best and that was the case here. The scroll wheel was revolutionary. Prior to the first time ever picking one up, it was my bro’s BTW who I thought had wasted his money, I didn’t know what to expect. What I found was this beautiful, clean, simple, hefty machine that made finding music on an MP3 kinda fun. And it was back then that the white, corded earbuds became synonymous with the ‘I’m cooler than you when I listen to music’ attitude. We haven’t even talked about all of the derivatives that were offshoots of the OG iPod including the iPhone. And it’s appropriate that just last week, Tony Fadell, the inventor of the iPod launched his book ‘Build’ with stories of his time at both Apple and Nest, two iconic Silicon Valley product companies. So take a moment to celebrate that time you first picked up an iPod - you remember, it was probably one of the last times you thought to youself - 'Damn, this thing is pretty sweet!' Just clicked 'buy' BTW so I'll have one of the last ones myself. - Ola Electric, maker of electric scooters …and automobiles now too? Founder and CEO of Ola Electric, Bhavish Aggarwal announced that Ola is getting into autonomous, 4-wheeled vehicles and gave himself two years to get one on the road. Ambitious. But doubt him at your own risk. Bhavish and Ola gained notoriety by launching one of India’s first Uber-like ridehailing services, Ola Cabs. Then Bhavish (very) recently pivoted to designing & manufacturing electric Niu and Gogoro style electric mopeds - Ola Electric. When I say recently I mean they just started shipping in January. It's not without it's challenges and I mean battery fires. I wish him luck for sure! The more the merrier. What he’ll find out soon enough is that raising the capital and physically building one EV won’t be the issue… - For my Bay area friends: Get in line for these noodles or if you’ve tried them let me know how they taste. Loawai Noodles is BACK BABY! One of my favorite noodle dishes in the world is the 兰州面 or Lanzhou noodles and it seems William Do is making a variation of it in SF. It seems that a few people really liked it. So much so that he has about 4K people waiting for theirs! So he backed away and chilled for a bit to think through if this was a move he wanted to make. After about 8 months of thought and travel he’s back in it and this time he’s in it to win it. As you all know, I’ve not been outside China in over 2 years so I need to rely on YOU all to tell me whether these noodles are just hype or if they live up to those mountain high expectations? And remember where I live, so I can get some of the best tasting 面 in <1 hr for about $5! I expect a report back from (you know who you are) soon! GET SMARTER - Stellantis head Tavares says that there’s not enough raw materials for all of the cars that the global automakers want to manufacture over the next several years. He’s probably correct. Lei and I had the pleasure of hosting one of the battery sector’s leading journo’s and talk about raw material availability and pricing came up. His back of the envelope calculation pointed to a shortfall of lithium AND nickel if all legacy automakers hit their production targets in 2025. And this wasn't including any production from China yet! Most automakers will NOT hit their targets but if you’ve noticed recently that's not stopped most of them from scrambling to secure said supply of raw materials so that they can set themselves up for the possibility of producing as many as they’re boasting they’ll sell in 5-7 years. What does this all mean? It means that the combination of high demand and low supply will push up the pricing of those raw materials making the holy grail of clean energy transportation - the <$25K EV - an unlikely target to hit this decade. If you want to listen to what else we discussed, tune in and stay tuned, we will be posting it in the next day or so. Oh and we had such an interesting discussion, we’ll be breaking it up into 2 parts! - Is the US market a more attractive place to invest in growth than China? According to a survey by the European Chamber of Commerce and Roland Berger, because of the Russian invasion of Ukraine and China’s seemingly endless war to get to Covid Zero, potentially YES! The US seems more stable with more growth potential. Growth potential I see but the stability is a headscratcher since we had an insurrection just over a year ago. But I guess it shows you what those surveyed think of the war and China's management of Covid! This dovetails with VW boss Diess stating that one of VW’s priorities is to invest and grow from their miniscule 5% share VW barely holds of the US auto market. I’ve lived in China too long to think this is a done deal. The market is too big and lucrative so It’ll depend on how long both the invasion & the battle for Covid Zero lasts, but I do sense a pretty significant change in sentiment from my foreign friends, the one’s that can leave anyway. BY THE NUMBERS - 41%: That’s how much passenger car production fell in April from a year ago here. And it’s going to take a while to dig out of that hole. That’s after we can get to Covid Zero ...whenever that is. —— 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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