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The Two AV Startup Categories, Merc EQC Struggles, Autonomous Indy 500 - SAI Newsletter #28



I really enjoyed moderating the EV panel last night as part of the US China Series half-day conference. I think overall the conference was a great success and appreciate those of you who were able to make all or part of the (depending on where you were) morning / afternoon / evening. For those who weren’t able to join, I will send out links to the recordings once they’re posted. I personally learned a great deal about a lot of different areas I thought I had a good understanding of which is the entire point of these events.

The big news this week was Tesla’s earnings and the continued debate on social media about how they’re NOT really close to Level 5 Autonomy regardless of what Elon says. As for Q2’20 earnings, Tesla crushed estimates with a big ‘ol asterisk. They pulled in ~$400M via revenue from credits sold to automakers that aren’t making enough EVs themselves. This means that they’ve reported positive earnings for 4 straight quarters qualifying Tesla for the S&P 500. The asterisk is because, without that $400M from the credits, Tesla wouldn’t have gotten that 4th consecutive quarter of earnings.

Analysts are ALL over the place, both bulls, and bears when it comes to Tesla coverage. The stock doesn’t follow neatly with many of the ‘fundamentals’ they track and bottom line they just have no idea what to think of the share prices’ rise since the company’s story doesn’t fit very well into any of the current narratives as much as they’d like it to.

One thing for sure is that the credits contributing to their earnings is a feature of Tesla’s biz model, not a bug. Also, Elon is NOT in the business to sell cars per se. He’s in the business of building out his install base. Take the Model S for instance, there hasn’t been a major update on that vehicle since ..ever! Sure there have been some cosmetic changes here and there, what those in the auto biz would call ‘minor’ refreshes, BUT there have been plenty of OTA service updates that provide his ‘users’ with new features that keep them hooked. In a couple of years when the connected services are a bit more robust, we’re likely going to see growth on their income statement from ‘services’ ala Apple, who’ve grown their services revenue from 0 to >17% of total revenues in less than 10 years. Many of these services will be subscriptions as well which makes that revenue recurring.

Traditional car companies would see vehicle sales fall off a cliff if they didn’t spend the $200-400M every 3-5 years to ‘refresh’ their cars. That’s how you square that circle.

Apologies if you’ve already read about some of this news below. I thought what I’ve posted is still important enough to highlight so once I catch up this week, we’ll be back on track.

IN THE NEWS:

-    Rivian raises $2.5B in another investment round. A VERY impressive haul in this environment. This funding should allow Rivian to stay private for as long as they want and allow for them to have the proper runway to try and get the vehicle launch right in 2021. It also raises expectations for the company along with their ‘celebrity’ list of investors. Rivian also announced that they’ll move much of their MI operations to SoCal so this seems to be a HUGE loss for the state.

-    Phil LeBeau calling Detroit out. His comments seem to echo the pleas that I’ve made in the past via this newsletter. Carmakers need to throw caution to the wind and go for it, step up their game in ALL phases. Incrementally improving only works when your competition is right in front of you. Not when they’re literally lapping you.

Phil is right about one thing, Tesla is way ahead in technology and they’re not going to be able to be caught unless a couple of the traditional OEMs can package all this great ‘technology’ they want you to believe they’ve developed into an attractive vehicle that also competes on performance and range.

-    Navistar meet TuSimple. A big announcement that puts TuSimple squarely in the ranks of the ‘Ones to Look Out For’ bucket if they weren’t already. This also puts Navistar in a much better position to compete against the likes of Tesla, Aurora, and Starsky.

-    AutoX is granted its California license to test its robotaxis. They’re ONLY the third company to receive this – the other two being Waymo and Nuro.

TRENDING ON SOCIAL MEDIA:

-    We all make bad decisions sometimes right? For those that feel better to know that others also make bad decisions sometimes, here’s a shortlist of EPIC-ly bad decisions made in Silicon Valley (and one or two just outside the Valley).

