China EVs & More

Episode #58 - Li One on loan, Long Talk about NIO, Merc's Tech Day

April 01, 2022 Tu Le & Lei Xing
China EVs & More
Episode #58 - Li One on loan, Long Talk about NIO, Merc's Tech Day
Show Notes Transcript

The episode starts with a discussion about Li Auto loaning a Li One out to Tu for a week in order to get his feedback on the SUV. The conversation moves on to NIO being one of the last EV makers to raise prices and Tu points out why NIO may have a bit more flexibility than their competitors that are building their own vehicles. 

Still talking about NIO Tu & Lei go over NIO’s earnings and evolves into a longer discussion about NIO’s current situation, their strategy, and where their announced investments, including increasing the R&D staff to 9K people could lead them in the future. 

Lei then talks about his experience with the Mercedes Tech Day that he attended in LA and gets into a broader discussion about how its new EQS will be one of the first vehicles to offer Level 3 (L3) autonomous and what conditions need to be met in order to activate that function. Tu and Lei get into a detailed discussion about what needed to happen for the L3 feature to be used on the roads in Europe and what would likely happen before the end of the year when the feature will be launched in the US. 

Tu closes out the podcast by moving the discussion to BYD’s just-announced partnership with Shell. Lei pulls out the discussion to a broader look at how these traditional petrol companies are now rebranding and reinventing themselves to maintain relevance during the cleantech push. 

CEM #58 032422

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 sinoautoinsights.com, which I encourage you all to do. Hey, Lei, can you please introduce yourself? 

Lei Xing:
 Hi Tu, and good morning from my side. This is your co-host Lei Xing, former chief editor of China Auto Review. This is Episode #58. So the biggest news of this week is probably Auto China 2022 getting delayed until June. Still no official word yet, but the word on the street is the announcement is imminent, right?

Tu Le:
And there's no guarantee that its is June.

Lei Xing:
Let's hope it is. I hear that at least in Beijing and the surrounding areas, there was some announcement from the officials that it's being stabilized for now. But the numbers across the country are still flaring up, right?

Tu Le:
So Jilin has 90% of all cases, I guess, all new cases. Jilin Province.

Lei Xing:
Yeah and I guess Shanghai and Shenzhen are somewhat returning to, not normal, but…

Tu Le:
Yeah, they're getting out of lockdown, but there's been some stops and starts. A friend of mine who lives in Gubei. I think I told you this, he was in lockdown for 3 days, got out of lockdown for a day, but going back into it. 

Lei Xing:
So anyways, back to some the headlines. We're going to get into the NIO earnings in a bit. But the other big news was obviously Giga Berlin starting production and delivery of first Model Ys.

Tu Le:
And that's a huge accomplishment. He's on multiple continents, and hundreds of thousands of cars are going to come out of three regions for him now, right?

Lei Xing:
Yeah, and in what, less than two weeks or in two weeks, Giga Texas goes online, right? So boom, two new plants. And then quite a few battery news this past week with Volkswagen announcing their third Giga in Spain, then that joint venture between Mercedes, Stellantis and Total, right? ACC that's 120 GWh. News here in the U.S.: Volkswagen’s $7.5 billion investment over the next 5 years. And then Cadillac getting that job one of the LYRIQ in Tennessee, right?

Tu Le:
This is despite all of the hustle that they've probably had to deal with, to be able to get to job one is quite an accomplishment, I think, right? Because Spring Hill is a brand new factory for them effectively, right?

Lei Xing:
Yeah, building other Cadillacs. So anyway, if we have time, we can talk a little bit about the new Hydrogen Development Plan, which announced some major targets. And then all the chatter has been about price raises of EVs. And it seems that everyone but NIO has increased prices. And then big news from BYD working with NVIDIA, working with Shell, teaming up on that charging ecosystem, and that's for China and Europe. So that's an interesting play. And then the Li Auto L9 teased more details. I think one that stood up for me was the 215-km range on the battery mode, which is like more than enough everywhere for BEV itself, right? So that's a humongous number.

Tu Le:
I tweeted that I went to the Li Auto facility.

