Lei begins this podcast with announcements from the OEMs of record profits in these tough times and the cognitive dissonance of profiting the most during the most challenging times. Tu updates on the current situation on the ground in China with regard to the Covid situation and where the lockdowns are currently taking place and what he thinks will happen with the Beijing auto show that’s scheduled to happen in just over a month’s time.
Tu takes over for Lei to make the announcements this week since Lei was traveling. Tu lists all the cars brands in China that have raised pricing of their vehicles, it’s a long list. Tu highlights a Financial Times deep dive into VW Group’s reliance on the China market. A fascinating piece for those that follow VW Group closely.
Tu and Lei move on to a conversation about recently announced vehicles that’ll soon enter the China market, with a few of them also likely to be exported to a market near you.
Tu and Lei then discuss the recent rumor that Didi is getting int car manufacturing, a Didi Motor Company perhaps and whether either of them thinks it makes sense.
The topic moves to TuSimple and what looks to be a planned split between their US and China entities. This turns into a broader discussion about the AV sector including what could happen to US/Chinese hardware developers. All indications point to a similar hard look at how they will be treated by each country.
Tu and Lei close out the pod with a discussion on how the short-term increase in EV pricing may initially scare off US consumers and whether or not that’s a good or bad thing for legacies.
Lei begins this podcast with announcements from the OEMs of record profits in these tough times and the cognitive dissonance of profiting the most during the most challenging times. Tu updates on the current situation on the ground in China with regard to the Covid situation and where the lockdowns are currently taking place and what he thinks will happen with the Beijing auto show that’s scheduled to happen in just over a month’s time.
Tu takes over for Lei to make the announcements this week since Lei was traveling. Tu lists all the cars brands in China that have raised pricing of their vehicles, it’s a long list. Tu highlights a Financial Times deep dive into VW Group’s reliance on the China market. A fascinating piece for those that follow VW Group closely.
Tu and Lei move on to a conversation about recently announced vehicles that’ll soon enter the China market, with a few of them also likely to be exported to a market near you.
Tu and Lei then discuss the recent rumor that Didi is getting int car manufacturing, a Didi Motor Company perhaps and whether either of them thinks it makes sense.
The topic moves to TuSimple and what looks to be a planned split between their US and China entities. This turns into a broader discussion about the AV sector including what could happen to US/Chinese hardware developers. All indications point to a similar hard look at how they will be treated by each country.
Tu and Lei close out the pod with a discussion on how the short-term increase in EV pricing may initially scare off US consumers and whether or not that’s a good or bad thing for legacies.
CEM #57 031722
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 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. A jetlagged Lei. Can you please introduce yourself?
Lei Xing:
Yes sir, and good morning from my side, one of the few times that I say good morning and good evening to you. I'm your co-host Lei Xing, former chief editor of China Auto Review.
This is episode #57. It's march madness, and I am not talking about the NCAA college basketball tournament. I just returned last night from a Mercedes event, it is the first stand-alone brand specific event I attended since before the pandemic. It's related to autonomous driving. I can't say too much because of the embargo, but we'll talk about this, it was a very interesting experience. We'll talk about this in our next episode next week.
So what I’m referring to the march madness is things seem to be kind of spiraling out of control in the auto industry with raw material prices, right, supply chain bottlenecks, continuing to get worse before they get better, I think, the raging war, the Fukushima earthquake, although it's not as serious as the one in March 2011, but still right, it adds on top of what the industry is already dealing with. And Xpeng is the latest among what now, like over two dozen brands to raise prices of their EVs, actually by RMB10,000-20,000, that's pretty significant.
Tu Le:
It's not insignificant.
Lei Xing:
And then on the flip side, the interesting thing is, this week it’s the Volkswagen Group and brands media conference week. If you look at the numbers that they reported, everybody's breaking records financially, so it's like in the good times you are so so, but in the bad times, your numbers are actually good. So they must be doing something right, if the financial numbers are that good. For Porsche, 16% return. Three years ago, I attended there press conference in Stuttgart, and I remember it was 16.6%. It went down a bit last couple of years, but right, you look at these conflicting, that the industry is facing these kind of issues, but then like companies, like Volkswagen, they're achieving all-time record highs.
