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VW + Horizon Robotics Mashup, More Chip Restrictions, China EV Inc is Coming - SAI Newsletter 38



 

Finally getting my schedule right and think we’ll move the newsletter delivery back to Wednesdays starting next week. A lot to get to with some big news coming out of Volkswagen Group. First, a correction from last week’s newsletter. A couple of the other investments for battery tech in Michigan that I failed to mention:

  • $1.7B expansion happening at the LG battery plant in Holland, MI

  • $2.5B investment by GM in Lansing, MI to build a battery factory to support production

John - thanks for keeping me honest! If we look at these announcements that have all happened within the year, in totality along with the two big announcements from last week from Gotion & ONE, Michigan will be a stronghold for battery production in the US. I still believe that a lot of what I wrote still holds true though, especially regarding Gotion. What else got our attention this week. - Finally! Aiways launches its 2nd vehicle, the sports coupe SUV U6 for the China market. The Chinese EV company is likely better known in Europe where it currently sells in 12 countries than it is in China where sales have struggled to gain traction. - The energy crisis in Europe could put up to 1M units of vehicle production/quarter in jeopardy and could last through the end of 2023. This would have a domino effect across the global auto sector and permanently cripple already vulnerable automakers. - As Europe struggles with securing energy for vehicle production, China could be in for a slowdown in vehicle sales starting in 2023. As Chinese consumers rush to purchase vehicles before the end of 2023 before some of the purchase incentives expire, it may lead to a bit of a slowdown in the sector beginning in 2023. We’re likely seeing a pull ahead that’ll have a negative effect on sales at the beginning of 2023. This could be the reason why some China EV Inc are rushing to launch into export markets, their internal market research teams may see this same softness being forecasted by the Chinese automotive groups. - Faraday Future moving towards penny stock. It’s trading at $.51 with a market cap of <~$175M after some lenders converted their promissory notes over to shares in the company. How they will get out of this hole they dug for themselves, we will have to wait and see but don’t expect Job #1 of the FF91 to come off that production line anytime soon. - BYD continuing its woes in the Aussie market. The newest roadblock, a missing harness that is required to pass safety inspections and shrinks the 5 person Atto 3 into a 4 person vehicle. The last two PR nightmares seem to be crises that could’ve been totally avoided and should’ve been. Perhaps their import partner has bitten off more than they can chew? I sure hope not and it hasn’t deterred BYD from entering even more markets the last few weeks. - Surprise! China will lead in the electrification and clean energy move in commercial vehicles/trucks. According to Bloomberg New Energy Finance, China has likely reached the tipping point where all the right elements in are in place and adoption should sales/adoption should increase substantially like have seen a jump in the take rates for EVs in the passenger vehicle market. This shouldn’t surprise anyone who’s been reading the newsletter since I’ve been preaching this for the last few years here and in the podcast. With commercial delivery/trucking, it’s not a one size fits all market. There are urban delivery vehicles like Amazon and UPS use and then we get to long haul trucking where we could see a lot of benefit from the move towards clean energy. But where are we going to get all of the batteries and how many cells would be needed to power and heavy cab that’s pulling a trailer that along with the weight of the pack is likely pushing 40 tons. I think that’s the most intriguing piece of the pie. What solutions will we come up with for commercial long-haul trucking? Swapping? Fast charging? Dual chemistry? Hydrogen? All the above? Other? We’ve moved the China EVs & More Twitter Space to Thursdays, 3pm EST so for those able to join earlier, thanks! There is a high likelihood that next week we’ll be looking at the same at the same time which we’ve been told is much friendlier for our European listeners. We certainly aim to please! We’ve also just dropped our latest MAX episode #9 where Lei and I interview Dr. Jun Pei, Co-founder/CEO of Cepton, a LiDAR company that was awarded the contract to supply GM vehicles, Cadillac in particular with it’s MMT LiDARs. It’s a really fascinating conversation and some of the answers from Dr. Pei are sure to surprise many of you so I’d definitely recommend having a listen. For those that can’t join live (shame on you!), the China EVs & More podcast is available wherever you grab your podcasts from. Most of our back pods are posted and the descriptions will be able to tell you what we discussed that particular episode. BIG NEWS OF THE WEEK - Volkswagen Group via software unit Cariad writes a ~$2.5B check to take a 60% stake in Chinese chip designer Horizon Robotics. The investment will be split between a $1B direct investment into Horizon by Cariad and a ~$1.3B investment in the joint venture. This is an important turn of events which has global implications for both Volkswagen and Horizon. We’d talked about this investment in the last couple of weeks but the company I thought they’d be partnering with was Huawei. Got the ‘H’ right anyway and Huawei is still a major partner of VW’s in China but this H stood for Horizon Robotics. This will give VW Group immediate chip design & likely much broader & deeper SW dev capabilities. What will this mean for Horizon’s current crop of OEM customers remains to be seen. If I