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The Great Chip Restriction, Apple Car already a HIT, ET5's are Shipping - SAI Newsletter #33



 

August sales numbers are in for many Chinese brands. And a few jaw dropping news events that need unpacking. I’ve been finally able to whittle the ‘things to do’ list down to a much more manageable but still (less) daunting set of 1st priority tasks and will get back to a good cadence starting next week after the Labor Day weekend. That means that the newsletter will move back to Tuesday/Wednesday for those wondering why everything has been so schizophrenic the last couple of weeks. Appreciate your patience as we adjust, And that also means that some of what we do will also evolve as we speak with more people, organizations and clients about their needs and what I see as challenges, opportunities and frankly headscratchers happening in Detroit and the rest of the US. A couple of housekeeping items. Lei and I will be attending the Purpose Jobs happy hour on Monday, September 12th from 5-7pm at the Brakeman in Detroit during auto show week for those interested in meeting up to talk shop. If you decide to join us, we'll buy you that first beer! You should sign up for it here. This is a happy hour that’s hosted by Bamboo - a local office sharing space, Purpose Jobs - a recruiter that specializes in sourcing for tech jobs in the Midwest and Detroit Venture Partners – a Detroit based VC so if you get bored chatting with us, there will be plenty of other interesting people to speak with. Best of all, it’ll be the first time I will be meeting Lei after almost 18 months of co-lab’ing digitally. I am very much looking forward to this. In the short period of time we’ve worked together, I’ve gained a ton or respect for his knowledge, professionalism and easygoing style. I’ve learned a great deal from him so it'll be VERY satisfying to finally get a selfie together! If I can put my other hat on for a moment, China EVs & More is co-lab’ing with Move America to become media partners for their event in Austin, TX that’s scheduled for Sep 27-28th. Lei and I will each be moderating panels at the conference so anyone who’s interested in attending, hit me up – I have some discount codes to share. For those curious about the event, it's going to be MEGA so check it out here. I look forward to meeting any new or old readers of the newsletter and/or listeners of the pod in the coming months as I make my way around the US to do some overdue visits to friends, partners, startups & other companies as well as clients. We had episode #81 of China EVs & More last night and touched on a few of the topics below but it's definitely worth a listen as Lei also throws in some useful nuggets of info. Those that weren’t able to join, the China 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. INTERVIEWED - I was interviewed a couple of weeks back for CGTN’s ‘The Heat’ episode titled ‘Electric Vehicles Around the World’ and was asked about the China EV market and when we should expect to see China EV Inc headed to the US. Click here to hear my answers. IN THE NEWS - The Biden administration restricts Nvidia and AMD from selling higher-end chips to China & Russia. I’d spoken about the possibility of this happening but didn’t think it would happen like this. In general, the chips that are being restricted are used in servers that run machine learning/AI algos, and help run simulations and train AI systems to be ‘better.’ Without access to these chips, the companies that have been using them like Lenovo, Baidu, Tencent, Didi and Ali just to name a few could reach a ceiling with their AI capabilities. The reality is there is really no other chip designer in the world that has chips with the capabilities of the Nvidia A100/H100 ASICs, let alone China. This could also delay progress on the EV/AV sector because ultimately autonomous driving is only successful (read: safe) is if it can quickly ID its surroundings, assess risks, decide on a course of action and execute that in fractions of a second, then as the environment evolves, do it again and again and again. As this still kinda shakes out, let’s see how the Chinese govt reacts to this. This shouldn’t be that surprising to them but there will be retaliation, since there always is. GM, Ford and other tech companies that have major operations & customers in China can’t be feeling great right about now. There’s A LOT more to unpack with this but for now, we leave it here. Another resource that’s helpful is WSJ Liza Lin’s tweet thread you can find here. - The US and China reach a tentative agreement to allow Chinese companies listed in the US to continue to be listed. Specifically the US’ Public Company Accounting Oversight Board (PCAOB) and China’s China Securities Regulation Commission (CSRC) agreed to: ‘In principle, the deal appears to give the PCAOB what it has long-demanded, namely full access to Chinese audit working papers with no redactions, the right to take testimony from audit company staff in China, and sole discretion to select which companies it inspects.’ I am still a bit skeptical and am certain the US auditors will run into roadblocks and challenges as they dig into the audits. Ultimately, I think the US is ready and willing to boot these companies off the US markets which creates the ultimate leverage, the ability to walk away at any time so it’s in the CSRC’s best interests to fully cooperate if they truly want these Chinese companies to listed. - Apple and Google, two out of many companies that have decided to shift manufacturing outside China. This was ALWAYs going to happen. Apple moving some production to India and Google moving some to Vietnam are just some of the most high profile recent examples. Companies are constantly reviewing their manufacturing footprint and strategies to optimize for costs, access to markets, and manufacturing continuity. They assess many risk factors including political & social stability (a BIG minus for China recently with Covid), the size of the domestic market, wage rates, foreign exchange, shipping ease and logistics costs, tariffs and duties and ultimately which countries can give them the best deals. The companies that outsource their production have it easier as they can just rip up current contracts or let them expire and move manufacturing to another location with the same CM or work with another one altogether. But a few numbers that argue for and against moving away from China as a manufacturing hub. For (from article): Monthly pay for entry level factory worker. Vietnam: $300/month China: $650/month Against: China: 3.7M sqm Vietnam + India combined: 1.397M sqm China has a lot of land to offer to manufacturers and the upstream supply chain that comes along with OEMs and their CMs. That’s not going to change and is impossible for these other countries to copy. The only remotely capable (potentially) country would be India but it’s not likely anytime soon. Further, China’s 1.4B citizens (a disputed number BTW by a few reputable outlets) makes manufacturing in China VERY attractive to companies that want to sell those products TO them. On the other hand, foreign brands across sectors have found it much more difficult to sell to those consumers due to a number of factors including the business environment being less friendly and domestic competitors after years of lagging behind (likely a reason for the less friendly business environment), raising their games and designing products and services that rival their foreign competitors, likely at a lower price points (see EVs). With young Chinese consumers tastes evolving, their openness to domestic brands and the speed at which these domestic companies can move to accommodate any changes in the market all makes for growth prospects very limited for most foreign brands. But if they can protect and maintain share, the China market offers them a market that’s likely larger than their home market and revs/profits they still won’t find anywhere else. All this means is that foreign brands will still manufacture locally to accommodate the China market but will look for opportunities to manufacture closer to where the future global growth will be, primarily in South and Southeast Asia. TRENDING ON SOCIAL MEDIA - The Apple Car is a hit, even before it exists. Strategic Vision, a market research firm released its findings from an annual consumer study about the sector and 45 brands in the sector. This year it involved 200K participants and for the first time, they included Apple in the survey and you know what? Apple wins. Apple came in 3rd for brand consideration and crushed the competition on quality impression at 24% vs. 15 for 2nd place Toyota. The other BIG takeaway from the study - >50% of Tesla owners said they’d consider an Apple Car. That HAS to get Elon fired up and not in a good way. - Faraday Future and drama? No…! I write that in jest because most of the readers that have been around since the beginning know I’ve tracked Faraday’s progress from the jump and DRAMA is the ONLY thing that seems to be consistently produced by this ever changing management team. In this episode of FF Drama Chronicles, the executive chairperson is being accused by a number of employees of wanting to push Faraday into bankruptcy. Not a lot of meat on the bones for this saga so will dig to find out more. Perhaps it’s whats needed to get FF on the right track? They have about three months before they said they’d get Job #1 off the line so we’ll have to just wait and see if it’s real or just another day at FF. NEWS SHORTS - The NIO ET5 has begun to ship with deliveries set to begin on September 30th. Tesla has to be monitoring this closely. The ET5 is set to disrupt sales of the Model 3 and looks the part too. I’ve not kicked the tires on this thing yet but in pictures it looks great. If the interior is anything like the ET7’s (which it should be), Chinese consumers are going to be looking to park this in their garage for sure. INTRODUCING WeRIde’s autonomous street sweeper. WeRide, whom we visited a couple of years back before they blew up and became one of China’s leading AV players, has inked a deal with the GZ local govt to help clean its streets using their ‘Robo Street Sweeper’ ( they should work on that name). Remember when I’d mentioned that the market for AVs isn’t limited to robotaxis? The market is HUGE and includes things like this street sweeper. And it’s perfect for commercialization since it moves slowly, the HW stack is likely cheaper and it can still hoover up data that’ll enhance the robotaxi algo. ALL AV startups should be exploring alternative and more immediate opportunities to commercialize their tech sooner rather than later. GET SMARTER - What do we do about tire pollution? That’s right, EVs help get us to zero emissions and virtually eliminates the pollution caused by ICEs but what we may not know is that tires are also primarily manufactured using petrochemicals. When we say ‘burn rubber’ we actually mean burn oil and it’s a form of pollution not many are truly aware of. The rub is that EVs being generally heavier and quicker burn more rubber than their ICE counterparts making them a bigger tire polluter. There’s too much for me to unpack in a short post so if you’re curious about learning more about tire pollution, click the link. It’s fascinating and not in a good way. BY THE NUMBERS - $6B. That’s how much in taxes the Chinese govt has exempted from NEV purchases …from January to July! If the US is going to be a player in this space, it really needs to keep up with the pace of investment in China. The IRA is a really, really good start, but that’s really all it is. A start.

---------- 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 Team


 

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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