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Tesla's Shine Helps China EV Inc, Short Timer - Diess, New XPeng SUV imminent - SAI Newsletter 44



We had a surprisingly early first snow this weekend with the cold turned up a few notches. Beijing isn’t known for its snow, so what other surprises await us through the end of this year? The China International Import Expo (CIIE) kicked off on Friday, November 5th and there were a few EV & legacy automakers that were there to promote their wares including: Hummer EV sighting at the CIIE – It’s a BIG truck but I have to admit that in pictures I am a fan. Tesla also participated and made some news you can see below. The China Cadillac Lyriq launches on November 17th for the China market. It starts at 400K RMB (~$60K) and I think it should do fine. The Guangzhou Auto show starts on November 19th. For those who are wondering if I’ll be attending, I will not this year. Restrictions for entry into Beijing have been tightened so I’d rather be more conservative for now. With that said, I still plan on making it down to Shanghai once or twice more before the end of the year so stay tuned in case you’re down there and want to catch up. I’ll be participating in a panel discussion on ‘The Global Battery Race: What’s Next?’ this Saturday, November 13th, 7:30pm. It’s part of the 5th Young China Watchers (YCW)-King’s College London China Conference. You can sign up for the online event here. EVs & More will be hosted on Twitter Spaces as per the usual on Thursday – 9pm EST. We will post the topics later this week on Twitter so if you’re free please drop in or better yet, come with some questions or comments. TESLA NEWS - Apple poaches one from Tesla. Another AV engineer is jumping ship. This time, Tesla loses CJ Moore to Apple and this one is worth noting because the engineer in question was reportedly questioning Elon’s timeline and the capabilities of Tesla’s FSD – Full Self Driving. The grass is always greener. Perhaps he came in to pick up some of the slack left from Doug Field leaving Apple -> Ford? - Tesla is likely going to develop a vehicle for China in China. This shouldn’t be much of a surprise to anyone, especially since companies like GM and Ford have also made investments and have or plan to develop vehicles locally to be sold in China. What seems more surprising is that VW seems to still does most of its design and decision-making in Germany. This is public acknowledgment from the OEMs that success in China takes a commitment or capital, resources along with local design and not a rebadged US or German designed vehicle. Can’t wait to see what the local Tesla team is able to come up with. It would likely be exported as a global vehicle is my guess, perhaps to India and Southeast Asia. IN THE NEWS - Tesla’s $1 Trillion valuation and shining a spotlight on the China EVs that are stepping into the EU. One of the reasons why I started Sino Auto Insights was because I saw China EVs becoming a major ‘thing’ in the future. That future came much sooner than most thought as Covid made its presence known, first in China and then the EU & the US. Were the legacies asleep at the wheel on this one? I am obviously being a bit tongue in cheek with that last statement but most of these OEMs didn’t know enough to take Tesla seriously so why would we think that they’d take the China EV companies seriously. Now, rather than leading from the front, they are ALL playing catchup from behind. Diess did admit that he benchmarked some of the Chinese competition (read XPeng) and came away very impressed. As I’ve said many times before, ALL of the OEMs need to get much smaller, hire more managers from the tech sector, put them in leadership roles, and keep the ones that can make tough decisions earlier rather than later. With the latest valuations of each of these Chinese EV companies on the rise, the opportunities the legacies had to acqui-hire are long gone. Now, comes the pain. And lots of it. Did I mention that Friday’s closing market cap for Tesla was $1.21 Trillion? That’s > 8x’s Volkswagen Group’s closing price of $145B USD which is just >NIO’s $69B valuation. I get that it’s not all about their market caps because some of these numbers are nonsensical (see Tesla). Having said all that, if we know that the automotive sector is capital intensive and we believe that it’s still a car sales dominated sector for the foreseeable future with robotaxis likely >10 years out, then borrowing costs will come into play for each and every legacy automaker. In the near(er) future, the legacies will need to turn off the ICE faucet and cut over to being an EV ONLY manufacturer and that’s when that market cap will matter since it’ll affect their borrowing costs and whether or not they can access the capital markets to fund that full transition over to EVs. That’s when they’ll really become the prey. But will any of these Chinese EV companies want any piece of these old legacies? My guess is only if it gives them easier access to foreign markets. - The right leader for Volkswagen. The VW Works Council isn’t happy with Diess’s social media habits nor his inability to secure chips for production. If we are reading between the lines though, what has them really chapped is that Diess was honest enough to say that to compete with Tesla and China EV Inc, VW Group would need to get much smaller AND much more efficient. I write ‘AND’ because there’s no guarantee that smaller makes you faster, not as long as leadership is thinking the same way, while processes and policies that were meant for much larger organizations remain in place as well. One thing I do not care for about Diess and we spoke about this in last week’s ‘China EVs & More’ is his obsession with Elon and Tesla. It can NOT help employee morale and is just a bad look for a man in charge of leading >650K people. Whether what he says is accurate or not doesn’t even make a difference because of the bromance he wants to nurture with Elon. And that’s the issue because much of what he is saying to external