The meaning of Turbo, Tesla & LG Chem - partners, Byton prototyes - SAI Newsletter #33
A couple quick hits. Elon, rightfully so, rips Porsche for giving their just intro’d Taycan the Turbo suffix, when it’s actually NOT. Check out his Twitter feed to see what he tweeted...
On the ‘How is NIO going to survive the next few months’ watch we see that they’ve announced a debt issuance of $200M dollars coming from Tencent and their Co-Founder William Li. This amount is certainly a band-aid as they work behind the scenes to shore up their strategy in order to get more of their cars on the road. This has probably bought them another 3-5 months TOPS.
Now on to the news that’s fit to print this week.
Audi E-Tron UPDATE:
My buddy, after 12 long and grueling weeks, finally got his E-Tron back. He told me that the dealer is actually trying to make up for the central office falling down but it’s really left him with a bad taste in his mouth, that’s going to take some time to get past. That said, he’s happy the ordeal is OVER.
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
As a follow on to last week’s article about the Volvo subscription service getting pushback from the California dealers network, we see that Porsche, who also launched a subscription service in Atlanta, feels that there is enough ‘goodwill’ from the pilot program that they’d like to expand it to a few other major American cities (Las Vegas, San Diego, Phoenix and Toronto).
Again, my take on this is that since the dealers have ALL the customer data, they should get on board with this new business line and add value to the business as a way to carve out their own piece of the pie.
From an OEM perspective, these car companies aren’t going to make money with their service for some time, at least until they reach a tipping point in subscriptions which is a pretty long way away. The number that sticks out is that 80% of subscribers are new to the Porsche brand. That tells me that these people were or at least felt ‘priced out’ of the brand prior to this service, so this subscription is a way to reach new customers that wouldn’t have considered a Porsche before.
Whether they fit the current target market for the Porsche brand or whether the current target market is who Porsche is targeting for this subscription service is a discussion for another day. It does makes you wonder why Cadillac wasn’t more patient with their subscription service ‘Book by Cadillac,’ unless they discovered insights that would’ve been difficult to incorporate into the business ‘on the fly’ and wanted a chance to step back to re-think & re-design it? My canned response to that: You’re moving too slowly.
With EVERY new EV that has launched over the last couple of years, be it from China or the West, the media has labeled each one the next ‘Tesla killer.’ Some of these startups embraced that moniker, if only to borrow some of that Tesla shine, even if their product wasn’t spec for spec directly competitive with any of Tesla’s.
Suffice it to say, when you bring a knife to a gun fight, you’re going to lose 9.5x’s out of 10 which most of these EV startups have learned the hard way. The one lesson that seems crystal clear with these struggling EVStartups (even before the market slowdown) is that making & selling cars is really difficult to do well, even moreso if you’re a new brand selling unproven tech!
Whether you like Tesla or not, they have carved out a pretty significant positioning in the EV sector from the performance, technology and ‘gotta have it’ dimensions. Taken a step further, I think many customers think of Tesla as a car company that just happens to build ‘electric’ cars whereas their competitors are ‘electric car companies’ or in other words, Tesla competes against ICE vehicles in customer’s minds while the other EVs in the market compete amongst themselves creating a much broader market for Tesla. You could even argue that if Tesla were able to get a handle on their manufacturing woes earlier, they would’ve likely sold many more vehicles by now.
With the official launch of the Porsche Taycan though, we may finally have a product that could compete with Tesla’s Model S - ‘compete’ in a broad sense since it’s ~2x’s the price of the Model S. First off, Porsche is a well established brand in the luxury/sports car segment that regularly hangs it hat on design, performance and engineering. I think the Taycan looks great BTW.
The attention to detail for the vehicle, as it relates to the overall design should be mentioned (for more about the design click here). Looks alone will put a great deal of pressure on Tesla to ‘refresh’ at least the Model S, which has largely remained unchanged since its introduction in 2012, that’s a long time in auto years since car companies normally do major refreshes every 3-5 years. In defense of Tesla they’ve never really needed to, but with Porsche now and other established brands soon to follow with their own competitors, it IS time for that major refresh.
Porsche likely learned from earlier EV launches currently on the market and instead of ‘zigging’ they ‘zagged,’ making the Taycan twice as expensive with half the tech where most others did the exact opposite. I don’t know how much Taycan and Model S target markets will overlap, I could see it more in China than the US since the market for $200K sedans is pretty small indeed, but Porsche will sell out their internal sales target no problem.
