• Tu T. Le

VW's ALL IN bet, Tesla's Autopilot, Bankruptcies looming - SAI Newsletter #39




I’d mentioned last week that a few smaller Chinese carmakers were having liquidity issues so I wanted to follow up with that since it really underscores the seriousness of the economic slowdown here in China. I was interviewed by Christian Shepherd of the Financial Times about the current China auto market, how it continues to be weak and how it disproportionately negatively affects the smaller players. You can read more about it here.


Zotye, one of the four companies in trouble and who consequently was tagged to be Ford’s EV partner for China, is struggling to pay its suppliers and now Ford seems to be distancing itself from that partnership. The effects of the struggling Chinese auto sector are on full display here with some of the weaker players beginning to teeter. It’s starting to worry folks outside of China too since its getting coverage in places like South Korea.


China auto sales have fallen now for 15 consecutive months. When you combine this weak market with the subsidies for EVs being substantially reduced in June, you get September EV sales falling ~34% when compared to last September. Many analysts believed we’d already hit bottom on this slowdown but that just isn’t the case. I think we’re still a few months away from the market bottoming out so you can expect that, until it does, the EV market hasn’t reached bottom either.

On a side note that is tangentially tied to the weak auto market, Jia Yueting filed for Chapter 11 bankruptcy in the US in an attempt to break all ties with Faraday Future (FF) in hopes of opening the door to investment. Jia is way too radioactive for any investor to even consider placing a bet on FF so long as Jia’s finances are in any way tied to FF.



GM – UAW Strike update (www.detnews.com)

A deal has tentatively been reached between GM and the UAW. ‘Tentatively’ meaning that the essentials of the deal have been finalized, including GM agreeing to invest over $9B in its US factories within the next 4 years, helping preserve about 9K UAW jobs. GM also agreed to wage & bonus increases for the UAW members and allowing temps a quicker path to full-time employment.


There are many other small details but most importantly, this seems like a deal both parties are able to live with for the next 4 years. The contract will need to be voted on by the rank and file UAW members and if approved by a simple majority, the 30 GM plants that have been closed along with numerous supplier facilities due to the strike will reopen for business.


What will be interesting is what Ford and FCA think of this deal and whether the renegotiated rates and investment commitments fit within their planning budgets for the next 4 years. If not, they may be stuck with something that keeps them un-competitive at a key time that they need to be.

Although there is pain felt from both sides due to the compromises made in order to get the deal done, it now seems that GM and the UAW can get back to the business of making cars.


The strike is going on day 32 with the UAW members voting to continue picketing until the vote to approve the contract has been taken which could be another week. It’s estimated that GM has lost over $1.5B, so we shouldn’t expect their FQ3’19 numbers to look very good.



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

OEMs

Is VW the ONLY OEM that’s going ‘ALL IN?’ (www.carbuzz.com)

With everything that Diess has said and done regarding the pivot to electric vehicles (EVs), it seems that VW Group has definitely bet their future on quick acceptance of EVs globally. Part of that acceptance, at least for VW, is to be able to convince consumers that their vehicles are more ‘mainstream’ than other EVs in the market.


I commend VW Group for taking such a bold step, although you could argue that in order to get diesel-gate completely behind them they would need to embrace this alternate tech. This is NOT just lip service either as VW Group in January announced commitments of over $90B to further develop electric vehicle technology and roll out a bunch of new EVs globally within the next few years alone.


The challenge for VW is that their three main markets, China, EU & US will all likely adopt EVs at different points in the future which will lead to a complex and potentially long, expensive transition period. I think the main determining factors for VW’s ‘ALL IN’ bet, besides getting past diesel-gate, was that China, VW’s largest market is already leading the world in their embrace of this tech and they have the advantage of being the market leader in China, allowing VW to dictate to their competitors where the market should go. Their diverse set of brands also gives them a unique advantage in each of the major market segments since the combined scale will likely create cost advantages that the other OEMs will not be able to duplicate.


