China EVs & More

Episode #56 - The Two Sessions, the Chinese Brands Have 'Made it,' and NIO ET7 Launch Buzz

March 28, 2022 Tu Le & Lei Xing
China EVs & More
Episode #56 - The Two Sessions, the Chinese Brands Have 'Made it,' and NIO ET7 Launch Buzz
Show Notes Transcript

The podcast starts with Lei giving us an overview of the annual, and critically important 两会 or Two Sessions conference that sets the agenda for the year’s governmental priorities. NEVs have been a major priority of the Two Sessions for the last several years for instance and it was no different for this session.

Tu then talks about how the number of new brands being established in China has really pushed a significant increase in the level of competition there and how the Chinese government has begun to take a step back to allow all of these brands across the different market segments push the market forward, drive innovation to make these cars more feature rich, yet affordable. He is doubtful that the few EV startups in the US alongside the legacies who’ve begun to pivot their products to clean energy are enough of a critical mass to quickly get sales to that same tipping point. He is curious and hopeful that as the US govt begins to take a more active role in the sector that there will be a number of startups that enter the market to challenge the established brands. 

The discussion transitions to Lei reflecting on what Stephan Wöllenstein meant when he said that ‘Chinese brands have made it’ during China EVs & More MAX episode interview with him. Lei talks about how desirable Chinese EV products have become with Tu and Lei both agreeing that 500K RMB automobiles built by Chinese companies would likely NOT have been considered by a Chinese consumer just 4-5 years ago but are now redefining premium in China.  

A prime example of what they’re referring to is the interest on Twitter that the NIO ET7 launch received worldwide. This was excitement neither Lei or Tu had seen in some time and it was for a Chinese EV brand. Lei insists that NIO is due because they’ve been out of the news for sometime since this is their first new product since the ET7 was unveiled 14 months ago. 

China EVs & More #56 Transcript

Tu Le:
Hi everyone and welcome to China EVs & More where my co-host Lei Xing and I will go over the week’s most important and interesting news coming out of the China EV, AV and mobility sectors. We will open the room up at around the 40-minute mark to anyone who's keen to ask us any questions. What Lei and I discuss today is based on our opinions and should not be taken as investment advice. If you enjoy this room, please help us get the word out to other enthusiasts and tune in again next week.

My name is Tu Le and I’m the managing director at SinoAuto Insights, a Beijing-based consultancy that helps organizations bring innovative and tech-focused products and services to the transportation and mobility sectors.

I write a free weekly newsletter that we pull many of our discussion topics from. You can sign up for it at signautoinsights.com, which I encourage you all to do. Hey, Lei, can you please introduce yourself?

Lei Xing:
Yeah, hi. This is your co-host Lei Xing, former chief editor of China Auto Review. This is episode #56. And this week, baseball is alive!

Tu Le:
From the dead.

Lei Xing:
Non-EV related information. But here in the U.S., sports is king, right?

Tu Le:
We have other interests, too. So outside of mobility, sure.

Lei Xing:
Really nice, educational tech talk put out today by Lucid’s CEO Peter Rawlinson. I learned a ton on energy, power, efficiency, heat, thermal management. I felt like going back to college class, my major was mechanical engineering. So it was good to seriously, like I felt, like I was back in college. And on the other hand, we've just heard Rivian giving some negative prospects on earnings, production, delivery, on top of that already bad publicity over the price increase last week. Lots of “buzz” on the NIO ET7 and the Li Auto L9, pun intended, as well as NIO’s listed in Hong Kong. So all three Chinese smart EV startups, the top three, are now listed in Hong Kong.

Tu Le:
Or what we’ll call a safety net for them in case the Chinese government wants them to. I don't think the U.S. government is going to be the one, the catalyst that kicks them off of our market. It'll be the Chinese government that pulls them off. That's my prediction. If it happens.

Lei Xing:
Agreed. Gas prices are going through the roof. It's $4.39 here in my neck of woods for a gallon. I think over in China is close to what RMB9 per liter?

