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Tesla's Tech Lead, German Auto Sector reckoning, Layoffs in Tech - SAI Newsletter #8



Attended the MICHauto Summit in Detroit a couple of days ago where Governor Whitmer signed two executive orders that will create a council on future mobility & electrification and establish the Michigan Office of Future Mobility. There were very few details on what these entities will actually do though so the jury is still out on what to think.


I was impressed with the event, since along with Governor Whitmer, Argo AI CEO, Bryan Salesky had a fireside chat with Autoline host John McElroy. It's interesting to hear from the different AV Startups leadership about their different approaches and framing of what you could argue is the same general problem they're trying to solve, especially when that problem resides in China vs. the US. As I’ve spent more and more time back in Michigan, I believe that Detroit CAN be a major player in the future of the mobility sector. I say CAN because there are still MANY hurdles that Detroit needs to eliminate for entrepreneurs, disruptors and the OEMs and the city needs to show the rest of the world some major ‘WINs.’ I’ve recently met some people though that I believe can ultimately become difference makers, if the city and state can do their jobs.


IN THE NEWS THIS WEEK:


-          NIO gets bailed out. Again. With a $1.4B investment from the Hefei govt. It looks like a requirement for taking the money is that NIO moves their operations there. And an analyst finally calls out NIO as a Tesla ‘Wannabe.’


-          Toyota opens their wallet, to the tune of $400M USD, to invest Pony.ai pushing Pony’s valuation to $3B. It’s still going to take a lot more capital but big WIN for Pony here as they have one of the better managed OEMs to work with. I was scheduled to ride in one of Pony’s AVs in GZ but had to push it out to later this year. Toyota now has partners in the US ($500M investment in Uber) and China for AV research.


-          China pushes out mass deployment of AV goal from 2020 to 2025. This was due to the Chinese govt. facing …reality.


-          No one wants the ‘Tesla killer’ label anymore. Especially one of its ex-employees building a competing product. Lucid may have a chance though.


-          LA orders the most electric buses, 155, in US history. BYD to supply the buses. A missed opportunity for the domestic manufacturers.


TRENDING ON SOCIAL MEDIA:


-          Detroit Bikes gave a sneak peak of its electric bike on Instagram. Could we see it before summer?


-          A Grab and Gojek mashup? It would make for a formidable challenger to Uber that’s for sure.


-          GM officially launches the Menlo EV for the China market ONLY.


-          California’s annual disengagement report is out. Toyota had the most, Baidu Apollo Project had the least but what exactly does that mean?


-          Porsche Taycan catches fire in a garage in Florida. A $200K vehicle goes up in flames.


-          Bob Iger unexpectedly steps down from Disney, his legacy includes some BOLD moves including acquisitions of Marvel, Pixar and Lucasfilm. The new Disney CEO, Bob Chapek, just happens to be a fellow Spartan.



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

EV/AVs

Japanese engineer declares NO MAS – ‘We cannot do it.’ Is Tesla’s technological lead insurmountable? (www.asia.nikkei.com)

Product teardowns are nothing new. But in the case of the Model 3, the Nikkei Business Publications teardown revealed a great deal that should worry the OEMs. Analysts believe that the brain that currently runs each Tesla, the integrated central control unit (ICCU), has tech that’s 6 years ahead of any other carmakers. The ICCU contains two chips that Tesla designed in-house. I don’t know ANY automaker designing their on IC’s (integrated circuits).


The reason given by the Japanese engineer for not being able to ‘do it’ is a bit of a headscratcher though. His reason was that developing something like that would render many suppliers useless and cause a HUGE disruption in their supply base, likely causing many suppliers to ‘let go’ of their current staff. Maybe that has something to do with their keiretsu, a set or system of companies that sometimes have interlocking relationships and shareholdings (per Wikipedia).


Clearly, Tesla is in the lead position on technology right now but as the article alludes to, Toyota and VW Group globally ship about 10M (with an M) vehicles globally / annum whereas Tesla shipped ~370K in 2019. As Tesla sales  volumes increase further (which they will) across multiple regions, there will surely be growing pains for Tesla if history is a good indicator. Complexity across manufacturing, service, sales, quality and reliability becomes more challenging to manage consistently well at higher and higher volumes, since now we’re getting into the big OEM’s wheelhouses.


Most OEM’s managers will tell you sales growth is a good problem to have and Tesla does have much more experience with launching vehicles now than it did before but they’ll also tell you that going from 3 to 5 products manufactured across 3 countries in a 30-36 month period is a BIG ask by Elon.

#Tesla #technologyadvantage #wecannotdoit #VWGroup #Toyota


OEMs

The Chinese brands coming to US showrooms, courtesy of HAAH Automotive Holdings. (www.automobilemag.com)

Maybe not the best time to be making such announcements but as the Chinese markets continue to slow, many Chinese automakers will look to the US for further growth. Many though will not have the quality, reliability or the crashworthiness to be qualified to be sold in the US. That leaves just more than a handful, initially at least, with the ambition, capital and cars (they feel) that are good enough that Americans would consider them.


