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XPeng & Tesla Cashing In, Japan Bans Petrol Cars, Cruise Eschews Safety Driver - SAI Newsletter 47



Another major economy announces a ban on petrol and diesel-fueled vehicles. This time it’s Japan a NOT insignificant country since it’s one of the larger countries in terms of annual vehicle sales (>4M units) and represents one of the major global automotive hubs. Add that now to the UK and California as the other ‘larger’ economies that have drawn a line in the sand for the elimination of ICEs. As tough as these targets seem, what the automakers ultimately need are these types of mandates. There will be more by more countries, it’s just that many of them right now are dealing with a much more pressing issue. That gives them certainty. Organizations can plan based on certainty whether the mandate is what they wanted or not. Will some of the OEMs need to be dragged, kicking and screaming into the future – OF COURSE. Some of that is just posturing though since all interested parties be it automakers, suppliers, unions, partners, dealers, or disruptors knew that it was coming and knew it for quite some time. Tesla dictated it. China embraced it. COVID-19 accelerated it. You better believe there is horse-trading going on behind the scenes between the OEMs, suppliers, unions, special interests, all trying to figure out how to massage the message that the automotive sector will not at all resemble anything like it is now within the next 15 years. Brands will be different, products will be different, services will be different, how organizations make an impact, and most importantly generate revenue is all going to change. Most companies will be smaller. Much smaller. They will all need to be. They will also have to let go of some of their control. What they actually don’t want more than anything is to have less of an impact on the market. And that’s where going ‘fast and breaking things’ works much better when the need to reinvent yourself arises. Unfortunately, that’s not possible with most of the OEMs. Now, a charismatic CEO that is able to convince ALL interested parties that they can take this journey ‘together’ share in some of the pain as well as eventually the spoils will have a distinct advantage vs. their counterparts. But will that be Jim Farley? Mary Barra? Diess? Toyoda? All or none of the above? Yeah, I am not sure either. Within chaos lies opportunity – Sun Tzu That’s how all the scrappy startups that have some ambition, ingenuity, and an appetite for hard work should be thinking when trying to break into the new ‘mobility’ sector. The scramble for these companies to reorg will leave many opportunities that the smaller, hungrier, and more nimble organizations should be able to take advantage of. That’s a lot of what we do here. Help those scrappy companies find that angle. And it’s a lot of fun. And very its challenging. Odds aren’t on our side. But that’s changing.  Assuming there are no other pandemics and that global economies are beginning to recover, my prediction is that towards the middle of ’21 it’ll be readily apparent who has and has NOT been able to convince their teams and partners to join them on the ‘journey.’ Those that have not will be scrambling. I can’t tell you what it’ll look like but you’ll know once you see it. TESLA IN THE NEWS - Tesla this week rose above a $600B market cap. The numbers for these EV/AV associated companies (including battery manufacturers) is mind-boggling but even with all its warts, Tesla may be the only valuation that seems justifiable …a little but justifiable. That means by market cap, there are only 7 other companies in the world more valuable and that would be: Apple, MS, Amazon, Alphabet, Alibaba, Facebook, and Tencent. This market cap is also 4X Ford, GM, and Fiat Chrysler – COMBINED. - Chanos just can NOT check his ego and acknowledge that he was wrong on Tesla. Chanos is the Street’s most famous, though not ONLY short-seller of Tesla. As the saying goes ‘A broken clock is right 2x’s/day.’ If he keeps shorting, he’ll eventually be right but that will continue to be an expensive bet for him until that happens. All those institutionals short Tesla this year have collectively lost ~$35B and counting – OUCH. Not that his analysis is wrong on Tesla according to financial fundamentals. But these fundamentals need to be updated to measure the new ‘economies’ happening around the world. First and foremost, they place a heavyweight on western economies when it’s the Asia economies that have been and will continue to grow the most over the next 30 years. When people point out that Tesla is only profitable because of the credit payments they receive from other automakers and not from selling cars, I push back with – AND? That’s a feature of the system NOT a bug. Let’s not debate what SHOULD BE and analyze what IS. Here is what ‘IS,’ Tesla is the leading EV carmaker in the world. They will have manufacturing capabilities for cars AND batteries in all three major regions within 3 years. They are vertically integrated and do most of the significant R&D & engineering in-house. Each new vehicle they sell is a data mine that, when analyzed together, will point to new, value-added services sold to those same buyers. Each one of their cars has OTA capabilities. They are the envy