Tu Le:
Yes, I just filled up my Hyundai and it was like RMB8.6.

Lei Xing:
Which is technically over, already over $5 a gallon, equivalent, pretty much, I think, if you're doing the math. Wolfsburg, Ingolstadt, Munich, we have a problem, new problem. Wire harnesses and pretty much everywhere else? I just saw a study that said Ukraine exports 7% of wire harnesses for the European region. 

Tu Le:
That's a nasty number.

Lei Xing:
Yeah so much for the chip shortage. So we've seen the CPCA numbers…

Tu Le:
Let me deep dive a little bit on the wiring harness and kind of how suppliers and then we'll continue. But wiring harnesses are actually very complicated, complex parts. They run normally…

Lei Xing:
There’s miles and miles of them.

Tu Le:
They run the length of the vehicle. And there's, if you add all the wires together, it could be close to a mile long, right? So a wiring harness is a bunch of wires taken together effectively, and it ties all of of the systems together. What would normally happen is if a supplier, there's a quality spill, the old school OEMs called them quality spills, the OEMs own all of the tooling normally at the supplier. So the supplier does the work, but the tooling is owned by the OEM, so that if there's a quality spill that can't be resolved, they pull that tooling, give it to another supplier.

And normally, for parts like injection molded parts, it's just the press, you put the new molding on, you put the new molds on and you get going right. But for wiring harnesses, anytime you move a supplier, everything needs to be requalified, retested. And you need to get a proof before you can put that part on a production vehicle. So even if they were to move the supplier out of the Ukraine, it would still be a month's long process in order to qualify and get it shipped from this other supplier. These issues, because we don't know how long the war is going to go on, or invasion, however you want to call it.

Lei Xing:
The wire harnesses. There's only a limited number of suppliers that are specialized in this. Is that correct? 

Tu Le:
That's right. 

Lei Xing:
And that's why the lead times are similar to the chip, and hearing from Rivian today, they had their earnings call and cutting their expected production in half. That gives you a sense of at least what one of these companies is facing in terms of just not being able to produce, due to various supply issues.

Tu Le:
So, Lei, I think it's worth noting that they knew before they try to raise prices that they're going to have to cut production.

Lei Xing:
Right? That's the reason, right?

Tu Le:
So they were trying to make up on some of their revenues, because they knew that they weren't going to ship as many vehicles this year.

Lei Xing:
We've seen the CPCA report of February data and there was something interesting trends, the annual Two Sessions ends today, I believe Chinese Permier Li Keqiang is probably doing his press conference right now, as usual with the end of the event. That's pretty much the headline, oh, the NHTSA, just saw this, announced, this is quite important in the AV space. In terms of regulatory framework that they just updated the rules on the autonomous vehicles no longer needing to have human traditional controls, like pedals to meet the FMVSS requirements. So I think that's huge, but GM and Cruise lobbied for it.

Tu Le:
They pushed for that.

Lei Xing:
Because GM came out with that Bolt without the steering wheel and pedals. So what do you want to talk about first?

Tu Le:
Let's talk about the Two Sessions because, maybe you can give us some historical significance.

Lei Xing:
Do you remember if we talked about this last year? 

Tu Le:
We did a little bit. 

Lei Xing:
I don't remember. I think we did a lot of it, but I’m actually giving a, I just wrote an article, summarizing the key highlights of the motions and proposals for a freelance I’m doing.


 So I’m basically giving a preview. So the backdrop is this year is shaping up to be another pivotal year for China's auto industry. So new energy vehicles on one hand.

Tu Le:
Effectively the current year is the pivotal year, it's always the next year, or the current year it's always

Lei Xing:
Every year is a pivotal year, last year was a pivot year, so is this year, right? But this year considering several factors, industry is expecting at least 5 million NEV sales, CPCA says 5.5 but whatever the numbers, at the end of the year, the subsidies are phased out. So this is the last year there will be subsidies.

Second, the foreign investment…

Tu Le:
I think that due to the uncertainty, that 5.5 million begins to look a little more shaky, right?

