Trade War continues, Micro-mobility maturing globally, AVs - U.S. vs. China - SAI Newsletter #18
Having lived in China now for over 10 years, I forget sometimes how amazingly fast things happen, that is until I am reminded by something I see.
For those who’ve traveled to Beijing for business, you’ve likely spent time sitting in a car stuck in traffic at or near the Kerry Hotel right off of Third Ring Road. That’s because it’s in the heart of the Central Business District (CBD) and during rush hour its total chaos and a parking lot, that was until about 2 weeks ago.
That’s when the local Beijing govt. made some small improvements to the roads, cameras, and lights and started to enforce the traffic laws. During rush hour, what might take between 15-25 mins to just cross the intersection now takes less than half that time! It still may seem like it takes waaay too long but that’s more of a capacity and load issue, something to discuss another time.
What I thought would take years to do, not only to enforce the laws but to change habits and coordinate traffic happened just over a weekend. For those that have not yet been to China, this is something that has to be seen and felt in order to appreciate how quick change the occurs here. It's unsettling at times quite frankly.
Now for a brief update on the happenings that I won’t cover in the newsletter but are newsworthy and worth having a look on your own.
- The trade war that many thought would be resolved this week was just ratcheted up a couple of notches today by the Trump Administration, all but ensuring that there will be retaliation likely within the next few days, by China.
- Uber raised $8.1B from its IPO yesterday, in what analysts deemed a bit disappointing.
- VW’s ordering system broke down as it began taking pre-orders in Europe for its recently launched ID.3, a potentially ominous sign for them?
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 U.S. 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/Ridesharing/Ride-hailing/Bikesharing, 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
EVs & EVStartups
I had to chuckle when I saw this article since I don’t know anyone personally in Beijing who has stopped driving their Model S, X or 3. I also live in a high rise off of the Third Ring road in Beijing’s CBD and park my car in the B3 level of my apartment building. That means I drive through two parking levels before I get to my parking spot, allowing me to spy a good amount of the garage and I don’t get the impression that anyone is THAT concerned about parking next to a Tesla.
I will concede that it’s a small sample size, but I also do a fair amount of driving around Chaoyang district and again do not see anything that would make me think that the battery fire in the Shanghai parking garage a few weeks back has Tesla owners ready to turn their keys in for an ICE vehicle.
There are still posts on Weibo & Weixin about the fire so I will keep monitoring this to see if there are any significant changes to sentiment in the future.
LAST MILE MOBILITY
This was all but inevitable with the proliferation of e-scooters and shared bicycles in the EU and marks the beginning of acceptance in Paris vs. end of their usage in other European cities (that means you Barca).
It also helps provide a blueprint for other cities around the world as to how they may regulate the usage of these ‘last mile’ micro-mobility vehicles to avoid accidents, while still allowing people to get from point A to B, efficiently and inexpensively.
It will certainly take data, time and some course correcting to see if these ‘rules’ actually provide the intended outcomes and whether the initial intended outcomes make sense but it’s a major first step in acceptance of micro-mobility vehicles as the newest form of transportation for the city of Paris, a bellwether for other EU cities.
We’ll have to see if the ultimate success/failure of these regulations change minds and alter opinions about their usage in those cities.
It looks as though Mobike is finally starting to organize it’s EU strategy and have now decided that spinning off the EU Operations to reduce risk, but keeping about half of the new company, is the way to move forward. The spin-off is scheduled to take place this summer.
I’ve said before that I don’t see a scenario where these bike sharing companies will ever be consistently profitable so the hope has to be that one of the EU focused ride-hailing companies pick this spinoff up for a song (although EU ops valued at ~$100M!) and shoehorn it into their ‘multi-modal, one-stop mobility’ app and services.
The company that has arguably had the most success with battery swapping is Taipei based Gogoro. They’ve just launched the 3rd version of their VERY popular electric scooter and now hold a dominating 97% e-scooter market share in Taiwan.
I am a big fan of Gogoro and think there’s plenty of opportunity to take its e-scooter and battery swapping system to other parts of Asia successfully. I know they’re evaluating which next markets make the most sense to launch including a few of the large SEA cities where electric scooters are the preferred mode of transport, but they’re going to have to act quickly as we’ve seen many new entrants into the space over the last 18 months.
