Episode #59 - EV100, XPeng earnings, Talking about Lotus & Vinfast

Tu and Lei start this show out by paying homage and giving a big shout-out to their friends that live in Shanghai that are currently on lockdown. 

After the headlines, Lei gives everyone a lesson on the EV100 Conference that is normally held each January but was delayed and finally put online last week. One highlight of the EV100 was the announcement from Horizon Robotics about licensing their IP to OEMs so that the OEMs could piggyback off of their existing chip technology in order to design their own SoCs.

Tu shifts the conversation over to compelling design takes a happy marriage between hardware and software and one without the other would likely make for a bad UX.

The discussion then shifts to XPeng earnings. Lei summarizes the ‘flagpoles’ that XPeng is planting this year likely hit their margins in 2021. The momentum of the P5 & G9 should help them build on their margins as XPeng only needs to focus on marketing these vehicles and launching them on time and on budget. 

Tu then shifts to talking about the launch of the Lotus Eletre and the reactions on social media from the various interested parties. Lei discusses how surprised he was about the Lotus’s extensive sensor kit for ADAS/AV and how now LiDAR and premium sound have become qualifying features in the near-premium/premium segments. 

Tu closes out the pod with his take on Vinfast and their aggressive moves into the US market including their recent announcement of building a factory in North Carolina. 

Climate Confident
With a new episode every Wed morning, the Climate Confident podcast is weekly podcast...

Listen on: Apple Podcasts   Spotify

Sirva Soundbites
Explores the latest trends and topics on global talent mobility and the future of work.

Listen on: Apple Podcasts   Spotify

Transcript

CEM #59 033122

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, 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. Lei, good evening, can you please introduce yourself?

Lei Xing:
Yes, sir, Tu. Good evening from my side, and good morning! Happy April Fool's day!

Tu Le:
Oh right!

Lei Xing:
There's no “Voltswagen” this year.

Tu Le:
Man, that was a year ago.

Lei Xing:
Yeah, so how time flies? It's the last day of March and of the first quarter here in the U.S., still a few weeks from Spring, at least in my area. Shanghai is in lockdown, so Puxi is in lockdown today starting today to be specific. And Pudong I think is getting out of it.

Tu Le:
We should really quickly explain what Puxi and Pudong means. So there's a river that cuts through shanghai. It's called the Huangpu River. And Puxi means west of the river, and Pudong means east of the river. So literally that's what it means when it says there's two sides.

Lei Xing:
And the other way to look at it is Puxi is the older Shanghai and Pudong is the newer Shanghai.

Tu Le:
Before 1995 Pudong didn't really exist, it was a swamp.

Lei Xing:
That's why Tesla, remember Tesla’s Giga Shanghai in Pudong, Lingang. So they are having one extra day of shutdown today, while the Saic Volkswagen is starting its shut down today because they're in Puxi. So no disrespect to the Puxi people, but they were actually, at least on my WeChat moments, they were celebrating to the tunes of clubbing music. There’s this Tudi Festival, streamed on the WeChat in anticipation of the lockdown, Shanghai people they find ways to…

Tu Le:
It's actually kind of sad. A couple of other things that I think about cause Shanghai is one of my favorite cities in all of the world. The Pudong skyline is iconic. The Bund is actually really pretty too. But they have two of the tallest buildings in the world in Pudong. There's a nickname for Pudong among the Shanghai residents, Laowei, the foreigners. They call it Pu-Jersey. Because after 8:00 pm everything just shuts down because it's more family oriented in Lujiazui where the business district is. That's called the business district. It literally just goes quiet and then Puxi is where the French concession is, beautiful neighborhoods with tree line streets, nightlife for days, amazing restaurants. So it's actually, you know this Lei, it's actually really jarring to see those photos on WeChat of Shanghai being empty, right? You would never ever see that in a normal day. There's always people on the streets, always mopeds. It's just like Beijing, just very, very hustle and bustle, right? But Shanghai has energy levels that I’ve never felt in other cities, except for maybe Silicon Valley here and there and you know like Tokyo, right? So anyways, just wanted to give my Shanghai friends a little shout out there.

Lei Xing:
Same here. Having been there every other month almost back in the days, if not every other week. So CPCA they're predicting a weaker, they expect in March as far as EV sales are concerned due to the, what's been happening, not in Shanghai, but across China, basically. And we've seen, I just tweeted out ZEEKR’s numbers for March. And they specifically said due to the COVID outbreak and the supply chain issues that was affected, basically. And you can pretty much expect others to say similar things. I think we will see more numbers come out, maybe as we go on during the show. Maybe we'll see some other numbers. But yesterday actually was a very busy day in terms of product launches, right? We've seen the locally produced BMW X5 L and the i3 sedan. HiPhi launched the Z GT, they are positioning it as a RMB1 million GT, they haven't even unvealed the Z yet, now they come out with the Z GT photos only and not the actual reveal, not yet. So a couple of more price raise announcements, right? VOYAH officially announced the FREE, but they're giving it another month, so actually go up on May 1, but they announced the price raise announcement today.