Lei Xing:
As we say, cloudy.

Tu Le:
Not saying it won't happen, but they were not counting, just 2 months ago, they weren't looking at the types of challenges that are occurring globally. Number one, and then number two, you and I have been talking the last couple days about the local outbreaks here and the lockdown potential of cities.

Lei Xing:
The latest numbers were over 1,000 today. I think it was 390 something + 700 something. The 700 represent the asymptomatic ones. The 390 cases were domestic or imported cases.

Tu Le:
The irony is I had lunch with a friend. I think it is for sure and Shanghai is taking some extreme measures to try to contain it. But also I wanted to say that the rest of the world has kind of moved on, and China has not when it comes to COVID. So because China is a catalyst in for the most part, the largest trading partner for most countries in the rest of the world, this is always going to be a risk until we can, the Chinese government can move on from COVID Zero strategy.

Lei Xing:
And here, CDC just put out a map saying that 98% of the population live in low levels where masks can be removed indoors. I’m seeing this, and we're at exactly two years removed from the start of the pandemic, which was March 11, 2020. It's been 2 years. And we digress.

Tu Le:
People like us are living in a bizarre world, too, right? Because you're seeing everything posting on WeChat, and you're like, who, it's crazy. And there's this cognitive dissonance because in the same WeChat conversation, you were like they're lifting desk mandates here. It's like you and I live in this bizarre world where we're straddling both sides a little bit.

Lei Xing:
So that's why this year is even more a pivotal year. The other fact I was getting into was the remove of the foreign investment in auto manufacturing. So everything is opened up. We've already seen several companies make moves. And also, OEMs, tech companies and AV startups are actively expanding their AV game, whether it's the LiDARs or putting more Robotaxis into more regions, all while we're confronted with this supply chain, the war, this COVID outbreaks, wire harnesses and all these backdrops against the Two Sessions, which is the annual sessions of China's top legislature, which is the National People's Congress and the political advisory body, which is the Chinese People's Political Consultative Conference, or NPC and CPPCC. Every year, this is an event that aims to chart the course for economic and social development in the new year and beyond, mostly in the new year, that's why you see Premier Li giving…

Tu Le:
They take a little bit of time to reflect.

Lei Xing:
Yes, and reflect on the past year, obviously, and the government work report obviously, is where the GDP target is announced, at 5.5% right?

Tu Le:
Which is low historically.

Lei Xing:
Which is low, and China's auto industry plays a key role in the economic and social development, due to its massive scale. 

Tu Le:
It's a huge employer.

Lei Xing:
 Direct and indirect jobs, yes, along the supply chain, and it's also a pillar industry, one of the pillar industries. That's why you see this year, it was actually much simpler than past years in the government work report. In the area of consumption, there was a line that basically said “continue to support consumption of NEVs.” Nothing else that was said, but we know the subsidies are ending. This is the chance for many chairmen and CEOs of major Chinese automakers who are also NPC or CPPCC deputies to lobby policy support.

Tu Le:
I like that word: lobby, policy support, on various aspects of the industry through the motions and proposals. And there's actually a difference: for the NPC deputies, it will be the motions, and for the CPPCC deputies, it's the proposals. We're not going to get into details of the difference, but anyways, this year I looked it up and it's actually pretty much the same people, every year, the same auto execs. But this year, I think the three areas that were focused on, these proposals and motions, were: No. 1, chips, No.2, batteries & charging infrastructure and No. 3 AVs. So you had, I think, quite, for example, a lot of the chatter on chips is basically, it's very fluffy, really just ways to resolve the chip shortage whether through domestic, there's something you can do domestically, or there was one suggestion of localizing manufacturing of these international chip players. And I was like, no, it's not that easy. I don't remember who suggested this, but you see all of these motions and proposals, half of them are really to the benefit of these companies.

Tu Le:
They're all self-interested, right? 

