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The Walter Mitty of EV Cos, Mach E & Zeekr 001 Get to Job #1, Foxconn Auto ODM - SAI Newsletter 41




Got through that crazy busy week and am back in BJ but will be participating in a few more conferences & discussions before the end of the year so stay tuned as those details start to emerge. Sino Auto Insights is also partnering again early next year with US China Series for a MEGA event that I’ll tell you more about in the next few weeks as well. Those that have followed this newsletter from the start know that we put together a Zoom conference early last year that was all about CASE – Connected, Autonomous, Shared, and Electric. The panels were great and we received a ton of positive and constructive feedback. Let’s just say that Paul Krake isn’t one to think small and together we’re working on an even bigger more ambitious event for 2022. Temperatures started to dip in BJ over the last of couple of weeks so we’ve officially hit Fall now. Beijing is technically a 4 season city but Spring and Fall are the shortest seasons normally lasting only what seems to be a blink of the eye so we’ll likely go from breezy to really cold VERY SOON. Had a good, albeit short trip to Shanghai and I didn’t get to visit as many people & places that I would’ve liked. I never do TBH. I’ll need to head back down in November and will try to add some slack in the schedule for some catchups and perhaps some site visits. I was also kindly invited to a launch event for Amazfit GT3 series smart watches here in Beijing last week. Think affordable Apple Watches - really good tech at a much lower price point. It’s good to be able to be back out at these types of events and feel the energy and excitement of being there in-person as opposed to sitting at a desk logging in via Zoom. One of the best parts of attending these types of events is being able to gauge the reactions from attendees which helps me determine the delta between fantasy (what we think will be announced) & reality (what was actually announced) and that’s all but impossible to do via Zoom. EVs & More is back at its normal day Thursday, 9pm EST/Thursday 9am China time. We haven't narrowed down what we will talk bout yet but I want to hear what Lei's thoughts are on the important recent and upcoming production launches so that's one topic we will definitely talk about. So if you’re free, please drop in or better yet come with some questions or comments. To join the room all you have to do is follow me: sinoautoinsight or Lei Xing: leixing77 TESLA NEWS - A refreshed Model X. First came a freshened-up Model S culminating in the Plaid edition. Now comes delivery of a refreshed Model Y. The updates are made to try to catch the Model X up to its competition in the ~$100K premium SUV space. A Plaid Model X is supposedly in the works as well and has been seen rolling around the Fremont campus. As mentioned numerous times in past newsletters the S & X are quite long in the tooth so a refresh was long overdue for both. But in this increasingly competitive market, will simple refreshes be enough? Sales of the two halo vehicles in China are pretty anemic so I am just not sure how a few upgrades are really going to move the sales needle that much. IN THE NEWS - The Walter Mitty’s of EVs. China Evergrande (CE) is in a heap of trouble. They have $300B of debt on their books and have struggled recently to service that debt. CE has projects all over China where they’ve taken early payments from apartment buyers in order to keep the projects running. Even though they’ve received what many watchers see as favorable terms on that debt (think Trump with Deutsche Bank), they’re still finding it difficult to not default on the interest payments. There has been a great deal of speculation about whether or not the Chinese govt would bail them out but it seems like they’re leaning towards not. The potential for default has caused a bit of a panic globally as it could have ripple effects in the bond markets all over the world. China Evergrande knew it was pushing things even before it decided to enter the EV sector and launch the China Evergrande New Energy Vehicle Group (CENEV) in 2019. It also promised that any challenges at the parent wouldn’t have any negative effects on what’s happening at the NEV unit but that seems NOT to be the case. Finally, in order to build excitement for CENEV and likely gin up interest in the IPO, CENEV made bold claims about launching 14 models at 10 different factories and achieving 1 million unit sales by 2025. We are talking 14 completely different vehicles, not variants of the same vehicle. Those claims weren’t realistic then and the current troubles of the parent have people wondering if even one of the vehicles will head to production and what’ll become of Hengchi, the brand under which CENEV was planning to build all of those cars. This is just another cautionary tale in a similar vein to Lordstown & Nikola, two US NEV startups currently being investigated for fraud. I am NOT saying that CE or CENEV are being fraudulent I should state. There are plenty of different ways this could end for CENEV but an asset sale seems pretty likely. Dialed down ambitions and a focus on getting their first product on the roads perhaps would help them right now as well although I find that happening not very likely. - The first MIC Ford Mustang Mach E rolls off the line in Chongqing. This is a HUGE accomplishment for the Ford China team! I anticipate a locally built Mustang Mach E, barring any quality or reliability issues, could be a pretty big hit for them here. Initial reactions have been fairly positive and even though pricewise it sits in direct competition with the SR MIC Model Y, their target markets may not overlap as much as people think. The premium mid-size EV SUV/crossover segment promises to be one to watch here in 2022. Chinese auto buyers tend towards SUVs and at the starting price of <300K RMB, this is the meat of that segment, at least in the tier 1 cities so I can see a scenario where the Tesla MIC Model Y and Mustang Mach E get to fairly brisk sales starting in Q1’22. - Zeekr 001 Job #1 also rolls off the line in Ningbo this week and will be delivered to its first customer on Oct 23rd. Production this year has been capped to 10K units (I believe). I see this vehicle resonating with Chinese consumers for its sporty look and the tech its packed with including Mobileye’s SuperVision ADAS system. If we step back a bit further, the premium midsize SUV/crossover EV segment with the Mustang Mach E, Tesla Model Y, and now welcomes the Zeekr 001 should be one to watch in 2022 as mentioned in the previous post. I see these three