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Tesla - Twice as Nice w/ Price Lifts, Didi Motor Co, VW Group Europe Challenges - SAI Newsletter 10



 

As evidenced by some of the extreme measures that parts of China are taking to contain it, Covid-19, in its many variants is still moving around the country. I was warned by my European and American friends that Omicron is super-contagious and Shanghai, Shenzhen, Hong Kong, and Jilin Province are experiencing that first-hand. As if the degree of difficulty wasn’t already high enough for building EVs here due to chip and battery supply chain challenges, now parts of Shanghai and Shenzhen are effectively on lockdown as those locations try to contain the virus from further spreading out. In Beijing, no major restrictions have been implemented (yet), but with the Beijing <> Shanghai corridor much like the SF <> LA & NY <> Bos corridors where people on a daily basis go back and forth, my fear is that Beijing’s time may still come in the near future. For those paying attention, two of the cities implementing extreme measures also happen to be where Tesla and BYD build their cars. Production will be affected. How much is still too early to tell. BYD acknowledged yesterday that they’re dealing with challenges stemming from Covid spread but hope to contain any real impact to production. Famous last words. We are also T(-5) weeks away from Auto Beijing 2022. Currently, my guess is that the show will be impacted and could end up being similar to what happened with the GZ auto show late last year. At that time, it was difficult for out-of-towners to head down and get access to all of the events. Luckily, as a Beijinger, I hope that means I’ll still be able to attend the live events if they do indeed still have them. Chinese ADRs are taking a beating and that includes the three Chinese EV companies that are currently being traded on US markets although it was a bit better today. As Lei and I mentioned during last week’s podcast, it’s not likely going to come down to whether the China EV companies want to continue to be listed on the US markets, but whether the Chinese govt. allows them to or not. Lots of other stuff going on so needed to really curate what I thought was newsworthy – if you want to know more outside of this newsletter, listen to my podcast and follow me on Twitter. That’s where you’re going to get my weekly take of what’s a big deal (and what isn’t). Please join Lei and me for this week’s EVs & More Twitter Spaces room. This week we will be on 12 hours later which means – Friday, 03/18 – 9am EST, Friday, 03/18 – 9pm China local time. We should move back to our normal time after this week. For those that aren’t able to join, the 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. Busy week talking with Edward White from the Financial Times about how the Chinese OEM brands could fill the vacuum left behind by the western companies halting business in Russia. It’s a slippery slope though and with the sanctions adding stress to the Russian economy, Russian citizens might not be in the mood to be buying cars right now anyway. That article you can read here. I also spoke with Che Pan of the South China Morning Post about how realistic it is to think that robotaxis could be right around the corner. The short answer, not very but for a more nuanced and balanced answer, click this link to have a go at the article. TESLA NEWS Tesla raises prices and is so pumped about it, that they do it again 5 days later! These price adjustments are NOT insignificant either. The Model 3 Performance with a larger battery and dual motors has increased by a total of ~24K RMB (~$3.8K) in the last 5 days! Tesla is likely doing this for two reasons, to recoup higher raw materials costs that are being passed onto them and to get supply and demand for their products closer to equilibrium. There’s already and 16-20 week lead time on these cars so adding another couple of weeks could push potential buyers to their competitors …assuming that their order lead times & pricing are any better. IN THE NEWS - Covid is forcing manufacturers to shut down its operations in certain parts of China. By way of JV, the German car companies have a disproportionate amount of their production coming out of Jilin Province which has effectively been on lockdown the last few days. VW Group has already confirmed that it’ll be shutting down production from Mon – today at least. My guess is that it’ll be shut for longer, perhaps the next two weeks. Another major manufacturer that planned on gaining share this year on VW, Toyota will also halt production in Jilin Province. Both OEMs happen to also be JV partners with FAW. BYD has been affected as well in Shenzhen although they did send a note out that it’s not currently materially affecting their operations. As if things couldn’t get any more interesting. All