Tu and Lei start the pod out with an update on which manufacturers have been affected by the lockdowns and Covid outbreaks throughout China - Which are running and which aren’t, areas to keep an eye on, and what to expect in the next few weeks.
Tu explains what happens normally if there are supply issues at a factory, all of the parties involved, how accurate data needs to be, and how everyone has a timeframe to do it in order for the factory to continue to build.
This leads to a discussion about Tesla’s earnings call and how impressive they continue to be. Tu and Lei agree that ShanghaiGiga needs to get back online sooner than later if Tesla is to reach their goal of >1.5M units for 2022.
The conversation shifts over to BYD’s announced partnership with Horizon which BYD also happened to invest in.
Lei summarizes the five EV debuts that came out within two days of each other - ALL coincidentally from the legacy automakers. Tu gives his opinion on these concept vehicles, one, in particular, that’s he specifically critical of.
The podcast ends with a deep dive on the F150 with both Tu & Lei pointing out how inspirational it is for an Asian woman to be the Chief Engineer of such an important product for Ford.
Tu and Lei start the pod out with an update on which manufacturers have been affected by the lockdowns and Covid outbreaks throughout China - Which are running and which aren’t, areas to keep an eye on, and what to expect in the next few weeks.
Tu explains what happens normally if there are supply issues at a factory, all of the parties involved, how accurate data needs to be, and how everyone has a timeframe to do it in order for the factory to continue to build.
This leads to a discussion about Tesla’s earnings call and how impressive they continue to be. Tu and Lei agree that ShanghaiGiga needs to get back online sooner than later if Tesla is to reach their goal of >1.5M units for 2022.
The conversation shifts over to BYD’s announced partnership with Horizon which BYD also happened to invest in.
Lei summarizes the five EV debuts that came out within two days of each other - ALL coincidentally from the legacy automakers. Tu gives his opinion on these concept vehicles, one, in particular, that’s he specifically critical of.
The podcast ends with a deep dive on the F150 with both Tu & Lei pointing out how inspirational it is for an Asian woman to be the Chief Engineer of such an important product for Ford.
CEM #62 042122
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 am 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. Lei, can you please introduce yourself。
Lei Xing:
Good morning Tu, and good evening from my side. I'm your co-host Lei Xing, former chief editor of China Auto Review. This is Episode #62. Happy Earth Day to you over there. We would have been talking about Auto China 2022 or the Beijing Auto Show had it not been for the COVID outbreak. So it's April 21 here, but remember 10 episodes ago, we started our countdown 10 weeks until Auto China, and 10 weeks later we're talking about production reboot, so that's how things have been. And speaking of production reboot, obviously we're talking about Shanghai and Tesla in particular, but of course many others. But if we sort of roll around the Tesla earnings yesterday and its restart of production, that's been kind of the headlines recently.
Tu Le:
Yeah, and I want to, you be my sanity check and keep me honest. There were some rumors that they had rallied, or Tesla had rallied about 8,000 people. There's no way they got 8,000 people to their factory, number one. Number two, they're slowly coming back online. What Elon alluded to is that he's going to try, he's assuming that COVID will be in containment later this year, and he's going to make up those lost units over the course of the year. So he's still pretty confident that he can get to over 1.5 million units globally by the end of this year. But effectively, all of the factories were shut down for the better part of a month. And we're not just talking Tesla, now we're talking generally for all of the OEMs.
Lei Xing:
Elon being Elon, I think the way he put it was “Shanghai is back with a vengeance.” Remember a couple of weeks ago when they had the Cyber Rodeo, I tweeted that he must be thinking about Shanghai right now and two weeks later. I guess the general feel is it's getting better. I think it seems that the worst that as far as the number of cases, if you want to be sensitive, may have passed, the peak may have passed, but again, it is a gradual process. And pressure test is done. I think some production’s restarting, but it's not to the point of normal capacity yet. And we also just heard some OEMs in Guangzhou, part of their production or some production lines have been shut, right? Guangzhou Honda, Guangzhou Toyota, obviously Xpeng’s over there, but it's not going to be a light switch, right? And based on what we've heard from the comments from CPCA right? They've been tracking weekly retail sales. It looks like it's pretty much a 30-35% down year over year, right?