Lei Xing:
I was just going to say, you're going to have the Li ONE for two weeks?

Tu Le:
About a week. I might get it back, so I can go on a road trip for Qing Ming Tomb Sweeping holiday the following week, right? Not this weekend, but the next weekend.

Lei Xing:
Have fun man.

Tu Le:
Because we're going to take it up to Mutianyu tomorrow morning, and do a little hiking.

Lei Xing:
You got that Baby Blue color which I really like. It's a bit, I don't know if that's your taste, but.

Tu Le:
That's not really my taste. But I kind of wrote about it, initial impressions. I didn't know what to expect. And there is a gentleman that I've known for about four years. He was at Mercedes before. He is now part of Li Auto, and so that was a happy surprise to see him, as he had moved over. He told me and I don't know if I’m supposed to tell you this, but he told me there's a handful of laowai there, or foreigners that are working there now. But only recently. They're very excited about the L9, little disappointed about the auto show, but they're going to have their own event on April 16, I think, right?

Lei Xing:
Yeah, I think regardless, these companies are going to do their brand events or launch events regardless.

Tu Le:
Yeah.

Lei Xing:
Of when the auto show would be held.

Tu Le:
I have to admit Lei that I might have seen one or two camouflaged mule L9s when I stopped by yesterday. And of course, the Bao’an, the door guys were like, you can't take pictures, you can't take pictures there, like grabbing my phone, they're grabbing my phone. I was getting upset. I was like, dude. But a couple things about NIO, about not raising price. I think they have a bit more flexibility because their contract manufacturing actually are out, the cost they purchased the car effectively from JAC and so JAC's managing that cost on their behalf.

The second thing is, when you take the battery out, that's 30% of the cost of the car, 25-30% of the cost of the car. So they're not paying for that shared cost if it's sharing, right. And so they have a bit more flexibility, I believe on the margin part than some of the traditional EV makers that are their competitors. But I do see them recalculating a reconciling like Li Bin said during the earnings call, the new features, they'll probably just disguise, covering some of that cost into the new features, right?

Lei Xing:
Yeah, and so perfect segway to get into the NIO earnings. But back to Li Auto, I think they are the least sort of the internationalized startup upon the three, right? NIO and Xpeng. So they must be boosting up their global talent.

But back to NIO, yeah, you mentioned one of the things that was talked about was this how they're going to deal with the price increases and it looks like their strategy is not going to increase prices of current models, but they might launch new model year versions with adjusted prices. So that's an interesting tactic. But I think you said a while ago that they are dealing with this a bit differently than some of the other competitors.

Tu Le:
So in my experience, dealing with purchase orders, Lei, let's say, for instance, they've negotiated pricing for wholesale pricing with JAC for each vehicle that's manufactured. And there's normally a buffer, a 5-10% cost buffer that says I’ll eat this cost as the contract manufacturer up until X%, and then I’m going to have to update pricing or reconcile pricing. And so they're probably pushing that cost. They're probably forcing JAC eat that cost. And then JAC in turn, is probably trying to get cost reductions somewhere else, right?

Lei Xing:
This earnings call I feel like since they’ve become public, there's been quarterly earning calls. I feel like this was the one that had the most, what's the word, numbers that were revealed. A lot of new information, which I think looking back at NIO’s, whether stock performance or its delivery performance, it hasn't been as expected. Maybe a lot of people think they're falling behind a little bit, but you can feel that, granted, that last year really was there was, no new model, though it was interesting there was two NIO Days last year, right? One was held in January and one held in December, rvealing the ET7 and ET5, but there was no new model launched. So last year was bit of like a saving for, kind of what William referred to as a re-accelerating year in 2022.

So now they have three products, you can feel that he's trying to send a message. Though, I don't think that the stock market is giving it any love. I think it's down pre-market, but really, some of the numbers that were thrown out were really like 30,000 swaps a day. It's ridiculous. There's 86,000 seconds a day, so 30,000 swaps a day means every three second, roughly, there's a swap at the peak, it's not average, but at the peak, right? So it's a little bit of mind boggling. And then they talked about the ES7 positioning, right? Addressing the so-called mid and large 5-seater SUV market, competing with the X5, which has an addressable market of 200,000 units. Then the margins, right? You talked about the margins how they're dealing with the margins. Interestingly, because Q3 they had the regulatory credits, right? Or the NEV credits that kind of artificially increased the margins a little bit. And overall margin actually went down a little bit. But vehicle margin looks like they're going to be in the 18 to 20% range.