Tu Le:
These guys are filling voids, right? Because this would be starting the leadup to the Beijing Auto Show this year. And so they're kind of reassessing, I think, and maybe trying to time it for the June reset of the auto show, which might still not even happen, right? And a couple of things that I did want to mention, so ZEEKR, they've already told us they're going to be pretty low volume relative to their competitors this year, right? They're going to try to win, but if they're having problems, getting parts at low production volumes, imagine the challenges of a Tesla, a GM, a Volkswagen, who they all ship, at least Tesla ships half a million cars out of Shanghai this year, GM and Volkswagen are on different levels, right? Millions of cars. So if ZEEKR, who is looking at 4,000 or 5,000 units a month is having problems, you can imagine what the big legaci es are dealing with.

Lei Xing:
Some more chatter on NIO’s or William Li's response to their plans of making smartphones. We can talk about that. And then just big news is VinFast, right? Their CEO’s in Washington DC today, I think meeting with Jennifer Granholm, right? 

Tu Le:
It’s that woman, right? 

Lei Xing:
Yeah, forgot the name, but yeah, big news, North Carolina, $4 billion plant. They're moving fast. And then Lotus Electre, right?

Tu Le:
Yes. That got a lot of buzz, a lot of twitter chatter. So good.

Lei Xing:
I think with the LiDAR set up, right? That was interesting. The deployable LiDAR which itself has been in a lot of chatter because Li Auto teased more of the L9, which is equipped with the same LiDAR that’s on the Eletre, and then NIO did a bit of marketing on their LiDAR with Innovusion. And then the China EV100 Forum last weekend, it was delayed from January, but people who might be familiar with industry know that this is one of the premiere conferences usually held at the beginning the year. I've been to quite a few of them back in the days. Always a lot of people, a lot of big shots attending and making big announcements and numbers, no different this year, except it's pretty much online. And then I guess that's pretty much the headlines.

What do you want to talk about first? 

Tu Le:
Let's talk about the EV100 first, because I think getting people an understanding of how that came about and what it's all about, right? Because there are a number of meetings that you and I talk about regarding the Chinese government and then specifically the automotive industry. And in this case, the electric vehicle sector, right? So maybe you can give a little background of the EV100 and…

Lei Xing:
Yeah, similar during the beginning of the year, we talked about the Two Sessions a few episodes ago. The China EV100 is this semi-official entity pulling these government, research, OEMs, suppliers. This event is usually held in January, mid-January, it's usually right after the Detroit Auto Show, right around Detroit Auto Show time mid-January and it's got the big shots, right? It's got the different ministerial level officials from the various commissions and government level organs. Then these CEOs, they’ll make a speech, all these breakout sessions on different topics. Part of it, I feel like it's a bit of, I will call it people go there, it's to give directions.

Tu Le:
Yeah, for sure.

Lei Xing:
Also it’s kind of marketing itself for your company, when you make a speech, you have to be there. And it was no different this year, right? So we heard right off the top, some of the numbers were given, I remember was this 80 million in NEV parc, so the number of NEVs on the roads by 2030. This was given by Li Yizhong, the former Minister of the Industry & Information Technology, huge numbers. Then Wang Chuanfu, right, he said March NEV penetration was in the passenger vehicles, EVs was 28%, and he expects that to reach 35% by the end of the year. Right now I think there's some confusion of whether that 35% represents the full year penetration or end of the year, let’s say in November or December. I believe it's more end of the year, single month, I don't think it’s going to reach 35% this year, but it's pretty obvious that is rising, right?

Tu Le:
I'm a bit pessimistic on some of these forecasts. I know the silver lining is that we're in March. So there's a lot of time to make up production that was missed in past months. And because January, February, leaning into March is notoriously slow for sales. I don't think they're missing out that much, but this is normally a time for those companies to build ahead a little bit, right? Some inventories, some buffer as demand rises throughout the year. And being boots on the ground here Lei, I just don't know that we should be that confident about being able to hit 6 million units, not with things the way they're going.

I don't see this whether it's the invasion, which creates the part shortages or COVID that is shutting down plants, willy nilly, 3-4 days at a time. I just feel that everything seems so unpredictable that it's going to continue to create challenges throughout the year. I think I saw an analyst or a consulting company actually take off about 1.5 million units from their global sales forecast for 2022 because of all the challenges that are happening in the world. And I didn't get to see how they broke down, where the 1.5 million came out of. But China is the number one market in the world for vehicles. So it's got to be a disproportionate amount of sales that are getting missed here. So I’m guarded in my optimism.