of this with 5 weeks left until the Auto Beijing 2022. THE MOST INTERESTING THINGS THAT HAPPENED THIS WEEK - Didi is getting into the carbuilding business? Actually, that’s NOT a question but a statement. Didi is getting into the carbuilding business. I heard lots of moans when this headline popped up but what do they have to lose? Don’t let their PR consultants spin it any other way, most other platforms want to get into carbuilding too but it’s too expensive and too complicated for them. They want to get into carbuilding because it gives them the MOST control over everything that they want to do with the product, its data, and the services that can be launched using that data. They get to pick the HW/SW that can create the most customized, compelling user experience without having to worry about the OEM partner, at any time, swapping out a chip/part because the replacement is $.02 cheaper only to have it set off all sorts of SW bugs that the platform NOW has to deal with themselves. Didi knows where the market is headed – they’ve dictated that movement for most of the last 10 years! With Didi, who’ve gotten its wings clipped by the Chinese govt, if they can get a factory on the cheap and get a car on the road w/in the next 36 months, they can then compete toe-to-toe with the OEMs that are trying to encroach on THEIR business. Think Geely > CaoCao & FAW > T3. Further, as the value of some struggling brands begins to fall off, there will be plenty of tech companies and other platforms looking to get into manufacturing by picking up a struggling brand that has a decent manufacturing and retail distribution footprint on the cheap. Mark my words. It’s because it’s never been easier. Buy a skateboard platform from someone, source the hardware that fits best with your software, and there you have it. I am, of course, oversimplifying the carbuilding process. Before EVs, powertrain and exterior design were big differentiators, but as we are starting to see, more and more cars begin to look alike. At least their silhouettes. That means the true differentiator is going to be the UX. Part of that UX is going to be the partners and suppliers of services you have tied to that other end. Didi is still powerful there, even as it’s been sidelined for the better part of 9 months. With their international ambitions likely stomped they need to do their best to grow their home market and it’ll get tougher to do that without having more control of the business. There are A LOT of reasons against doing it as well – Most of them we’ve discussed dozens of times in this newsletter but these other platforms have ALL partnered with OEMs so this could be Didi’s ONLY play strategically in order to keep up with the Joneses. - Rivian hires a COO. ‘A true car guy’ at that. A couple of things going on here that I think are worth noting. First, who is the head of their manufacturing? Everyone is having supply chain challenges so it’s no surprise that Rivian is in the same boat. Let’s remember though that Rivian’s goal for the year was to build about 4K units/month. Now they’re targeting half of that. Most other large automakers can make 4K cars in a week. Before cars are manufactured parts to build that car need to be engineered, qualified, sourced, manufactured, and then shipped at the time they’re needed, at the negotiated price and quality levels that they’re contractually obligated to be. So there seems to also be a sourcing issue here and normally, manufacturing guys don’t deal with the sourcing part. They have enough going on within the four walls of the plant! For sourcing, we can look at pricing, quality, and availability. Those are a big part of sourcing’s responsibility – to stay on top of those three things. Let’s say Frank Klein knows what he’s doing. If Rivian can’t get him the parts to build the cars then they’ll have a factory full of workers with nothing to do. We knew they were going to have growing pains since Elon told us building cars is REALLY hard to do. And Elon was targeting 2-3X the number that Rivian is currently targeting so they have some real challenges ahead of themselves. But the most glaring issue to me wasn’t an operational issue at all, it was a communications issue. My read on their raising prices and then lowering them back down has everything to do with RJ believing the ‘Yes’ men and women he’s surrounded himself with when they told him that the brand is strong and that customers would stay loyal despite the 17-20% price increases on CURRENT reservation holders that Rivian was going to drop on them. I think they’ll get the manufacturing right because they have to. That’s binary meaning that they won’t be in business in 5 years if they can’t get it right now. But if they can’t get the branding, comms, ‘knowing their customer’ thing right, they may not fulfill their potential. And likely struggle