When should OEMs switch, VW's interest in Tesla, safety becoming a priority - SAI Newsletter #31
Had the pleasure of sitting with Rupert Mitchell from #WMMotor and Li Zhang #CathayCapital on a panel sponsored by Technode about ‘EV’s future in China’ at the Shanghai Ideapod at the Bund, a great intimate facility that looks out at the Pudong skyline. Also kudos to Rupert for participating since most EVStartups here in China are struggling and would rather not have their folks have to sit through a discussion about what they need to do to survive in these challenging times.
I think generally we were all in agreement that in order for the EVStartups to survive this challenging market, which I’m predicting to last into 2020 the carmakers will need to really conserve cash by either postponing non-essential businesses, look at getting leaner, and refocusing their efforts to really educate and attract new customers to their brand. The BIG assumption here is that the actual vehicle, is a quality product - it’s attractive, with equally high quality /reliability, and affordable.
That’s not to say there won’t be tough sales months even for the best players because there will, its just that those that come out on the other end were able to maintain focus in these challenging times.
Thanks for Chris Udemans of Technode for inviting to me participate on the panel!
Audi E-Tron UPDATE:
11 weeks, still no E-Tron. Looks like my friend is going to go through arbitration to get resolution. He’s now working with the local dealership’s Audi GM. No contact with Audi Corporate.
I have NEVER owned an Audi and always thought that I could but this is REALLY turning me off about 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 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.
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The Sino Auto Insights team
Funny enough, I had a long conversation about the direction of the auto sector with someone pretty high up at one of the German OEMs in BJ a few years back when he asked me ‘how do we switch over to EVs while not losing sales from ICEs,’ essentially the same question that’s been asked in board rooms of many of the large OEMs over the last few years. This tough question was likely revisited lately because of the slowdowns in the two regions that sell the most cars - the US and China.
The simple answer is that you can’t. This is a complicated problem with lots of factors that go into ‘when’ to switch over - unions, contracts, supply challenges, cost, external readiness, municipal support, technology, staffing, and bottom line - GUTS. For Volkswagen, it was an easier question to answer because unless they made some bold moves fast, diesel-gate was going to follow them around like a dark cloud for the foreseeable future. They changed leadership as well recently, a few times, which made it easier to implement such a bold move.
Ford is going through something similar, their dilemma being the China market and the absolutely dreadful slide they’ve taken in it. They’ve also consequently changed leadership and are now implementing a bold ‘reinvention’ of who they are on both sides of the pond. It’ll be interesting to see how it turns since ‘the Street’ still doesn’t get where Hackett wants to take the company. If Ford can’t turn around China though, it probably won’t matter how many of those F150’s they’re able to sell in the US.
The other OEMs seem to be taking a more measured, ‘slow and steady wins the race approach.’ There are a few companies, such as Toyota, VW Group and GM that have global footprints and enough volume to nudge the sector into change, even as drastic as swapping out powertrains.
VW Group for instance, sold almost 11M vehicles in 2018 so any strategic shifts they decide to make to their business will have wide ranging effects across the sector. Some people may think that Diess is CRAZY to embrace EV tech so aggressively, and maybe he is, ‘crazy …like a fox.’
Fresh off the 'rumor mill' presses, looks like VW is kicking the tires on an investment in Tesla. VW has been on an aggressive tear over the last 24 months with their bold announcements and even bolder partnerships in the US, EU, and China.
Tesla’s share price popped on the news but for now, this is all still just speculation. It likely wouldn’t be an ALL OUT acquisition since Tesla, at ~$40B, is probably too expensive for VW so it would likely be a minority investment. Could you imagine Musk taking a VW Board seat???
If a weekly dose of our newsletter STILL isn’t enough to satiate your ‘EV’ appetite, the folks over at Quartz have put together a brief list of reports, papers, and books that will help you deep dive some of the items we discuss here in the newsletter.
I’ve read quite a few of the reco’d readings and I’ll say that if you plan on taking the time to read them yourself, it WILL get dry and in a lot of cases pretty drawn out. If it’s your job to keep up with the latest news, trends, breakthroughs, and/or setbacks in the sector AND you have some time on your hands, reading the reco’d materials will def give you a broader sense of all that it takes to get that first level 5 autonomous vehicle on the road …at some point in the future.