Lei Xing:
I would tend to agree. But Q1 is usually the low of the year, but March is usually hot, the high of Q1, that's been the seasonality historically for years. So March is going to be much better than February for sure, but it's not going to be as high as expected. And we all know the reasons why. Now, I guess when we look to Q2, and Q2 or the second half of the year where some of these new models are being delivered or ramping up, and then you still face that production crunch and you would feel that the ramp up is not going to be as fast or high as it would be without the outbreak and without the (parts shortages), right. But on the flip side, you have BYD now saying their minimum is 1.5 million shooting for 2 million, the overall market is what, 5.5, so it's a little bit mind boggling, but we'll see the numbers. I think March numbers they will probably be somewhat lower than expected. So not going to be any surprise.

Tu Le:
Which is, and to your point about BYD talking about these crazy numbers, we just talked to a person or I just was direct messaging someone who is in Shenzhen. She was supposed to send me something, and then I hadn't heard from her in 3 weeks or 2 or 3 weeks. She comes back on WeChat, she's like, hey, apologies. I wasn't able to send you this because I’ve been on lockdown in Shenzhen for the past 3.5 weeks. So it's really weird for BYD because their main manufacturing is in Shenzhen, right? So for them to be able to still say with confidence that they're going to hit these record numbers is really mind boggling. But I'm assuming he knows what he's talking about, obviously, right? So which is confusing to me, right? Because if he's so confident, how's this happening? I guess this is what I’m trying to figure out.

Lei Xing:
So and then going back to the China EV100, the other thing that stood out was this kind of interaction between Li Auto’s Li Xiang and the previous Minister of MIIT Miao Wei. It's free advertisement, free marketing for Li Xiang, which is basically the minister said, he agreed that AEB should be standard, a requirement on all vehicles, which is something that Li Xiang put out as a suggestion. And then Li Auto was like pushing that message to the media, say, hey, the Minister agrees with us. On the other hand, Miao wei, he also kind of took a swipe at all the companies complaining about chips and these shortages. And he's like, hey look at these other global automakers, they're moving, they're taking moves, they're going upstream, right? So just don't stand there and complain. That was his other message. And then you have Ouyang Minggao, which is very prominent expert on EVs. He was predicting that this supply chain, everything included chips, battery, could prolong for 3-4 years. So it'll be something that industry will face for extended period of time.

Tu Le:
Dude, we've been saying that for the last 18 months, right, or 12 months, so I told you guys, last year, this is not a blip. This is not some 3-month thing.

Lei Xing:
No. And I’ll tell you my favorite part news or information that came out of, my favorite speech, I guess that came out of China EV100 was the speech by the CEO, the founder and CEO of Horizon Robotics. He gave a very interesting snapshot of how OEMs worked with these chip suppliers, and by chip suppliers, I mean the Qualcomms, the NVIDIAs, the Mobileyes. So Horizon Robotics, they're working with Li Auto, right? They have two chips in the Li ONE, the 2021 Li ONE. And they are planning to license the IP of their SoCs to the OEMs so that they can support the OEMs to develop their own SoCs, right? It's a very interesting move, and they're also announcing this TogetherOS, he basically showed this how the Mobileye model is basically the BPU which is the Brain Processing Unit, the SoC, the hardware and software that's all done by Mobileye, and then they just give it to the OEM.

Tu Le:
Yeah, it's like plug and play.

Lei Xing:
Yeah and then the next level will be a different one so that what Horizon Robotics want to do is they want to offer this OS as well as the SoC licensing to the OEM so they can develop their own chips, sort of.

Tu Le:
SoC stands for system on a chip. So there's graphics, there's memory.

Lei Xing:
He gave a nice analogy of how in the PC age it was Wintel, right? In the mobile phone or smart phone age it was ARM and Android. And in the smart EV age, it's not so clear cut yet. What are the dominant kind of who and who, right? So everybody's Volkswagen doing VW.OS, Mercedes doing MB.OS right? And then there's bunch of these chip suppliers. So there's no clear cut winners there yet, so he's trying to…

Tu Le:
Let's unpack that a little bit, because I do have that chip background for a little bit. One of the things that is very difficult because the irony of Horizon Robotics talking about working with OEM and licensing IP to them, is that the new CEO of Volvo effectively said this week that they needed to get their hands dirty, being in more control of the software, right? So think of it this way, Apple has a closed system, they control the hardware, they design the hardware, they manufacture the hardware, Foxconn manufactures on their behalf, but effectively, they create the box that Foxconn plays in. And then they create the software, so they design, they code, and then they produce and manufacture themselves. And we could argue whether or not you're an Apple fan, but it is a pretty compelling user experience, okay? Now with cars, the other side is not the Android side, but look at it from the Windows side to a Dell or a HP it's kind of similar, right? When you think of what William Li said this week, we're going to get into phones, right? They want to control that UX up and down between the phone and the car.