of the automotive world, be it Detroit, Germany, or China. For instance, they have the VW Group CEO, a company that sells >20X’s the number of vehicles each year, telling the world that they need to ‘catch up’ to Tesla. These ‘virtues’ I’ve just mentioned could and will likely become an albatross for Tesla once there’s real competition for customers but for now, folks should just ride that wave. - “If somebody said, ‘hey, we think it would be a good idea to merge with Tesla,’ we’d certainly have that conversation. – Another provocative statement from Elon that gets social media and auto journo’s abuzz. He doesn’t mean it. I’d think he’d meet with any of the OEM CEO’s but right now, I am certain he believes none of them bring to the table anything that would make him seriously consider merging with one of the traditionals. Two basic things that the OEMs deal with that Elon doesn’t want any part of: unions and dealerships. Nonetheless, an article that plays this out a bit. This isn’t happening folks. - I think it’s cute but definitely a bit weird the obsession that Herbert Diess has with Elon and Tesla. I may have mentioned this before but to covet a competitor so openly must be a bit disheartening and even maddening to some VW employees. Let me assure you that Steve Jobs would NEVER have said Apple needed to ‘catch up’ to ANYONE, either behind closed doors let alone in any public setting. That stuff seeps into the mindset of managers and culture of the organization. True innovation doesn’t happen when you’re catching up to a competitor and Steve knew that. Also, Steve ALWAYS thought his products were superior, even when they weren’t. ‘Mission T’ is what VW is calling their reorg, let's just call it what it is, in order to catch Tesla. “That effort began in April, CEO Herbert Diess said in a blog post, and brought together 31 senior executives from three of the storied German automaker's brands.” Let me unpack a few things here. First, and this is important - I appreciate the ambition AND the commitment Diess is making to this reorg by throwing it out into the public sphere. But, let’s get basic software (and the bugs that go along with development) right before we make these bold proclamations. Next – 31 people??? I am pretty certain the ‘A-team’ doesn’t need to consist of that many ‘asskickers.’ How ‘diverse’ is this team? How many outsiders are there? Not very & none are the likely answers to those questions. The recent & well-documented in-fighting means that Diess IS trying to make bold changes but if his contract is over in 2023 he may NOT be around to see the outcomes that his bold changes led to. - Tesla to raise $5B in capital through a stock offering. This raise seems light, with a >$600B market cap, it’s <1% of their value. I’d have gone for more unless they’re still bullish on their share price continuing to climb. - Mark it down. My prediction is that the MIC Model Y will sell at almost a 2:1 clip vs. the Model 3. If external factors cooperate (read: COVID-19 recovery continues) and the EV sector remains healthy in China, we could see Tesla doubling its monthly sales here. IN THE NEWS - The drumbeat for banning private vehicles around schools during school hours will keep getting louder and when it hits Asia, we will know it’s here to stay. I am biased since I have two small children that I walk to & from school each day. I exaggerate a bit since my wife actually walks the boys to school most mornings before she heads off to work herself. I’d LOVE if ‘School Streets’ caught on in China, where obeying traffic laws is optional or at least feels that way. When dropping them off or picking them up, it’s literally a free-for-all that often leads to traffic jams as cars park literally where ever they can. Vehicle traffic around schools during the school year is really awful and definitely one of the most frustrating parts of living in Beijing. That is until my boys enrolled at a grade school that is within walking distance of our apartment. Now walking them to or from school is always one of the highlights of my day. My wife and I actually BOTH pick them up if we’re able to since it’s one of the few times that we can openly chat with them without any electronic device taking up half of their or our attention. The school day is fresh in their minds so they’re also most likely to share with us everything that happened, both good and bad, during their day. And frankly, I know we are lucky since, for whatever reason, this is NOT something that most parents get to do. - Lexus & Toyota are finally dipping their toes in the EV waters. This is THE official acknowledgment that the market has fully pivoted towards EVs (along with Japan’s announcement of banning ICEs by 2035 as seen below). Japan OEMs have been leaders in hybrid technology and they thought hybrids would be a decent bridge to full-electric, but the market is moving much faster than they originally anticipated so that means that behind closed doors, the Japanese automakers are shuffling their product plans to pull in those products. This is likely two of the vehicles they were able to pull development in for. - The rumors of a MEGA merger are getting louder and more frequent. A Grab + Gojek mashup in Southeast Asia would create a HUGE monster & major global player in the transportation ‘platform’ sector. It would