Lei Xing:
 For example, I don't know it's been like 5 or 6 years consecutive that Geely Chairman Li Shufu has suggested policy support on methanol vehicles, because Geely is one of the largest manufacturers of methanol vehicles for taxis and fleets. But he did remember I tweeted this out, that he wanted the standardization for battery swapping across OEMs, across models, and across battery packs. So basically, everybody can now swap batteries.

Tu Le:
But the Chinese government doesn't want to get involved with that, they want the market to determine that. Right?

Lei Xing:
You see these type of suggestions and a lot of them clearly is to this self-interest of these respective auto companies. Others, a little bit less are more for industry wellbeing, right? So a lot on the chips. Then in the battery, the chatter is pretty much on supply and safety. A lot of it is involved kind of a national level safety framework. Even Xiaomi’s Lei Jun, he's an NPC deputy, and he suggested on the acceleration of high power, fast charging infrastructure, okay. But then there's quite a few that asked to come up with proper mechanism for carbon footprint and trading. China does have a carbon trading system, but it doesn't include new energy vehicles. So there were some suggestions on this part of it.

Tu Le:
Really quickly, there was also a suggestion as to putting a floor on that, the credits that they're buying and selling, the EV companies to the legacy companies, right?

Lei Xing:
Right. The credits, the prices for the credits, I think they've been falling. And I think I’ve heard a suggestion is somehow to get those prices back up, I think it was like RMB2,000, now it’s under RMB1,000.

Tu Le:
They basically said they need to have a floor on them, right? They need to, because the EV startups are using them like Tesla has historically as a revenue generator, a significant revenue generator. And if the pricing goes down, then their balance sheet doesn't look as good or their revenues don't look as good. And the credit system that China uses is mimicked after the California system that was put in place, I want to say, 15 or so years ago.

Lei Xing:
So on AVs, Robin Li, CEO of Baidu, he's suggested China, there's a Road Safety Law in place and basically a lot of information in there is a little bit behind in terms of AVs. Then there's suggestions such as establishing kind of the legality of autonomous driving systems, and a responsibility mechanism. This is kind of similar to what NHTSA announced today. So that's a step ahead. So these CEOs they're trying to, in terms of regulatory framework for AVs, they think that it's still behind than current development and commercialization side of it, quite a few on that area.

Tu Le:
Let me make a couple comments because you talked about a lot of stuff. First of all, let me talk about the chips, the trend for chip manufacturing and the R&D of chips is actually going in the opposite direction. So the Chinese government has seen what the West has done as a block of countries to Russia, and so the Chinese government is very, very quick to really try to push innovation on the domestic side of chip.

Lei Xing:
This is part of the economic decoupling that Stephan Wollenstein talked about a bit in the MAX episode. We should mention that a little bit later on, that's why you see this kind of the trend moving towards domestic company-led ecosystem, right?

Tu Le:
The fact of the matter is currently the market is dominated by three American chip designers. You could say, American Israeli in one case, because of Mobileye.

Lei Xing:
Right, BMW just teamed up with Qualcomm today on the AV software.

Tu Le:
So the Chinese government, the rhetoric on chips, is not going to be combative or confrontational for some time because of the requirement to the availability of that technology and those chips. And so it's that, this is where you and I know this Lei, but this is where, in particular, on the mobility side, on the chip side, on the battery side, policy folks in the U.S., the European governments, and American government people, they need to pay attention because they, and during these Two Sessions 12 or 14 years ago, they started bringing up EVs, they started bringing up batteries. And so the fact of the matter is they don't have every 4 years, a new President or potentially a new President over 4-8 years. And so they can just chip away at this and that wallet that they have gets larger and larger and larger.

Now, during this Two Sessions, they also acknowledged that real estate pricing is kind of going down and a lot of Chinese folks, wealth is tied to real estate. And so what they're trying to do is move to domestic consumption, but also they still need foreign direct investment, which is getting harder, because number one China is getting more expensive, and then number two, a lot of the relationships that they have with some of these countries is getting a bit more adversarial. This is where like diplomacy and 3D chess is being played from the standpoint of where we want to go and how we use our partners to get there or help from our partners to get there.