April will be, it's actually better than I expected. I was thinking of 40-50% off, but it looks like, the priority of, obviously, the industry, the auto industry being a pillar industry of the economy. We just saw the GDP numbers. I think the various commissions and ministries have been working coordinating to make sure that production comes back, and there's various ways, closed loop, right? Tesla is doing testing of employees twice a day. Remember the whitelist that the Shanghai published what, a week ago, a few days ago, the caveat is no logistics companies were included in that list. So when we talk about logistics, there's logistics of shipping parts to the OEMs downstream, right? There's also the logistics of shipping the cars out of the factories. So I think this is the issue I think that has come up in recent days. So Tesla restarting production is a good sign, but there's tons of other issues to be taken care of. I think that's the picture.
Tu Le:
So the industry folks will call that inbound logistics when parts come into the factory and then outbound logistics, they're both over the road or OTR, meaning that trucks and trailers bring those parts into the factory, and then it could be trucks or it could be trains that take those cars and deliver them to their final destination, whether it's in China, in country or to other parts of the world. In Europe, it's going to be a train, although they also use ships. So to your point Lei, not only is it the logistics companies inbound and outbound that are having some challenges, but the highways are restricted. And so you have to get these exceptions if you want to use certain highways. And so it's not as clean cut as, ok, created this closed loop system, we're going to test everybody, multiple times a day and get everybody back online. There's knock on effects when they restricted everything and when I say restricted everything I mean everything. So those have to open back up as well. And so currently what's happening is in Shanghai Giga, people are getting sleeping bags and are effectively sleeping on the factory floor when they're not working. So the high tech companies that are based in Shanghai, they have dorms, a lot of them, I think Pegatron, I think those guys have dorms where their workers can go to sleep, but I think it's some of these other factories that were never meant to be dorms or living quarters, they have to be get a bit more creative.
Lei Xing:
Yeah, so restarting production is one thing, but restarting production back to the normal pattern or normal capacity, is entirely something else because Tesla is producing right now. I think they're depending on the parts inventory that they have and like many others. But once those run out, then you depend on your suppliers in the surrounding areas as well as across the country. And if that don't go smooth, then we might, I just don't know, we could have additional hiccups going forward.
Tu Le:
I don't think there's any question we're going to have additional hiccups, because the fact of the matter is, you're not going to beatCOVID. One person could send the entire supply chain into another restriction.
Lei Xing:
As in the case of Wuhu, right? One case, and basically the city went into a pseudo lockdown.
Tu Le:
Right. This is where you had mentioned GAC in Guangzhou. Toyota is actually feeling it pretty bad because they're in Jilin and they're also in Guangzhou. So Volkswagen’s feeling it really bad because they're in Shanghai and they're in Jilin. So looking at just from an OEM standpoint, the challenges are many. And we don't hear about the SOEs too much, but they're also having challenges as well. And I think you and I both heard about a near miss in Ningde, which would have probably shut the whole sector down effectively, but that's been remedied I've been told.
Lei Xing:
But Tesla is really lucky in the sense that if we heard from the earnings call, obviously Berlin and Texas will be ramping up. Had they not had those two additional plants, they would have been in big trouble, I mean, at least in the short term. If the capital markets are looking at quarterly numbers, but based on what Elon said, he said basically, Q2 deliveries will be roughly on par, maybe a little bit lower, than Q1. So that's an indication of the effect. But I don't know whether Shanghai can really catch up that quickly and how fast the other two new plants are ramping up. But he seemed confident, right? Good chance to grow 60% this year, over 900,000 whatever units.
Tu Le:
The Berlin Giga and Austin Giga give Tesla a ton of flexibility that others do not have, okay. And so there is increased scrutiny and pressure on the Berlin Giga team and the Austin Giga team, but the model mix might be different, right, because Shanghai Giga only builds standard range Ys and 3s. Now, was that always going to be, excuse me, the strategy for Austin and Berlin or were they going to do long range. So changing the model mix from a production standpoint changes everything from an order standpoint, number one, and it changes everything from a factory and a manufacturing standpoint. If we're looking at Shanghai Giga, they're talking about 10,000 jobs a week. So 10,000 times 50 weeks is half a million cars, right? So that makes a ton of sense. And we're looking at Tesla, the speed of the line is at the same pace as a traditional legacy automaker, at least one job and one job a minute, 60 JPH, 70 JPH. So they're running with the bulls on the manufacturing side. So it's taking them a lot of effort to do that. And you know you think about NIO, Lei, and how they're just getting back online and they're only really building 10,000 cars a month, right? So it's a lot different, the degree of difficulty for a Toyota, a GM, a Volkswagen, a Tesla is going to be so different than a NIO or an Xpeng.
