Tesla Taxis, OPEC's Missed Forecast, The Small EU Window for China EV Inc. - SAI Newsletter 30

July sales numbers came out and there was a lot of ‘chalk’ with one notable exception. ‘Chalk’ means that the favorites won or in this case grew their sales, with mostly no surprises. All the usual suspects with the exception of NIO, as their sales were essentially flat (-2%) month over month (MoM). Comparing year over year (YoY) numbers is nonsense since last year’s sales were affected by the pandemic, but it’s a stat that the EV makers definitely want you to track since it’s likely a triple digits increase. There should be a bit of concern over in Hefei, but nothing yet to panic about if you’re NIO. Although it is a bit strange that in a market that’s forecasted to grow significantly, NIO one of China’s best hopes for unseating Tesla as top dawg, sees a month of weak demand. Let’s check on their reasoning for the softness and wait till next month to determine whether or not this is a trend. Covid is wreaking havoc again in many parts of the world including China now. We’ve canceled domestic travel plans as the delta variant pops up in quite a few cities across China including recently in Shanghai and Beijing. I am a bit hesitant to go out now since I don’t want to risk having to quarantine because I was in an area that is / could be deemed high risk. For now, we try to make the best of it. At this rate though, I don’t see China opening borders up for another year. Finally, Lei Xing and I are on this Thursday 8:30pm EST for our China EVs & More Clubhouse room. We’ve been grateful for all of the support but Clubhouse, it seems, may have already had its ‘moment’ so we will be trying out Twitter Spaces in the next few weeks as I’ve been told that’s a more engaging platform. After this week, we will officially be moving to Twitter Spaces to host our room which should allow for many more folks to participate. Stay tuned for more details! TESLA NEWS - 50 Tesla Model Ys enter service for ride-hailing in NYC. Mobility company Revel is getting into 4-wheeled ride-hailing/sharing to compete against Uber and Lyft. The big difference with Revel’s service is that their drivers are ‘badged’ Revel employees. COO Paul Suhey says that you should expect pricing to track to Uber & Lyft rates with the main difference being the drivers will all be operating the Model Y to pick you up. Also, they’ve taken out the front passenger seat and stuck a touchscreen on the back of the center console that allows the passenger to control the music & temperature of the vehicle. Hmm. Sounds familiar. If only the legacies could generate this type of hype when a vehicle of theirs gets picked to be a taxi. - Did the Indian govt. just throw Tesla the Heisman? It appears so. Tesla has been lobbying the Indian govt to lower its import duties on EVs with no luck. To be fair to Tesla, the tariff rates are pretty ridiculous. There’s a 100% duty on imported vehicles that have a cost >$40K USD. Tesla is considering launching an imported Model 3 in India for ~$95K that, in China, costs ~$40K. If Tesla (read Elon) can’t get this resolved, it could throw a very LARGE monkey wrench into Tesla’s plans of world domination and sales growth. It would also make locally building cars and a <$25K product pretty important. Perhaps Elon is losing his touch? IN THE NEWS - OPEC, BP, and Exxon were REALLY wrong on EV adoption, or perhaps they were just hopeful? The 2015 World Oil Outlook report from OPEC forecasted that by 2040 the world would have 4.7M battery-electric vehicles on the road. We hit 4.7M units at the beginning of 2020. By the end of this year, we will have a total of 11M BEVs on the road. What are the reasons for being so off? It’s probably a combination of their hope while underestimating policy support & technology innovation but most importantly overestimating the lack of consumer interest. It seems OPEC was wrong on ALL fronts. One more important variable I am certain the study didn’t take into consideration, the effect that a once-in-a-lifetime pandemic would have on pulling in EV take rates that correspond with the legacies launching product earlier and more of them. - The small window of opportunity that the China EV makers have in the EU. By now we all know that China EV, Inc. has pretty much punted on the US market for now and are focused on going international via the EU market. In particular, companies like NIO, XPeng, and BYD have selected Norway to be where they dip their toes in the EU waters. Other companies like Aiways have decided they’re going after the BIG dawg market of Germany to make a splash. The positioning of China EV, Inc. would like to occupy in the EU market suits them well – the smart EVs. In NIO’s case, they’re doing their best to position themselves as the class of the premium smart EV space. I had the chance to speak with Nikki Sun of Nikkei Asia about China EV, Inc.’s chances in the EU, what they have to do to optimize for success and how much time they have before real domestic competition comes online. With the exception of the Renault Zoe, and VW’s ID lineup, the domestic French, Italian, and German automakers are mostly taking their sweet time launching their onslaught of EVs into the EU markets. This gives the Chinese EV makers the time needed to build defensible foundations before the legacies launch more product. "Once European brands launch more electric vehicles, then the market is going to be really competitive," Le said. "I believe the Chinese EV companies probably have 24 to 30 months to quickly educate customers, create awareness about the brands and the positioning before an onslaught of European brands launches into the market." If they can they get EU customers to bite remains to be seen. Importing vehicles isn’t really the way to go if you want to grab lots of share, especially on the low end where there’s no margin to eat some of that tariff. The other really complicated challenge that the EU market poses, there are 24 official EU languages with cultures and borders that accompany them. Being successful in one doesn’t really guarantee success in others so a bunch of marketing €€€ has to be spent in each market or this dipping the toe is all it’ll be. Oh, and I forgot to mention that the 800lb gorilla in the EV sector is about to launch local production in Berlin where their entry-level