Porsche also knew they couldn’t compete with Tesla on technology (see battery range), at least at first, so they’re still emphasizing performance, which I think is a sound move. I could see Over the Air (OTA) updates as they debug new features and likely will charge for many of them, creating a new source for revenue via their captive audience.
Tesla was indeed watching and wasn’t impressed, at least outwardly, with the next ‘Tesla killer.’ Right after the Taycan was revealed, Tesla announced via tweet that they were canceling all incentives for their vehicles in China. Take that Porsche.
In a move that likely helped sour their partnership, Tesla is looking at LG Chem to be their China partner for batteries for locally made Teslas. Single sourcing such a strategic commodity puts you at the mercy of the supplier both from a price, quality and supply standpoint so this move needed to be made by Tesla, the Shanghai factory likely just pushed up the timing.
As I’ve said before, the Chinese battery suppliers have a bit to go to catch up to their Japanese and Korean counterparts on engineering, quality and reliability so this move should alleviate some of Tesla’s stress about being able to produce high quality, reliable Chinese made Model 3s and eventually Model Ys, especially if they’re wanting production vehicles to roll off the line before the end of the year.
This should also force some of the international OEMs manufacturing in China to also reconsider their battery strategies if they’ve initially selected a local Chinese partner to supply batteries for their China made EVs. If I were them, I’d be in convo’s with Panasonic & LG Chem about qualifying their batteries so I am not left single-sourced for the MOST expensive and important part in my MOST important market. As a matter of fact, I am certain they’re already going through the process qualifying them, just in case.
The Chinese battery manufacturers, on the other hand, now have a TON of pressure to step up their game, specifically CATL and BYD, if they plan to be a major player in the battery space.
If Tesla is able to come close to their goal of producing 500K units by June 2020, it’s going to release ALOT of pressure and boost their working capital significantly. Maybe then they can budget some funds to actually update their ‘long in the tooth’ vehicle lineup.
This shouldn’t surprise anyone since China is leading the way in EV sales but a few items worth highlighting include monthly US, China EV sales down but EU sales up. Tesla was still able to sell 20K units last month globally.
Bernstein still expects EV sales to at least grow by over 20% and reach well over 2M units globally for 2019.
As we all know, there are 50 states in the US and each of these 50 states is able to individually determine how people should drive on their roads. That leads to small differences to the traffic laws due to the idiosyncrasies each state has.
That also means that in order for AVs to operate in all the states without breaking any laws, the vehicles need to know which state they are operating in and consequently what the specific traffic laws are for that state are.
I highlight this article to illustrate one example of the numerous issues that need to be considered and the amount of effort needed just to get these AVs on the road. Can you imagine having to keep a database table for each state that needs to be updated in real time so that your AV doesn’t inadvertently break any traffic laws? If you have global ambitions, add in language, monetary, measurement, AND cultural differences that should be noted AND accounted for in order to abide by the local laws. These things WILL get done, it’s just going to take time, cooperation and a little ingenuity on everyone’s part.
UC Berkeley has been studying traffic abatement since 2004 and what they’ve found is that using a version of machine learning called Deep Reinforcement Learning, just one autonomous vehicle could help substantially reduce traffic congestion. Basically the autonomous vehicle would dictate to the other vehicles how fast they should be driving helping to avoid the stop and start that normally afflicts traffic jams.
From the article, the Cal Berkeley Professor ”Bayen’s research shows that autonomous vehicles, once they reach five to 10 percent of all cars on the road, can manage localized traffic in complex environments — think eight lanes of traffic merging into two or an extremely busy intersection.”
Through the goal(s) of the machine learning system, for instance ‘avoid traffic jams’ the autonomous vehicle learns from trial and error and eventually optimizes for speed and distance between the vehicle ahead so that it can avoid the brake slamming and stop and go that is indicative of traffic jams in the US, EU or Asia.
So the answer may not be re-thinking the highway system or timing lights to promote the flow of traffic, we may just need a few lead AVs to keep us out of a ‘jam.’
With all it’s recent woes, one way to get back into the good graces of the Chinese govt. is to help them with EV adoption which is what Didi is doing by working with British Petroleum to setup more charging stations in China and also purchasing more EVs for their ride-hailing service. Currently, there are over 600K drivers on Didi’s platform, which now include other ride-hailing services, that drive an EV.