Lei Xing:
Would you say that NIO, we talk about this many times. It’s a big product year for them. They're sort of over proportionately affected by this outbreak because they have this added complexity, maybe. Would you say that?
Tu Le:
Yeah.
Lei Xing:
Because they're under a lot of pressure to deliver literally and figuratively, right? And now, they announced this production suspension.
Tu Le:
Then everything is a negotiation with JAC right? Let's say that they're very closely aligned. That's not the issue, but NIO is going to feel completely helpless if a JAC employee, is directly responsible individual to get production back up? They can't do or say anything themselves, because JAC might own the relationship with the supplier. They might own the relationship with the factory, right? And so, NIO, as a customer to JAC, that's where you feel the helplessness, right? But if I'm NIO in the Silicon Valley Apple days, people are living at the JAC factory. NIO badged employees are living at that JAC factory, making sure that everything is being done to get everybody back online, right? And they're doing assessments, every day. So materials meeting every morning and every afternoon likely, to make sure that the inventory levels that are being reported are accurate, right? Because let's say for instance, Lei, you say, in the system, there's 50 seats for the ES6, but there's only 48, because there's a quality issue with two of them. Now, instead of planning to build 50 ES6s, I’m too short and the line goes down, right, and I could have just ordered two more if the inventory numbers were accurate. But now when you have inventory, that becomes less of an issue, but if you're getting fed hand to mouth, and when we say that, we mean that Lei is shipping me the parts at JAC and I’m putting them, they're not even sitting for an hour. I'm putting them right on the vehicle. So there's probably some circumstances where parts are getting sent and they're getting put right away onto the vehicle. And so this is where the purchasing guys, material guys, the logistics guys, they earn their keep, because it is a complicated dance that everybody has to play their part in the time frame. That's needed, anybody that's a little late, a little early, the dance gets ruined. So.
Lei Xing:
That's exactly what's happening, right? You need, not everyone is in tune right now, and there's the kind of the policy or the whitelist, whatever the government level departments have to coordinate. And then there's a national level, we also heard from Liu He, right, talking about the logistics, keeping the logistics running. And I think Li Auto put out a statement saying that April deliveries will be affected to the users.
Tu Le:
Lei, we don't get into the details about this stuff too much, but this should be mentioned really quickly. The central government that resides in Beijing and Shanghai are sometimes at opposing sides at how to manage this a little bit. And so that's kind of been why there's been this confusing response to COVID, but it's getting better, I was told. What's that, five stages of acceptance? So you say it's getting better. I think the numbers are actually kind of stabilizing. They're not reducing, they reduced for day or two, then they spiked back up. But I almost feel that this is like stage two or stage three, like acceptance, like this is, where I’m locked down, it was everybody was upset at the very beginning, but now it's kind of I’m just going to try to make the best of it because that’s the way it's going to be, right? Because 4 days was never reality right? Closing down Pudong for 4 days, closing down Puxi for 4 days, that was never a reality. And so I just feel, in my WeChat, they've just kind of ok, how do we move forward now.
Lei Xing:
So this kind of makes me think back a month ago when we had recording with Elliot Richards of Fully Charged, he is based in Shanghai. And we started that recording by talking about COVID. And he was kind of on a lockdown for a few days. And we were talking about what it would look like going forward. And lo and behold, it was, turned out to be much worse than expected. So in retrospect.