Lei Xing:
Yeah, it's just so interesting to see the stance on Russia, and Ukraine. I it is so much different. We don't have to get into it, but that shows you what you just said by the kind of the different…

Tu Le:
And we can talk about this strictly from a competition thing, right Lei, from an EV standpoint, there are so many Chinese EV brands that there are going to be dozens that leak out not to the U.S., in particular, but just leak out globally and try to sell, okay? And so that 27.5% tariff is not going to deter Chinese EV companies from entering the U.S., from entering any other country. These tariffs are not going to deter them. And so American Dream kind of idealist, right? Unless more brands outside of the legacy automakers in the U.S. and Rivian and Lucid. And I think that's about it, right? Canoo maybe. But there's only three brands that I can think of off the top of my head that are competing against the legacy automakers. There are dozens of brands here that are competing against the foreign brands and the SOEs.

Lei Xing:
And there's SOEs coming up with brands that compete with themselves. Right?

Tu Le:
And I don't know, maybe I’m mistaken to think that a handful, 10 or 12 brands, including the reconstituted legacy automakers, are enough to bring the competition level to significantly enough where innovation is pushed, market driven wise. But I just think there currently aren't enough brands to really get us to that critical mass of interest across the board. But I could be wrong. I hope that there's still going to be a few dozen EV brands that launch in the next 48 months that are able to really take advantage of the cost reductions in the sector, the innovation. Because like in China, these EV startups now are partnering. They're not investing all this money themselves, they are using partners to piggy back off technology so they don't have to develop it themselves.

Lei Xing:
Yeah, and maybe this is a good segway to move into the NIO ET7 and the Li Auto L9, and then all the bruhaha, I’m not going into the specs or the details. But one thing that I’ve just realized is really amazing is, going back to Stephan Wollenstein’s comment that “China has finally made it,” it made me think what he meant by that. And looking at the ET7 and the L9, I realized that it's in the sense that these are models selling for half a million RMB. This is unheard of, if we were to talk about this only maybe 3-4 years ago. Just think about that, the Chinese brands selling for half a million RMB and people are, it's crazy!

Tu Le:
Lei, in 2019, NIO was on the verge of bankruptcy. Now, they’ve launched the coolest car, arguably, the coolest car in the world, right?

Lei Xing:
This is the craziest thing that the biggest change that I think for me personally who’s seen the industry over the last 20 years that these Chinese brands would redefine premium, would beat these traditional legacy premium brands and people want these products. What Li Auto put out with the L9 with all that set up? And the ET7, right? Seeing some of these media interviews of these customers who, many of which they've waited more than a year, 14 months? Remember NIO 2020 was held in January of 2021. That's when they unveiled the ET7. It's been 14 months and change. And many of these customers are, they were already NIO owners and they ordered the ET7 on the spot that day, the NIO Day. So it's been 14 months. And now this is the interest and the fanfare after 14 months, still, right? What's going to happen when the ET5 comes? So this is what I’ve been thinking the last few days rather than all the features and the whatever. But what are your thoughts?

Tu Le:
A few different things. Friend of China EVs & More and SinoAuto Insights, John McElroy, he has like a 10 or 12 minute news thing on Youtube. And someone sent me a link to yesterday's little news brief. And he showed that he's reading my newsletter, which is great, because he quoted right out of it. And he talked about NIO and in my newsletter I had written that there's a new sheriff in town, at least in China, it's not coming from the company whose CEO also builds rockets. China EV twitter blew up. Because of this ET7, everybody was kind of tripping over themselves so. The first to post videos. I haven't seen something like that in a long long time, I’m talking a few years, right? I think, because the Tesla stans, they do a lot, but these aren't NIO stans per se, these are just EV enthusiasts. Okay.

Lei Xing:
The other reason was, I tweeted is the fact that NIO is due, it is due, because the type of chatter on, they're falling behind and in terms of deliveries, right? So they got to hit a home run with this product. So March, there's not going to be any significant volumes because delivery starts on the 28th, so April and May so into the second quarter, they have to keep up with production, with all the supply chain issues.