Tu Le:
It is a false idle, because as supply decreases, obviously, you got to raise prices to get to that equilibrium of supply & demand. But first of all, I can tell you guys this, COVID’s here in China, in Shanghai, in Shenzhen, in Jilin Province, which is where Audi, Mercedes, Toyota, and Volkswagen all build cars. The entire Province of 21 million people are, for the most part, locked down.
Lei Xing:
This is the march madness I was referring to. And my question to you was actually give us a update of what's going on as far as COVID is concerned on the ground in Beijing and everywhere else. I think you were getting into that.
Tu Le:
Yeah, so we'll go through the headlines in a couple of minutes. I'll take over that role for you this time. But Tesla stopped production for two days, Monday and Tuesday. They said they're back on. For the last couple days, BYD even announced that they were having some challenges. They didn't explicitly say they had any disruptions to production, but Shenzhen is pretty much locked down as well. So, but BYD does have more control of their supply chains. So they could be managing supply or the supply of materials, a little easier, a little bit better than their counterparts. But there's only half of that story, right? Because depending on where parts come from, and you know this Lei, if a factory is running, that's one thing, that's half the story though, because if there's a part or two parts that aren't shipping because it comes from Wuhan or it comes from Jilin province that is locked down, then you might not be producing that many units.
So be careful when you hear Tesla saying we're back to production and stuff like that, you got to figure out all that other stuff, too, that at the end of the month or the beginning of the next month and the following month, if volumes are a little bit lower, it's obviously because they couldn't get parts from areas that might have been locked down or with COVID outbreaks.
So to be quite frank, it's a bit frustrating. I'm here in Beijing, things are fairly normal here, but everybody's little anxious. Shanghai is definitely on really, really, Shanghai is pretty extreme locked down
Lei Xing:
We're just roughly a month away from Beijing Auto Show, right? The Jidu Robo Day, Robocar Day is in a month exactly: April 18. We've seen quite a few teasers of the models that are supposed to be announced and I've spoken to some PR people and they're a bit, what's the word
Tu Le:
Anxious and nervous.
Lei Xing:
Anxious of what's going to happen? Because, you start preparing the auto show basically end of last year, early this year, in April. And to have this going on, it's like, it messes up your plans.
Tu Le:
We get to know these people, right? And we're friendly with them. I would say there are our friends, but we try to be objective, you and I do. But that doesn't change the fact that we try to be nice people too. And so I feel the excitement. I spoke to a couple of guys for some EV companies that you all probably have heard of. And they seem so pumped because their companies are doing well. They have new products coming out for the auto show.
And now it's like this pending thunderstorm is coming and talk to two or three people. I talked to Nori recently Lei. We all think that it's probably going to end up going online. I think maybe folks, yeah, I think maybe folks in Beijing might still be able to go to some events, depending on whether or not any outbreaks happen here, because Beijing to Shanghai is like New York to Boston, is like LA to San Francisco. It's a huge corridor that people go back and forth.
Lei Xing:
I think the issue is large gathering of crowds indoors. That's the issue that the auto show will be confronting with…
Tu Le:
It's also Lei, that omicron is, you like touch somebody and they get it right? It's that contagious, I think. So it's omicron.BA.2 variant or something like that. So it's not very, I’m a layman, so I'm generalizing here, but it's supposed to be not as serious, but is very contagious. We all know that the vaccine here is weaker than the vaccine in the rest of the world. So on top of that, it's no today.
Lei Xing:
I figure it might be some kind of a hybrid type of event because a lot of these, remember last time we talked a lot of these brands they will do stand-alone events anyways before a lot of these global premiers. They'll do 5, 4, 5 days before the media days.
Tu Le:
Yeah, I was looking forward to go into like 798 or Universal Studios or one of these venues, right? That that would have the event. And weather's nice likely be outside or something like that. But I’m kind of reserved to the fact that maybe I’m in Beijing, so I'll get an opportunity actually go to see some of these events as opposed to watch them online, because unless it's one of the major events, being there in person is awesome, so I try to go as many as I can.