Tu Le:
And we've only been talking the production and manufacturing side, right, Lei, the demand side because you're saying CPCA said it's down 30%. So that makes a ton of sense to me. Shanghai is the largest city in China, Jilin, another 25 million people. So I don't know if they're 30% of sales, but a good portion, a good percentage. So that makes sense. 30% is actually pretty good. Like you said, I agree with you. I thought it'd be more severe. But if I’m Volkswagen and I already had problems, selling my ID. series in China, I am pulling my hair out saying, man, any momentum we had, we've lost. And you know that if & when, let's not say if, when COVID gets contained here, there's going to be a mad scramble to try to steal customers from other people or other companies. If you can't build that momentum backup very quickly, you're going to see incentives getting thrown out there within 60 days probably.
Lei Xing:
Yeah I mean, we've seen the numbers, right? The CNEVpost ranking bar chart that was tweeted quite often of comparison of these to legacy EV sales. But going back to the Tesla earnings a little bit, I thought it was, one of the interesting things we talk about AVs part of is, Elon again said something, I quote, “aspire to reach volume production of the Robotaxi in 2024.” I was like what happened to your Robotaxi with the Teslas? Now you are going to launch with Robotaxi with maybe LiDARs or something. Yeah, and everything you have to watch that keyword: we aspire, hopefully. So that was interesting.
Tu Le:
The other thing really quickly was, we're going to grow 50% year over year for the next several years.
Lei Xing:
Yeah, 20 million by what, end of the decade, a year. So he said we're only 5% of the way. But generally I think, the earnings, right, mad beat. And the Chinese press often compare with these Chinese smart EV startups. And right Tesla is still the benchmark, right?
Tu Le:
They are still the catfish.
Lei Xing:
Over 30% margins minus the regulatory credit sales, right? What NIO does is over 20%, so Tesla is still 10 percentage points higher.
Tu Le:
Tesla margin is Apple margin. Apple margin is normally 32-35%, 29-35 %.
Lei Xing:
Right, part of it obviously, I think also I tweeted out the CATL unveiled their annual report and their sales booked with Tesla in 2021 was RMB13 billion. Remember, they have that deal to supply LFP batteries for 2022-2025. So they are just getting started. And the (Tesla) earnings deck said something about half of the first quarter production where LFPs, nearly half. I'm sure those two things were related. And margins…
Tu Le:
Those guys are joined at the hip. If Tesla has a hiccup, CATL is going to, it's going to reverberate.
Lei Xing:
But just crazy numbers in terms of earnings, but Q2 likely will be hit somewhat, I think, because of the, April probably will be a bad month. Other than that, we're talking about FSD and all these plans that are still on track. Elon, he felt he's never been more confident.
Tu Le:
The number speaks for themselves, do they still deserve this trillion dollar valuation? That remains to be seen. And I’ll speculate on that, but anybody would be envious of the numbers that he's touting out, right, or that he's reporting out. For God’s sakes, 50% growth over the next several years. Let's not talk about supply. Let's just talk about the only limiting factor is how many factories he can build, right? Or how much capacity he can build. That's the limiting factor. The limiting factor, if he's saying we're going to…
Lei Xing:
The machine that builds the machine.
Tu Le:
Yeah, but that made me curious about his statement though, Lei, when he said robotaxi in 2024, that 2030 number, how many robotaxis as a percent of total production is getting me to that 20 million number? So.
Lei Xing:
So speaking of 2024, remember, earlier this year, both Mobileye and GM announced they were launching something called a consumer AV, something I take it to mean, something that you can buy privately own with L4 capabilities. And DeepRoute just announced something recently that they're trying to launch. They already have deals equipping some of the models, including the the Lincoln MKZ, the Rising Auto Marvel R, and Geely’s Geometry A. The plan is to launch something in 2024 with L4 capabilities using that $10,000 stack.
Tu Le:
And four solid state LiDARs. Three? Three or four.
Lei Xing:
And using two different suppliers, right? For any of you who might have missed, you can refer back to our conversation with CEO Maxwell Zhou.
Tu Le:
That was a good one, that was entertaining.
Lei Xing:
So now it looks like it's coming into play and, but he did say, if I remember correctly, that 2026 would be the year when the robotaxi that Tesla refers to, right, whatever, how much you pay per mile will be down to a certain level. He said 2026 will be the year that you will see this go into scale.
Tu Le:
He said that the main bottleneck was the price of the hardware/software stack.