Tu Le:
And they're going to be very slow to ramp on this, I think.

Lei Xing:
Yeah, so that they are due. To tell you the truth that the three models, it's, I don't know, a bit lackadaisical to me, a bit. I’m being harsh maybe, I’ve never been harsh, right?

Tu Le:
This is a surprise. I'm normally the one that's harsh.

Lei Xing:
I’m always..I’m usually more moderate, but I think they are due because I think they're under a lot of pressure to deliver, to tell you the truth. It's good to get this fanfare and a lot of expectations, hence the pressure, right? And then Li Auto comes out with L9 and then, the whole narrative changed.

Tu Le:
To try to steal the thunder, right?

Lei Xing:
Yeah, and Li Auto is smart, they're going to do this every, once per week until the auto show. Right? I posted that they said, we'll see you next Wednesday when we unveil more features. So this is the type of competition, social media wise.

Tu Le:
I think it should be noted that, the ET7 seems to be a driver's car. So the cockpit is really geared towards the driver. The L9 is the family car, so they don't have a screen, but they have a HUD or head up display, okay. That thing is pretty big, normally a head up display has like the speed limit, and the blinker, right? 

Lei Xing:
It's the same size. It's almost the same size across as the steering wheel. That's how big it is.

Tu Le:
So practically speaking, how that works, especially with the big, not covered, but the glass roof, there are five screens in this L9, how that manages the glare is going to be pretty interesting.

Lei Xing:
That was a big topic talked about in several of my WeChat groups of the glare.

Tu Le:
Because that's the traditional car maker guy, my traditional car maker hat, if you get into a car that's designed super well, and with a really steep slope on the front, the windshield is going to have a pretty steep slope. And then you get reflection from the windshield and the dash. And then it makes it very difficult to see sometimes. And so it might look nice, but practically speaking, does it work? And so those are the kind of things you kind of think about and look for, at least having spent a number of years working directly with automotive engineers. So whether it looks nice, it's like, hm…

Lei Xing:
Being the customer friendly CEO that he is, I'm sure Li Xiang has figured this out. Remember the last episode when we talked about their earnings call that he said, you got to meet superficial needs, hidden needs and the needs that the customers they don't even know they needed. Yeah. He's best at doing this type of stuff. So I’m sure there's a reason that the way the L9 was set up, the way it is with a drop down, right? There's a drop-down screen. Yeah, for the rear passengers.

Tu Le:
But there is a few hundred people, a few hundred cars driving around, once you get into 10,000 hands, 12,000 hands, they'll figure out a way that never been tested to see something wrong or do something wrong. That's just the nature of having more product in the market. There's always going to be other engineering challenges, right?

Lei Xing:
Going back to the Wollenstein interview, this is the exact thing that he pointed out is the Chinese EV companies, especially startups are winning, because they're able to launch these kind of very progressive, out of this world features that the Chinese customers, actually they fall for or that they love. Whereas the Volkswagen brand is a brand about balance, a brand that try to have a bit of everything, but not the crazy features.

Tu Le:
He's described it and marketed it in the nicest way he can. But the fact, I’ll translate that: when you're selling 10,000 cars a year, you can have more edgy design, you can have more progressive software and UX but when you need to sell 250,000 or 300,000 units of one product, then the cross section, the market, you need to appeal to a broader market. And so that's the conundrum that these large legacy automakers, when they design a car, it's not that they don't want to design something edgy, something more progressive. It's that at least in the market research that they do and the focus groups, it might not get them to that 200,000th customer, it might only get them to the 50,000th customer.

Lei Xing:
And look at the issue that the EQC is having, it's tarnishing that brand. It couldn't compete in the first place. Now, I’m being much more critical than I usually am, and now they're facing this customer backlash over some, I forgot what the issue is, but like..