-    An autonomous Indianapolis 500? That’s right! Can’t wait, it’s currently scheduled for October 2021 so hopefully, we’ll have that global pandemic thing sorted out by then. If that’s the case, there’s a decent likelihood you’ll be seeing me there! BUT and this is a big BUT, there seem to be a couple of would-be front-runners that aren’t participating…

-    Sri Lankan Tuk Tuk racing. I wonder if they have their own GOAT in this sport?

PRODUCT & SERVICE INTRODUCTIONS:

-    Check out the ET5 from Jiangsu Skywell Automobile Co. Judging from the specs and pricing, it’s aiming straight for XPeng and WM Motor’s market. I don’t know much about the company but they have to be decently funded if they’ve reached this point. Will find out more and report back so stay tuned.

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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

OEMs The Mercedes EQC is ‘Too late, too expensive, too boring’ but don’t take my word for it. This vehicle falls into a similar category as the Audi E-Tron and E-Mini, Mercedes did an admirable job at yanking out the powertrain and transmission of one of their ICEs and bolting on a battery and an array of displays to replace the IP & infotainment and called it a day. If there were no Tesla in the market, this may have been able to fool consumers. The thing is, they see right through this as evidenced by EQC EU sales of 1.4K in 2019. Compare that to the Tesla Model X that sold 7.8K units. It’s not even close. Again, we’re talking about getting lapped. As Phil LeBeau mentioned in the earlier post, if Merc can’t compete on technology, performance, and range then they should just keep at it until they can. Like OTA updates, if your cars don’t have that capability how is it going to really compete against Tesla? I get it, each traditional OEM has their #FOMO ‘mulligan’ car and this was Merc’s but here’s to hoping that they’ve actually gone back to that drafting board and from the ground up come up with a true ‘Tesla killer.’ I am thinking that Elon would be pleased to have a worthy opponent even a few of them, now get to it. #Mercedes #EQC #FOMO #mulligan #worthycompetitor #Tesla #EU #late #expensive #boring AVs Two categories of autonomous vehicle startups – the Funded & Unfunded. The days of proclaiming robotaxi services are ‘right around the corner’ are long gone. The Waymos, Argos, Auroras, Cruises, and other startups that most analysts thought stood the best chance of successfully commercializing those services are still grinding it out, still seemingly years and billions of dollars away from getting anything remotely safe and commercially viable on the road. That has created challenges for those companies not as well funded as the companies mentioned earlier. The venture capital well has dried up and the only way out seems to be to take investment from the companies in the industry that are struggling to stay relevant or trying to break into the mobility space (see Zoox + Amazon) and likely at a much smaller valuation. The well-funded companies aren’t content to spend years burning through all their cash towards this one single, but potentially lucrative goal either. Companies like Aurora are pivoting to try to address use cases that don’t involve the complexity that could lead to generating revenues earlier. In Aurora’s particular case, they’ve decided they’d like to try their hands at autonomous long-haul delivery so they’ve launched a pilot program in Texas recently to test their system. On last night’s AV panel, there was a brief but important point made about trying to be first at cracking the code on ‘autonomous vehicles.’ Getting humans to the Moon and back is a much easier challenge than AVs they all agreed. It was great listening to two Ph.D.’s speak in a way that was wonky but also made sense to a layperson. The unstructured nature of people and roads around the world make not only predicting what will happen but then deciding what to do based on that information, all in milliseconds, repeatedly over the course of every trip each robotaxi makes is one of the toughest science projects that I can think of. Companies might be 15-20 years old and $15-20B in before they see everything start to fall into place. Their technology, the laws & regulations, and acceptance being the most important. One thing for sure is that there’s not been ANY reduced interest in the space nor lack of ambition at the daunting task ahead. There are plenty of companies launching test pilot programs in China. It’ll be great to see over the next couple of years what immediate opportunities some of these companies try to pivot towards while they’re chasing the BIG prize. #needmoremoney #AVs #pivot #unstructuredenvironments #mostdifficultscienceproject #racetofirst

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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