And so that is the craziness of it because if you want complete control, so that you can have potentially the premiere user experience, you need to own that yourself, right? And for automakers, that means creating or developing new skill sets really quickly. Obviously a quicker way to do it is to partner, but then you lose a lot of control and a lot of design flexibility, because a Horizon chip might not be able to do X, Y and Z, and so it'll be interesting to see what wins out from the standpoint of creating the best UX right? Because at the end of the day computing power is one thing, but as a customer, I don't really care about the backend stuff or what's under the hood. What I care about is my experience is seamless, it is delightful, and am I going to be loyal to this. So that's what I want to hear more of from these guys, because being partners is one thing, but having a good understanding of direction on where they want to take the software and the hardware and the experience. Those are kind of the three things that, and I'm talking at this 30,000-foot level, but I think most people understand that the customer doesn't care. It's just that, and we have to remember, you can have a great design, and in theory, everything makes sense. But if the software that's running that doesn't work, or it doesn't work well, your UX is going to suck, right? So that all needs to work together. And a vehicle is not like a mobile phone, a vehicle is almost like a human body. There are a lot of different systems that need to work together, right? And the human body's respiratory system, there's the brain, there's the digestive system that all need to work together, right? For us to be at our optimal. Cars are the same way. And mobile phones are simpler that way, right? Because the systems aren't as extensive. So anyways, I’m getting a bit wonky there.

Lei Xing:
No, this is perfect. What you just said is perfect to talk about William Li’s comments. And he said to himself that it's easy to make a phone, but it’s hard to make a good phone. I think in that interview, he hinted, first of all, he sees Apple as a competitor and he hinted that this would be kind of a defensive play, whereas the Xiaomis and the Huaweis going into the smart EVs is an offensive play. So I feel like this is almost saying that, like the AR and VR glasses, right? So I'm going to put something, add something to that, which would be kind of a smartphone. I think that's what is hinting at, but whatever is being reported, he said it, we're in a preliminary market research.

Tu Le:
I also believe William is trying to attach himself to Apple, right? And NIO to Apple, so that when people think about NIO, they think about Apple, right? Or vice versa. So he's trying to create that connection, which is great. Now can he fulfill? That's ultimately the question, right? Because Apple has, from an ecosystem standpoint, they're the best in the business, right? Or one of the best in the business. So, yeah, they don't have a vehicle or a car, but that's not because they don't have partners that would trip over themselves to work with Apple. It's just that, and this is the weirdest part because Apple is normally very very decisive, but it'll be interesting to see when they actually do put a car on the road, how it's going to work with the entire ecosystem that they have, right? Let's talk Xpeng earnings.

Lei Xing:
Yeah, so Xpeng earnings, I again, I don't know what your thoughts are, but my thought is basically they just put more flagpoles on the ground. So P7, they're expecting 10,000 units a month by the end of the year, P5 is approaching P7 delivery numbers, right now it is about 6,000-7,000, and G9, again, He Xiaopeng, he's saying that it's a five-seater mid to large SUV which is the ES7 and (BMW) X5 that just launched. More models next year, right? Four models together with the XPILOT 4.0 and then I think to compare with the three companies that Xiaopeng sells the most, sold the most last year I think, but they lost the most money.

Tu Le:
 98,000 and change, right?
 
 Lei Xing:
They lost the most money and they had the worst margins among the three. So I think NIO and Li Auto were both above 20%. I think they were just around, Xpeng was around 11%. Their Q1 guidance is the highest of the three, but one thing again, remember the P5, about a year ago this time when it was launched and was unveiled, the city NGP, we've been talking about this. They had those viral videos by showing what it could do in city driving conditions. But if you heard in the earnings call, they're still doing the last minute tweaking and waiting for approval before this can be used in certain cities. The first batch of cities will be pushed out, I guess, through the OTA in Q2. So the talking the talk is one thing, but walking the walk is another thing. So I’ll say that we always treat these announcements with a grain of salt, right? It takes bit of time for the users to really to be able to use these functions. So I think that's it's pretty much their…

Tu Le:
Let me add my two cents. So it makes sense that 2021 was more from a financial standpoint,  Xpeng margins were smaller because they rolled out the P5. Li Auto didn't roll out anything, right? They just doubled down on the Li ONE, and the ET7 wasn't really doing anything except in development. And so you would expect because the L9 this year, the ET5 and ET7 this year, and then the ES7 that NIO's numbers on its balance sheet are going to weigh, and Li Auto’s are going to weigh down a little bit, and Xpeng is going to get some of the benefit of launching last year. A couple of things that I did want to mention the P5 in Q4 of 2021 was over 50% just over 50% of total sales for Xpeng as you and I anticipated that the P5 was going to be their high runner. That's kind of played out.