I’d heard that many of the automakers that are featured in this article, Chery, GAC, and Lynk & Co. for instance had set up LA offices almost two years ago but decided to wait on announcements about their arrivals due to the trade war.


I don’t know much about HAAH Automotive but their ambition matches that of their Chinese partners since it’ll take A LOT of effort, via marketing, education, and sheer resilience to get these vehicles sold in the US in any significant volume. That and a TON of capital. Over time, I could see one or two of the brands eventually breaking through but grabbing share over the majors is a tall task that’ll take terrific product & A LOT of marketing dollars.


I wonder about HAAH’s relationship with Zotye though, not that they have one since they probably do, but more so as to why Zotye. Ford also had announced a previous tie-up with Zotye for EVs but has since basically walked away from it likely due to the rumors that Zotye was teetering and on the brink of bankruptcy earlier in 2019. Besides that, Zotye doesn’t sell all that well in China (~116K or 0.55% share in 2019) and I don’t see it being any easier for them in the US market.


Finally, it’s not all that surprising about Geely & Great Wall wanting to grow their sales via the US market since they’re privately owned and are NOT an SOE (state owned enterprise). Could we see their offerings in June at the Detroit International Auto Show? We shall have to wait and see I guess.

#ComingtoAmerica #HAAHAutoHoldings #Chery #Vantas #GAC #Geely #GreatWall #Zotye


ECONOMY

The coronavirus likely pushes the Chinese auto sector into another year of contraction. (www.ft.com)

Most analysts thought that the two years of slowing auto sales in China would finally end in 2020 but that’s impossible now due to the coronavirus. The struggle is really just beginning for most everyone involved in the sector with some companies likely having to close their doors in the most extreme cases. This will have a domino effect not only in China but the global auto sector. Many OEMs, like GM and VW, rely on China to be their largest sales markets.


Had a good chat with Christian Shepherd of the Financial Times about how even ‘off the shelf’ parts manufactured in China can create bottlenecks and lines going down all over the world. With many plants in China just beginning to fire back up, the struggles could last well into Q2 and that’s if there aren’t any flareups of the coronavirus in China in the future.


The EVStartups that were already struggling with raising or preserving capital will need a bailout from the Chinese govt or will likely cease operations. And with the Chinese economy struggling, too many of them closing their doors could make a delicate situation even worse so bailouts across sectors is likely.

#FT #coronavirus #slowsales #needtorampupquickly #China #autosector #largestmarketintheworld


A dealer disruption, out of necessity. (www.bbc.com)

The coronavirus is pushing carmakers in China to utilize the interweb to sell vehicles. There is literally no foot traffic at the dealer so the only way to keep consumers buying is via online sales. Online sales is a growing trend in China that will continue long after the coronavirus has come and gone. It’s times like these where lots of small innovations can occur as well.

#onlinesales #innovationthroughnecessity #adewwaytoreachcustomers


German auto sector taking losses and layoffs to the tune of 800K jobs over the next 10 years. (www.reuters.com)

For Germany and the rest of the EU to be a major player in the disruption of the global automotive sector, right sizing is just the initial challenge the sector will need to tackle. My fear for Germany is that the 800K estimate is not a large enough number.


If they’re able to successfully tackle the thorny issue of rightsizing the need to address an even larger challenge for not just Germany but the entire EU - to establish a ‘Silicon Valley’ of its own. This dovetails into my post last week about how challenging creating homegrown, relevant tech is going to be since they really have no history of sustained, disruptive innovation in the high tech sector.


If Germany and the rest of the EU is unable to nurture innovation within their region, they risk being reduced to being the world’s factory for AVs. Alternately though, this creates MANY opportunities for ambitious entrepreneurs with the ability to build the region’s first Apple, Google or Amazon. Maybe for some of my readers it’s time to buy and one way ticket over to the EU and see what you can do??

#DL #EU #SiliconValley #TheEUPivot


As Tech gets humbled, could this be a buying opportunity for the OEMs? (www.nytimes.com)

With what happened with the WeWork IPO, or the lack thereof, startup unicorns and those with unicorn ambitions alike are all pivoting towards quickly reaching profitability rather than scale now. Scale does NOT promise you profit. It never did, but for a long time VCs convinced the public that fast growth will ‘eventually’ lead to profitability, that is until WeWork lost more than 70% of its valuation when investors stopped believing the VCs and the banks about ‘blitzscaling.’


Now for tech companies that have not been able to eek out any profits, even their best employees will likely lose their jobs. With all these layoffs, it could be the perfect time for the OEMs to build out their new team of UI/UX designers, coders, project managers and digital marketing folks for cheap(er) than if they’d have to poach these folks from the surviving startups.


That’s if the OEMs/tier Xs can convince these ‘potential’ transplants that the work they’re doing will help solve one of the biggest, most complex, and game changing puzzles the world has ever seen – how to better move people and things from point a to b in an affordable, eco-friendly and convenient way. That and places like Detroit can convince even more people that it’s a hip, cool place to live and work.

#slowlybutsurely #tooslowlythough #Detroit #complexproblemstosolve #recruitingtrip #comecheckusout

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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