Tu Le:
I have to make a comment about how they are comparing the ES7 to the X5, because that's a little psychology on, so the Li Auto guys were also saying the Li ONE is going to compete or is competing against the X5, but at a much lower price point, right? And so that's really psychology because they want you to associate their vehicle with that car, right? Because BMW is kind of sort of 100 pound gorilla that they're trying to target. And so cause we don't know anything about the ES7, we don't know what it looks like. When they imply that oh we're competing against, they're trying to plant a seed in your head. So you associate when that car comes out with X5. So they might also benchmark the X5, but they're trying to convince you that this is the premium car that's going to compete with the X5, which is great.

Lei Xing:
And also the cadence for the ET5 and the ES7 is bit of interesting because ET5 is September delivery starts, ES7 is Q3, so roughly at the same time, right?

Tu Le:
These are at the same factory, right?

Lei Xing:
No, the ET5 is at the NEO Park. Everything else is at the current JAC NIO.

Tu Le:
Still, man that’s, I wrote on twitter, it's like stacked, right?

Lei Xing:
William Li, he talked about this question on some media reporting that they've gotten 15,000 orders for the ET7, and he's like, no we are much more than that, but we never reveal the order numbers. That gives you some indication of in terms of their delivery volume expectations. And I think he's alluded that basically, they can keep up the current, roughly what, 10,000 a month with the three products. So you can sort of extrapolate, the ideal, how much more they can do per month.

Tu Le:
The other thing, too, is that the ET7 is a sedan that the other cars are, SUVs are coupe SUVs, right, or crossovers. So there's not going to be any cannibalized vehicles.

Lei Xing:
But for better part of this year, ET7 is going to be a big driver, because the other two models  won't be delivered until, September or late Q3. 

Tu Le:
And the ET7 will get people in the showrooms, too.

Lei Xing:
And then the other thing that he talked about was this mass brand, right? Positioning in the $30,000-$50,000 price range. It's important to point out that he said, basically, it's a whole new game. So fundamentally from everything, right, manufacturing efficiencies. So I think that's why they're still there, R&D this year will be double last year, which was RMB4.1 billion, right? So roughly RMB8 billion in R&D I think that's still setting up for the mass brand products.

Tu Le:
So that mass brand is going to take up a lot of that capacity so that they can focus lower sales, higher margins on the NIO products, right?

Lei Xing:
And NIO, I think it's the first Chinese smart EV startup to announce a target to achieve profit, right? That's also an indication of sending a message, right? That's because to the investors。

Tu Le:
Wall Street is see it to believe it, right?

Lei Xing:
And that's, so full year profitability in 2024. And that's 10 years after they were founded. I don't remember what the numbers for Tesla, but it's probably more than that, right?

Tu Le:
I think sure, 14 or 15 years?

Lei Xing:
So they've only done that a couple of years ago, right? So lots of and then the jobs per hour, which is, I think, a sensitive number for you having worked at plants right the 60 JPH is…

Tu Le:
That’s one a minute, right? So 500 cars a shift, effectively two shifts, a thousand cars a day. That’s pretty with the normally calculate 250 to 275 days of work a year. So that's a factory that's building almost 300,000 cars a year.

Lei Xing:
Overall, I think it's just sending messages, right? Whether it’s comparing with X5 or the future profitability. Since they've gone public, I’ve never heard this much new info revealed on an earnings call.

Tu Le:
This is they’ve become all pros at that right?

Lei Xing:
And i've always said this: NIO’s due. And I think the thing that why it's the stocks is going down, because I think the stock market, obviously they look at the near-term performance. So Q1 guidance wasn't particularly well, 25,000-26,000 and the revenue side. I think people are looking for much better numbers.