Lei Xing:
Other than that, I think we heard about BYD working with Horizon Robotics. Interesting that BYD so far this year, BYD has teamed up with NVIDIA, BYD’s invested into Horizon Robotics.
Tu Le:
Yes, they are an investor.
Lei Xing:
It wasn't surprising that they would be working together? And also, BYD was working with both Momenta and Baidu. So I think on the AV front, BYD has been more active than basically anytime before.
Tu Le:
I feel like they're Geely active, like they're really active.
Lei Xing:
It's interesting that they're working with both Horizon and NVIDIA for some of the automated driving features.
Tu Le:
I look at it a little bit differently because I feel a couple things here. Number one, I don't know if Horizon’s ready for the big time. It takes a long time to develop the type of chip, the AI chip that they're looking at to compete toe to toe with a Mobileye, Qualcomm or NVIDIA.
Lei Xing:
NVIDIA is still the gold standard.
Tu Le:
And then having BYD as a strategic investor, is a huge win, because BYD, what do they do? One of the main things is build chips, right? Or design chips and fab chips. So that's a huge strategic partner for them, right? And so the OEMs, they're just dual qualifying. They're qualifying at western chip company, a Qualcomm, Mobileye or NVIDIA. And then they're also going to be qualifying Horizon whenever it is available in mass production. And so I see that as a kind of CYA: cover your ass, right? We're going to keep on using NVDIA until we don't, okay? So NVIDIA is watching that very closely. But I also look at it is like if BYD and we know that they do has grand ambitions to enter Europe, the U.S., they might not be able to use Horizon’s chip in the foreign markets, so it does make sense to have them dual qualify or qualify dual sources, but how would it affect the rest of their system, their hardware/software stack, is up for debate, I don't know yet.
Lei Xing:
So based on the presser BYD is the first to announce that they're using the Journey 5 chips. But the presser said that they've already, Horizon’s already, basically, they've already talked to a lot of other customers and looks like the announcements are forthcoming. And the Journey 2, by the way, are being used on the Li Auto ONE, the 2021 ONE. So we're going be seeing more these announcements.
Tu Le:
And there are other chip design companies in China that are, we’ll bring them up in the coming episodes just so you all know, but SMIC and Horizon, can you think of any others that really dominate the discussion when it comes to China chip design companies?
Lei Xing:
No.
Tu Le:
Yeah pretty much, right? That's the only ones that get any air time effectively in the Western media.
Lei Xing:
No Beijing Auto Show this week. But within 2 days we've seen five EV debuts. They're all from the legacy premium brands, interestingly enough, the Audi urbansphere, the Mercedes EQS SUV, the BMW i7, the Lexus RZ and the Lincoln Star. What do you think? What was your favorite? If you had any? That was the Beijing Auto Show, basically.
Tu Le:
So here's my butt. Because I am a huge, I really enjoyed the design and appreciate the design of Audi vehicles. I think they are, they really look great, but this urbansphere is a head scratcher to me. It's a minivan and I’ve ripped it on Twitter, so I feel…
Lei Xing:
I’d say it's an MPV style.
Tu Le:
Yeah ok, but we're arguing semantics a little bit, right?
Lei Xing:
It's led, a lot of it, the interior design is led by China.
Tu Le:
Which is perplexing to me, because the one thing that really tweaks me a little bit is that they called it an urban vehicle like this is not an urban vehicle, urban vehicles are small. It's a cruiser, it's a luxury cruiser, right? It's like, all these captain’s chairs and stuff like that. I don't know why they would call it an urbansphere, right? I just think the world is moving into the opposite direction. Do you think Shanghai downtown is going to have a bunch of those cars on the road and remember Lei, you can remember this well, like it's yesterday, most people like the rest of the world, there's only one person in the car, there might be two, but that driver doesn't count.
Lei Xing:
I remember Audi at the Volkswagen Group Night in Auto Shanghai 2019. They had that concept that looked pretty much the same, the interior, how the seat were designed with the teleporting steering wheel. They had that long time ago, that made me remember back then.