AV and AI
We’ve likely all heard about examples of the built-in bias in technology, from search engines to facial recognition software, it’s a real issue that will likely not be addressed anytime soon so I applaud Melinda Gates for formally discussing this issue in length.
Whether men vs. women or minority vs. majority, it would be great to see AI startups acknowledge that this is indeed an important issue they are addressing in the people they hire and via the products and services they provide.
For those not familiar with the actual ‘nuts and bolts’ of policy and regulations in China for autonomous vehicle (AV) testing as compared to the U.S., this article does a good job of briefly getting you up to speed.
As the Chinese govt. becomes more comfortable with AVs they will certainly open up more roads, cities and scenarios for testing and if we’re to subscribe to the fact that China is larger, less privacy driven and much faster implementing new policy than the U.S., it’ll be only a matter of time before China surpasses the U.S. in AV capability, right?
A couple of things to consider here, if we believe it’s all about the data then it is certainly only a matter of time before China surpasses the U.S. in AI supremacy.
I think about it a bit differently though, that there should be a much more nuanced view of comparing how the AV space will develop in each country since I hypothesize that the rules of engagement, goals, and management of the system will likely not be very similar and hence we’d be comparing ‘apples to oranges.’
It’s likely that each of the systems (public + private) that are developed in China and the U.S. will be optimized for their respective domestic markets and will be different enough that it won’t matter whose is ‘better’ unless we’re just comparing the least common denominator like deaths/million miles driven, etc.
The real compare and contrast opportunity will be exporting each system to the rest of the world and seeing how they perform in non-native situations, when goals, management, rules, and norms are dictated to them.
A South Korean automotive trade group is voicing its concerns over the protections the Chinese govt. provides to Chinese EV manufacturers while also taking advantage of the subsidies the South Korean govt. provides to Chinese EVs exported and sold in South Korea.
Although the Korean automakers manufacture and sell EVs locally in China, they are NOT eligible for any subsidy from the Chinese govt. because the EV batteries come from Korean manufacturers and not Chinese.
As the EV segment really begins to heat up and more German, Japanese and American EVs are built locally in China, there will be more countries joining South Korea requesting that the playing field be ‘leveled’ and that they’re able to select whomever they’d like for whatever commodity they choose, so long as its manufactured in China.
You can bet that the Trump administration has or will be having discussions on this, likely at the behest of Tesla for its Shanghai Gigafactory but also GM, which has a fairly significant manufacturing footprint already in China.
If there is indeed a reconciliation by the Chinese govt., that could create a huge opportunity for both the Japanese and Korean battery manufacturers, especially because many OEMs are a bit more suspect on the quality and reliability of the currently available Chinese batteries when compared to their Korean and Japanese counterparts.
Jury is still out though since CATL could be negatively impacted by any opening of the market and I am sure they’re doing everything in their power to keep that door closed for as long as possible.
Two separate, non-related but equally important dimensions to this issue that will be facing many automakers, especially those that aren’t on top of their hardware/software stack.
First, the risks of single-sourcing key parts. In certain cases, this is unavoidable since the supplier may have proprietary technology and it’s the only game in town that does exactly what the OEM needs it to, it's already been qualified and all the bugs have been sorted out by the engineering team.
In the short term at least, there’s not much that can be done since it’ll likely be 12-18 months before an alternate part can be sourced, qualified and Production Part Approval Process (PPAP) approved. In some instances and depending on the tariff rate and break even, supply could be pulled ahead and shipped prior to the tariff taking effect but it would sit on the balance sheet as inventory, something companies running ‘lean’ manufacturing systems hate, with the risk of obsolescence, also not ideal.
Second, and although this article focuses on Tesla’s situation this is a scenario that all the American, German, Japanese and Chinese companies that plan to launch EVs within the next year or so and source parts from either the U.S. or China will likely face.
The Trump Administration has just increased tariffs today so I anticipate that most OEMs have scenario planned for this but there are still likely cases where it’s necessary for them to either single source parts now that they’re too far into the development cycle to swap them out and will likely need to eat some of the costs and pass some on to the customer.
This will hit the EVStartups especially hard since controlling costs will be the only major lever they have to optimize margins once competitors start launching their EV products to the market, many by the end of this year/beginning of next. The other options would be to raise pricing and/or increase sales significantly which aren’t likely outcomes for them.
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.