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Tesla's New CEO (?), CA Challenges are the US' Challenges, 36% China Take Rate - SAI Newsletter 44



 

What a turn of events in China! It almost gives you whiplash. It looks like the testing requirement has now been all but abandoned with many testing stations being dismantled. The narrative has changed from ‘COVID is SUPER dangerous and we (the Chinese govt) are doing what’s necessary to protect you to – The Omicron variant is just like the flu and isn’t likely to make you seriously ill. Now comes news that Terry Gou, Foxconn founder wrote a letter to Chinese leadership imploring them to open back up or risk permanent damage to the economy. Restaurants, gyms and malls are all being reopened in various speeds across many of the larger cities. No test w/in 48 hours is required to take public transportation in Beijing. This is where A LOT of people will likely get the VID because when people begin to return to the office, the buses and subways will again be packed like sardines. Even Shanghai Disney has opened back up! This is great relief to a number of my friends still there with the hope that the border will gradually ease open as well. Technically it already is but its in effect closed because of the difficulty to get tourist visas and flights into China. My intuition tells me that there’s a few reasons why the big shift. First, the economy was tanking to the point of no return, the internal numbers were showing this anyway (the ones we don’t see I mean). Combined with a global recession underway, partly due to China supply chains all gummed up causing goods pricing to increase, they likely saw a grim 2023. I also think that the acute nature and vast breadth of the protests that popped up all over the country may have spooked the Chinese govt a bit. As for how they pick up the pieces, we’ll have to wait and see. It hasn’t materially affected the automotive sector IMHO since we’re looking at an almost 100% growth YoY for NEVs with the final number likely to land somewhere around 6.7-6.9M units. We aren’t out of the woods by any stretch of the imagination as I’ve read that some China health experts estimate that >80% of the Chinese population could get Covid before it’s all said and done. It could take several months to spread throughout the country, especially with an early CNY right around the corner and that means continued craziness and a mess over that time period. Here’s an example of that with Beijing running out of fever meds. The three year Zero COVID strategy has left a deep, lasting scar for China as many companies have now decided that they’d rather take their chances with higher costs elsewhere than banking too much on a single market to be their manufacturing ground zero, that includes Apple. But let’s remember that China can always go lower. The combination of a 1.4B person domestic market along with some of the cheapest manufacturing costs in the world will always make it a difficult decision to leave for any CEO that’s looking to grow. Further, there is still no other place in the world that can get moving faster than China so by this time next year, China could begin to see COVID a bit more distant in its rearview mirror. Once its finally past though, expect the economy to get back to humming along. The Chinese govt will do everything in their power to make it so. As for the newsletter, we are heading into the home stretch of 2022 so I will try to push out at least 2 more newsletters before Jan 1, 2023 but that’s going to depend on a few different things that still need sorting. What got our attention this week.