Lei Xing:
I can say yes from my standpoint, having just attended an event…
Tu Le:
The online stuff is okay, but it's like, I’m not as pumped to go. So to your point, this week's headlines, NETA, Tesla, twice this week, BYD, Chery, you'd mention Xpeng, several others have raised prices, not insignificant. I think Tesla raised prices by almost $10,000 or $8,000 or something like that, so not insignificant.
Lei Xing:
Yeah, so the pandemic has been more than two years and we haven't seen this kind of, right? It's not directly related to the pandemic, but I was reading, somebody posted, was it lithium, it was what, $20,000 per ton a year ago, now it's $50,000 I don't remember exactly which raw material it was, but like, right.
Tu Le:
Nickel is still pretty volatile, too.
Lei Xing:
So this is getting really serious.
Tu Le:
And then, wiring harnesses out of the Ukraine and also neon right out of the Ukraine.
Lei Xing:
And then the other side of the march madness is the continuation of kind of the U.S., not the U.S., but you China's kind of economic decoupling that Dr. Wollenstein (Volkswagen Group China CEO) talked about this. And I think Biden’s talking with Xi today, sometime on their standce on the war, right? All of these things going on that, which leads to me to think March numbers will be affected somewhat. It won't be as aa big a rebound as in recent years, maybe because of this crunch. But then again, like you see these price announcements, they'll be effective a few days later. So it kind of creates, I’m going to rush and order these models.
Tu Le:
Part of the reason they raise the prices is to also manage that lead time, because they're losing money on the cost side and raw material side, but they also raise prices sometimes in order to reduce their order book a little bit, right? And if you're waiting 3 or 4 months for a car, then you'll go to a competitor really quickly. So I don't know how long it's going to last. The war is obviously not going to go away very soon. And so that's tragic. Volkswagen did say that they will move the tooling and switch suppliers for the wiring harness. So that doesn't seem to be a long-term issue, not a long-term issue as in supply side. Now strategy side that's completely different animal, and they're going to have to look at that.
Lei Xing:
Yeah, and going back to Volkswagen specifically again on their specific Group wide performances. So in the Group media conference, I think Diess he said to the effect of, I think prioritizing chips for the higher profitability models. I think that was one of the reasons that you saw these record operating results. So again, these legacies, especially Porsche, they have these financial discipline, right? So they lost, every like, sales were down 6%, but revenues were up 12%, right? How?
Tu Le:
That’s the thing too, though, right, Lei. That's the thing too, because there paying Pete, they're taking from Peter to pay Paul. So effectively, if there are chips that are used on the ID. series and Porsches and Audis, guess who's going to get them, rght? We could see slow sales for the ID. series for the next few months. If it's a hand to mouth thing, hand to mouth, we talk on the supply side, hand to mouth means the parts get shipped that week and they get put in the cars right away. They don't even sit in inventory. They just, that day they're consumed. And so that's what we mean when we say getting fed hand to mouth.
Lei Xing:
As far as China's concerned, Volkswagen hasn't been as aggressive as announcing the ID. sales results. The first two months, you haven't seen those bar charts that they put out on the first or second of every month. They did that the last few months of last year, but this year they haven’t done that. So it reflects something, their work cut out as far as ID.
Tu Le:
I think that looking back, listening again at the end of this year to Dr. Wollenstein’s interview. I think that'll be kind of eye opening to see what he predicted for the rest of this year. And then at the end of this year, see what actually happened.
Lei Xing:
Their goal is basically double BEV sales, Group wide. They reiterated that. And then you talk about that FT article is another, entirely another issue.
Tu Le:
So we should tell the folks listening, this week Joe Miller, who's the FT guy for automotive, Financial Times. He covers autos for Europe for the Financial Times. And then Ed White, who's in Seoul, supports him on the China side. And then Peter Campbell is the head of automotive globally for Financial Times. It's mostly Joe, because it was mostly a Germany related article, but it's a terrific article. It's eye opening if you don't know how reliant Volkswagen Group is on the China market.