to sell since they’ll need to keep up with Toyota, GM, Ford, Hyundai, and all of those other companies that have electric trucks and SUVs in the works and who Rivian was light years ahead of before all of these missteps occurred. TRENDING ON SOCIAL MEDIA - Li Auto keeping people in suspense as it drops bread crumbs on social media until the official unveiling of its L9 flagship SUV. The analysts got it right but for all of the wrong reasons. Currently, folks are higher on NIO & XPeng not only because they have full BEVs on the roads but because they have more products on offer AND they’re aggressively entering foreign markets. You could interpret that as NIO & XPeng wanting to move fast and break things. But what about that saying about ‘slow and steady’ winning the race? That seems to be Li Auto’s motto up till now. But I think we will begin to see more of a coming-out party for them as we get closer to the L9 unveil. Strategy-wise, they just seemed to be more focused on the domestic market for now but I am certain that they’re building up an ‘international’ team and will pounce when they feel the timing is right. By that time though, will it be too late? I don’t think so. Besides, it’ll be pretty interesting to see how each individual strategy from China’s Big Three will play out. We should also remember that Li Auto isn’t really competing directly against an XPeng if, for no other reason, the pricing of their products doesn’t really overlap. I think they’ll be fine. Especially if they can execute better than their competitors. GET SMARTER - VW Group stands to lose the most due to Russia’s invasion of Ukraine. Let’s count the ways. First, there are the immediate concerns of Russia being a small export market for its passenger and commercial vehicles. It also has factories there that they’ve effectively stopped running with a good chance of Russia taking them over. Next, wiring harnesses that supply production throughout Europe for VW Group would normally come out of Ukraine so there are production challenges that lie ahead for VW Group as well. This issue is likely the most painful in the near term but solvable long term. The most important part about the conflict? Petrol prices are increasing. Cars overall become less attractive purchases, at least those that run on petrol. With Europe’s reliance on Russia for energy and oil, this challenge isn’t so easily solved and could not only affect VW Group sales in Europe, its 2nd most important market, but it could negatively affect Europe’s entire economy turning a year that in late December 2021/early January 2022 looked very promising sales/product-wise. This is the calculus that global leaders need to do. What may be good for the world and the ‘right’ thing to do, may cause a lot of pain to their constituents. - The Zeekr vehicle that Waymo is going to use as its L4/L5 shuttle was spotted out cold-weather testing. No surprises here – it looks like the rendering that was shown late last year. But having real-life prototypes out testing means that production should be right around the corner. - To piggyback off of the above post, NHTSA issued rules that state that manual controls aren’t necessary for fully autonomous vehicles. GM via Cruise pushed for this and it seems it should help both Cruise and Waymo since both companies have openly showed off what they’d like to be their fully autonomous L4/L5 roboshuttles. There’s some progress on the policy side. How long will technology and commercialization catch up with this though is still open for debate. INTRODUCING - Introducing …a bunch of new stuff from Segway. Let’s briefly list. A new electric moped, like a proper Vespa style moped, a few electric kick scooters with varying speeds, and a shredder kit that allows you to turn an electric skateboard into an electric go-kart! Segway has been a player in China for quite some time but these products are all aimed at the US / European markets where 小牛 Niu is also looking to expand. It seems there is a lot of overlap when it comes to product so what will be the major differentiator? Price? Features? Compatibility? UX? Will need to do a bit more research and let you know in the near future. BTW, neither of these companies were looking at serious growth in foreign markets 4-5 years ago. This changed very quickly and it’s good to see. They should both do fine in Europe, where there’s more of a two-wheel commute culture but it’s how their products might gain traction in the US is what interests me the most. And I mean outside of the major cities. Will there be real interest? BY THE NUMBERS - $36B. That’s how much Intel has announced it’s going to be investing in Germany in order to build a HUGE fab and R&D center. A big number and a bit commitment. Bravo Germany! —— 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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