XPeng, NIO, FF in the news, some good some not so, bye bye China EV subsidies - SAI Newsletter #12
With the recent announcement from the Chinese govt. that they're substantially reducing the EV subsidies they've showered on the EV manufacturers the last few years there seems to be an anxiousness beginning to build about the implications and how it's going to affect EV sales after June, when the lower subsidies take over.
Combined with the slowdown in the overall market, 2019 just got much more interesting and likely a lot tougher, for at least some of the players involved. In this week's newsletter, I've highlighted some of the recent controversies surrounding some of the more well known China EVStartups, making an already difficult task of launching new products into this market even more challenging.
Finally, the automakers have begun preparations for next month's Shanghai Auto Show and in the next week or so we'll start to get a feel for what important announcements or introductions will be made during the show.
For you new readers, my name is Tu Le and I am the founder and managing director of Sino Auto Insights.
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
Chatted with CNN’s Sherisse Pham about this latest hiccup with XPeng, well not technically with XPeng since they have NOT been implicated by Tesla but this is the 2nd time in less a year that an XPeng hire has been accused of IP theft, last year Apple accused its former employee, who took a role at XPeng, of stealing IP related to its autonomous vehicle project. Let’s hope that in each of these cases a new employee just really wanted to impress their new boss & company and nothing more nefarious than that. Will update you all on the outcome of both investigations into XPeng’s employees.
The City of New York, in a recent study, determined that EVs are actually cheaper to operate than conventional internal combustion engine vehicles (ICEs). At least when utilizing them as part of a fleet and scoring them based on lifetime costs vs. sticker price. This is a very BIG first public step towards recognizing that the gap in cost between operating EVs vs. ICEs not only has been narrowing substantially but has caught up in certain use cases, and likely means that the tide is really starting to turn for EVs, commercially at least.
China already knows that EV buses make more sense than ICE buses and I think we will begin to see more and more large cities begin to challenge the conventional wisdom of using ICEs as their preferred municipal vehicle. This will likely lead to more charging stations and the more charging stations the more the cost will decrease as well creating this virtuous cycle.
For consumers that buy cars for personal use, the tipping point is still a ways away. Carmakers and oil companies will lobby to push out the inevitable switch so that they can eke out as much profit as they can from existing technology and supply but I can definitely begin to see the light at the end of that tunnel and this time it’s coming from the U.S.
Call this bad timing? With all the recent rumors coming out of NIO, their struggles to sell vehicles and investors suing them, I may not have wanted to sit down for basically what I see as a marketing and PR interview about NIO Houses.
If I were steering this boat, I’d have ALL hands on deck trying to ‘right’ the ship! One area of focus I would surely explore, converting the 620K total active users for the NIO app into NIO ES8 buying customers.
If the social media numbers being quoted aren’t ‘pumped up’ and are anywhere close to being accurate then NIO has done a great job of getting folks interested AND curious with what they’re all about. Further, a conversion rate of just .2% would mean a sales run rate of 124K vehicles/annum!
Now they’ll need a lot deeper dive to first determine whether most of their app’s active users can even afford to purchase their car and if so, why they aren’t going for the ES8. Did they announce the ES6 too close to the launch of the ES8? They’re both very similar cars with the ES6 being a bit smaller with shorter range but also a smaller price tag. What car are they buying? Lots of questions need to be answered on this one.
I am reminded of Saturn, the old brand from GM. They had fiercely loyal customers because they were a ‘different’ type of car company, they emphasized the dealership and sales experience with no haggle pricing. GM ultimately still had to shut them down, mostly due to the fact that their cars stop resonating with people, even though they were a ‘different’ type of car company. If NIO can’t get people’s attention with their cars, maybe they can still be a social media company and generate revenue by selling memberships to their NIO Houses?
Faraday has untangled itself from Evergrande and has now inked a deal with a new dance partner to build a vehicle for the China market.
The9, a gaming company, has thrown FF a $600M lifeline that’s full of milestones that need to be met in order to unlock the entire amount. FF will NOT be building the FF91 that was launched at CES in 2017, or what seems like a looong time ago now, but will likely build a smaller, stripped down, de-contented version of the vehicle specifically for the China market that they’re calling the V9.
In my brief research on The9, this company hasn’t been relevant in almost 10 years so this seems like a last grasp at pivoting the business into something more in the here and now.
There is no word on what’s going to happen to FF’s U.S. operations since none of the funding is earmarked to go there.
Finally, $600M may be enough to get the V9 launched but it’s definitely not enough to ALSO complete product development and begin production of the FF91so I’d look at the V9 as a proof of concept (POC) for Faraday, if they can launch without a hitch and sell a lot of units upfront, they’ll live to see another day and potentially find funding to build the FF91. If that day comes likely at least 2 years from now, will all the tech and design still be cutting edge?
For those that follow GoT, you’ll know that the last season will begin later in April. I must say that following FF is actually a bit more suspenseful and entertaining than GoT. FF has been revived more times than Jon Snow has that’s for sure!