Tu Le:
I’m going to give you some credit Lei because I know you're thinking about these things, but you just don't communicate them openly, because you have to be thinking about them. Because this is what the car companies are thinking about. And to give people some context, Lei and I dropped our latest episode, our latest MAX episode this week with an exclusive interview with Stephan Wollenstein, the current CEO of Volkswagen Group China. It's about a 45-minute discussion that Lei and he, I was not able to join the interview, unfortunately, but Lei did a fantastic job of asking really tough questions, to Dr. Wollenstein’s credit, he did not try to avoid them. He answered them very frankly, because I think he acknowledged that there are challenges, but he's very optimistic and hopeful that Ralph Brandstatter who's coming in August to be the new Group China CEO is going to be able to build on some of Stephan’s small victories over the last 18 months.

Lei Xing:
Yeah, so basically Volkswagen Anhui is going to be the Chinese smart EV startup of Volkswagen. That's what they're setting that entity to be. I think there's no new ID. models this year, because they already launched all five last year. So this year it's just the expansion.

Tu Le:
And I want to emphasize the retail footprint and more sales of the current crop of ID. series, but I want to emphasize and you tell me if I’m wrong, I’m not saying the features that are attracted to Chinese consumers who tend to be 20 years younger than their counterparts in Europe and the U.S. for the same product will resonate in Europe, in the U.S. Maybe the ID. series is simple enough in Europe, in the U.S. to where it's perfect for a non-high technology or technology embracing consumer. I think that could be the case. I still think the ET7 because I’ve spoken with some Germans here, and they begrudgingly really think it's nice. So that tells me effusively they think it's nice because Germans aren't going to be, and I’m stereotyping, but they tend not to be as enthusiastic about things as Americans.

Lei Xing:
I mean from the reviews and the chatter so far, it's been mostly positive.

Tu Le:
It's worth noting that the ET7, it's a $75,000 sedan. So it's not going to be selling 200,000 units this year in China. That's just not how large that market is, but it will compete. Yeah, it's going to dominate that premium segment because as the Chinese consumer is probably looking at a 5 Series, an E-Class, maybe an A6, Lei, like generally speaking, I'm broadly looking at the market because they're not looking at this as an EV, they're looking at this as a premium sedan full stop. And so, this ET7, if the promise is, if the promises fulfilled from a manufacturing quality, reliability standpoint, it'll win more battles against those, the 5 Series, the A6, the E-Class. It'll win more battles than it loses.

Lei Xing:
Fingers crossed that it does well.

Tu Le:
I think German legacy inc. should be kind of worried, because it's going to enter Europe later this year, or next year?

Lei Xing:
This year, Germany, second half. We have Xpeng P5 already moving over to what, Denmark, Netherlands, Sweden, and norway, right?

Tu Le:
Yeah. So all three of them made huge announcements this week, but it seems that NIO ET7 announcement kind of trump the other two on how much social media picked it up.

Lei Xing:
I know we had the ID. BUZZ yesterday, which actually got a lot of attention in China as well. So, but it's not going over to China, any time soon, if at all.

Tu Le:
It's not going to the U.S. until 2024, right?

Lei Xing:
Right. That's right.

Tu Le:
And it looks nice.

Lei Xing:
But I liked it. 

Tu Le:
It looks nice, but it's really pulling on nostalgia.

Lei Xing:
It is. You have to, otherwise…

Tu Le:
How sustainable is that? From a feature standpoint, there's a lot of those MPVs here that are super nice. So, yeah, if it doesn't come to China, I don't think it's a huge loss for the China market. And we talk about the P5 entering the Netherlands, Denmark, Sweden, and what's the 4th market, Finland, right? 

Lei Xing:
Norway, where they already are.

Tu Le:
Last year, there were 500,000 EVs exported from China. You and I had kind of brought this up before the call. So and 100,000 of those..

Lei Xing:
A third were Tesla or something.

Tu Le:
100,000 of those were Teslas to Europe. I think total 130, I think it was 130 total. And maybe 15,000 or 20,000 went to Japan, Australia, Singapore. So there's several other countries that they exported, too, UK but so Tesla was 130,000 or 150,000 units. SAIC another huge exporter. So I think that's worth noting. And SAIC is the No. 1 EV brand in Thailand. They have 50% share or something like that.

