The Demo to chase, SEA coming on strong, Model 3 price reduction - SAI Newsletter #48
I can NOT believe we are T -1 week from X-Mas, boy oh boy has this year flown by! Still a bit behind so will give you all a reprieve next week on the newsletter but will work towards the week between Xmas & NYE being an end of year type newsletter with a look back and a look forward segment.
My schedule for the US trip is also starting to come together so for those that have asked on my CA leg if I’ll be heading down to SoCal, it’s still a maybe. I’d love to visit one or a couple of the SoCal based EVStartups so if anyone can connect me with Neuron, Canoo, or any other EV or mobility company I would appreciate it!
Since I won’t have a newsletter next week, happy holidays to everyone and I hope Santa is good to you all!
IN THE NEWS THIS WEEK:
- FCA and PSA decide that it’s better to go it together than it is to go it alone creating the 4th largest automaker (by volume) in the world. Will write about this one after I’ve had more time to chew what I think are the challenges and opportunities.
- BAIC and Geely fighting over Daimler, or more appropriately over who is Daimler’s BFF (aka best friend forever).
- Was interviewed by Soon Chen Kang from S&P Market Intelligence about how we got to where we are re: China EV sector. Soon Chen did a good job summarizing what’s happened in China to get us to 2019 and I add some color about what I think may happen in 2020 and beyond. A good read I reco you clicking on.
TRENDING ON SOCIAL MEDIA THIS WEEK:
- Lucid Motors first prototype built – a 6 figure, 4 door sedan that’s they’ve said top specs would be 1K BHP, 400 mile range. It’s just unfortunate that there’s a very limited market for 4 door sedans now.
- Cadillac suffering from #FOMO offers a 38” OLED screen as the IP on their next 2021 Escalade. Although not as large as Byton’s 48” screen, it’ll be the largest for a mass market vehicle from a traditional OEM and we’ll get to see what it looks like when it is revealed in next Feb 2020.
- The Porsche Taycan is the LEAST efficient vehicle the EPA has ever tested. Not sure they will lure many Tesla buyers away. Not sure Porsche cares. But they should.
- Surprise, Surprise. Increased Uber & Lyft usage has led to increased drinking.
- Will pull out a few predictions in the last newsletter of the year in two weeks.
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 about how I look at the issues. We will mostly divide our articles into these buckets: AI, Mobility/Ride-sharing/Ride-hailing/Bike-sharing, OEMs, EVStartups, Investments, and Other.
If you know of anyone who would like to sign up for this newsletter please have them visit: www.sinoautoinsights.com. Thanks for reading.
The Sino Auto Insights team
For those that are new-ish to following 中国（the Middle Kingdom/Country - a literal translation of its name in Chinese), China has about ~1.4B people (the US has ~330M) making it the largest country (by population) in the world. To get a sense of scale, there are more than 100 cities in China with at least 1M people compared to the US’s 10.
Further, economists and media have historically divided Chinese cities into ‘Tiers’ with the 4 largest cities, Beijing, Shanghai, Shenzhen and Guangzhou, making up Tier 1. The many of the rest, mostly inland cities, are categorized into Tier 2-4 loosely depending on the population, economic development, tourism, and education of those cities.
The demo that McKinsey refers to in their report, the ‘young free spenders’ that accounted for over 60% of spending growth in 2018, consist of young men & (mostly) women (in their 20’s to early 30’s) and make up only about ¼ of China’s population.
For those that are interested in reading the entire report it’s here.
I completely agree, a rarity when it comes to these types of reports, with their findings. In the Tier 1 cities and recently many of the Tier 2 cities now, ALL the big global brands are present so in order to make a BIG splash, companies need to be smart, cutthroat, and willing to pay through the nose for KOLs, promotions, and other forms of digital marketing.
Till now, those lowered tiered cities have been pretty neglected by the big box brands across most verticals but as growth slows to a trickle in these larger cities, the brands have gotten a bit smarter and more ambitious with these lesser known places. That’s because marketing and customer acquisition costs are a fraction of what they are in the Tier 1’s.
The challenge for the brands, in this case the OEMs and mobility / last mile service providers is that how these young folks in the lower tiered cities consume information, entertain themselves and largely learn about brands can be quite different then their contemporaries in the larger cities so marketing and customer acquisition strategies need to be customized to each location in order to get people’s attention.