Tu Le:
I think that NIO should be credited because in this environment, first of all, for them to stack and to maintain that stacked launch schedule later this year is pretty bold. I would say it's pretty bold because it's a brand-new plant, it's a brand new facility that they haven't even broken in yet. That is probably going to be their highest runner, right? From a car sale standpoint, the ET5, so you could argue that it's their most important car and the ES7, we'll find out more about it, but it's another SUV so how excited can you really get? I don't know, unless it comes with a lot of different features or new features that are not yet part of the ES6, ES8 and EC6.

Lei Xing:
Yeah, but based on the numbering system, it's got to be between the 6 and the 8. And William basically said it's not going to cannibalize the current models.

Tu Le:
Of course it’s going to cannibalize the current models. But the other thing, too, that he actually said $30-50, you know Xpeng was listening to that, right? He's basically implying that we're coming right at you Xpeng, and they can't be the most technologically advanced mass market vehicle because Xpeng has taken that positioning in China. So are they going to be affordable, amazing design? Is it going to be a derivative and watered down version of the NIO brand? Or is it going to come and position itself a little bit differently? So that'll be interesting to see. 

Lei Xing:
Also, NIO is taking an entire different approach in the sense that he often refers the mass brand as, NIO to the mass brands as Lexus to Toyota, Audi or Porsche to Volkswagen. But he's going the reverse way, right in going from high end to low end. Whereas all the other ones right now in including legacies, they’ve gone from the low end to the high end. That's a different strategy and we'll see how and if it works.

Tu Le:
Effectively he's doing the Tesla, with the exception of Tesla creating a brand new brand because the Model 3 and the Model Y drives the volume by far and 90% or over 90% of sales for Tesla is 3 and Y, the S and the X are halo cars.

Lei Xing:
It's also interesting to point out what he mentioned on the chip shortage. He basically said there's challenges, but specifically, the chip challenge lies in actually the basic sort of the chips like the TIs and the Infineons, rather than the NVIDIAs or the Qualcomm 8155s. And the battery even he said batteries, there's actually it will match demand working with CATL, but the chip is really actually these the so-called basic chips.

Tu Le:
Because the specialized chips, number one, they're more expensive. So they less products, less technology products, used in them, but these control chips and less specialized chips, everybody uses them for the most part, generally speaking. So they're going to be 60, 70% of the production or fab and 50% of the fab production. And then consumer products you're going to want them. EVs are going to want them. So that's why it's not just a car company, automotive demand thing, it's a consumers products, high technology product demand thing.

Lei Xing:
And he's saying they have more than 1,000 chips in every car. And 10% of that roughly are being disrupted by the supply chain issues.

Tu Le:
And you saw this week that Intel effectively committed almost $100 billion to opening a factory or a fab in Germany. But again, those things don't come online for 3 years, right? And they cost $3-$5 billion to build.

Lei Xing:
And the other thing he kind of commented on was the lithium spot prices. He's basically saying it's a lot of speculations going on rather than a supply demand problem and then the other number that was interesting that their R&D personnel is going to increase to 9,000 this year, plus doubling of R&D spend year on year? And I remember a few years ago when he talked about their employees, this was right after they've gotten the funding. I think they had less than 10,000 employees in total, roughly at that time. And now they're going to increase R&D alone to like 9,000 people. It's a bit interesting. And then, just other than that, the swap numbers are ridiculous.

Tu Le:
It's the palladium, nickel, and aluminum that are causing the raw material cost to increase significantly.

Lei Xing:
In summary, it really looks like last year was bit of setting up for this year and this year should, we're supposed to see better numbers, whether it's deliveries or margins. 

Tu Le:
Surprisingly, did you hear that much or anything about their international foreign market update?

Lei Xing:
No, he's just saying that they are ready to hit the ground running in the four markets: Germany, Netherlands, Sweden, and Denmark, right?

Tu Le:
I have to say that taking so long a year effectively from the introduction of the ET7 to actually launching it. I think they're pretty lucky and they're pretty skilled to be able to get that much excitement out of it after taking so long to get it to production. So kudos to them. Because normally people there's something else they're thinking about, but it just goes to show that you NIO is as a brand that seems to resonate. And people want it to do well. And at least initial impression of the ET7 is that it's going to continue reinforcing everything about the brand and create goodwill among their new potential customers.