vehicles being the alphas with the VW ID 4 & 6 being the clear betas. There will be some surprises and disappointments as well that I’ve yet to determine. - Shanghai, a tough place for Chinese EV startups to go public. The squeeze is being placed on China EV startups as the path to a US IPO has narrowed significantly (or completely closed depending on who you speak with) but the hope that listing locally in Shanghai would be ‘do-able’ was put to rest as EV startups looking to list their shares on the Shanghai START market were rejected due to not meeting certain minimal requirements from the board. This has forced these companies to turn to more VC & PE money to keep their operations running and the doors open. There are quantifiable hurdles that need to be leaped over in order to list in Shanghai and companies like Evergrande, Hozon, and WM Motor hadn’t been able to complete all of the necessary requirements yet. The need for capital isn’t going away anytime soon either as chip design, EV manufacturing, battery cell development/manufacturing, and AV robotaxi development ALL require HUGE amounts of investment. I don’t see US/China tensions easing enough to allow for Chinese companies that are light on product and revenue to be able to go public as they had in the past. There could still be some companies that are technically American that may still try to have one last go at it. It’s crazy to think pre-Didi IPO how much easier it was to go public in the US via the VIE. Boy oh boy, I bet there are many companies wishing for those days again. TRENDING ON SOCIAL MEDIA - The (autonomous) race for $1M. This is literally the Indianapolis (NOT) 500 for autonomous vehicle racing. I’d heard about this event a couple of years ago and was pumped to follow it but due to Covid-19, there have been some unfortunate delays as they tried to work around the pandemic. The culmination of all the university students’ hard work will be on full display this weekend as the 9 finalists qualify and then finally race each other for the chance to win $1M. There are some impressive teams still in the running but peculiarly absent from the race is any team from Carnegie Mellon University. I am not sure why we decided not to participate since I know we’d be right there for the final week. For a nerd like me, it was completely disappointing that CMU wasn’t taking part. Nonetheless, I will still be tracking the race this weekend to see who ultimately wins the title. BTW, if I were a student getting into robotics, this would be something I’d do whatever I needed to be a part of. - Foxconn unveils the Model T? Foxconn self identifies itself as a player in the EV space now. They showed off 3 prototypes yesterday so they’re as far along as Evergrande (see above)! It seems like one of their goals would be trying to be an ODM to automakers who quickly want to add an EV to their lineup. An ODM for those unfamiliar stands for Original Design Manufacturer. There are companies out there that design products, it could be a mouse or keyboard, and sell those designs to OEMs who white label them and slap their branding on the product and call it their own. Apple does NOT do this but there are companies you’d be familiar with like a Microsoft of Logitech that do. Not unusual in the peripheral space but perhaps harder to pull off in the EV space? I guess Foxconn is looking to find out for itself. - Spotlight on Linda Zhang, Chief Engineer of the Ford F-150 Lightning. DO NOT underestimate how significant this role for Linda is. I am certain there were many, many engineers at Ford that believed they had what it took to take on such an important leadership & technical role for their most important product. But she got it and ran with it. She’s truly an inspiration for many. Sales will ultimately be her judge but initial reviews seem to say that Linda did a fantastic job. BRAVO. GET SMARTER - Explaining how and where the AI does ‘work’ on AVs. For those looking for a straight forward if not simple, but detailed explanation of how an autonomous vehicle uses all of its sensors to collect data, plans a path based on that data (and maybe an HD map) and uses that plan to act out those instructions this is the post for you. Mike isn’t trying to deep dive into each of the Sense – Plan – Act phases but I agree with Mike that there are a lot of misconceptions about how the Autonomous system work and frankly people who are copying and pasting other people’s explanations into their mouths or on Twitter and aren’t able to defend what they say in any coherent or sensical way. It’s time to get it right, and this is a good first step in doing that. JUST THE NUMBERS - $25M. That’s how much 1-year-old Michigan-based battery cell startup - Our Next Energy (One) raised in Series A from the Bill Gates founded Breakthrough Energy Ventures & BMW. I’d heard about this company but admittedly don’t know much about them. The founder seems to have deep knowledge and experience in the space having worked both in Michigan and Silicon Valley. As the US govt. spotlights the EV sector as a focus area in the very near future, we should see more and more companies like ONE come from out of the shadows and into the spotlight. The non-Silicon Valley startups should have a bit less pressure for results but that should also mean their valuations won’t be as speculative or high which I think would suit many of the founders just fine. - 30K. That’s how many employees could lose their jobs if VW transitioned to EVs too slowly. Let me pour some cold water on this because that 30K is a rounding error compared to how much fat they really need to trim. Good ol’ Wikipedia says that VW Group currently employs 671K employees worldwide. That is a BIG, FAT company. Toyota, who VW Group battles on an annual basis for the title of world’s largest carmaker has ~366K employees when they build about the same number of cars/annum ~10-ish million, give or take. If they can’t be competitive against other traditional automakers with regards to efficiency, how will they get to the ‘right size’ to compete against the EV first manufacturers? My WAG is that they could get 40% smaller, consequently getting them closer to Toyota’s size, and would then have to add perhaps 50-60K jobs back with hires that have the ‘right’ skillsets in order to make VW competitive in the future. Now, do that for ALL automakers and it’s going to, unfortunately, be a series of job cuts over the next 10 or so years up and down the traditional automotive supply chain. That’s in China, the US, the EU, and Japan. There is NO OTHER way around this reality. —— 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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