UAW Strike, Hydrogen cars, Rivian's BIG order - SAI Newsletter #35
The news currently dominating the US is the UAW strike on GM. It's now on Day 5 with no end in sight.
Also, with the postponed WeWork IPO, a spotlight has burned brightly on Uber and Lyft, a couple former Wall Street darlings that also have very little expectation to be consistently profitable for the foreseeable future and why their valuations were so high since they're both now trading at close to their 52 week lows.
We're going to start seeing a more cautious investor that's going to expect a reasonable time horizon to profitability. That means a much tougher environment for these EVStartups to raise additional capital to help them wait out the slowdown in China.
With the October 1st celebration & parade less than two weeks away, we're starting to see a bit more security around the Beijing CBD area leading to Changan Jie where the parade will be held. This is a HUGE deal for the Chinese govt. so they're trying to make sure everything is perfect and the event goes on without a hitch.
I've also recently become a mentor for the Chinaccelerator program so if you have a terrific idea and would like to be a part of one of the Chinaccelerator batches, please get in touch. Now onto the news.
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
The current UAW strike on GM gives me flashbacks of my first job out of college, which just happened to be with GM.
I’d just graduated from university and accepted a job as an analyst in GM’s Production Control and Logistics (PC&L) group but before I was to start, I decided to take a quick vacation to California. While out in NorCal, I was following the news closely hoping that GM & the UAW would be able to hammer out a new 4-year deal. Unfortunately, that did not happen and the UAW began to strike shutting down the American GM plants just prior to my start date. I got in touch with my hiring manager worried that I wouldn’t be able to start my job.
Luckily, the white-collar workers were told to still come to work. I was part of a rotational program and my first assignment was at the Orion Assembly plant, which currently builds the Chevy Bolt coincidentally, working in their Materials office. On my first day at GM, and I remember this vividly, I was getting a tour of the plant from my supervisor, and when we opened the door to the shop floor I remember that the entire plant was pitch black with the exception of a few lights. My supervisor explained to me turning off most of the lights was a cost savings measure since we didn’t know how long the strike would last. The entire tour was given by my supervisor as she carried a flashlight in her hand showing me the Paint & Body shop, the Metal fab area and all of the ‘supermarkets’ or the areas where parts were staged.
Later in the week, we had our weekly team meeting which we would normally dial in to since our team’s jobs were to support the plant. Because the plants were all idle, all the staff assigned to the plants in and around the Warren Tech Center were asked to attend the meetings in person.
As I walked into the Cadillac building for the first time, like the Orion plant, all the hallway lights were turned off as well as the escalators. That strike lasted 54 days and that entire time I worried that I’d be laid off permanently at any moment. The weeks right after the strike ended were pretty intense since we needed to try to make up for 54 days’ worth of missed production. Shifts were added in order to replenish the pipeline of vehicles at all the dealers and we were constantly on the phones chasing parts down from suppliers in order to keep the plants going. It was quite the experience for a newbie.
My father worked at GM assembly plants for 27 years before he retired so I am of two minds here about the current strike. If it weren’t for the UAW and the benefits they were able negotiate every 4 years, I am certain it would’ve been impossible for my parents to raise me and my 7 brothers and sisters without some sort of government support.
With that said, most of my brothers and sisters worked or are still white-collar workers for one of the Big Three. Strikes do serve a purpose and normally, they result in better overall pay and benefits for UAW membership but I can’t help but think about the long-term harm it may cause to the companies like GM.
One could argue that the combination of mismanagement from the top and lack of cost competitiveness partly due to blue-collar wage and benefits helped pushed GM and Fiat Chrysler into bankruptcy back in 2008. In the current situation, there are a lot of things in play here including the consistent decline in UAW membership for the last 30 years, GM’s combined profit of over $35B over the last 3 years, and the fact that manufacturing in the US isn’t as cost effective as say in Mexico or China and there’s not really anything to do to make it so.
Most of the goals for each side I understand are at odds with each other. All but one at least, the goal of making GM a continuously profitable, ongoing concern for the foreseeable future so that the factories can keep running and those UAW workers can keep working.
There are estimates that GM is losing between $50M - $75M in profit each day the strike continues or in other words, it makes GM that much less competitive. Losing profitability helps neither side. One thing I do empathize with is that GM could definitely share more of the spoils with their blue-collar counterparts and still be able to fund their R&D and future operations. The fact that GM management was looking to shed $6B in costs, not an insignificant amount of money, indicates that maybe they didn’t have as much control over their costs as they needed to.