parties needs to happen. Now, he can’t speak SW/HW or battery expertise into existence but he’s in the right zip code because he emphasizes the need to be really fast at being really good at all of those things. He also effectively said last week during his internal speech that they need to be more efficient. Efficiency is a really ‘bad’ word when speaking with unions since it equates to doing more work with less people. Even if the worker’s union knows this, which they should, it’s one thing to keep the discussion behind closed doors, it’s another to say it out loud in front of media. The union has no other choice but to publicly & forcefully push back. Now, can Diess get VW reset and on the right path? I am not sure. He still surrounds himself with auto people. That’s NOT a good sign. BTW, auto SW people aren’t really SW people. Not in the Apple, Amazon, Microsoft sense. Let me make that crystal clear. He also should’ve known the ID Series vehicles weren’t up to the task of competing in China. Perhaps he was willing to concede the China market for a short period while the EU & US markets fed on those vehicles? They won’t get anywhere close to the internally forecasted sales numbers I am sure they were very optimistic about achieving up until earlier this year. Who can/will or have to step up? Is anyone up to the task? Because if they are, they might be forced out of that job. I guess we wait to see what is Diess’s fate. - The COO of Baidu’s Apollo Intelligent Driving division said that autonomous vehicles will eventually be safer than vehicles with people driving. No disagreement with that. As a matter of fact, Xinzhou Wu, the head of the XPeng Autonomous Driving Center, estimated that autonomous vehicles would need to be about 10x’s safer than human drivers before humans fully trusted them for point-to-point use. That just means that we still have a long way to go before we or anyone for that matter anywhere in the world will be able to fully embrace AVs. TRENDING ON SOCIAL MEDIA - Aurora, the Pittsburgh-based autonomous vehicle company goes public via SPAC. First off, congratulations to the Aurora team since this is quite an accomplishment. With strong ties to Carnegie Mellon of course, I wish them nothing but the best, but I’ve also been told that if any team can get it done, it’s the Aurora team. So far the Street hasn’t been too impressed, the share price is basically flat since it opened last week. - XPeng to unveil its latest SUV at the Guangzhou Auto show. Unfortunately, I will be sitting the GZ Auto show out and won’t be able to see the reveal in person. Still, lots going on with projects and the additional restrictions due to some recent outbreaks makes traveling a bit dicier. Will have to wait till the BJ Auto show in April unless I decide to make a visit to XPeng before then… GET SMARTER - That chip shortage isn’t ending anytime soon and this is one of the reasons why. From the article, in the 2nd quarter of 2021, the semiconductor industry sold more chips than at any point in history. As you’d probably heard ad nauseum since the chip shortage began, ‘fab’ing chips is really hard. Right now, it’s the most cutting-edge chips that are causing the supply challenges. More companies want more of them as demand for their products increases. But even the lower-tech chips, transistors, resistors sometimes run into supply issues since many of them aren’t readily manufactured, especially if the parts go EOL or end of life. Normally what happens is a chip manufacturer will contact a customer to let them know that they’ve decided to stop manufacturing a chip that’s currently being used in their product(s), either because demand for it has shrunk or there’s a newer, higher-margin chip that will replace it that they’re ready to launch. The client blows a fuse and says that you can’t do that because they believe that the supplier is there to provide parts to ONLY THEM! The supplier then asks for a last-time buy before the tooling for that chip is put into storage not to be used again. That last time buy should include an estimate needed for production + whatever is needed for warranty since each part that’s used in an electronic product has a forecasted ‘failure’ rate. Normally the customer will order enough to last them through qualifying the part that replaces the EOL part so that the inventory of the old part can be bled out while the new part gets ‘cut’ into production and ramps until it’s completely replaced the old part. There have been times, more than a few, that I’ve had to deal with a replacement part that the supplier said ‘should’ be plug and play takes forever to qualify. That’s when the shit hits the fan since there are only a finite number of the old part so unless the new part is qualified, production will stop until either more of the old part is secured or the replacement part is qualified. JUST THE NUMBERS - $1B. That’s how much LeapMotor is rumored to be raising via an HK IPO sometime early next year. They’ve really done a good job with turning their fortunes around and are consistently selling a respectable, although still somewhat small numbers of vehicles monthly. That should change with its October launch of the C11, a small-ish, mass market SUV that starts at ~160K RMB (<$24K USD). That’s a perfect price to be exporting BTW. Just saying… INTRODUCING - Geely gets into EVs. Well, you’re saying you knew that? OK, how about electric semi-trucks? Meet the Homtruck from Geely’s commercial truck business Farizon Auto. The ONLY play that makes sense here is that they want to compete with Aurora, TuSimple, Plus, and others for autonomous OTR (over the road() commercial trucking. This thing will launch in 2024 and will have a methanol option as well. - ZipCharge. Go, a portable EV charger just in case you need an additional 20 – 40 miles of range in <1 hr but you’re not near a charger. —— 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

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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