Lei Xing:
The P7 has been surprisingly strong.

Tu Le:
Because first of all, it's a sedan, right? Because the EX3, you and I know it's a little long in the tooth. And they made like a mid-cycle enhancement to it, but not really at the

Lei Xing:
 You mean the G3.

Tu Le:
G3, yeah, so they upgraded it a little bit, but it was the first car that they launched. So it's a little bit older and you see nowadays, new cars, to be able to say that we're going to launch three cars in one year, that tells me that on the back end, there's a lot of parts sharing and there's a lot of hardware and software sharing, because 15 years ago Lei, when car companies were talking about launching cars, they're not launching, I mean your Volkswagen-size. If you're launching 3-4 cars a year, right? You are GM size. And so for these little guys to be able to say, NIO, I’m launching the ET5, E57 and ES7 during the pandemic and part shortage. So that's still really, really impressive. I'd love to be able to sit down with them and figure out how does this work, right? How do you stack these together? Because we won't know whether or not being that aggressive is good or not for the next 12 or 18 months, right? Because once all those cars are on the road, we'll find out quality issues, will find out reliability, software, bugs, and whether or not it paid off for them to do that so aggressively. But I did, so I mentioned last week that I was borrowing a Li ONE, I returned it yesterday. I actually did return it.

Lei Xing:
So how are you going to take a trip? No, probably can't take a trip.

Tu Le:
No, so we're going to hike on Saturday, we're going to take a nice bike ride all in Beijing as a family, but I’ll be honest with you, Lei. It was expensive to park the car, right? Because I don't have a parking spot, so I had to pay for parking of this Li ONE, right? It was like 500 kuai (RMB) for like three days and I was like, yikes. And I couldn't drive out to Shunyi yesterday. So for those folks that don't know about this, DiDi has this service called Daijia, and my contact at Li, he called a Daijia, means basically take me home, right?

Lei Xing:
It's like a designated driver.

Tu Le:
This guy comes to my apartment right outside the parking garage. And he calls me, I’m like, are you the Dajia? And he's like, yes. And so drives to Shunyi on my behalf for me to drop the car off. So these are the kind of thing because Shunyi at 3 o'clock in the afternoon is a good hour and a half away or a good 60-70 minutes away. And so use Daijia. I'll write about it in the newsletter a little bit in more detail, but definitely very impressed with the fit and finish, the quality materials. Everything seemed very high quality even, and I noticed this because I worked at Lear and we did interiors. So I know where the fake leather is. I know where the sound deadener is. I know where all these things are, the tracks for the seats. I kind of understand and see, but everything seemed to be great. The kids loved it. The Li Xiang Tongxue, which is Li Auto’s NOMI.

Lei Xing:
The AI assistant or something, the voice assistant.

Tu Le:
Did I tell you this last week? So my wife she grew up here, right? Her accent is very formal, very Beijing. But the assistant didn't really understand her half the time which was kind of funny. But then my son who's 10 years old in the backseat like he's saying it super-fast, right? Like you got to say it slow. He's like Li Xiang Tongxue, Li Xiang Tongxue. And so she's like, hey, what's going on? Person in the back seat. So he's like telling her what songs to play and stuff. So that was cool. A little clunky, the voice command, a little clunky. And then we tried out the autonomous feature, the L2 on 3rd Ring Road, near Lido, you know near the IKEA right? Or the that's 4th-Ring Road, I think that's 4th-Ring Road.

Lei Xing:
I used to live close by.

Tu Le:
It gets like a parking lot right around there too, at certain times. Yeah the L2 seemed to work pretty well. That was still pretty clunky, but I think the L9 is going to have major improvements to the ADAS features. 

Lei Xing:
Yes it’s got that Hesai AT128 and updated stack, hardware/software stack.

Tu Le:
They are still planning to launch the L9 on April 16, reveal, if it's a live event, I’ll be going, if not, I’ll be virtual anyway. So I’m pretty excited about that. 

Lei Xing:
It probably will be hybrid or mostly virtual I think with the things that are going on, but pretty much, I think a lot of the launch or reveal events will go ahead, I think, because they're standalone anyways, irrespective of the auto show, whether it’s going to be held. So for example, that I think smart is revealing the #1 next week. So these are all ahead of the normal auto show time.