A long read from Fortune that does a good job of detailing VW’s manufacturing switch in China and Germany over to EVs. It’s part history of the EV in China, including how BYD came about and what’s driving China’s EV ambitions. It also touches on one of the original China EVStartups, NIO and the company’s current struggles.
For those just starting to follow the sector, this is a definite “click on link to read” article and will help explain a lot of the motivations behind China’s AND VW’s moves relative to EVs. This is one I’ll likely read again to make sure I capture all the numbers that are being thrown around, especially when it comes to VW.
Let this excerpt from the article sink in for a moment - VW Group sold 10.8M vehicles in 2018, of which only 79K (<1%) were NEVs. VW is forecasting that by 2028, they will have sold 22M EVs cumulatively across all their brands. Can you say AMBITIOUS?
There are probably a TON of uncomfortable people at VW and all its brands in Germany and in China, which happens to be VW’s largest market, due to the aggressiveness of Diess on switching VW’s manufacturing footprint over to EVs, trying to catch up via partnerships in the EU, US, and China as well as moving most of their vehicle lineup to SUVs. To that I say, ITS ABOUT TIME.
Here is another wonky, but important discussion that’s being had at each of the automakers along with policy makers so that autonomous system validation/verification/approval prior commercial use can be achieved.
The thought that AV companies’ test vehicles will need to drive billions of miles for EVERY dangerous scenario is starting to be pushed aside with discussions on what would be a more practical approach to approving AVs for use, including using simulations to validate software and systems. That’s only going to work though if local govts. give the same weight to simulated miles as they do actual miles, which MANY currently do not.
What will likely happen is that there will be regional, maybe even country specific naunces to how to define ‘safety’ and then how to certify the systems as ‘safe,’ which will complicate how, when and where AVs will be able to drive in the future. The important thing is that these debates are now taking place and hopefully there will be more sharing in order to promote consensus on how ‘safe’ the vehicles need to be.
Over the last several years, many pundits have speculated that once the premium OEMs launch EVs of their own, Tesla wouldn’t be able to compete due to the OEM's years of experience, distribution channels, and brand cachet, I am just here to say, although its still in the very early innings, the offerings from Jag and Audi have not lived up to expectations or sales forecasts.
First, the Jaguar I-Pace and Audi E-Tron were not designed from the ground up as EVs but instead quickly cobbled together in a FOMO moment to have something in the market to be used as a bridge until the reinforcements show up.
Furthermore, the biggest sin of the OEMs early entrants competing against the Tesla Model S & X are the OEMs are using to fill the cars with isn’t even the latest and greatest. For example, the ranges on the I-Pace and E-Tron are ~2/3 of what Tesla already has out in the market for the X, S, and 3. We also ALL know the challenges my buddy and his E-Tron has faced. Going on 11 weeks now btw.
You guys can do better, you HAVE to do better. Your future depends on it. Tesla is ONLY going to get better if you guys step up your game. They’re NOT going to go down without a proper fight!
MOBILITY AS A SERVICE
Had a discussion with Christian Shepherd of the FT about DeepBlue Technology, an AI company that manufactures autonomous buses that are currently being tested in 10 Chinese cities. It’s an interesting concept and if they’re able to sign up some of the tier 1 cities, they may get enough traction in China to be able to dominate the market.
For me, there still isn’t a clear path the profitability since revenue could be capped due to the sector and the substitutes available. With that said, although I don’t think people’s first thought when they jump on a public bus is to purchase things, if Deepblue can figure out a way to get THAT right, they may just have something that’s much more defensible.
Ford, via a partnership with Virginia Tech, will be studying closely how their Spin e-scooters are being used by riders in hopes to crack the code on how to safely ride them.
All types of sensors and even a camera will be bolted on to 50 of the scooters so that it can collect data to be analyzed that should influence design, rules for riding and even potentially urban planning design.
I think they’ll be able to collect ALOT of useful data, although the cynic in me thinks that alot of the data is going to point to riders just not riding very safely and/or not really knowing how to ride them properly. Then there’s the data privacy aspect but that’s another discussion all together.
Ford has much deeper pockets than the other scooter startups but I totally see value in doing this so expect the other e-scooter companies to follow suit, either through internal product development or via partnership so that the cost burden is not completely on 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.