Tu Le:
You look at it and then you compare it to the Lincoln Star. And the Lincoln Star had all these, they had the frunk, they had all these different design concepts that they're testing out, right? And I don't know if I saw any of that in the Audi, right? It was just still an electric autonomous van. Weren't we talking about that 3 years ago? What are you bring into the table outside of autonomous features and luxury, right? Like it's a concept car, stretch yourselves, at least the EQSS, it came with the goods, the technology, right, the range, right? You can argue that it looks like a pulled out, stretched Aston Martin a little bit, or like, what's that car in Cars, the race car in Cars, it looks a little bit like that. What do you think?
Lei Xing:
If you look at the some of, the videos that they put up for Audi, the three sphere concepts really have one common thread, which is, again, going back to L4 automated driving is they're trying to say, down the road within this decade actually, starting from, so Audi has the Artemis project and Volkswagen has the Trinity. Those are the cars which I referred earlier to as the CAVs. The consumer AVs. And what they're trying to show is they can be your everyday vehicles. You can drive them, but at certain times, they can be L4 and turn into lounges. I think that's their whole point of these sphere concepts. Whereas I guess for the other, talking about Lincoln, by the way, it's hard to believe that this is actually their first ever pure EV concept, hard to believe.
And then they're coming out with basically over the next few years, one every year, right? One production vehicle and you can bet they'll be produced in China because Lincoln's already, China is already the largest market in Lincoln. I would have liked the sort of Lincoln Z being their first EV, I would have like that, but I guess you go with SUV first.
Tu Le:
That ZEPHR is beautiful. I really like that vehicle. They did a good job with that vehicle.
Lei Xing:
I think what you were talking about that something was missing is the Audi concepts probably were missing the BMW Theatre Screen. That's all we're missing.
Tu Le:
With Amazon Fire.
Lei Xing:
if you look at the front of the i7, the first model I thought of was the NIO ET7 or the ET5, because of those slanted headlights. Go back and compare, right, they look kind of similar. But then that big kidney grille gave it away, right? That's a BMW.
Tu Le:
So I was just half joking with in like a WeChat group of car enthusiast. And I was like, this is a German version of a Dodge, because is all black and kind of boxy square. That's the thing that gives me the head scratcher, Lei, is that Audi just, I didn't read all the details of the urbansphere, but dude, come with a 31” screen, come on man.
Lei Xing:
And then if you look at some of the common threads is the EQS right? And the EQS SUV, all of the EQs, right, that at least the high end ones, and the Lincoln Star have that, huge screen in the front, right? That's become the kind of the standard. And I thought BMW obviously also being a German premium brand is following the footsteps of Mercedes with the L3 capabilities.
Tu Le:
This is a risk for BMW they're going to build that i7 as a petrol vehicle or a 7 Series as a hybrid and a fully electric. So they are really trying to stretch this out. I think that could be really, first of all, think of how complex that factory is going to be, building the same, building all three powertrains on the same line. It's just, and if you're a design engineer or an engineer for BMW what is your priority, right? Wow, others have come on board forwards, Ford’s come on board, BYD’s come on board. The trend is, I’m going to cut this off sooner rather than later. BMW’s doing the exact opposite. And remember guys, this is the company that brought us the i3 and the i8. They were early in the game, and then they bobbled and dropped it.
Lei Xing:
I mean the design direction wise, right? The recent model launches have been somewhat of a head scratcher.
Tu Le:
And to be, another key point here, Lei, let's assume, because I believe you are a fan of the German traditionally or the German automakers and the design of their vehicles, but you can't price them twice as much or 30% higher, 40% higher than a Li Auto L9, you're not gonna to get that premium in China. You're just not. And so if the L9 comes out at $65,000 and then an X7 or an iX5 comes out at $90,000, what are we're getting? We are getting a half built electric vehicle, built on top of a powertrain on top of an ICE platform? Because BMW has not shifted completely over to an electric platform. So it just becomes a really hard sell I think right now we're just talking marketing and customers needs and demand, right? I just don't know. I think the decision making is bit perplexing as well.
Lei Xing:
And we sometimes talk of this in WeChat groups: the Chinese smart EV startups have reestablished what being premium means. So when you think about these EVs that are coming out and you tend to, I or maybe us we tend to compare immediately with the offerings that the startups are putting out there. And you kind of wonder why would I choose a BMW or Mercedes over a NIO or a Xpeng or Li Auto? That's kind of been the narrative. I think.