Nonetheless, these cost savings exercises are happening as we speak with management teams across the foreign OEMs, domestic SOEs and EVStartups here in China. We are in our 14th month of consecutive sales declines which means that there are millions of cars that haven’t been sold and excess capacity at most of the manufacturers. Tough, thoughtful decisions need to be made in order to conserve cash, while also leaving enough capacity to take advantage of when the market rebounds, which it will. One thing these guys won’t have to worry about? Negotiating the next 4-year contract for their factory workers.
As for GM and the UAW, let’s just hope that a true compromise can be had and that this strike doesn’t last too much longer.
Bosch, the world’s largest automotive supplier seems to be long hydrogen powertrains, enough so that they’ve invested $250M in Nikola, a hydrogen long haul truck startup and have begun to develop drivetrain components and control systems for hydrogen powertrains.
Hydrogen vehicles’ viability has increased substantially recently because two previous bottlenecks, large storage compartments that took up an enormous amount of space on the vehicles and expensive batteries aren’t issues anymore because of the advancement in those technologies.
With Bosch’s size, it looks as though they’re trying influence the direction of clean technology as it relates to electric vs. hydrogen powertrains for commercial trucks. Commercial trucking doesn’t lend itself well to battery electric technology because of how many times the trucks would need charging during one long haul delivery and the large size of the battery module needed in order to run them.
To be quite frank, I have not kept up closely with hydrogen as an alternate to electric powertrains but it has been brought up recently at a few events I’ve attended as well as on the panel I sat on last month. Will do a bit more research and pull in relevant material to try and see if this should be tracked as a decent alternative to electrification.
A likely scenario could be a split between commercial trucks and passenger vehicles with commercial trucks going the hydrogen powertrain route since there is already fueling infrastructure in place where hydrogen pumps could be swapped in for while passenger vehicles maintain the path towards electrification. Looks like that’s what Bosch is betting BIG on anyway.
EV / AV
For most people who don’t get into the technical details of how to program an AV to successfully (read: safely) navigate through a busy city, this is a great interactive that pulls a good many scenarios that the test AVs have faced and failed at while out on the road.
Since we highlighted an article about Brian Salesky, the Argo AI CEO last week, it’s only fair that we place the spotlight on Argo’s Pittsburgh neighbor and fellow autonomous driving startup Aurora's CEO, Chris Urmson.
It’s a good compare and contrast to their approaches to providing solutions to what could be considered the ‘same’ problem, especially since they worked together at Google on the team that is now known as Waymo that and the fact that they both have roots, as do I, at Carnegie Mellon.
I’ve been told by many folks in Pittsburgh and Silicon Valley that Aurora’s management team is the strongest and most experienced and they’re the odds-on favorite to launch the most thorough autonomous driving system of all the AI startups out there. I am careful NOT to say the first since I don’t believe that being first out of the gate with a solution is one of their main goals. They are also one of the few, I think maybe ONLY, American AI startups who’ve decided to partner with a Chinese EVStartup, in this case Byton.
This article is as much about Urmson’s management philosophy as it is his business strategy since Aurora’s ambitions are narrowly focused on providing the ‘driver’ aka the tech, both hardware & software, to make vehicles fully autonomous.
One of the lead investors for Aurora’s $350M Series B funding round was Amazon who has also invested in EV truck startup Rivian. Here’s a potential tangled web, since Rivian’s other major investor is Ford, who has invested heavily in Argo, so should Aurora provide a better ‘driver’ would they kick Argo out of those Rivian vehicles and swap in the Aurora tech instead? Things that make you go hmmm…
In a speech earlier yesterday, Amazon CEO Jeff Bezos may have stolen some of Rivian’s thunder by announcing that Amazon ordered 100K electric delivery vans from Rivian, whom they’re a major investor of. This in order to help Amazon reduce their carbon footprint with the vans starting to be delivered in 2021 completing delivery in 2025.
These are the types of orders and announcements that move the needle for a sector since, in this particular case at least, one of the largest companies in the world shows a tremendous amount of confidence in a startup that has NOT even delivered JOB1 of their first product yet! With that said, I am predicting that Rivian, whose first 2 products - the R1T (truck) & R1S (SUV), will sell as many as they can make since Americans LOVE trucks and SUVs.
On the other hand, it places A LOT of pressure on Rivian to deliver and complicates and already difficult set of tasks, namely getting these products on the road on-time, in-budget - problem free.