The local Chinese municipal govts. have decided that it’s easier to push adoption if you require the ride-hailing startups to utilize them as the ONLY vehicle that can be used for ride-hailing services. This actually mostly helps the local Chinese EV manufacturers on the low end like BYD and Geely who sell the much smaller, less expensive EVs that more of the Chinese can afford.
This is also likely why the EV sales numbers don’t look worse. It’s more of a ‘slight of hand’ trick with the local and central Chinese governments working together, as one takes away EV subsidies the other updates policy to force ride-hailing services into purchasing EVs, to make sure that the EV market doesn’t just bottom out.
The journo who wrote this article unsurprisingly didn’t have much bad to say about the M-Byte during his test drive given that he was testing their best driving and handling proto, prior to an official unveiling next week in Frankfurt. That and the fact that he wanted to be invited back to test drive the production version of course.
Let’s make sure to give some credit to the Byton team since they’ve had a recent management shuffle (see Carsten Breitfeld & FF) and, if you’ve read this newsletter since the early days, you know the challenges the current crop of EVStartups have had getting test vehicles on the road and/or actually selling enough production vehicles to keep themselves afloat in this challenging China market. Getting to this stage and letting folks that are paid to be critical, get in the vehicle, a prototype no less, tells me there is a good deal of confidence in the product and how things are moving along. Way back in November - 2018, while I was in NorCal for an investor conference, I was able to get inside one of their early mules and I wasn’t that impressed so I assume that the fitment, finishing and aesthetic challenges of that handbuilt version have been mostly addressed in this one.
100 proto’s is a BIG feat given the ambitiousness and complexity of the M-Byte but you better believe right now due to the digital nature of the interior the industrial and manufacturing engineers are in, to borrow a likely appropriate description, manufacturing ‘hell.’ Having started my career working in an assembly plant that specialized in lean manufacturing and shipping ‘every part, every day,’ getting those 48” dashboard displays shipped to the plant and designing an ‘idiot proof’ way to present them to the line for the line worker to install it must be a pretty vexing exercise. I bet even just designing the rack to ship them in must’ve been a pretty decent amount of work!
The manufacturing guys would definitely call this part a ‘bad shipper,’ the term for a part that’s either too big, too heavy or both that shipping it costs a ton of money and/or a lot of babysitting. If the plant that makes it is NOT within a few clicks of Byton’s manufacturing facility logistics costs will be high, not to mention the amount of inventory costs that’s on their books while it’s in transit.
I would also venture to guess that they have not ‘frozen’ design yet, due to the fact that the journo wasn’t allowed to take pictures of the dashboard or display. In traditional buids ‘design freeze’ is when the vehicle has passed all quality, design testing and suppliers are greenlighted to begin building their production tooling. Also due to the tech focus of the interior I am as interested in how that’s all working together, integrated into the vehicle creating a Byton unique user experience. Guess we wait.
There’s still plenty of runway to make their 2020 production start date but they’re likely still in-house fighting on whether or not to incorporate further ‘design’ changes or wait until after production start to incorporate them as a running change. I am also betting that those 100 photos took ALOT of capital to build and test so they’ll likely have to raise more money to get production started and hope they sell enough units in a short amount of time to keep their production funded without any further, external capital.
To the Byton team - Good luck the rest of the way, can’t wait to see how the M-Byte finally turns out!
Carsten Breitfeld, with his third job in less than 6 months, has announced that he’s taking over for Jia Yueting as the CEO of ‘always seeming to be on the verge of collapse’ Faraday Future (FF).
There has to be some backstory here and if there was an automotive equivalent to VH1’s ‘Behind the Music’ series you better believe that the episode about Carsten’s departure from Byton, his immediate move to Iconiq, following a few months later his latest move to CEO of FF would be one of the most watched.
I assume he was properly incentivized (big paycheck + options with lots of kickers) but the reality with Faraday is that they’re not only short on cash, but their employee ranks have been gutted through furloughs and layoffs. That means a lot of the good employees are doing good work for someone else and FF now needs to start over with recruitment, but only when they can secure enough funding to get production kicked off.
As far fetched as FF actually being able to put production vehicles on the road within the next 12-18 months, I’ve learned NOT underestimate FF’s ability to remain an ongoing concern. Let’s see ‘miracle worker’ is part of Carsten’s skill-set.
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.