The other thing, too, is that mass market brand Lei, they could use the current 600,000 or 700,000 people on their app who can't really afford an ES8 or an ES6a, and then try to sell them the cheaper brand. So there's a reason to have so many active users on that app, even if they can't yet afford a NIO branded vehicles. So that could be a master stroke if they could translate that stickiness into sales of the mass market brand.

Lei Xing:
Back to the European markets. I think this year we need to keep in mind that their number one goal is to establish the brand in those markets and not really looking at significant volumes. I think that was touched upon in the earnings call as well. And he's basically saying establishing the brand and volume in the share will come naturally. That's what Steven (CFO) said.

Tu Le:
They have to。

Lei Xing:
Still most of the volume will still come from China. But next year, what we should see how they do, especially in Germany, right? What kind of a feedback and momentum they get in there.

Tu Le:
I think the Germans that feel that the Chinese cars don't hold up on the quality and they can see the design, but the fit and finish, how the materials feel and stuff like that. I think they're going to be very, very shocked that the Chinese companies have really stepped up and to your point about not really forcing the issue with sales, we've said this before in this podcast, there's two things in a person's life that are an emotional buy: a house and a car. And it's going to take some time to get NIO positioned well in the European markets. That's why they needed to marinate a little bit, and they need to do a little roadshow and show the Europeans that man, this is a pretty cool car. And then it also gives them a chance to sort out the charging station situations, sort out the swapping station situation. So there's a method to that madness to go a little bit slower and they are a premium brand, so they don't need to be in your face to sell 3X what a BYD might need to sell or an Xpeng might need to sell eventually, at the lower price point, in order to get the same kind of bang for your buck.

Lei Xing:
I think that's enough about NIO.

Tu Le:
Let's move on to your embargoed Mercedes.

Lei Xing:
This was a Technology & Innovation Day event that was supposed to be held back in January at the CES but…

Tu Le:
Is this annual? Do they have this annually?

Lei Xing:
No, I think this was to kind of piggyback on the EQXX reveal, right? That was the first new car revealed this year in all industry, right, ahead of CES, and they were trying to hold an event to talk about their efficiency and really that efficiency is the new luxury by giving time back to customers, so through the demonstration of, for example, the Drive Pilot Level 3 and also the Level 4 AVP parking. 

But yeah, so this was delayed due to the omicron early in the year, so it was going to be held in LA anyways. But I think what was the most memorable was the Drive Pilot L3. And I’m going to use “underwhelming” to describe this experience and I mean it in a positive way, rather than a negative way. Underwhelming, meaning you don't see the bells and whistles, everything's behind it, it just works. You just hit a button and it works. And right, I think that's what I mean by underwhelming. And that's actually good, I think, for and really to, I think I understand more about the difference between L2 and L3. And I think we should emphasize that I talked to this engineer, he’s a systems engineer who drove the car. And I rode and I talked to him, he's like, he's been working on the Drive Pilot L3 program since the end of 2016. So more than 5 years, he said, to achieve L3 is 10 times harder than L2.

Tu Le:
For sure.

Lei Xing:
And also to emphasize the reason why L3 is called conditionally automated driving, because when you go into L3, it's not that you can start do everything besides driving. It's not like that, because the system ODD, there's always an ODD, right? So the requirements, there's plenty of requirements why this is called conditioning automated driving. First. You got to have the regulatory framework, so which Germany passed last year, right? So they can buy, they can drive on these 13,000 kilometers of autobahn or highways, right? It must be divided highways. It's under 60 km/h or roughly 40 mph. The car has to be able to see the lane markings on the highways. And you can only look at the center, that the screen, for extend appeared period of time. You can't look back or talk to people facing other directions. These are all the kind of the conditions that you have to meet for it to work. And the California freeways are perfect for this. During one, like in LA, the traffic's just between 1 and 5 pm on the 405 or on the I-10. It was funny because I talked to him and it's like, this is a feature where we say I love the traffic, right? Other times you don't love the traffic. It's basically just giving back time to you. You can watch Youtube, you can do emails, you can do a conference. But there's a DMS that watches kind of where your views are, where you're looking at.