LAST MILE MOBILITY (< 4 wheels)
Alot to unpack in this article since, if you’ve read my newsletter in the past, you know that I am long electric bikes (e-bikes) becoming the primary mode of ‘last mile’ transport eventually boxing out electric scooters (e-scooters) in popularity and miles ridden due to generally being safer, with more people having experience riding bicycles, and being much more comfortable for long distances which, consequently creates a bigger opportunity for the platform or providers to monetize each ride.
Within the electric bicycle bucket there are dockless, docked, public (municipality sponsored) and private. I think one of the main reasons for these e-bikes having a tough go of it is that these e-scooters companies have already gone ‘all in’ on e-scooters and the investment needed to support a totally different form factor would push a negative transaction further into the red.
I think for Uber in particular, who we know has been trying to reduce their burn rate, it’s strictly an economic decision and they’ll eventually re-evaluate and put those Jump bikes back on the road with a better, more thorough strategy and support plan. Otherwise they’re going to need to write off $200M for that acquisition and that wouldn’t make shareholders very happy.
For the other companies that are currently dabbling in e-bikes, they’re going through growing pains and backlash similar to when the e-scooters were initially launched in SF. Details need to be worked through and compromises need to be made with each of the individual cities they’ve entered - definitely a pain. There also needs to be some clear rules of engagement since these e-bikes can get moving pretty quickly, and would likely share the road with cars exponentially increasing the chance of serious accidents.
It’s still too early to crown e-scooters the winner of the primary urban transport vehicle challenge but I am already predicting a comeback of EPIC proportions. Also, this is just the US as well, in China where there aren’t any e-scooters in the major cities and dockless pedal bikes from Mobike, Meituan and yes, there are still some Ofos out there, dominate the preferred ‘last mile’ mode of transport. I could totally see these pedal bikes being swapped out for e-bikes and eventually becoming ubiquitous in the tier 1 & 2 cities.
As someone who’s all for the innovation that’s occurring in the traditional automotive sector whether it’s electric vehicles, ride-hailing apps or last-mile mobility solutions in order to reshape the way we think about getting around, at a practical level it’s frustrating to see how slowly the startups are at trying to solve the problems that their products have helped create.
For those of us that live in cities that have a lot of these products deployed we have all heard about and seen how if not managed properly they will end up littered all over, frustrating people who don’t want anything to do with them. Beijing has done a much better job recently of designating areas on the sidewalks specifically for the bike shares and has been much better at enforcing traffic laws in order to keep the roads safe and allow different types of vehicles (think sanlunches, mopeds, delivery vehicles, bicycles) to all share the sidewalks and roads.
This is why I am sure that these startups will be able to work with each local municipality to come up with ways to keep the sidewalks clear and roads safe so all these different forms of transportation can co-exist. I just wish they’d complete a thought and launch a solution that takes all this into consideration beforehand.
For the longest time I have not been able to model a path to profitability for Uber or Lyft based on the current economics of their transactions. Uber and Lyft drivers are very expensive and the reduction or elimination of any discounts for new and/or current passengers makes holding onto them, a pretty heavy lift.
This entire article makes way too much sense and reflects A LOT of how I think about Uber and Lyft’s current business model. The one silver lining that I think both Uber and Lyff have going for them is that they’ve pivoted now to being a platform that shares the spotlight with other ‘last mile’ solutions. If either of them is able to put the ‘team ahead of the individual,’ meaning that the platform is what provides the opportunity to be profitable, not just the ride-hailing service, then they have a chance of survival.
Since both their IPO’s the companies have reported staggering losses that don’t seem to have any end in sight. Even with both stocks trading well below their 52-week highs I think the market is still too bullish on these stocks.
With California being such a large portion of their total sales (24% of Lyft rides, 17% of Uber rides), the new bill that was passed by the California govt. last week that recategorizes drivers from ‘independent contractors’ to 'employee' status could be a crippling blow to the ride-hailing side and both companies know this so this will definitely be litigated through the courts. This also makes these other services on the platform an even more important part of the road to profitability.
Although this article specifically calls out Uber and Lyft, the struggle to profitability is real for ALL the current ride-hailing companies, be it Didi, Bolt, Grab or Go-Jek, since they're all in similar situations and need additional ways to bring in revenue since increasing pricing will only push their current customers to their competitors. That's the ONLY chance these companies have moving into the black. #Uber #Lyft #inthered #wehavethesameissue #Grab #GoJek #Bolt
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.