Tu Le:
And Lotus did a great job with the Eletre. Let's move onto that. China Twitter and China Weibo. I think were excited, pretty impressed. British Twitter was like, half of them were like, why would they do this? Why would Lotus build an SUV!

Lei Xing:
Obviously, the answer is China.

Tu Le:
Yeah. The fact of the matter is Lotus wasn’t a very well run company and the cars that they built were very, very niche, right? The market for them was very small. Love the friskiness of the brand and what it stands for but if Porsche’s bestselling cars are SUVs, if Lamborghini is building an SUV, if Aston is building an SUV, Bentley, Rolls Royce all billing SUVs, guess what? In order to survive, you got to get these high runners going right? And design wise, I think it looks pretty distinctive relative to what else is out there.

Lei Xing:
Yeah. I think that the first chatter or the first impressions and a lot of talk on it being looking like ZEEKR and Urus, Lamborghini Urus that was a Chinese…

Tu Le:
And they would be right.

Lei Xing:
And then the use of LiDAR obviously, two different LiDAR suppliers: RoboSense and Hesai, right? I think that's a first. Four LiDARs, that's a lot, and four deployable LiDARs at that, to make sure the aerodynamics still works, but I’m not sure that's a good thing in terms of dust and moisture, right? Those type of things collecting.

Tu Le:
So what we know Lei, is that sound systems and LiDAR are qualifiers now for Chinese mid premium, near premium to premium vehicles. These are qualifiers.

Lei Xing:
Aside from the upcoming XC90 which has a Luminar LiDAR, I think this is one of the first. It's owned by Geely, but it's still pretty, it's got what, over 70 years of history, is an iconic British brand, right? Sports car brand. Now being very progressive with 34 sensors, the latest sensors, whether it’s LiDAR, radar or cameras.

Tu Le:
And I’m sure you saw the green that they came up with yesterday. There's a green interior and green exterior that they came up with.

Lei Xing:
And it's the first model to be, first Lotus to be produced in China. So that's.

Tu Le:
You and I have some friends at Geely, so I’m bugging one of them. Unfortunately, he's more focused on ZEEKR, he told me. But this is one of those things Lei, that if it wasn't for COVID, and you were here, we'd be visiting these places every month, right? Like, man, check it out, we’d sign NDAs. So we couldn't say anything, but just to visit these guys, because they want to know too, right? I think we have a decent amount of respect from a lot of the industry folks here and in the U.S. and in Europe. So I’m sure they want to hear our opinions, too, right? So.

Lei Xing:
The one thing I didn't expect, I know this SUV is not a surprise, but what I didn't expect is exactly the sensor set up. At it's out of this world. It's like a Chinese smart EV startup would do to put all these sensors on there.

Tu Le:
But I go back to your point about talk the talk, walk the walk. If you're going to have 34 sensors for LiDAR, that's the promise. Does the software and hardware/software stack and ADAS system fulfill that promise?

Lei Xing:
That's why also on Chinese Twitter, there's been this kind of fight, not fight, but debate going on the Li Auto L9 and NIO’s couple of models three models now all with LiDARs and they're trying to compare, oh, which LiDAR has the best feature or has the most number of lines of laser. But you don't really compare it that way because you have to look at it holistically, right, of what the intended functionality that you want to achieve with these type of sensor setups. That's why I can go back to the Mercedes Drive Pilot using just the one in the grille because they want to achieve L3 on the divided highways going at under 40 miles per hour. And that's enough for that type of situation. Whereas the Chinese smart EV startups, they're all saying we're going to do city Level 2 driving. That's why we have these sensors and it's going to do this and do that. And that requires obviously more, right, in terms of quantity.

Tu Le:
You hit the nail right on the head, like the Chinese EV startups, and in this case, Lotus a little bit, is their answer is just more, not better. It's just more. Because at the end of the day, what you should get out of 34 sensors is enough redundancy, so where that there is no blind spots in the vehicle, right? And so to your point, it's not about how accurate or how far this LiDAR looks out, because that's just one sensor. If that censor doesn't work because it's dirty, because it’s this, because it's that, then do the other systems or the other sensors make up for it, right? Because that's the redundancy part. The other thing Lei, unless you want to keep on talking about Lotus is I’d like to talk about the TuSimple thing, because I think that's pretty important. And it's an indicator for the “Chinafornia” companies as to how they might sort themselves out between their U.S. and China operations.

Lei Xing:
Yeah. Baidu just put out a statement today, right, I think related to this issue, right? So it's, all of these Chinafornia companies are going to have to go through what TuSimple is going through, basically. 