Lei Xing:
So I just remember one quote very clearly, which was China might not need Volkswagen, but Volkswagen needs China. That stood out for me of the importance of the market there.
Tu Le:
I could be mixing these up: 50% of sales, 40% of profit come out of China. And last year, 350,000 units less in sales from 2020. So that's why I joke around about Volkswagen needing to press the panic button, because that's 10% sales loss in a year. And what is hiding that Lei, is record profits, right? Because that's a systemic issue, right?
Lei Xing:
That’s the conundrum. That's the conflicting how you look at things.
Tu Le:
The reason it's such a really, so it's a long read, so FT is not normally known for their long reads. But this is a few pages I recommend it to everyone. The change in leadership in Germany also brings a change of attitude towards certain countries. And that change puts Volkswagen Group in a precarious position, because they rely on China so much. So one, something's got to give either the leadership in Germany have to ease off on their attitude toward certain countries, or Volkswagen Group’s going to pay for it, to be quite frank, because I don't see them making up that volume in the U.S. or in Europe. Because China is so important to them, right?
Lei Xing:
Yeah, the thing is, though, like last year, their Group BEV sales quadrupled. Yeah, so over 90,000 units, including ID.s and their goal is only to double that. So you feel like it's not so much, right? Doubling should be reachable. It doesn't look like..
Tu Le:
On a 5.5 million market, it shouldn't be that big of an issue for a company like Volkswagen. But for Wollenstein to actually, and it's not him, right, it’s his whole team to be pretty conservative, when they have over 300,000 units of capacity to build in China. Already, that's concerning, right? If they're talking about 180,000, when they have 300,000 units of capacity starting in 2023 or 2024, so will they be able to make up for it? I don't know, because this we've been tracking it for forever, the mass market, the Xpengs and the NETAs, they're going to crowd the market out below the RMB250,000 price point. And Wollenstein basically admitted that the feature set on the ID. series is not where it needs to be in China.
So I think that was pretty, but I recommend reading that FT article. It's good, because it's not just a Volkswagen Group per se, but it talks about the industry and kind of the relationships between certain countries. And it's a good article. I give some background on it, too.
Lei Xing:
So going back to the market a bit, so on Monday was the annual March 15 Consumer Rights Gala that is put up by CCTV, and for as long as I can remember, no automotive brands were shamed on the show.
Tu Le:
That's why I wasn't paying attention.
Lei Xing:
Right. I guess that kind of reflects a bit on this, how important the market is to, we talked last episode about it being a pillar industry to the economy. So for the time being, it's to encourage the purchase of NEVs, but the same time prices are rising, subsidies are going away. But again, we said the tipping point has gone past us, it's going to affect somewhat, but the volume is going to be there, it is just not going to like to grow, from the current situation, as much as we expected earlier in the year.
Tu Le:
And we have to also explain a little bit about the leadership here, because Xi Jinping would normally be leaving office, but he's going to extend for another 5 years. And so he wants that stability in the economy. So there's political reasons that the economy, that the government, central government wants it to be stronger and case in point: Monday and Tuesday, NIO, Xpeng and Li Auto share prices fell off a cliff, and they're down, on average 50% since the beginning of the year. And then Liu He had made an announcement, he's one of the politburo members.
Lei Xing:
Yeah stability of the financial sector.
Tu Le:
So right, Xpeng, Li Auto and NIO gained 15% in a day. So it doesn't, so that showed that the Chinese government is not going to abandon these sectors. So I think that gave the street some confidence, but the structural stuff is still there, right? Is NIO, is Li Auto, is Xpeng going to get kicked off of U.S. markets? That risk is still there.
Lei Xing:
LeapMotor just filed for listing in Hong Kong. You saw that, right? Some of these other ones are being rumored.
Tu Le:
So the U.S. and Chinese government are negotiating right now this week about those companies that are being, those Chinese companies that are being traded in the U.S. markets. I don't see the U.S. budging. But it is a bit of an unfair advantage for Chinese companies, in particular, to not be able to be fully scrutinized like other American companies and other foreign companies from an accounting standpoint.