I think they tuned the system to really make it, it's not jerky, it drives like a human. And the most important fact is that Mercedes will be responsible in an L3 mode in terms of an accident. So I think this and when you compare with all the, whether it's Tesla, whether it's FSD or whether it's the city NGP, whatever that Chinese smart EV startups are pushing out, that those are still L2, because you have to pay attention. So Mercedes is ahead. I think that was a message that they're trying to, but it's taken a long time, right?

Tu Le:
In all fairness, they're a luxury vehicle brand, so they should be ahead. Yeah, quite frankly, right? Because the highest technology features always normally come out with the most expensive cars. So now, the U.S. has passed these regulations as well, not yet, right? 

Lei Xing:
No, they're waiting for approval that's expected by the end of this year. So only in California, in Nevada, in the beginning. So they're working on this and they're expecting that approval for the year end.

Tu Le:
Basically only in Mass., in summertime spring and late fall, because in the wintertime you can't see the lanes.

Lei Xing:
Yeah. That's why the sensor setup is quite interesting, right? They have the front cameras as well as the cameras on the rearview mirrors that look down at the kind of the lane markings. And in the back, they have to have this rear facing camera that sees emergency vehicles. This is part of the, I guess the system design that when there's an emergency vehicle, your car, you have to yield, right, to let them pass through and there's a..

Tu Le:
In two years, I would say let's say two years, 30 months there's probably going to be some V2X automatic communication between the vehicles from an emergency vehicle standpoint. 

Lei Xing:
So they have this positioning systems using the three major satellites, so I think they are GPS, GNS and GONASS, that's the European system. Once they go into China, they will have to, obviously, work with the fourth one, the China system, the engineer he told me that.

Tu Le:
Because China has its own version of GPS.

Lei Xing:
Beidou, I think it’s the Beidou. 

Tu Le:
Yes Beidou. So is it LiDAR?  Is there LiDAR?

Lei Xing:
That was actually interesting, they brought a guy from Valeo, which supplies the Scala, second generation Scala, so Scala II LiDAR that's placed on the grille. I talked to some of their engineers and asked about the positioning and basically comparing how these Chinese smart EV startups have this watchtower, putting on top, and basically they said: our aim is to have this sensor setup to achieve the desired L3 driving wiothin the specific ODD and placing that LiDAR in the grille works for the specific Mercedes Drive Pilot. Whereas the Chinese smart EV startups they put it on top because of what they're trying to achieve: the city level, still L2 automated driving as a redundancy, right? So the approach there's no right or wrong, but it's just depending on what you're trying to achieve. So they said it's enough putting it in the in the grille, one, for L3.

And going back to my use of the “underwhelming” word, when you think of it, it's really, if you put it in simple terms, it's basically ACC in one lane, but you can look away. And that difference is actually very hard to achieve and when you look away, the car will be responsible for accidents. Then for Mercedes, they have to be confident enough to be able to say that. And I think that's a huge step.

Tu Le:
Did they put a governor on the top speed?

Lei Xing:
The ODD currently is 60 km/h, they said in the future, this could be increased, but for what they are trying to achieve, with this version of the Drive Pilot, it's 60 km/h.

Tu Le:
And there's, but you can't use it in city driving. 

Lei Xing:
No. Because divided highways you have to have, these divided highways have to have these high definition maps covered. So the system will know if you try to activate in city levels, it won't work because of the positioning system, because of the rules, because of the geofence. So, underwhelming in a sense that it's really limited, but in the case of stop and go traffic on the highways, it gives you some time to do something else, right? That's the intent.

Tu Le:
Technically, if we're going to give credit to somebody, it should be Honda. Honda was what the Legend in Japan was the first L3, right? 

Lei Xing:
Audi had it. But they didn't have the regulatory framework. 

Tu Le:
Really, I think these legacies, you can sense that they really spend a lot of time, the negative ward will be “conservative,” but they're really different than the startups because they want to put safety first. So it's a methodical approach, very, the amount of time that is spent on developing the system, right?