Now the question for these companies becomes, which products/services for which markets then how do we reach our target demo which most likely be these ‘young free spenders.’
For the companies who still don’t realize that THIS is likely who their customers are, they have a TON of homework to do if they plan on growing their shares of the China market via these lower tiered cities and it should definitely be something each and every one of them is developing plans in order to grow that share.
With a total of 600M people SEA is poised to be the next BIG foreign direct investment (FDI) opportunity for the rest of the world. SEA is complicated though, similar to the EU due to its numerous countries that offer different levels of economic development & different types of governments, people, religions, and cultures.
The opportunity is going to be too big for most companies to pass up even without the benefit of TPP. And it’s already started to take away investment from China, hence the need for China to make that changeover to a consumption based economy. USD $1 of investment will go much farther in SEA in the coming years than it will in China.
For the two major mobility companies that dominate currently Grab and Gojek, this means that there will be new, formidable startup foes they have to compete with in the future. This also means that we should start to really see some innovation coming out of that region over the next 5-7 years as well. It just won’t be focused solely on EVs and will likely involve vehicles with 2 wheels, not 4.
LAST MILE MOBILITY
Lime is rolling out a new pricing strategy that they’d been piloting in a few US cities wherein customers pay a $5 weekly subscription fee for unlimited ‘unlocking’ of Lime bikes and scooters as opposed to $1 / unlock previously. Usage fee still applies.
For now, it’s just a weekly (and temporary) commitment, but if Lime made it permanent AND extended it out to a monthly subscription fee it could mean $20/month in rev/customer before anyone even jumps on one of their rigs. The unlimited locks could also encourage people to use their scooters/bikes even more so I wouldn’t be surprised if the variable side of their revenue gets a decent bump.
This does nothing for their cost side though which they’ll need to still reduce substantially if they’re to ever become profitable but nonetheless, look for their competitors to quickly follow suit should they see a dramatic drop in rides in the cities they compete with Lime in. This also means Lime is NOT waiting out the market in hopes of outlasting their competition because they’re able to manage costs better. Good for them.
Let me take a hack at why they’d do this. The market here is still in a funk and maybe their internal forecasts see the slump lasting a bit longer so in order to compete, and get that plant running to capacity or close to it in the shortest period of time, Tesla knows that making the Model 3 more affordable will more than likely increase first year sales.
I would also think that Tesla will coincide this price reduction with the beginning of a rebound in the market. It will put a tremendous amount of pressure on the China EVStartups competing directly/indirectly with Tesla since now what used to be a price advantage for them is parity and that slight advantage eliminated. With all else being equal, most consumers are much more familiar with Tesla.
IF Tesla can get their costs in-line with the price reduction then margins shouldn’t get a haircut. That’s a BIG if though. Also, if the quality or perceived quality of the US made vs. the China made Tesla’s have a large delta, that could create future challenges for Tesla.
Following in the footsteps of Shanghai, Guangzhou, and Changsha Beijing has announced that it is opening its roads for autonomous vehicle (AV) testing with a passenger now and this could signal a nationwide opening of AV testing on China’s roads in the near future.
My guess would be that Baidu would be one of the first AV companies that would begin piloting a service since they’re HQ’d in the Zhongguancun or the Silicon Valley of China area of Beijing. I plan to test a few of these pilot ‘services’ out and report back to everyone to see if there really is a noticeable difference in their collective ‘abilities’ and ultimately give you an idea of who’s doing better than the other so stay tuned.
With Toyota being a big investor in Didi, to the tune of a $600M investment committed earlier in June, should we assume that the missing piece to the autonomous vehicle puzzle will be supplied by Toyota? Toyota is already a Nvidia partner so it would make a lot of sense for the three parties to bring something to market here in China.
This could be a formidable team since Toyota is THE largest carmaker in the world and has decent share in the US, China and Japan. Could potentially get sticky for Nvidia since they likely want to be platform (vehicle) agnostic so they can sell to other carmakers.
Either their system is THAT good, that regardless of affiliations the other automakers won’t have any choice but to go with Nvidia as their platform OR Nvidia is making a calculation risk making Toyota the horse they’re going to hitch their wagon to.
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.