sedan and crossover should begin production before the end of this year. We know they like to play with pricing too and building locally, they’ll be able to do that all day long. Let the competition commence! - As US technology in China becomes a bit dicier, Chinese money moves to European startups for opportunities. Prophesee, a French startup that is developing a neuromorphic vision sensing platform, has announced investments from Xiaomi and Sinovation Ventures. For those not familiar with Sinovation Ventures, it’s run by Kai-Fu Lee (Kai-Fu), one of China’s AI godfathers. This is significant because this is Sinovation’s first European-based company. This tells me that Kai-Fu is trying to balance his China and likely US heavy investments with more EU investments. Whether the EU has many more investment-worthy startups remains to be seen but this could be a great opportunity for those EU startups that struggled to find interest in China over the last few years. Maybe it’s time to reach out to investors again. For those reading this that perhaps need some help connecting with Chinese investors, we should have a talk! TRENDING ON SOCIAL MEDIA - For you Saab fans out there, an ultra-rare 2011 9-4X is on the auction block. For those of you who’ve never heard of Saab, it’s the other Swedish car company. Saab originally built fighter jets but eventually moved into passenger vehicles and gained a cult following over the years before GM drove them into extinction. As a 2x Saab 9-3 owner myself, I was once a decent-sized Saab fan. At the time, I was working at GM and wasn’t that taken by any domestic vehicles being built back then by GM so I got the 9-3. The 9-x IS currently going for $12K with <10 hrs. to go in the auction as of this writing. GO FOR IT! - Does it really take a rocket scientist to build an electric boat? In the case of Arc, YES! A lot of the Arc team are ex-SpaceX employees and they’re targeting production of their first try, a 24’ boat that can reach speeds 40MPH using a 200KWh BATTERY by the end of this year. It’ll also run you about $300K! Want. …but I’ll wait for the Model 3 version to come out before I pull the trigger! GET SMARTER - Are you wondering why Toyota plants in North America were running at ~90% capacity in the first half of this year while other OEMs struggled due to the chip shortage? Because they run a really tight ship. I had a good conversation with Eamon Barrett from Fortune about how Toyota Motor Corporation is able to weather the chip 'storm' better than their OEM counterparts.

In short, Toyota learned valuable lessons from past supply chain/parts issues and wasn't too stubborn to adjust on the fly, going from their world renowned JIT philosophy to deep diving on who supplied what to who at the tier 3-5 level effectively which led them to hoarding chips to keep their plants running globally. As an aside, if a part shortage lasts longer than a few months (barring natural disasters, etc.), it's not actually a shortage 'issue,' but a capacity ‘issue.’ That's likely going to remain in place until capacity is added which could take 2-3 years, so it'll be the better-managed manufacturers that can minimize the impact on the chip shortage moving forward and take share from those that are struggling ...just like Toyota's doing now. JUST THE NUMBERS - 480K. That’s the number of NEVs that roam around Shenzhen. China’s sixth-largest city with ~12M people is setting the pace in China, and hence the world, for EV adoption. And we’re talking EV adoption across the board; passenger vehicles, commercial vehicles, buses, taxis, etc. - An Olympics-inspired ‘Just the Numbers’ post. How much does it cost to become an Olympic swimmer? We are talking >$50-60K/year until at least the kid hits college. The linked video does a good job of explaining all of the miscellaneous costs associated with grooming the next Michael Phelps. - Tens of millions of RMB. That’s how much WeRide supposedly paid to acquire a small autonomous trucking startup, MoonX. In the same vein as Waymo, Aurora, and others, WeRide seems to be trying to pull commercialization opportunities closer to the present. This acquihire also allows them to pool the data that’s been gathered by MoonX and absorb the Shenzhen-based MoonX team of 50 into the WeRide fold. I think we could expect an announcement from WeRide within the next year that they’ll have a product that will compete directly with TuSimple, Plus.AI, and the other competitors in the autonomous trucking space. - $2B. That’s how much VW Group is betting in order to take a majority stake in Europcar. The Hertz/Avis of Europe. Now, THIS is a pretty intriguing move by the Diess. Car rental companies have historically been dawgs since the balance sheet is weighed down by all of those cars on its books but, along with their New Auto strategy, I could see this working. A big reason I see VW Group being able to work this is not that I am so enamored with their strategy or I think it’s better than everyone else’s because it’s not. I wouldn’t say chasing Uber or Tesla is a strategy. What makes me ponder the possibilities is the fact that VW Group has a stable of brands that can carry off different levels of service. Currently, Audi and Porsche drive their revenue but that’ll need to be flipped somehow with VW brand, Seat, Skoda, and their more mass-market brands needing to succeed in order to get the necessary volume of vehicles on the road to collect enough data and then also sell services to. I see GM & VW very well positioned with their stable of brands to provide low touch, high quantity as well as high touch low quantity services that could drive their services revenue. Large is not normally associated with nimble though so those companies that are used to bullying their way into leadership positions do NOT have an advantage in this particular case. In a software, services-based revenue world where stickiness and loyalty play an outsize role, just being big is not likely a winning strategy. INTRODUCING - A Bentley Bentayga Hybrid? That’s right! Be a bit more environmentally friendly for the bottom basement price of £155,500 or the same price as the V8. Electric ONLY mode only does 25 miles, although that should be sufficient for 90% of Bentayga’s customers. —— 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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