Fully embracing EVs in China seemed like a brilliant idea when the EV market was growing significantly due to the purchase subsidies in place the last couple of years. The EV market has changed drastically in just the last few months though, which puts A LOT more pressure on VW and makes reaching their goal of selling over 1M EVs annually by 2025 that much more challenging.


GM and Ford have also made bold commitments to EVs but not at the scale of VW, either financially or via their product portfolio. It’ll take some time to determine whether VW’s bold commitment this early in the game really sets them up well for the future but I would MUCH rather do something bold to try and create the future I want for myself than wait around like a sitting duck.

#VWGroup #ALLIN #roadto1M #GM #Ford


EV / AV

Yep, cars will still be around for quite a while. (www.wired.com)

The main argument for or against this article is one that isn’t mentioned – timing. There’s no real indication about when these disruptions were supposed to become the norm. As the author alludes to, although the writing has been ‘on the wall’ for quite some time beginning with the car sharing startups trying to disrupt the auto sector over 10 years ago, to the OEMs pivoting to EV/AV development and production, to how more and more cities around the world are looking at or beginning to restrict passenger vehicle usage in their city centers. The thought that any of the three Transportation 2.0 ‘pillars’ gaining real traction any time soon was a fallacy from the very beginning unfortunately. Those three pillars being:


- The shift to electric vehicles

- The growing popularity of ride-hailing services & ‘last’ mile alternate transportation options

- Development of and wide use of level 5 autonomous cars


With any HUGE disruption to an old industry there are going to be fits and starts. Right now, we’re in the worst automotive market slowdown China has ever seen and since China is about ~30% of the global market all on its own, this ‘fit’ has reverberated around the world.


Due to the current market conditions, reality is setting in for quite a few EVStartup, AI, ride-hailing, or ‘last mile’ mobility companies that thought they could bully their way into a 120-year old sector without any fight from the incumbents.


The current challenges will not deter China from its aspirations to lead the world in each of these areas though. China’s push into EVs & AVs (along with Uber, Lyft, Waymo and a few others) helped create the environment for many of the current companies vying for leadership in these three areas and there’s not much doubt that China will play a pivotal role in making each of the pillars ‘mainstream.’


All of the current ‘disruptors’ are struggling with profitability and that includes companies like Tesla, Uber, and Didi. The companies with the deep pockets will stick around trying to make the numbers work but what’s important is that the ones that close their doors will be replaced by new, even more ambitious startups that learned from their predecessor’s mistakes. They will have more favorable market conditions and it’ll be their turn to try their hand at revolutionizing the sector. That’s called progress folks, the kind that the author doesn’t really acknowledge.


Also let’s not forget about those incumbents, the OEMs have a HUGE say in this and they’re definitely NOT ready to cede the market to ANY of these startups. They’re also alpha and beta testing new products and services to compete in the market but like the startups, none of their products or services are ready for primetime either, hence the closures of Maven for GM and Chariot for Ford as just two examples. Their deep pockets will allow them to ‘reboot’ failed businesses and the competitiveness of their reboots may very well push many of the disruptors out of business.


You could argue that the OEM’s challenge is way more daunting than any of the startups since they need to pivot away from a business that currently still makes them a TON of money, turn a good % of their staff over and reinvent a culture that embraces what the future holds all while creating products and services that will hopefully shape that future.


Let’s be clear though, this is really just a math problem. There’s still a TON of opportunity in the sector for those that are able to get the price, convenience, safety and supply equation figured out (not easy obviously). I think what you’ll find is that most folks would be happy to hand over their car keys as long as whatever is replacing them met those 4 criteria for them.


It’s going to take at least a few cycles for any major disruption to the market to really gain traction but the automotive sector hasn’t really changed much the last 100 years so is it really that big of a deal to wait another 10?

#EVs #AVs #ridehailing #level5autonomous #stillwaiting #stillowningcars


When perfect is the enemy of good. (www.bloomberg.com)

Leave it to Elon Musk to push the limits of autonomous driving by installing as standard on every Tesla built after October 2016 all the hardware necessary for Autopilot to be utilized, all you need to do is order the $1K Autopilot option.


