To the Tesla Stans & FUDsters, Intel Comeback, Charging is a Money Loser - SAI Newsletter 29
China, Inc is getting crushed, at least on the HK exchange. Didi is off by more than 50% while the education cos. are off by even more than that this week. The Chinese government is clearly targeting companies that aspire to list abroad and education companies that generate their revenues largely from after-school programs and tutoring aimed at the young Chinese parents who worry about their children’s future. What's next is anyone's guess but don't expect it to stop at education. As a parent raising my boys here in Beijing, let me just say that there are some parents that will spare no expense to try and ensure that their child will go to the ‘best’ schools. Beijing and Shanghai rank #1 & 2 in cities that have the most expensive international schools IN THE WORLD. In addition, many parents will load their kids up with after-school programs for language, music, math, and sports. There is A LOT of money to be made because many people will always begrudgingly pay it. There are similar situations in the US in places like Silicon Valley, OC, and NYC as evidenced in the Netflix documentary ‘Operation Varsity Blues: The College Admissions Scandal.’ There are some great companies that provide valuable services, but there are many companies out there that prey on unwitting parents that just want the best for their child so there’s not a lot of sympathy from parents here about this. On a separate note, as I dropped my kids off at their adventure camp this AM, I heard on the radio that Beijing will be banning non-Beijing plates from entering 2nd Ring Road. Beijing, like many cities around the world, uses concentric ringed roads that move people in and out of parts of the city. 2ND Ring Road is city center and where Tiananmen Square and the Forbidden City reside. As I’d mentioned in numerous past newsletters these types of policies will be making the rounds more and more in all parts of the world. For large Asian cities, this makes a ton of sense since the policy goals are to alleviate congestion and reduce pollution. Beijing & Shanghai are years away from flat out banning private passenger vehicle use in any specific parts of the city, if they are to do it at all, due to the importance of the auto sector to the country but limiting where ‘out of towners’ can roam is something that I can see catching on outside of the tier 1 cities as well. One big reason for this – there are many delivery vehicles with non-BJ plates that are not the most environmentally friendly and whose drivers generally do NOT follow traffic laws. There are also folks that use plates from other cities because it’s so hard and/or expensive to get one in the tier 1s. Other cities that I could see this happening with if they’ve not implemented it already: Shanghai, Shenzhen, Guangzhou, Chengdu, Tianjin, Chongqing, Xi’an. I’ll keep an ear out and let you know if/when any other Asian cities implement similar restrictions. I was interviewed by Jens Kastner for this Automotive News article that posted last week that you can read here. In it, we talk about how the Chinese consumers’ preference toward connected and safe vehicles has given the domestic players in China a leg up on the current EV product lineup from Europe. It could be a while before the European OEMs are able to put an EV on the road that’ll be able to compete feature by feature with their Chinese competitors and the question then becomes, will it be too late? Finally, Lei Xing and I are on this Thursday 8:30pm EST for our China EVs & More Clubhouse room. We’ve been grateful for all of the support but Clubhouse, it seems, may have already had its ‘moment’ so we will be trying out Twitter Spaces in the next few weeks as I’ve been told that’s a more engaging platform. The good news is that we transform our Clubhouse room recording into a podcast and that’s been getting some good traction globally. If there are any specific topics you’d like Lei and me to cover, we’re always open to feedback and suggestions. As always though, for those interested in learning more about the mobility space, please tune in to listen or download the podcast on Spotify, Apple, or on its own website here. HERE’S THE THING This could be the understatement of the week, but there are A LOT of Tesla FUDsters and Stans. I get it, Elon and Tesla have made and lost MANY people A LOT of money so folks are passionate on both sides. It’s interesting to watch the analysts try to use fundamental and traditional financial measures to determine whether the Tesla share price will go up or down based on the latest news. What we need to remember here is that moving forward somewhere around the world, there’s always going to be someone buying an EV. It’s also very likely that if they buy that EV, it’s going to be in China, the EU, or the US. Depending on the region, that may be a two or four-wheeled EV but for simplicity’s sake, we’ll just talk about passenger vehicles for now. Outside of the legacies, the only other major automaker that has (or will have) the manufacturing volume needed (I’d argue overcapacity) to capture that growth in all major regions including India, is Tesla. They also don’t deal with unions (currently), they’re adding capacity just ahead of their demand, and most importantly, Tesla has the ability to ‘refresh’ their vehicles while they sit in their customer’s garages, parking structures, or in from of their flats on the street. No one else in the world can say that - currently. Does that give them an advantage, of course, it does. But does that mean that they should be worth XX times more than a Toyota or GM, of course not. But we already know that there is a reality distortion field around Elon & Tesla so you can’t use traditional