Tu Le:
And we should note that it's only been in the last 10, 12, 14 months Lei, that the German management have really even acknowledged a NIO exists, an Xpeng exist, right? Because they've always traditionally over the last 3, 4, or 5 years, have exclusively targeted Tesla. Wöllenstein, he admitted NIO is a bogey, right? So let's turn this around a little bit because I took notes. Xpeng opened its third store in Denmark.
Lei Xing:
And so they announced the pricing in the four different markets, a bit higher than what they sell in China, obviously.
Tu Le:
So I wrote this down because in China, the car, the P5 is around $35,000 to $45,000, right? Denmark: $57,000; the Netherlands: $52,000; Norway: $43,000, and then in Sweden, it's $58,000. That's a lot of money.
Lei Xing:
But that'll be fine, you know.
Tu Le:
But I don't know why there's such a huge delta between Norway and Denmark and Sweden, to be quite frank, it maybe the subsidies. But it can't be, can it?
Lei Xing:
I don’t know, we'll have to look into that. But there seems to be quite a bit of a gap.
Tu Le:
It's a huge delta. It's what, 40%, 30%, and at some point in time, they're going to need to create a fairly uniform pricing structure for Europe. Because outside of, I think all of these countries, this is me being very American. I'm not sure, the Netherlands for sure is using the Euro. But I believe these other three countries are still using their own currency, Krona, right? For the rest of Europe that is using the Euro, they're definitely going to have to come up with a more uniform pricing. Otherwise, if you live in Belgium Lei, and it costs you $60,000 or 60,000 Euros, you could go to the Netherlands and buy it and drive it back, right? I'm sure there's a restriction on doing that, but there would be huge arbitrage opportunities. If they can't get this pricing uniform, more uniform.
Lei Xing:
Then I guess Lexus was quite clear, and Lexus, the Japanese, the very Japanese feel that that they touted their exclusive technologies: DIRECT4, steer by wire, the driving signature. I know what they're talking about, because my father he drives a Lexus, and he had a 450h in Weihai when he used to go back and forth. Somebody else is taking care of that car right now since he can’t go back, but Lexus is something different.
Tu Le:
I want to say Lexus is actually pretty affordable in China, like relatively. Let me promote my half an hour show that I was a guest on John McElroy’s Auto Line, and it just posted on Youtube. And so, John, I know he's a legend in the U.S., in the U.S. auto industry. He's interviewed every CEO for the past 25, 30 years. But he's a super humble guy, super knowledgeable. And we met virtually last year or two years ago, and we just kind of keep each other honest, take notes. And so he invited me on with Michael Dunne, Michael Dunne’s also very well known in the industry, worked here, lived here, now in San Diego. So we just had a conversation about foreign automakers, a little bit about NIO, a little bit about Volkswagen, actually, a lot about Volkswagen. Kind of talked about what the legacies are doing, do they rely too much on China? What do they need to do to be successful here? So a lot of what we talk about, but a bit broader and kind of implications for the U.S. as well. So I invite you all to go on to Youtube and do a search for Auto Line. I think it's called Foreign Automakers in China or something like that. So one thing I wanted to get your take on is GAC AION on launching a swap station. So what have you heard? Have you anything else about that? And how aggressive they're going to be?
Lei Xing:
No, I haven't looked into it, but I mean is that surprising?
Tu Le:
But that's mostly for fleet, right? Or is it for passenger private passenger vehicle?
Lei Xing:
I haven't looked into the details, but if you look at, right, NIO obviously they have more than 900 now, EVOGO just launched their first four in the Xiamen, but that's mostly for fleets, and Aulton is mostly for fleets. I haven't looked into the GAC AION yet, but you are going to see these, more of these announcements coming from various players.
Tu Le:
We should say that right now, they are neck deep in trying to get production back up. And so they're trying to walk and chew gum at the same time, effectively, and still trying to promote their international operations while they try to restart production, which is oh man, being in these companies is probably very hectic right now.
Lei Xing:
So what would be interesting going back to the battery swap is what Elon said last night, was that they do plan on opening up their supercharger network right, not only in Europe which is already open, but in the U.S. and maybe the rest of the world. What would be interesting is really kind of to see whether we will be having these interoperable and changeable battery swaps across different brands.
