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Tesla's 'Full Self-Driving' option, A Run on Pedal Bikes, Pizza Arbitrage - SAI Newsletter #19



First off, since I have a nephew and niece graduating this year, my nephew from Ugrad at Purdue and my niece from high school, let me take a few moments to congratulate them and ALL of those folks that are graduating and receiving their degrees! It normally takes a lot of time, dedication, and hard work from the individual and a lot of support from family and friends to accomplish these types of amazing things and I support anyone that has a desire and opportunity to pursue higher education.

It’s an exciting time for you all and a time for new beginnings, Covid-19 or not. A gift that’s often given to grads is Dr. Seuss’ ‘Oh, The Places You’ll Go!’ so if you haven’t read it yet, now would be a good time and occasion to do that.

Finally, at this time of year there would normally also be a slew of inspiring graduation speeches that you could draw energy and inspiration from but since there weren’t any traditional graduations or speeches, let me link you to a few that over the years have resonated with me.

Commencement Speeches:


-   Steve Jobs – Stanford Class of 2005

-   Admiral William McRaven - UT Austin Class of 2014

Not a speech but inspiring nonetheless:

Randy Pausch – Last Lecture Sept. 2007. This is an oldie but goodie. Pulls at the heart strings while it inspires. Randy was around when I was on campus at CMU and I know a few folks that he taught so this is a bit more personal.

All speeches are well worth your time if you need a jolt of inspiration and / or want to get away from your normal routine for an hour or so.

So the big news today is that the US Senate approved a bill that would prohibit foreign companies from selling shares in the US unless they are willing to be audited by firms that are inspected by the Pubic Company Accounting Oversight Board (PCAOB). There are currently over 200 companies that do not comply, most of them being Chinese.

A similar bill would need to pass the House in order for it to become law. Chinese companies have other markets, namely the Hong Kong Stock Exchange, where they can list which Alibaba and Tencent have done but the US markets offer the greatest access to capital vs. other exchanges. It also makes it easier for these companies to do business in the US should they desire to do that in the future. There will be much more on this in future but this could be a major setback for US – China relations.

IN THE NEWS:

-   Bronco getting delayed to 2021. They will still likely unveil it later this year to help build up anticipation though. The Mustang Mach-E and F150 are still scheduled to begin production this year so it seems obvious Ford believes those two products are more important to their future than the Bronco.

-   Reshoring is a thing. Schwinn hires Detroit Bikes to make a US made replica of their, back in the day, über  popular ‘Collegiate’ to celebrate their 125th birthday. Schwinn’s not Detroit Bikes. Renaissance man Zak Pashak helping put Detroit back on two wheels one bike at a time!

-   The more bikes there are on the road, the less dangerous they are to ride. The right number of ‘more’ will vary from city to city but for certain once bicycle usage hits critical mass, with or without proper bike lanes, cars will get used to them being a part of traffic and be more aware of them …according to this study.

-          Big changes afoot for VW’s sales of EVs. Dealers to become agents that supports VW’s sale of the EV rather than owning the sales process. Could be tricky in a post Covid-19 world and when EVs are side by side with ICEs but this should mark the beginning of a major shift in the dealership’s role in vehicle sales.

TRENDING ON SOCIAL MEDIA:

-   William Li of NIO livestreams in order to sell cars. This is a big deal – livestreaming to sell products aka ‘social commerce’ is a big thing and it’s just getting bigger with Covid – 19 so his handlers thought this would be a good idea obviously. Results – Viewers = 20M Test drives = 5K Non-refundable purchase deposits = 320. I am not familiar with the celebrity that hosted him, Wang Han, so not sure if this fits NIO’s branding but give him credit for getting out there himself.

Mark my words – We will see more of this here and in the West, maybe even from a few of the German automakers.

-   The 2021 Porsche 911 Targa is BEAUTIFUL. The best of the 32ish flavors of 911. I’ve always wanted one and the 2021 has NOT pushed me off that want. Sorry NEED. I WILL have one. Indeed.

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

OEMs

GAMECHANGER ALERT: Tesla adds bi-directional charging to its Model 3 and probably to its Model Y.

This is HUGE. The Model 3 can essentially become a battery for other things / vehicles in case of an emergency but also can help electric utilities and become a supplement to the grid. We are charged more for electricity when we use it during peak times but this would change all of that since we could use our Tesla’s battery during peak times and recharge it during off-peak times.

This would offer two things – First, it would lower the overall load of the grid potentially saving EVERYONE money and more importantly reduce the chance of brown & blackouts, a real problem in places like Cali – Second, it would save the Tesla owner money since they’d be able to pull electricity from the grid to recharge their vehicles during off peak hours.

I really hope the OEMs are taking notes and really step their game up if they’re really going to compete with Tesla. This is real innovation here and something that could be ‘borrowed’ by the OEMs and incorporated into their EVs, that’s if it’s already penciled into their product plans. I may not hold breath GM and Ford still haven’t incorporated ‘Over the Air’ software updates into any of their current vehicles whereas Tesla has had it in their since at least 2014.