So I don't know. Long-term, NIO, Xpeng and Li Auto, their borrowing cost might go up short term, but they're going to be fine from a company standpoint, if they keep on doing really well, right? That's the short-term thing because they'll get a hiccup, and then they'll move over to Hong Kong Exchange if they can't stay on the U.S. exchange. But if I was William Li, I'd be willing to open up my books to the U.S. auditors. But again, you and I think that the Chinese government might take that decision out of their hands, right?
Lei Xing:
So let's switch gears a little bit. We wanted to talk some of the new products. I think BYD just launched a bunch of new models, some of the positive news, the Destroyer, what's that, Huweijian, what’s the English for it, Frigate?
Tu Le:
Yeah, it's a weird name.
Lei Xing:
And then some of these foreign brands are teasing these global premieres. So again, going back to Volkswagen, the ID. Aero, I think that will be the first, that previews one of the first models from VW Anhui entity. And then the Audi A6 Avant e-tron.
Tu Le:
Yes, e-tron, it looks great.
Lei Xing:
And Li Auto just teased more of the L9. And some people are saying that there is some copying going on with the Xpeng G9, but
Tu Le:
So the L9 is actually pretty nice. It looks huge. It does look a little bit like like a Mercedes GLS right?
Lei Xing:
And I saw some comparisons of the LiDAR bump on the watchtower LiDAR bump that some say, wasn't done as well as NIO or some of the others.
Tu Le:
People are just hating, right? So, but it's an SUV versus a sports sedan. So if they can execute, they're going to do fine with that L9.
Lei Xing:
That big news rumor on a DiDi, what's your take?
Tu Le:
DiDi Motor Company!
Lei Xing:
DMC that sounds like perfect for a company.
Tu Le:
So it completely makes sense to me, because,
Lei Xing:
Everything makes sense.
Tu Le:
Like I don't know, I just figured i've spoken to enough of these platform companies, you and I have, separately. And they want more control. They don't want to actually build cars because it's really expensive and really complicated to do, ask Rivian, ask Tesla, ask Lucid, but it's the only way they can control the entire user experience.
And so with DiDi, they're looking for ways to directly compete against the T3s, the CaoCaos, because these platforms have OEM partners. So specifically in the China market, to me, it's a necessary evil. And if Didi is going to widen its platform, this, especially if they can get a factory on the cheap and kind of Frankenstein a car together, first of all, they can sell them at costs to the drivers. So it's not. So they already have kind of a market for their vehicles on the fleet side. So they might not make a lot of money on the fleet side, but if these guys are productive and selling rides, then it should be okay. It's different because they already have a ton of market share. And so they could just pump out these cars just about close to cost. But what do you think, does this make sense for them?
Lei Xing:
I don’t know if it makes sense, be honest. But it doesn't surprise me that they're doing this similar to what Baidu is doing. You talked about control. I think they’ve worked with BYD, it could be something going along similar route as the Jidu where Baidu is working with Geely, but it's a bit different than DiDi D1, because it's entity a joint venture that would be making cars, whereas the Didi partnership is a bit less. But the two issues that the Didi Motor Company will be facing is one, this recent, new, it's not signed into law yet, this new rule on contract manufacturing. I'm seeing there's some more stringent requirements, that are coming out, of getting a permit or certification. That's one. The other, I think even for BYD what they're doing is who gets to own what on the data side. So I’m not sure if DiDi is getting everything or not.
Tu Le:
They're sharing it, right, I think. So they're getting a piece of it.
Lei Xing:
And also with Didi has tons of other things to take care of, right? That delisting and the listing in Hong Kong.
Tu Le:
Yeah but they got rejected, so.
Lei Xing:
Soi also the other issue is their organizational structure on the planned DMC, they have what, 1,700 people, reportedly?
Tu Le:
Yeah it's a huge team already.
Lei Xing:
The leadership, there's nobody that has any automotive experience, which is good or bad. But I think organizational structurally, they need to change if they were to really do this.
Tu Le:
It boggles my mind that there are no car guys with 1,700 employees.
Lei Xing:
Then the backdrop is the Apple car team being dissolved, the guy who tweeted it, that was actually big news in China as well. A lot of reports on that.