were Li Auto, Conti or BYD I may be looking to head for the exits now that VW Group is attached to my chip designer. I’d also said that Horizon was trying to be China’s Intel/Nvidia but now that it’s more than half owned by a German company will it get the same favorable status or will the Chinese govt look to companies like Black Sesame, Intellifusion, Enflame and others whose primary investors currency of choice is the RMB? My guess is that Horizon still receives preferred status but not as much and that it may fade if one of the other AI chip design startups are able to design and fab clearly superior ASICs. As for Volkswagen Group, this seems like a desperate move, defensive play and even perhaps a move to try and curry favor with the Chinese govt. IMHO, I don’t see the diplomatic relationship between the US and China thawing anytime soon and that puts each and every foreign company using ASICs with US IP at risk of being frozen out of supply for their China operations so this is an (likely)an attempt by VW Group to ensure they have silicon for their China built cars for years to come. The gamble here is that Horizon chips are still years away from competing with the likes of Nvidia and Qualcomm’s most cutting-edge silicon and there’s a chance that that they never catch up. Finally, with the Chinese automotive market pulling away from Volkswagen’s control, a small reason for this investment would be to curry favor with the Chinese govt. Am I saying that they wrote a >$2B check to get in good with the Chinese govt, of course not but I assume that it was a factor that was discussed as part of the ‘Go/No Go’ investment into Horizon. - Chip & chip making equipment restrictions go even further as suppliers are pulling out staff that are stationed at chip fabs to support production of their customers in China. All this as China readies itself for the 20th Communist Party Congress (starting today BTW) which will likely approve of Xi Jinping’s third term. This is indeed an escalation by the US and puts certain employees between a rock and a hard place since there are likely quite a few ethnically Chinese people working that are US citizens. How will they be treated and how China will retaliate will be something to keep a close eye on. Even if those people want to renounce their US citizenship, it isn’t an easy process and usually involves lawyers and taxes that need to be paid. It’s too early to tell how deep and wide these new policies go, especially since foreign companies that have operations in China may be able to apply for exemptions. But this is why the VW Group / Horizon Robotics transaction is very intriguing. How that shakes out should give an indication as to which side Europe will reside on this issue. QUOTED Financial Times: Ed White got my quick take on the VW/Horizon Robotics transaction. Ed further details Horizon’s history and current investors which is a who’s who of VC and chip companies. It’s worth the read if you don’t know much about Horizon or VW Group in China for that matter. Asia Nikkei: I had the pleasure of speaking with Jens Kastner who highlighted all of the Chinese EV companies making their way to the European markets. This isn’t the 1st wave but it’s the best prepared wave as the initial set of Chinese car companies that entered Europe previously weren’t very good cars and performed very poorly during crash testing. The brands entering now have in general much better, higher quality and safer vehicles that are affordable which should make them much more attractive to the European consumer. You can read the complete article here. TESLA - MIC Model Y on top of the SUV hill in China for September 2022. That would be >46K deliveries, a massive number. This was versus ALL competitors ICE included. If we take out ICE, it’s a Tesla and BYD with #2. Song, #3. Yuan Plus, #4. Tang) world we live in. TRENDING ON SOCIAL MEDIA - More restrictions on China for chips and chipmaking equipment in the works by the US govt? Remember a few weeks back, the US govt began restricting chips fab’d by Nvidia and AMD that are specifically used in servers? Well, it looks like they may go even further with restrictions on other types of ASICs and equipment/SW used in their fabrication. More deets could come as early as next week but as you can see, interesting times we’re living in right now, specifically on the EV side. INTRODUCING - The Polestar 3. A sporty SUV EV that Polestar says is set to compete against the Porsche Cayenne. I like it, It carries over the Scandinavian theme quite well with the exterior and interior designs very clean, simple but seemingly well appointed with quality materials. I never thought we’d see a clunker but pricing has also been revealed and at $85K in the US for the Dual Motor model, it doesn’t seem to be premium enough for my tastes. And the Chinese price is an eye watering ¥880K ($122K) for the Dual Motor, that’s a $37K lift from the US pricing. And the reason for that delta isn’t clear since it’s going to produce the Polestar 3 in both countries. Anyway, I thought it would be a pretty tough sell at the US pricing but with the level of competition in China the way it is, not sure how they’ll sell the units they need to for the EV to be profitable, but mgt obviously knows something I don’t about the car/brand. BY THE NUMBERS - #5. That’s Li Bin’s goal for NIO, to be a Top 5 global automaker by 2030. At current volumes, they’d need to sell >6M vehicles to achieve that goal. It’s not clear is he’s talking sales volume or revenue though so perhaps y 2030 NIO will have nailed the whole platform/ecosystem thing and a bunch of their revenue will come from services? ---------- 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

 

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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