#Tesla #gamechanger #Teslabattery #offthegrid #nomorebrownouts

Tesla making more changes, increasing pricing, to its ‘Full Self-Driving’ package.

Will try to explain this so it makes sense so here goes.

On July 1, 2020 Tesla will raise the price of its ‘Full Self-Driving’ (FSD) package $8K globally, an increase of $1K. In addition, as more features are added to the FSD package in the future the price will increase even further. Elon predicts that the price could reach $100K once all the features are realized and incorporated into the option package.

That $100K would include the future option of making your privately owned Tesla a ride-sharing service to help you generate revenue while the vehicle isn’t in use. This Elon also claims, makes these vehicles appreciating assets. You got all that?

One thing is for sure, I bet you the traditional OEMs in Germany, Michigan and Japan never thought about these types of revenue generating opportunities as they were in their product planning meetings pouring over sales data, market trends, and macroeconomic forecasts. Whatever you think of Elon and Tesla, he’s definitely put the traditional OEMs on notice and inspired a generation of gamechangers inside and outside of the automotive sector. It’s fun, and sometimes painful, to see things happening in real-time but the reality is, Tesla’s share price has made many people rich, but the question constantly in most people’s minds is – ‘Can he / Tesla keep it up?’

#Tesla #FullSelfDriving #$100Koption #selfdriving #appreciatingasset

CORONAVIRUS

Will the rest of the US and China take Silicon Valley’s lead and make WFH permanent?

Let me first qualify this by stating that ONLY the jobs that are able to be performed remotely would be allowed to permanently WFH so for example, software engineers that can code at their homes would be prime candidates for this permanent relocation. Manufacturing jobs would obviously still need to be done at the factories but the many roles that support the plant could technically be done at home as well.

My feeling is that traditional companies may have a difficult time getting their heads around this but that eventually they may come around to a hybrid approach since the tech companies could put a ton of pressure on these companies to conform or risk losing their best employees.

One thing for certain is that it’ll turn multiple sectors & functions on their heads. Real estate for one. Balance sheets at many companies could look a bit different as well. If I am now a WFH employee, will I be able to expense my internet service, office supplies, lunch? Can I claim the room I work in as an ‘office’ and reduce my taxable income based on how much that ‘office’ costs me? If I work for a California domiciled company but live in Texas, do I still get California pay?

This has already created a ton of uncertainty -> which should lead to a lot of new ways of looking at things -> which should finally lead to a lot of new ways to get your work done. This will also lead to a lot of organizational and cultural shifts since a lot of work breakthroughs occur randomly and spontaneously during informal time with co-workers while  in the office.

If there are no longer opportunities for that to happen, what could be the substitute? What new jobs, functions, responsibilities, communication & productivity tools will pop up to ’enable’ our productivity? There has and will continue to be a lot of innovation coming from these challenges.

Look forward to seeing which new companies, like Zoom, emerge to offer terrific solutions to these challenges but beware, if your company is now willing to allow you to WFH that also means they’d be willing to hire folks from anywhere, which exponentially increases their talent pool!

#WFH #Iwanttoworkintheoffice #newwaysofworking #Zoomcalls #nomorewatercoolertalk

INNOVATION

In key sectors, it’s a two horse race between China and the US but for now those races are still the US’s to lose.

I don’t think there’s any surprise that the US and China lead in many significant future key industries like chip design, AI, EVs and energy innovation. In most of those cases, it’s the US that’s leading with China recently coming on strong. There’s a lot that can be accomplished when 1.4B people put their minds to something, or in this case a few something(s), especially when it can be subsidized by an entity with some of the deepest pockets in the world.

This finding or more accurately, this confirmation that leadership in new technologies has become mostly a two horse race should make other countries uneasy. Are the US and China too far ahead to catch? I wouldn’t be so sure. I hope this news forces countries to redouble their own efforts to try to have a say, or at least encourage the creation or development of one or two of their own ‘horses’ in some of these races.

One factor that helps other countries is fact that the US has reduced the number of student & work visas for foreigners so many have decided to stay and study in their home countries. As long as their local governments come around to being more supportive of entrepreneurs and the startup community this should significantly increase the chance of South Korea, Japan, Israel, India, France, England, Canada and Brazil just to name a few countries to establish their own Amazon, Apple, Google, Facebook, or Facebook in hopes of dethroning these powerhouses.

#USvsChina #twohorserace #whowillbethesleeper #countriesneedtostepup

MICRO-MOBILITY

We’ve seen the run on toilet paper, masks and hand sanitizer but a run on …pedal bikes?

Believe it.

The interest in bikes is real and it’s going to stick. Many more cities will transform their streets into HUGE boulevards for bicycles and other types of low speed transportation where a mix of commuters, weekend warriors and last-mile delivery vehicles, some human operated and some not, will ride side by side one another. Mark that down cause it’s what our futures will look like. At least in the cities I want to live in anyway.