Evelozcity, an EVStartup created from some managers that left Faraday Future have not only changed their name to Canoo, but they’ve also announced they will be offering 4 different types of vehicles as part of a subscription service. Other details were scarce but this is the first major announcement from an automaker/startup that they’ll not sell vehicles but instead generate revenue through users subscribing to a service.
You’ll order through their app and in another wrinkle that, intuitively makes a lot of sense, you’ll also control the infotainment system through this app as opposed to locally on the vehicle.
I admire this team for pushing the boundaries but would like to dig a little deeper on the specifics and the economics that they think will make it profitable so once that’s available, I’ll present that as well.
The Chinese govt. is following through on its promise to reduce, by on average 50%, subsidies given to EV manufacturers for sales of EVs that helped the market climb to 1.2M units sold for 2018.
It’s an interesting time for them to be doing this since the overall market has slowed significantly and this would likely push the EV market, which until now, has continued its growth, into a slowdown as well.
Part of the government’s statement indicates that they’d like the market to decide ‘winners and losers’ so you’re likely going to see some of the EV manufacturers sales stagnating or announce price increases in order to make up the difference in margin, margin that’s likely in negative territory sans subsidy, in order to stay afloat. They will all most assuredly need to also raise more capital.
In this price-sensitive, competitive market, that could mean very slow sales for many of the EVStartups launching products into this already challenging economy. Companies like NIO who, even with the incentives, has struggled mightily to carve significant share out of the market. On the other hand, these companies had to know this was coming so I am not sure this will change much of anyone’s calculus in the near term.
I am predicting that if you see significant pull back on EV sales after, June 25th, the date that this will all take effect, the Chinese govt. will reconsider their view on the subsidies and reinstate or find another way to keep the market growing. What’s likely is that there will be consumers who will buy prior to the June 25th, giving a short bump to overall EV sales through the June timeframe. In August, we’ll see the July sales numbers which will give us a better indication of how the reduction in subsidies has hit the EV market.
For the venture capitalists that subscribe to this newsletter, this isn’t new news for you but for a lot of the non-tech folks, this may come as a surprise. VCs and Wall Street don’t actually care if a startup is profitable prior to IPO. This may sound counterintuitive because it is.
Investors in a startup’s IPO are betting that shares will increase in value as the company becomes consistently profitable ….eventually, and will likely hold on to their investment until the company is. Further, by the time the company is consistently profitable, most the early investors have already ‘left the building’ with multiples of the original investment in their bank or invested early in another unicorn. If the company ends up being a dog, they don’t care because of that same reason.
Do I believe that Lyft and Uber have sustainable money-making businesses, yes. It’s just when they’ll be profitable, I am just not sure about. I am being a bit cynical with this post because these IPOs are normally some of the better investments in the market when you compare them to any other security so I can’t blame these guys for oversubscribing to Lyft’s IPO since they truly believe as well.
I see this more as a big win for Amazon since they’ve only recently begun to see the automotive sector as a big opportunity for its AWS services. The task of standardizing all VW’s backend systems can be very daunting as well since at the numerous plants they’d like to move to the cloud, have probably been using the same dummy terminals, legacy technology, and systems for decades in some places.
Let’s also be clear about this being a qualifier, not a strategic move by VW, this just keeps them in the game. They’ll still need to wring out the savings by reducing and training staff so that they’re capable of fully utilizing the revamped system.
Where this becomes strategic is that both Amazon and VW should be thinking that if they can get this initial partnership working well, there could be an opportunity for them to also work together on the front end autonomous vehicle data management side where costs I've been told are still pretty significant, with someone mentioning to me that it may be up around $150/day. That would make it one of the most expensive costs for autonomous vehicle’s bill of material (BOM), right up there with battery and electric motor costs.
Another angle on this is that will automakers be required to use a China cloud service for all the vehicles sold in China? I would say likely. How would that data be consolidated, if at all?
The city of Paris has announced that they are planning to ‘tax’ companies that operate ‘free-floating’ mobility services and will likely include, scooters, e-bikes, and motorbikes.
This will be their way of making sure the fleet operators take care of their fleets and should, and I emphasize ‘should,’ help get a lot of the abandoned and broken ones from littering the streets of Paris since they’ll only want to pay for working, revenue-generating scooters and bikes.
From the fleet operator side, this increase in costs pushes potential profitability even farther out because they won't be able to raise prices to compensate since that would push customers to the other numerous competitors operating in Paris. 9 for scooter operators alone. Another compelling argument against scooter companies as a being profitable, stand-alone businesses.
If this tax works, there will be other cities in Europe and the rest of the world that will look at this as a model for additional revenue as well as a regulatory tool to keep the fleet operators in line.
A major cooperation between private and state-owned companies to provide renewable energy car-sharing services was announced recently with 12 companies including Alibaba, Tencent, Changan, First Auto Works (FAW), and Dongfeng all joining Suning, who will be the largest shareholder in this new entity, raising a total of USD $1.45B, to launch the new company.
As if Didi didn’t already have enough challenges, this new entity will join an already crowded field of ridehailing services from other tech and automotive companies. I hope this means a trip back to super cheap rides in Beijing, like when Didi and Uber were battling it out a few years back!
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.