also consequently frankenstein together a very formidable competitor for Didi and Uber as they all continue to vie for global domination. There are all kinds of potential anti-trust issues with this merger though so it is definitely NOT a done deal. This includes pricing competitiveness, payment services as both are aligned with different banks, investors of both who are normally on opposite sides of investments and investors that would now likely also become competitors. I wonder what Ola thinks about this?? If this goes through, it’ll be one of the most interesting transactions of the first half of ’21 so you better believe I am going to keep track of the latest and take you along for the ride! - Quantumscape, which is developing the next-generation solid-state battery just had its own Battery day. They’re also the Silicon Valley startup that SPAC’d its way to the public markets and have reached a $19B valuation even though they’re not expecting to book any significant revenue until 2027. Oh yeah, and VW Group has about $300M invested in them. Lots of expectations with very little detail until now. Let’s be clear here. Quantumscape is working on the ‘holy grail’ of battery tech. If they crack the code, that $19B is going to be a small fraction of their value. Watch their showcase TRENDING ON SOCIAL MEDIA - Japan’s economy ministry is targeting 100% electrification by 2035. That’s ~5.2M vehicles if we’re going by 2019 sales. This comes on the heels of the UK banning petrol and diesels by 2030 and California banning petrol by 2035 as well. - The last Pontiac Fiero ever built was auctioned off for a seemingly expensive $90K, which was about a mile from where I grew up. It happened to be built about a mile from where I grew up at the Pontiac Assembly plant. The plant was closed in 2009 as part of GM’s bankruptcy restructuring. As for the Fiero, it’s a collectible with only 582 miles - In case you were wondering why someone would pay that amount for it. It even still has all the plastic on the steering wheel and seats like it just came from the factory! JUST THE NUMBERS - $10B, the estimated value of Pittsburgh/Silicon Valley-based Aurora Innovation after announcing that they acquired Uber’s Advanced Technology Group (ATG) from Uber. This should leap them ahead of most competition in the space globally and move them much closer to who everyone is shooting for Waymo. It’s a reunion of sorts for many of the mgmt. teams for both since each has strong ties to Carnegie Mellon’s Robotics Lab. A pretty expensive reunion if you asked me. - $8 trillion dollars. With a T. That was an estimate given by Cruise Automation back in Feb with the breakdown as Ridehailing - $5T, Freight - $2T, Data insights - $500B, In-vehicle experiences - $500B. GM’s Cruise Automation joins Waymo, Zoox, AutoX, and Nuro as having received permission from the California Department of Motor Vehicles to run fully unmanned vehicle tests in the state. What’s unique about Cruise is that instead of picking somewhere in South Bay where both the weather and traffic is a bit tamer, they’ll launch pilots in SF proper. From the article – ‘The complexity of the task ahead is not lost on Ammann. “San Francisco is one of the most demanding and challenging driving environments,” he said.’ I’ll have to push back on that one since I drove those streets, in a 5-speed manual BTW, for the better part of 7 years. SF is challenging because of the hills & one ways for sure but it’s NOTHING like driving in China. We are talking whiffle ball vs. the MLB. - 40,000,000 additional ADSs (American Depositary Shares). That’s how many shares XPeng intends to offer in the near future. That would give them ~$2B in additional capital based on today’s share price. This is called getting when the getting is good and acknowledgment that even THEY know their share price is likely overvalued. - Swedish e-scooter sharing startup Voi raises $160M in funding to expand further into the EU. This fundraise is a combo of debt and equity. These guys have been taking notes from Bird & Lime’s challenges and will be much more deliberate with their expansion plans as well as developing a more ‘bulletproof’ e-scooter. - Hozon Auto, yet another China EV startup was able to raise $306M from Huading Capital to close their C round with an impressive $459M total raised. Hozon is a 6yr old company so it’s been around and I have been told their products, which will initially be an SUV, will compete at the lower end of the market where the likes of WM Motor and XPeng play. - Malaysian used car platform Carsome has raised $25M in Series D funding. Like the rest of the world, COVID has stricken Malaysia increasing the popularity of 2nd hand vehicles as opposed to ride-hailing services. Carsome said it plans to IPO in a western exchange sometime in 2022. PRODUCT & SERVICE INTRODUCTIONS - The Volcon Grunt – A knobby wheeled off-roading electric backcountry motorcycle. As with most electric vehicles, range was an issue, I say was because the Grunt can get you ~100 miles on a single charge. Looks like it’d be a pretty fun ride to throw around the ranch. At ~$6K, it’ll cost you for some non-petrol offroading fun! —— 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

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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