Autopilot is what would be considered Level 2/3 Autonomous and is only reco’d to be used on highways with clear lane markings with the driver still fully engaged in ‘driving.’ There are videos out on the interwebs showing people reading, sleeping and doing all types of other things as Autopilot is engaged. I’ve been driving and a passenger in a Model S and 3 when Autopilot has been engaged and I have to say it’s quite surreal.


For the first few minutes it was engaged, I was nervous and anxious to the point where it took a TON of effort for me NOT to grab the wheel. After a minute or so though, the nerves calmed and everything was fine. It’s quite amazing to witness first hand since we’re talking about driving at highway speed and not on some closed course that is pre-programmed into the machine learning system.


Collectively, Tesla customers have over 1.5B miles and counting driven by Autopilot with a total of 5 fatalities (1 in China, 4 in the US) due to accidents it’s been a part of. The argument is that for those 1.5B miles already driven, Autopilot has likely saved hundreds of lives BECAUSE it was engaged so the net-net is that it does more good than harm.


Just like the earlier post about VW Group taking the ALL IN position on EVs, Elon and Tesla have taken a similar ALL IN approach to Autopilot and what Elon feels will soon be monetizing opportunities as Tesla owners send out their ‘drone’ taxi’s when they’re not being used by them. That’s an awful lot of confidence Elon has in his autonomous driving system, confidence that’s not yet shared by any other car companies.


So far, it’s worked out OK but the wildcard for Autopilot could be the China market. Tesla sales are expected to increase significantly once the Shanghai Gigafactory is up and delivering locally made Tesla’s to the Chinese market. If those sales materialize, there will be MANY more Tesla’s on China’s roads which means a lot more opportunities for Autopilot to go wrong. How will any differences in driving habits (driving in China is quite an adventure), hardware and software (if any) will affect Autopilot, I guess we will have to wait and see.

#Tesla #Autopilot #saferthanwithout #Elon #needmoredata #tesladriversarebetatesters

China made Tesla Model 3’s delivered to Chinese customers by the end of the year? (www.bbc.com)

In an amazing turn of events, Tesla has received the go ahead from the Chinese govt. to begin production of the Model 3 at the Shanghai Gigafactory 3, China’s first completely foreign owned auto assembly plant.


I had some serious doubts about Tesla’s ability to meet such an aggressive timeline, and they’re not out of the woods yet, but nonetheless I am impressed with what they’ve been able to accomplish so far. As Elon has said in the past though, manufacturing a car in mass production quantities is 100X’s harder than designing a car and with their track record on manufacturing, I would still bet on there being a few major setbacks maybe even one or two ‘showstoppers’ that prevent them from shipping saleable vehicles by the end of this year.


The likeliest ‘showstoppers’ will be qualifying parts (read: battery), hiring enough (and the right) staff, collecting all the necessary permits and licenses, and ‘priming the pump’ and getting enough production parts (read: batteries) shipped and to the plant in order to get Job1 rolling off the line.

#Shanghai #Gigafactory #Tesla #Job1 #shippingsoon


NIO is getting boxed in. (www.fool.com)

NIO announced yesterday that a cash injection that they were negotiating fell through because the investor believed there were too many ‘heavy risks’ involved with NIO.


With a burn rate of over $600M in FQ2’19, even with the $200M loaned by Tencent and Founder William Li, the layoffs, and other cost savings measures, NIO likely only has another few months’ worth of cash on hand so unless one of the financing deals is resurrected, we could be looking at a restructuring that will wipe out most everyone’s equity.


Did I mention that the car business is BRUTAL?? If you don’t believe it, ask Elon Musk and Jia Yueting.

#NIO #teetering #needmoremoney #investmentfellthrough #heavyrisks

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.


7 views

China: +86 13 811672141

USA: +1313 290 3880