Tu Le:
So a little bit of background, TuSimple, it's a Chinafornia company based in San Diego, based in Beijing. And they went IPO, they are a commercial trucking autonomous vehicle company. And they do a long haul trucking, and they IPOed last year and unbeknownst to us, CIFIUS was investigating them because of the data transfer between, and the code transfer between the U.S. and the Chinese teams. So it looks like..

Lei Xing:
One of the shareholders of TuSimple is a company under Sina, they have a 20% stake and I think Charles Cao, the Sina, he's chairman. I think he's one of the board members, I believe. And I think one of those agreements with CIFIUS was that he had to step away or. And a lot had to do with whether China entity, and also one of the founders, Chen Mo, who used to be the chairman. But now it's Xiaodi right, Hou Xiaodi, but the chairman, he's in China, and he started a I think, a company in July that was trying to kind of move into the trunk assembly. So they're doing something with the China entity. It's a complicated process, but what I’m hearing is from the Chinese press is that it's being sold, one of the bidders was CITIC, no, not CITIC, but CICC,which would buy it for like $1 billion and then somehow Chen Mo will buy it back and retain the team, the China team, and then have it operate independently. So.

Tu Le:
And they're trying to get $1 billion for the China team. And so you and I knew this. So there's two things going on here that I think is worth tracking that I’ll mention. The Chinafornia companies, what we are referring to is Momenta, Pony.ai, WeRide, AutoX, DeepRoute.ai. They're all startups. TuSimple actually went IPO, so they were a publicly traded U.X. company with major operations in China, a technical team in China. And so China last year, the Chinese government had banned the export of data, Chinese data and to anywhere else in the world. And so the U.S. government was asleep at the wheel a little bit during the last administration, but they've quickly woken up to these concerns as well. And Europe is the same way, so in order for them to IPO, TuSimple had to make some of these agreements, had to agree with some of these things. And I don't know the specific details, but it looks like they had to separate themselves from their China operations. So each of these Chinafornia companies is going to have to deal with the same thing. In this case, TuSimple was trying to generate revenues from the U.S. entity and the Chinese entity. But the other companies, I think with the exception of Pony, which has paid services in Irvine, California.

Lei Xing:
I saw that, I saw one of those vehicles when I was there last month.

Tu Le:
So there was an article I read that basically said they're in, these other Chinafornia companies are in a different situation because they're all just generating, trying to generate revenue in China, well the exception is Pony, Pony is also trying to straddle both regions. So.

Lei Xing:
The fact that TuSimple is right, they're listed. They're the first listed AV company ever.

Tu Le:
They snuck in.

Lei Xing:
They're under bit of a more scrutiny.

Tu Le:
Yeah. So the fact of the matter is, these are facts, I've spoken with enough of these guys. The capabilities of the Chinese machine learning and AI talent here is really good, but it still doesn't match what's coming out of the U.S. Tsinghua is an amazing university, technical university, but it doesn't have the depth yet. And so most of these founders, and you know this Lei, most of these founders get their PhDs from western universities, namely a Stanford or Carnegie Mellon. And DeepRoute’s Maxwell, he went to UT Dallas, right? Which begs the question, right? Does that make the U.S. entity of TuSimple in 5 years from now a lot better, from an algorithm and system standpoint, better than the Chinese counterpart that is now separated and supposedly has nothing to do? I don't know, maybe, but they'll tell you these guys will tell you the depth in the U.S. of talent is much better than it is in China.

So it'll be interesting to see because China is going to have the data, right? The U.S. doesn't have, there are not as many pilots. There's just not as much going on from a data standpoint.

Lei Xing:
And the competition is a bit different when you talk about TuSimple as far as what they're trying to achieve in the U.S. versus what they're doing in China. It's a bit different here. It's all about long haul. In China is more like what they were doing was in..

Tu Le:
In ports and stuff like that.

Lei Xing:
So very fixed, limited area of operation. It's a bit different.

Tu Le:
The other interesting thing Lei, is that these companies, some of these companies, these startups, like a TuSimple, I believe, before they went IPO about 70% of their investors were Chinese money, right? And so Pony is much more western money, right? 

Lei Xing:
Right, Toyota, WeRide’s got Nissan, the Alliance invested into them. 

Tu Le:
Exactly. So all everything is not equal from that standpoint. How they're treated shouldn't be equal either. It should be on a per, what's the right word, on an individual basis, they should be evaluated, right? So right, but I think that's the direction that these autonomous vehicles going. And perhaps that's the reason why a Waymo has not entered China. Perhaps that's a reason on Argo hasn't entered China because they knew there was a good chance that they would have to separate themselves somehow some way, right?