Lei Xing:
So speaking of Tesla, it's good to talk a little bit about the February sales. So I think with the last week, the Giga Berlin getting the final environmental approval, my take is Shanghai will still be at full capacity for most of this year because Berlin is not going to ramp to the levels of Fremont and Shanghai this year, I don't think so. 

Tu Le:
There's no way.

Lei Xing:
Shanghai will still be significant running at full capacity, right? There are new rumors about expanding in Shanghai as well as to other cities, but this year will be significant, February, if we look at the CPCA numbers, which I said at the beginning of the show was interesting is Tesla did over 50,000 again, 30,000 exported, 20,000 domestically, but in the rankings, interestingly, I think in the Top 10 model rankings BYD, I believe the Model Y dropped out of the Top 3, because BYD was taking over. I think BYD has like five models in the Top 10 now in the NEV model listing. And also the other thing that stood out for me was the Chinese brands retail penetration of EV sales was over 40%, NEVs, obviously a lot of that driven by BYD but still that's mind boggling. I think it was 41.9% for February, and the foreign mass brands only at 3.5%. Most of that were Volkswagen basically, not counting Tesla.

Tu Le:
To give a bit more context Lei, the Qin, the BYD Qin, the Song, the Dolphin, are all less than RMB200,000 or less than $30,000. So they should be driving volume. But we're seeing them dominate the other SOE EV mass market brands effectively.

Lei Xing:
They're launching the Destroyer 05, next week, in a week, March 17, and bunch of other sea animals.

Tu Le:
BYD I would have to say BYD is running on seven of its eight cylinders, whether they can get fire up that 8th cylinder by giving supply to Ford and the Mach-E, we'll see. 

Lei Xing:
And NIO, possibly? 

Tu Le:
Exactly with that picture.

Lei Xing:
Photo of Wang Chuanfu  (with William Li).

Tu Le:
So we should talk about this, GM is creating an import division for vehicles that are harder or not on sale currently in the China market. So think Hummer, Tahoe, think Corvette, because most of the vehicles they currently sell are all joint venture vehicles here, right? So I think that's important. So I’ll give you an example right now. Volkswagen has three groups, they have Volkswagen, or four groups now: SAIC Volkswagen, FAW-Volkswagen, JAC and then import. 20 years ago, Volkswagen import was a huge part of their business. It's become not so much. It sounds like GM is trying to create buzz on some of their more notable and halo vehicles. Because you don't see any Corvettes here, right? I’ve seen one, I think, here, but GM is really trying to redefine itself. And I believe the SAIC partnership that they have, it seems a bit stodgy. They're trying to work with it on the retail side for Cadillac. I think they're also really trying to separate it from the us operations a bit.

Lei Xing:
I think GM is taking a page out of the Stellantis playbook, where if you remember in the long-term strategy for China, there's four pillars. One of the pillars was the import business for Jeep and Maserati. And Carlos was very frank, and he said we don't have to produce everything locally, if it's profitable. And I think GM is thinking of the same thing. These days it is about localization, but it is also about being flexible, right? And where if you can sell, if you can make money, hey, do it, you don't have to make everything in China. I think that might be the thinking there.

Tu Le:
Yeah. And I think Lei, what we're finding also is probably the management teams are really trying to press reset and look at their process policies, look at their business workflows to inject some flexibility and quick reaction. Because then if they've learned anything, it's in the last 18-24 months. It's that if we are caught flat footed on any of these surprises, we lose out very quickly, right?

That brings us to the end of this week show. Lei and I thank you for tuning in. My name is Tu Le. And you can find me on Twitter @sinoautoinsight. That's sinoautoinsight. You can find Lei on Twitter at @lexing77., that’s leixing77. If you wouldn't mind rating and or reviewing us on Apple podcast, Spotify or wherever you grab your podcast from, we'd appreciate that as well. Even better if you enjoy the show, please tell your friends about it.

Please join us again next week as we track down all the latest news on China EVs & More.