Tu Le:
Who knows, man? Beijing is going to become an EV hub. Li Auto is going to be building here. DiDi has a big team here. So to me, this is a defensive play, not an offensive play.
Lei Xing:
Yeah it’s no longer surprising that Huawei is already in there. Baidu is in there. Didi, probably anybody that has anything to do with mobility. Then you start thinking about, okay, they're going to be wanting to take part in the manufacturing game, somehow, somewhat, some way.
Tu Le:
So the reason they're restricting that contract manufacturing is what happened what a couple years ago when they restricted those manufacturing licenses, right? They didn't want too much capacity in the system. And maybe that's one of the reasons they're limiting those contract manufacturing licenses, because there's plenty of overcapacity on the ICE side that can be converted over, like Jidu is doing, or like Li Auto is doing with the old Hyundai plant.
Lei Xing:
But there's still a lot of greenfield plants going up.
Tu Le:
Which is very concerning. Because if I was Europe or I was Japan, maybe less so. But if I was Europe, I would be afraid of a lot of imports coming into the market, flooding the market. So the other thing that I wrote down as a note, was the news about TuSimple. They are looking at selling their China operations and focusing on the U.S. market.
Lei Xing:
I think that's very actually pragmatic. To me, they're definitely the leader, here in the U.S. as far as putting really driverless trucks on the road and operating. But I asked Cheng Lu about China and he's very diplomatic. He said China is a huge, China and the U.S. are the two largest logistics markets in the world, right? So he's like, I’m sure that there will be opportunities there, but that's it, there's no concrete. They do work with a project I think in the Shanghai Ports. They also work with Scania on some partnership, but I don’t know, it might actually be good to just focus on taking that leadership to the next level here in the U.S.
Tu Le:
To me, what was my takeaway was the fact that the U.S. government was kind of scrutinizing how it would work. And so it sounds like they kind of bullied them into separating. The other thing, too, is I’m thinking through here, talking to a couple of my friends working on the investment side. And would it be the U.S. entity licensing the technology to the China entity? And then having the data kept separate and the algo working locally because yeah, China algo would probably be more robust than the U.S. algo because like Maxwell Zhou said, there's naked left turns with mobikess and stuff coming around, so practically speaking, how would that work? I'm not sure yet. I'm talking to, I was pinging a couple of my friends who kind of structured these kind of deals, these licensing deals. So I'll talk to them over the weekend and I'll let you know how they think it would work. And they're trying to get $1 billion for China operations. I think they're smoking crack. I don't think they're going to get $1 billion, I don’t know.
Lei Xing:
The decoupling that Volkswagen’s Wollenstein talked about in the interview, and he said this will lead to these national champions, right? The way he put it. So there's going to be bunch of Chinese Waymos, there's going to be a bunch of Chinese TuSimples, partially because of this.
Tu Le:
Exactly, and we can point back to GM investing $300 million in Momenta, right? If that should have been an obvious point, this kind of points back to why maybe Waymo doesn't have operations here, maybe why Aurora doesn't have operations here, right?
Lei Xing:
This also goes to the battery side where Mercedes, I think this I can talk about, because it's already announced that the battery cell collaboration with Envision AESC in the U.S. and still working with, obviously CATL and Farasis in China. And they're going to have what, eight, I think eight battery plants announced globally. So that's the balancing act. It’s not only to spread out your cell supply locally, but working with the local partners in each region of where you're producing. Ssimilar things are going to happen in the AV space.
Tu Le:
We’ve explained this before in the past episode, but I’ll explain it again really quickly, Lei, because I think it's really important. I'll give you, for instance, TV remotes, you can put a Duracell battery and an Energizer battery into the TV remote, AA and they’ll work no problem. Like the same way. But if you originally designed your electric vehicle to use CATL batteries and CATL firmware, and the BMS is optimized for CATL firmware and CATL batteries. And then you build the same car over in the U.S. And now you have to use Envision batteries, Envision firmware. It's not a plug and play thing, there could be a ton of bugs, so level of difficulty, degree of difficulty gets increased when you're using, when you're swapping out the strategic components. And another, if we move upstream a little bit, Lei, will the LiDAR? Will they be able to use Luminar LiDAR in China? And will they be able to use Hesai LiDAR in the U.S.? That could become another point of contention, right? I'm not saying it will, but it's data, right? And it's mapping. This will become sticking points for vehicle design, for technology and feature sets.