Lei Xing
There's already too many players in China anyways. There's just one new autonomous trucking company that was formed recently, I forgot the name, but it's fairly new. It's almost like Inceptio that type of, I mean there's yeah…

Tu Le:
And there's always going to be that likelihood that found founders, co-founders have falling out and then they separate themselves from the company and then start something themselves, right? 

Lei Xing:
Maxwell himself, a good example.

Tu Le:
I see that happening in China just because like you said there's so many competitors, right?

Lei Xing:
Some of the Pony.ai people I think left maybe moving to finding another company. Things like that happens.

Tu Le:
That Xpeng guy left for NIO, right?

Lei Xing:
For NIO, yeah.

Tu Le:
So it reminds me of Germany and Detroit, because I’ve worked for GM and Ford. I have brothers and sisters that have worked for all three companies, right, GM, Ford and Chrysler or FCA or Stellantis or whatever you wanna call it. The automotive sector and the AV sector is just an essestuous kind of bunch, right? People will jump back and forth to companies. So we didn't get a chance to talk about VinFast, Lei.

Lei Xing:
That's your…

Tu Le:
So VinFast. I'll quickly summarize, started in 2017. VinGroup is the parent company that owns them. VinGroup was started by the richest man in Vietnam. So VinGroup made him the richest man of Vietnam, and they do real estate, they do grocery stores, they do banking.

Lei Xing:
How much GDP do they account for the Vietnamese economy?

Tu Le:
I don't know, I'll answer that next time. 

Lei Xing:
It's a big number.

Tu Le:
He started VinFast in 2017, they started building petrol engine vehicles and a lot of, you probably know a few of the guys Lei, a lot of the guys that started VinFast or helped start VinFast were ex-Shanghai GM guys from Shanghai that moved over to Vietnam to launch the brand. Jim de Luca, I think he's ex-Shanghai GM, and a few other guys. They're based in Haiphung or Hanoi. So the capital of Vietnam in the North. And so last time I was there, I gotten to one of their petrol vehicles. Wasn't that impressed. But Vietnam is Southeast Asia. So those cars, the level of qualities can be a lot different than something you'd see in China, the U.S. or Germany or Europe. But when President Biden tweets about the agreement that was made between a company and the state of North Carolina, you know it's a big deal. $4 billion, should begin production in 2024. It's going to include a battery cell manufacturing. Phase one is going to be 150,000 units. They're going to build two cars, a mid-size SUV called the VF 8. It's an EV that's going to start at around $40,000. And then a larger SUV called the VF 9 that'll start at around $55,000. And they have headquartered themselves in Los Angeles. So it's a pretty cool story how aggressive they were to actually beat China EV Inc. to the U.S. market.

Lei Xing:
I think it's just been fast and furious ever since they debuted at the LA Auto Show. They been making these announcements almost nonstop. And what I feel is that they really haven't even established the branding, right? And they're already announcing..

Tu Le:
 A $4 billion commitment. And not only that, but they're also doing the NIO thing with battery leasing. How's that going to work out? I don't know, right? Because are they going to swap? Is that, I don't think that's clear yet, right? Maybe they're going to work with Ample. 

Lei Xing:
Whereas I think, let's say, using NIO as an example, they're probably much more, I would say, established, but a lot more people probably know more about NIO than VinFast, I feel.

Tu Le:
For sure. And remember that they're trying to build up that IPO valuation, right? So they plan on IPOing at the end of this year. So maybe they felt they need to get all this in order to bump that valuation to its maximum position. I'm really impressed that North Carolina has been able to recruit a lot of these clean tech automotive entities, right? So I don't know enough about what's going on. I just found out over a couple of days just doing a bit more research on what's going on in North Carolina would have been fast. But if I will say this, VinFast is talking to everybody. I've gotten people asking me about VinFast and about people, they need to hire what they're doing and, blah, blah, blah, but it's exciting time for them. But to Lei’s point, they've barely made any cars, and they're going to build a second factory now.

Lei Xing:
I'll let you in on a little scoop. So some this WeChat guy, he pinged me, an electronics supplier, I don't know where I met him, probably at one of these conferences. He pinged me and he basically said a lot of Chinese suppliers to VinFast and they were being quoted to supply VinFast for something, and he was telling me that VinFast quoted too low. So it never happened.

Tu Le:
Took a pass.

Lei Xing:
Yeah, a lot of Chinese suppliers, but I don't know how it's going to go when they produce in the U.S.

Tu Le:
I’ll say this. They're going to have the partner a lot in order to hit the timelines they're looking at, right? Because the electric vehicles that they have, they're not in production yet. So they're still developing them.

Tu Le:
That brings us to the end of this week's 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 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 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.