#toomanycars #nopollution #bikefriendly #returnofthebikes #Paris #NYC #Seattle #Madrid #SF

ECONOMY

Caveat Emptor: Why we saw Luckin coming from a mile away.

You may be wondering why I am placing emphasis on a coffee company, but this isn’t just some random coffee company – it’s Luckin Coffee. The Chinese coffee startup that declared it would be bigger than Starbucks. Well in one metric it is, the # of stores it’s opened in China.

That’s not why this is such a compelling story though, it’s because Luckin’s Chairman Charles Lu, also happens to be the defacto entrepreneur behind a trio of automotive related companies that are struggling as well: Car, Ucar and Baowo. Car and UCar followed the same trajectory as Luckin and raised boatloads of cash, plowed it back into the business via discounts and subsidies in order to gain market share and pump up the company’s valuations, quickly IPO, then exit stage left along with most of that IPO cash.

For the IPO investors and Institutionals that clearly did not do their due diligence, shame on them but as the title suggests, Caveat Emptor – Buyer Beware. Perhaps they thought they’d be able to also dump their shares and make a quick return prior to the share price collapsing but with Luckin at least – they got burned.

The unfortunate outcome of Luckin’s fraud is that it unfairly shines a negative light on ALL Chinese companies, hence the Senate bill. But trust me when I say this, fraud is NOT the exclusive domain of Chinese companies.

#Luckin #Car #UCar #buyerbeware #cookingthebooks #pumpanddump

An interesting take on the recent lack of high growth startups.

I won’t try to unpack all 6 arguments the article makes about the reduction recently in high growth startups since ALL 6 arguments have very valid points. Since they brought up the ‘too much regulation’ argument though, it surprised me that the ‘not enough’ regulation wasn’t also postulated.

Startups like Amazon, Apple, Google, and Tesla all had their starts 40ish years ago or less and each have turned themselves into leaders of their respective verticals globally.

The moment they realized they weren’t a high growth startup anymore is likely right around the time they decided to pump up their lobbying efforts in order to protect their business and help them navigate & influence / deter any and all regulations / policies that might affect them negatively.

If we look at the size of each of these companies, if there were too much regulation, would they be able to get this big? I think there’s a more compelling argument that there wasn’t enough and it allowed these market leaders to dictate, massage, or influence the regulatory policies in their favor which allowed them to become these massive machines to the detriment of startups and small businesses, specifically the ones that threatened them.

#overregulated #underregulated #toobigtofail #toomuchcontrol #noroomforthesmallguys

An arbitrage opportunity – in pizza delivery?

For the readers that have been with me since the early days, you may have surmised that I am a bit perplexed with WeWork’s and Luckin’s of the world – that some VCs and early investors convince the markets and other unsuspecting, mostly retail but sometimes institutional investors that these ‘pump and dump’ companies will, if you wait long enough, become consistently profitable – all the while they dump their shares on an unsuspecting secondary market that has FOMO.

That’s why I’ve highlighted this article, and it’s worth the read, to show how backward and ultimately unprofitable many of these types of gig economy companies are. It takes an understanding of a special VC (venture capital) math, that’s NOT taught in high schools and colleges, for the valuations to make sense. WeWork’s ‘The emperor’s new clothes’ moment occurred prior to their IPO or there would be MANY retail investors stuck with this DOG in their portfolio’s had it not blown itself up. Let me also be clear about this – There are MANY terrific VCs and MANY terrific startups with bold ideas and dare I say, most use more than just the profit and return motives as their North Stars as their reasons for being in business.

I am convinced that you could replace DoorDash in this particular case with a few other gig economy companies and you’d get the same results. The author highlights that Uber’s most profitable division, Uber Eats, spent $1.2B to make $734M in FQ4’19. For those that don’t have a calculator handy, that means they took a $461M bath that quarter – again, that’s in 1 quarter. Now, as Uber transitions to become a platform they may ultimately reach consistent profitability but if Vegas was to put odds on that, what do you think that’d be, 4 or 5 : 1? First, and I am hoping this sticks, their incentives structures that the VCs created for them were all wrong. I’d mentioned that Luckin has given a bad name to Chinese companies listed in the US in general, well Softbank has done that for the VC community.

There’s an argument to be made for companies that struggled mightily early in their public lives to be profitable that were eventually able to make their business model work  – it took Amazon 17 quarters as a public company to be profitable but now they claim the richest person in the world as their CEO and the title of top 5 market cap companies in the world. This feels different though. Maybe it’s the fact that drivers and small mom and pop restaurants won’t share in the spoils of the DoorDash, who’s valuation is >$12B, IPO one that promises to be pretty significant.  

#DoorDash #pizzaarbitrage #brokensystem #nowinners #fooddelivery

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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