Lei Xing:
So it wasn't as much as a sticking point before, but now it is, more so, with the madness.
Tu Le:
Yeah, it’s more so. It's more so because now EVs are going to be effectively 10% or 20% of sales moving forward, at least for every single region.
Lei Xing:
By the way, Li Auto, I believe, uses Hesai’s AT128 LiDAR, and a lot of these Chinese bands are using the domestic LiDAR suppliers with the exception of the what, the Feifan, which is using Luminar, right? So we'll see how that goes. But I mean the domestic LiDAR players, they're going to dominate anyways.
Tu Le:
And this is where in China, there's and I’m making up this number, but there's always two dozen suppliers of everything, right? There's, so those guys are going to die off or they're going to be put on the lower, tier two, popular tier two, tier three city cars that aren't going to be super effective. And then in the U.S., we're going to have a competition between Luminar and some of these other companies, right? Because even Maxwell said, I buy this thousand dollars solid-state LiDAR, but I don't know if it'll last a year, remember he said that?
So there's risk associated with that stuff. And if you are trying to, if you're a Tesla in China or you're a, not on the camera side, Tesla is actually a bad example, but if you're Xpeng, you have the P5 and you have the LiDAR, you want to sell services and ADAS and full self-driving or Xpeng’s version of it, that LiDAR needs to last, right? And needs to be pretty technologically advanced, or you need to replace it. If you go from L2, L3 to L4, Maxwell said you can't use the same hardware, right? So that's going to be a sticking point in the future, especially for non-Tesla buyers, because Tesla is only doing vision only right? So cameras, I don't think they'll need to swap those out per se, but LiDAR and all that other stuff you probably do. So man, what a complicated mess.
Lei Xing:
Just getting more cloudy that this cloud over thickens over the industry.
Tu Le:
I could see TuSimple being a trial balloon for how they treat Pony, how they treat AutoX, how they treat WeRide. Because there, so Pony is probably the only one that has commercial operations, significant commercial operations in the U.S, everyone else tests, but Pony is actually generating revenue with their pilot services, I think, in California.
Lei Xing:
Yeah I saw one of their cars in Irvine.
Tu Le:
So it could be cleaner for them because they're not publicly traded yet, right? Maybe what I would venture to guess that Pony and these other guys might be talking to Chinese PE or Chinese banks to try to help them sell off one side or the other, right? So I just don't know how any company in the current environment could straddle and be successful commercially in both markets, but I could be wrong.
Lei Xing:
We've pretty much been updated or up to date.
Tu Le:
Yes, I went through my list of updates
Lei Xing:
Obviously, there's much more going on. But we…
Tu Le:
I do also want to mention that one of the things that's very noticeable with the ET7 and the L9 are these premium sound systems that are going to use Dolby Atmos. So I think these car companies, at least on the premium side, are going to lean into the sound systems. So that's going to be a thing for Chinese consumers.
Lei Xing:
These immerse of experiences the ET5 with the VR and AR glasses, right? That haven't come out yet.
Tu Le:
Because you and I have been in karaoke rooms where it’s just loud and didn't sound great, right? Because it couldn’t have been my voice, right?
Lei Xing:
But Audi is doing the same thing. They're putting the Holoride feature, right, in their upcoming vehicles or optional feature where the car becomes kind of the background setting for a VR experience. So those type of things.
Tu Le:
And we should also note that the LYRIQ is going to start manufacturing in the U.S.
Lei Xing:
I believe they have an event next week or something, of start of production officially.
Tu Le:
But they are only forecasted to make 5,000 of them this year in the U.S. And I think another 5,000 here in China. This was before all these raw material, that 5,000 number has been out there for a long time. I've heard that people really like the LYRIQ. So I talked to Mike Colias at the Wall Street Journal last night, he tried out the LYRIQ at the tech center and Warren, he said he really liked it. He didn't get a chance to drive it. He was ridden in it. But he said it's nice, $60,000. They should be able to sell more than 5,000. They're being really conservative, I guess, right?