logic when something happens, good or bad, to Tesla. On top of that Tesla has a charismatic, if not controversial CEO with a proven track record of not only disrupting but blowing up entire sectors. Did we forget that he digitized payments and privatized space travel? I say all of this because for those holding grudges because they lost their shirt and reputations believing that Tesla shares were overvalued, get over it because it's clouding your judgment moving forward. Further, for those Stan’s out there, Tesla is NOT infallible and they will run into some real competition in the very near future and/or an eventual slowdown in the market that may not play in their favor so stay humble and maybe take some of those wins off the board for now? I love the passion on both sides, but I am just calling balls and strikes here as I see them. We are in the very early innings of a game that looks like it’s going to go into a lot of extra innings so sit back, relax and enjoy the show! TESLA NEWS - Tesla CQ2’21 earnings and revs beat the Street estimates. So what does this mean? It means that it’s going to be one hell of a 2nd half of 2021 for Tesla and the rest of the EV makers as they try to play catch up with them here and in the EU. IN THE NEWS - Is Intel ‘coming back like Jordan, wearing the 4-5?’ New-ish CEO, Pat Gelsinger is betting on it. He plans to compete with companies like TSMC, AMD, and Nvidia to try to regain Intel’s past reputation as THE premier chip company in the world. They haven’t held that title in many years. Back when I worked in Silicon Valley, Nvidia and ATI were both my major suppliers but were just known as graphics chip specialists and were tiny compared to Intel. Of course, ATI was acquired by AMD back in 2006, but Nvidia remained a standalone chip designer that continued plowing investment into R&D so it’s no surprise to me that Jensen Huang has been able to propel Nvidia into a behemoth, and build out the popularity of Nvidia’s chips for AI, bitcoin mining, and other applications outside of traditional personal computing. Will Intel be able to compete with all of the players above as well as a few significant players from Japan, Korea, and the up-and-comers from China as the demand increases substantially for continuously smaller chips or ASICs (application-specific integrated circuit) that can stay cool while performing billions of calculations / second as ‘digital’ eats the world? I would NOT count them out. - Li Auto will be following in the footsteps of XPeng and raise additional capital via listing on the Hong Kong exchange. This should net them easily >$1B in additional funding for vehicles they plan to launch, 2 each year for the foreseeable future, starting in 2023. Till now, Li Auto has zigged as other China EV makers have zagged. Their first product is an EREV or extended-range electric vehicle (another name for hybrid). They’ve also decided to only have this single product, the Li-One, on the market until later next year when they’ll launch a BEV, while their contemporaries XPeng, NIO, and WM have multiple products each out already. (T-) 2 years give or take, these (at least) three companies (NIO will also likely list in HK before the end of this year) will have to decide whether they’d like to remain listed in the US. My guess is ‘Yes’ since they’ll likely be launching product there within <3 years and it’ll be easier to fund operations with USD rather than any other currency. That would mean that they’d need approval from the Chinese govt. in order to remain listed. As we’ve seen in the recent past, things move fast in China so who knows how the market for Chinese vehicles in the US will play out and whether or not the US-China relationship gets better or worse. For those that are confused, the US govt. has made a requirement for companies that do not adhere to US accounting standards for financial reporting to be in compliance within the next 2 years or risk being booted off of the US exchanges. If you’re reading between the lines, that means that Chinese companies have been exempt from reporting in the same standard as required by all of the other international and American companies listed in the US. Of course, I know why, and it still doesn’t make a ton of sense since it creates issues like this and disadvantages for the companies that are following the more strict rules. - Is He Xiaopeng picking a fight with Audi or just stating a fact? He Xiaopeng said this week that the XPeng P7 would overtake the A4 in sales. He didn’t put a date on it but here’s the tale of the tape. Junes sales for the P7 were 4, 730 vs 9,201 for the A4. In Audi’s defense, the A4 is significantly higher in price, almost 2x the P7 price of 229KRMB - post subsidies. But it makes for interesting headlines. And ever since He said that I bet Audi started hearing footsteps. - Another premium brand, this time from GAC Aion + Huawei to launch in 2023. Not many other details besides the fact that the first product will be a luxury/premium SUV. Add that to the other >100 brands that are either out or launching soon. It’s way past crowded now and has moved into ridiculous territory but I don’t think these types of announcements will end just yet. Maybe I am starting an EV company?? - The challenges of putting a charging infrastructure together are daunting for the US, but so what? The problem to solve here could not be more complicated once all of the parties involved (local govts, federal govts, suppliers, OEMs, energy companies, startups) are factored in on top of the fact that the products that need the infrastructure that’s ‘supposed’ won’t actually materialize in any significant way <3-4 years. That said, what the US should do is study like crazy the ‘wins’ & ‘losses’ that the EU & China have both endured