Tu Le:
But it goes back to also, when we spoke with Maxwell, how L2 and L3 would need different hardware than L4. So you can't use the same car, supposedly according to Maxwell that you can't use the same hardware/software to go from L3 to L4.

Lei Xing:
That's an interesting point because based on what I’ve heard and what the presser said, the same Drive Pilot set up the sensor setup can actually, so they also showed the Bosch AVP right? The same setup can actually be upgraded to achieve the Level 4 AVP, but then again, the caveat is this AVP is infrastructure-based which means you have to have the Bosch industrial LiDARs on the ground, sort of as a rail guiding the car. So that's a caveat and that's what they showed in one of the..

Tu Le:
But you're saying, when you say upgrade, you actually mean of an OTA flash, software update.

Lei Xing:
No, the AVP they showed is basically relying pretty much 100% on the infrastructure. They showed this at one of the hotels in downtown LA

Tu Le:
So the V2X part.

Lei Xing:
It's exactly V2X.

Tu Le:
The other interesting thing Lei, that LiDAR that they used in the middle of the grille. So I was told that they put them high, because they're cheaper, they're not like super expensive and super so high quality right, and when they're lower, they can't function as well. I'm talking about the AV startups, right?

Lei Xing:
So the LiDAR setup is very interesting. It's right below the radar on the grille. There's a big black square of the radar. And then right below that square. There's actually two spots. So on the right, there's a LiDAR, on the left, there's a kind of a shape that's kind of thing that's shaped similar to a LiDAR. But the reason they did this was so that it looked symmetrical inside that left one is actually just a camera. But from afar it looks like they have two LiDARs but in reality, there's only one LiDAR.

Tu Le:
How many sensors, the going rates like 35, right?

Lei Xing:
Yes, right, in the front, so there's the front facing cameras. There's the LiDAR, there's radars, the ultrasonic sensors, there's the corner radars. Then on the rearview mirrors, there's the cameras in the back, there's the positioning system, there's a rear facing camera and the corner radars. So but it's integrated pretty well. But I’ll say these are test vehicles. And if you look into the trunk, you do not want to look in there of all the computing and the wires that they have in there.

Tu Le:
And they're using NVIDIA chips?

Lei Xing:
Yes, to help. I think the numbers that they gave was continuous measurement was like 3 GB per minute, there's another metric, I forgot the name that was like over 30 GB per minute.

Tu Le:
Did they mention, if they're going to charge for this, is it an upgrade, is that standard as part of?

Lei Xing:
It’s an option, so they can charge. I didn't ask about the pricing, but it's for a S-Class, right?

Tu Le:
Is it a service charge like every month we're going to charge you? Or is it like, I’m going to buy this feature and own it?

Lei Xing:
I didn't ask about that, but I got the sense that is they're also moving toward this kind of a subscription.

Tu Le:
The recurring revenue model.

Lei Xing:
And other than that, just seeing the EQXX, they had a deep dive of how they developed this car and tons of details like even the car, I think it was Bridgestone that helped with the tires, even how the tire, how they're designed, the lines. Even those improve drag and efficiency.

Tu Le:
For sure, you'd be amazed. You and I speak with engineers and car guys all the time, but like for some of our audience who are just more enthusiast, like to go from a petrol engine, to an electric vehicle, there's so many differences, right? The windows can be a little bit thinner, because the noise of the vehicle is not there. And whenever you have an ICE, the car vibrates. So if you're an luxury vehicle, you have to put sound deader in there, you have to reinforce the frame in order to make that not vibrate. So the user or the driver or the passengers don't feel it. So there's all these different implications of having a petrol engine vehicle versus an electric vehicle. And for a user, it doesn't matter, right? You just want something that works that reacts the way you expect it to. But like you said this guy's been working on this. And at least at the prototype standpoint, he did a pretty good job, or his team did a pretty good job, because you were very underwhelmed, which is what he wanted probably right?