- Tesla’s new global CEO? At this time yesterday, there was a news report coming out of PingWest that said that Elon had appointed Tom Zhu to the global CEO role for Tesla but >24 hrs later, still no confirmation from Tesla. Tom Zhu was the project lead for getting ShanghaiGiga up and running, leading it to become Tesla’s most productive factory in the world. He was recently appointed the head of Asia from his previous head of China role. If this news is accurate, then it’s pretty explosive! But alas, I don’t think it’s true at least not yet. There was a report that Elon had identified the new global CEO and that very well could be Tom but for now he’s still just the head of Asia. Elon did send Tom and a team of ninjas from ShanghaiGiga over to sort out AustinGiga but that’s definitely not the same as putting him at the head of the table. Is Tom there to run Austin or just there to help get it ‘right?’ Lot’s of questions that need to be answered still - Ford still too ‘automotive-y?’ Just two years after she joined, Ford’s Chief Marketing Officer Suzy Deering is leaving. No detailed explanation as to why she’s leaving, it could be personal, and no replacement announced but this should be concerning for Ford leadership. Suzy came from Ebay if you're wondering. Folks with deep technology roots need to be decisionmakers at all automakers so this was a good move by Jim Farley, that’s if they want to truly pivot and succeed over the next 50 years. If it's not a completely personal issue that's led her to leave, I can't help but think the culture, speed and direction of the company had something to do with it. - BYD is looking at manufacturing in the US & EU. Batteries in the US that is. We always knew that they were looking to build a battery cell factory in North America with me hearing that it was going to be in the US since they already manufacture electric buses there. I’d also heard that they were going to make aggressive moves to begin importing & selling vehicles into the US starting with a keynote at CES 2023 in Vegas next month. About that keynote, they scrapped it and seem to now be taking a conservative approach to entering the US market. It’s because the IRA the Biden administration just turned into law would prohibit their vehicles from taking advantage of most of the largesse (subsidies) being doled out in the name of clean energy vehicle adoption. It would make their vehicle's prices uncompetitive. My gut tells me they thought that already have a lot on their plate (see their recenct challenges in Oz) having entered into more than a dozen countries this and next year so the US can wait for now – till at least late ’23 or sometime in ’24 for sure. As for the EU… BYD is feeling so generous about vehicle manufacturing, they may actually build two vehicle factories in Europe. I see the Atto being a pretty decent sized success in Europe. As in Top 5 vehicle within 3 years kinda success. With the premium pricing they’ve set for the Han and Tang, I’ll need to be convinced that it’s worth the € - my guess is that it’ll be ‘too rich’ for most and they’ll settle for one of the Euro brands or even the Chinese brands in Euro clothing like Volvo, Polestar or even Lotus. CHINA EVs & MORE We will hosting our live Twitter Spaces today at 3pm EST. For those that can’t join our live Twitter Spaces room (shame on you!), 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. TRENDING ON SOCIAL MEDIA - Niutron taps out for now – but not dead yet. The brand from one of the founders of 小牛, which consequently has nothing to do with the electric vehicle brand, has decided to not move forward with manufacturing its first vehicle. But it seems there more to it if you peel some layers back. Their manufacturing partner Dorcen has a factory that’s been shuttered for over two years which means they need to re-verify the factory in order to regain it’s manufacturing license. Why this wasn’t resolved before they took 24K deposits on their first product is beyond me, but Niutron is still hopeful to eventually build some cars sometime in ’23. So perhaps they didn’t run out of money… - Apple Car: delayed again till 2026 this time. Apple ambitions please meet reality. Again. This new version that should make it to production, let me repeat that, SHOULD make it to production will now have one of those annoying steering wheels. Have to admit, am losing a bit of faith in my boys (and girls) out in Cupertino. That and I’d love to be a part of this somehow… GET SMARTER - The challenges ahead for California (read: the US) to completely go clean. This is a great article that tackles most of the challenges ahead for California as it gets closer to 2035 – when it’s committed to ban the sale of petrol & diesel fuel engine vehicles. A refresher for those that aren’t that familiar with how important CA is to the US (read: the world). It’s currently the 5th largest economy in the world and is poised to overtake Germany to become the 4th largest as measured by GDP (for the Germans that read this - this is not fake news). Let’s just say that California is kinda a big deal. It ALSO is the largest passenger vehicle market in the US which means that any new regs (short for regulations) that it enacts normally has implications for the entire country since OEMs would rather not have to engineer and build two types of vehicles, one for CA and one for the rest of the USA. So when it committed to the 2035 date, New York quickly joined them in that commitment and there will likely be another 10-12 states that either have followed NY & CA or will very soon. This means that the US has effectively committed to this date. Add that to the EU, who also committed to this timing to ban the sale of petrol and diesel fuel engine vehicles and we have two of the largest passenger vehicle markets in the world effectively cancelling – gas. The UK has decided to torture themselves even more and have committed to 2030 being their end date. With all that being said, discussions/debates/fights about how we get there in an affordable, linear and orderly fashion are under way, but the short answer is that we don’t. It’s going to be expensive, disruptive, difficult and it’s going to take a lot of money out of the pockets of some traditional vested interests which means there will be A LOT of pushback from MANY different factions that aren't ready to make the move. Not to mention Saudi Arabia and the rest of the Middle East is quietly doing everything they can to push out that date as far as they can as well. What we’ll likely see from them over the next several years as the EV transition has its fits and starts is squeezing as much profitability (and creating pain for the rest of the world) as they can from their oil reserves before finally reducing prices to make EV adoption more expensive. The article tackles much of the above along with grid issues, EV affordability, battery cell and chip fabriction/production, range anxiety, charging infrastructure investment and expense. Now through 2030 will be a pretty bumpy ride for folks in the US that work in the sector as the inevitability of EV adoption hits the masses. Let me be very blunt with this, the US govt. is going to write a half trillion dollar check to make this happen. More importantly, OEMs are completely on board so it’s not an if but an emphatic WHEN. And as Americans, we can choose to do this the easy way or the hard way. Worth the read if you’re still wondering about all of the challenges. But as an entrepreneur myself, all I see from that author’s seemingly ominous narrative is – opportunity. Opportunity to displace sectors and companies that have been living high off the hog for waaaaay too long. BY THE NUMBERS - ¥35B. That’s XPeng’s cash position which means they should be able to weather the current storm and anything not too extreme in 2023. They still need to reconcile their product portfolio and get a refresh or two pulled into 2023 so that’s a likely area of spend for them between now and any major changes to its current lineup. - 598K. How many NEVs (BEVs + PHEVs + FCEVs) were sold in November. Wow. - 3%. November take rate for NEV sales against overall sales. Wow. Wow. ------------ 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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