getting to where they are. China being the lead dog and the EU closer in rollout to the US than China. Don’t look at financing, revenue, or pricing models since cost structures, and current policies are completely different for each region. This is where I believe the US govt. comes in, specifically Buttigieg, Granholm, and Biden, to set up an environment that gets some easy ‘wins’ lined up that the private sector can piggyback off of. GM, Ford, Stellantis, Toyota, Hyundai, BMW, Mercedes, Tesla, and others all play a role key role because it’s their capacity that’s going to be converted over to building EVs and any hiccup in demand or supply will likely cause work stoppages and or in the worst-case scenarios, plant closures, most likely in areas that need those jobs the most. Let’s also be quite frank with this, charging is a money loser plain and simple and that’s why it needs to be paired with other services as part of a bundled subscription in order to make the numbers work. Some of those services haven’t been developed yet either. And that’s why we need that infrastructure bill to pass. To subsidize this money loser. Also, major cities will need superchargers, and then the most popular thoroughfares will need superchargers, and then the rest of the US, maybe? These simulations should be run to determine where people and vehicles will be the most likely to move. And then these places should be ranked and infrastructure built in that order. Despite how polarized the US political system has been, there’s likely only a slim chance of success unless both sides can work together. I know we can do it, but will we? TRENDING ON SOCIAL MEDIA - The best EVs in 2021 (UK Edition). I am not so sure about the Mini but the author kinda convinced me the Mini would be fun to throw around in the city with the instant torque and small footprint. The Taycan 4 Cross Turismo & Honda e would be the other two I’d like to take for a spin. - Will NIO replace Audi as the Chinese govt. official’s car of choice? We are a pretty long way from that happening but an important first step was taken yesterday when NIO signed an agreement with a Chinese central government department (it’s sourcing department effectively) to sell vehicles to it. Over the course of several years, this could mean tens of thousands of cars. Granted most of them would be de-contented simpler versions of any vehicles sold to the public but nonetheless, this is a huge potential volume for NIO if the Chinese govt. decides that they’re in the business of promoting NIO. GET SMARTER - Do you want to know where robots came from? How about Pittsburgh. More precisely, from a bunch of researchers who started the world’s first academic robotics department in the 1970s at Carnegie Mellon University. Even I didn’t know this while I was enrolled there a VERY long time ago, but as autonomous vehicles have come into focus, I’ve learned a lot more about how CMU has historically and continues to play a very large role in the development of robots, drones, and autonomous vehicles all around the world. Curious to know more? Well, you’re in luck! There’s an online exhibit that’s recently been launched called ‘Building the Robot Archive’ that you should check out. JUST THE NUMBERS - $400M. That’s how much a New Jersey-based hedge fund invested in Lordstown Motors in order to inject some much-needed capital into the company in order for it to bring to market their first EV product, a pickup truck called the Endurance. As PT Barnum once said, there’s one born every minute. - 30%. That’s how much of a tax credit is being considered by the US Congress towards the purchase of an electric bicycle. WOW. If e-bikes weren’t already a hot commodity with demand far outstripping supply currently then this could really pull e-bikes into the mainstream in the US and dare I say, begin to replace normal pedal bikes as the preferred mode of transport for urban commuters? Having lived in California where biking to work was a pretty common occurrence, even if that meant biking from SF to Silicon Valley and showering at work, this would be a major difference-maker, especially in the warm weather states. I already know what e-bike I’d use my credit on …when I head back to the US, eventually. - $4.4B raised at a $24B valuation. That’s what LCID aka Lucid Motors reverse merger numbers came in at. It now has plenty of capital to get its first set of Lucid Air’s on the road. Founder Peter Rawlinson & Lucid has been put up as a viable competitor to Elon & Tesla although the proof is in the pudding. That’ll change by the end of this year according to Peter. With the Lucid Air, I do like what I see but the level of quality and the amount of SW dev that needs to be done in order to pull this off flawlessly is significant. And like all others before it, there will be massive growing pains and HIGH expectations for the Ops team that’s located in SoCal while the manufacturing is done in AZ (a headscratcher). The SPAC share price was as high as $60/share earlier this year before settling in at $25 and change in its debut yesterday. That market cap is just less than half of Ford’s although they sold over 2M cars in 2020. Lucid – 0. Just saying… INTRODUCING - Do you remember the Ace and Wolf from Alpha Motor Company? Well, allow me to re-introduce you to the Alpha Superwolf. It’s a 4 door, extended cab version of the Wolf, their cool little electric pickup truck. These pictures make all of their vehicles look really cool and fun to drive but let me emphasize that these pics are just renderings. You can reserve any one of their vehicles but whether or not they’ll be delivered to you in as good looking a shape as their digital images, well your guess is as good as mine. —— 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.