Lei Xing:
Yeah I mean in a good way, not a negative way. You don't notice anything when it goes into, it drives like a human. The only thing was the space in front. He said it was, the system design was two seconds. So it'll be farther away than what you would normally do when you're in a stop and go traffic, you would normally follow quite closely, right? But there's a big gap in the front and you see cars not cutting in, but kind of changing lanes, but he said while you're doing something else in this type of situation, you don't care if people cut in.

Tu Le:
He's definitely going to have to change that for China.

Lei Xing:
Yeah, in China the people. But again people get agitated when..

Tu Le:
You get half a meter between cars in China, someone's going to cut in. So, but hey, Lei, it is 9:53. So we'll keep on talking. But we'll open the room up to anyone who has any questions or comments about what we need, what Lei and I just talked about. Or if you've heard anything today, this week, last week that you want to bring up, have a discussion about, raise your hand and we'll bring you up. So the other thing I wanted to ask you about Lei, was the BYD Shell. Was that surprising to you? Was that pretty nonstarter? Or what do you think about that? Partnership that they announced?

Lei Xing:
Not surprising, but seeing a traditional oil company is a bit, you can sense that they're trying to get on the ship right of this transformation that you would be working with Shell. When you talk about Shell, you talk about gas stations, you think of gas stations, not charging but right, they're transforming.

Tu Le:
All of them are, right, BP, Total, it's a French company. So if I was talking to a French person, I would say to Total, Now it's Total Energy, right? Rebranded itself and then BP and I think Shell had also acquired charging infrastructure companies in Europe.

Lei Xing:
And also what Electrify America announced their new designs, charging designs, right? Charger designs. And I think they went a little bit overboard putting on like these coffee shops and stuff. But I think for EV customers, if it was me, the number one priority is that these will just work, and I can plug it in and charge and leave rather than coming up with all these bells and whistles. So Dr. Diess of Volkswagen, he put up a video, right, of the plug and charge that will be available, right, in the Ionity network. It's due. It's overdue that charging should be more convenient then filling up gas, right?

Tu Le:
He is so out in front with that stuff. Man, it's awesome.

Lei Xing:
And I think that's what these BYD and Shell as part of whether trying to achieve, not only working together, put the coverage, but also making sure that there's a convenience part of it.

Tu Le:
Maybe it's not happening as much at this very moment, but they're all talking out of both sides, their mouth as the lobbyists in Washington and Frankfurt for those companies that are pushing out every type of clean energy bill that they can in order to milk the petrol and the oil, as far as long as they can. They're trying to market themselves by acquiring these companies and partnering with these companies to get that green credibility, right?

Lei Xing:
And shell. This is very strategic. Hey, I'm partnering with BYD, China's number one EV company. And they're setting up a joint venture to put up 10,000 charging points, in Shenzhen alone. I think that was from the presser. The JV is expected to operate a network of more than 10,000 charging points in Shenzhen with a plan to expand to more locations. So Shell, they want to be associated with these companies, green, EVs, BYD.

Tu Le:
I still want to see some progress or at least movement on the U.S. side. It just doesn't seem like there's just a ton going on. Announcements are being made by chip companies, battery companies, I think who, Ontario and Stellantis, the ACC, they're building battery capacity. Mexico or there was another brand, and they're going to build some battery capacity in Mexico. I think. These are all good indications, but man, everything just still seems so unpredictable when it comes to the United States, at least, because I'm fearful that there just isn't enough good product, right? We hear you and I talk about probably five or six products for the last year, and not that many brands, right?

Lei Xing:
Products as well as this conundrum that what's going on in the channels, here, prices going up is one thing. And then dealers charging that markup. We talk about affordable EVs that's far from happening, the $30,000 EV, nothing right now. Average prices are well over $50,000 or $60,000.

Tu Le:
Dude, don't even say it's just the dealers marking it up, man, Rivian marks up their cars, too.

Lei Xing:
No, no, I'm saying that right? So it’s…

Tu Le:
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. You can find Lei on Twitter @leixing77. If you wouldn't mind rating and reviewing us on Apple Podcast, Spotify, or wherever you grab your pod cast from, we'd appreciate that as well. Even better if you enjoy this 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.