Lei Xing:
I was flipping through some photos, historical photos. So 3 years ago, this week, Tesla announced the Model Y, with the starting price of $39,000. You're like what? This? Where is that $39,000 model?
Tu Le:
So I’ll give you an example here, because I don't think it's a bait and switch, but maybe it is with Tesla. My son, he plays basketball. He wanted to get some new basketball shoes. So we saw these Nikes and they came in this color that he liked, at least in the picture. And so I asked the salesperson, do you have that color? Yeah, yeah, we got it. So I transacted with her on WeChat. It's going to get kuaidied to me, right? And then a day later, she said, we don't have that color. How about this one? A bait & switch, a classic bait and switch. I was like, I fell for it. So, $39,000, let's get you in the shop. We don't have that one, but how about this $50,000? Yeah. So man, the EV prices are going to really scare off a lot of people in the U.S., I think.
Lei Xing:
And we're supposed to make them affordable, right? There's not an affordable EV that are, right, everything is about $50,000 these days.
Tu Le:
I talked to my friend who bought that IONIQ 5 a few weeks ago, and he said that he looked at…
Lei Xing:
Oh I saw him replying on a LinkedIn post, Roberto?
Tu Le:
He loves his IONIQ 5. He said that it still can't OTA so he's a little disappointed in that, because he is a techy guy, and he's Italian. So he loves how, he had a WRX, so he obviously loves quick cars that can handle well. And that IONIQ 5, he said it's a lot bigger than he thought it was going, to be, but it doesn't feel that big.
Lei Xing:
I’m 6’2”, so I feel there's a lot of space in it.
Tu Le:
But he said that there was about $15,000 or $18,000 difference if you include the FSD costs and other stuff. So he said there's close to $20,000 difference between the Model Y, Model 3 and the IONIQ 5 at the end of the day. And so that surprised me. But because he said he thought about the Tesla and he looked at the side by side, he’s like it’s significantly more, but yeah.
Lei Xing:
And the U.S. market last weekend, they had the NADA event and the guy from EVAdoption, they did a kind of overview, 3 million EVs by 2025. That's a lot compared to China, right? It's always and still dominated by Tesla after all these years.
Tu Le:
I’m trying to reconcile some of the numbers that Tavares, that Jim Farley, that Mary Barra are throwing out there, 400,000 to 500,000 units by the middle of this year. They're not going to be profitable on these cars until at least late 2020s, right? 2028, 2029. So it's going to be really, really difficult for them to make this transition, especially if the best thing that can happen is the best and the worst thing is that it could be slowed down a little bit, because it allows them to sell more ICEs. But the China market is really pulling that ahead. So it's creating this dichotomy between the China market, the U.S. market, and I don't know how it's going to be handled. It's going to be super challenging. I just don't know because their production volumes are super conservative. And to get, in three years, we're talking in three years to get to 400,000 or 500,000 units. Where's that going to come from, the Equinox?
Lei Xing:
The Blazer?
Tu Le:
Yeah, because the Hummer is a $120,000 truck, it's not going to sell 80,000 units, right? So it'll be interesting to see. And then I don't know where they're going to get this service revenue from if they're going to sell FSD type services, that's one revenue stream. Where are the others? So they're going to have to get really creative, but that's an EV problem. That's a mobility problem. That's not a GM problem. So.
Lei Xing:
The legacy automakers are the green colored trains if you know what I mean, in China, whereas the startups are the bullet trains. That's how I would compare.
Tu Le:
To your point, Lei, this is why Volkswagens is under so much pressure, right? Because they rely on China so much and they're getting pushed by these bullet trains, the U.S. outside of Tesla who's pushing them?
Lei Xing:
But I don't mean it in a negative way is just how they are operating.
Tu Le:
Everybody is going to have the challenges man, everyone, look at Rivian, everybody's going to have their challenges, Lucid.
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.