Tu Le:
I take this as a confidence in Tesla's brand like from Elon saying what we're going to be fine, Tesla is going to be fine. We don't need this feature to be exclusive anymore.
Lei Xing:
We did see somebody post what a Tesla being charged at a NIO super charger. I don't remember where that was, but right.
Tu Le:
I think it was in Europe somewhere, right? I think was Europe somewhere.
Lei Xing:
Europe was it in Europe?
Tu Le:
And then the other thing, too, is about the supercharger. Will there be one particular brand or two particular brands that directly benefit from having that supe charger, right? Like, for instance, is there a brand out there that most customers are like, man, if it had its own charging network? Or if it had a bunch of super charges, I'd love to buy this thing, right? Is there going to be one or two brands that really get a lift? Because now these charging stations are all accessible to them, right? Because I could see the Ford F-150 getting a lift from that, because maybe you guys don't know April 26 is when production starts.
Lei Xing:
Next week. Yep. Job 1.
Tu Le:
So for the F-150, and we've seen the cover of Bloomberg last week with Farley inside an F-150 Lightning. So I think for those that haven't seen it and haven't read the article, it's worth a read. I kind of talked about it a little bit in my newsletter. There's a lot of things.
Lei Xing:
I'm super proud that the chief engineer behind it was originally from China, Linda Zhang.
Tu Le:
Dude, you should put a poster up for your daughter saying you know what, she was 8 years old, first time in a car in the U.S. right?
Lei Xing:
Yeah that's a great connection.
Lei Xing:
That is my family story, right? I'm 100% American, but I was the youngest in my family. When we came here in 1975, and I'm showing my age, but my sister was around that age. And to say, it is definitely inspirational, and I wrote that in the newsletter, that she's a woman, and that she's Asian. Those two things for the F-150.
Lei Xing:
the bestselling car, vehicle in the U.S., right?
Tu Le:
You and I are getting on our soap box is a little bit, but this is how important that vehicle is to Ford: $40 billion a year of revenues is generated from that one product.
Lei Xing:
I would say it's even more important than the Mach-E.
Tu Le:
The only other single product that outsells it is the iPhone and Ford sells about 900,000 to a million of those things a year and, 80-85% of their profit, or 90% of their profit comes from that F-150. So whoever decided to appoint her as the chief engineer of the F-150, kudos to that person, because it took huge balls to do that, right? The car is going to be sold at $40,000 as a starting price. So it should open a lot of new demand. The article is great, it talks about the challenges because current F-150 buyers are, I think, like 80% white male, and they're doing a BMW right? They're doing an ICE version of the F-150 for a long time. And they're going to do an EV version. God bless Jim Farley because I love it. You got to come out of the gates fighting. I think I hope the Silverado EV does well, I hope everybody does well, right? There's no reason for me to hate on anybody, right? Just like you, you said it great. Think you said we praise when we see it's deserved, and we criticize when it’s is merited, right?
Lei Xing:
Like we're not sponsored by anybody. So.
Tu Le:
I think we could be. But we haven't tried either. But that's all the notes. Let me for selfish reason, what did you think of the EQS SUV, the Audi urbansphere. Let me ask what you thought about the urbansphere because you obviously know how I felt.
Lei Xing:
I didn't like it in terms of design, I thought the skysphere was kind of cool where the car can be extended or retracted by turning into a GT then, and things like that. But these are just to prove a point to show what could be possible. But how, it’s anybody's, what’s the way, there's different hamlets, what’s the…
Tu Le:
There's different ways to skin a cat.
Lei Xing:
You might see it one way. I might see it one way. Somebody else might see it another way.
Tu Le:
For sure. One thing I did want to ask you because I actually wrote it down. Do you know why?, and I can't find out any specific reason. So March sales, we saw that chart you said, right? Where NIO was like 9,000. Tesla was at 38,000, and then the Mercedes and, but then Audi was at like 100 and something units. Do you know why they went so low so fast?
Lei Xing:
I’ll just say it'll be a demand thing, more than anything else.
Tu Le:
Because that's effectively zero.
Lei Xing:
Guess that it's the e-tron that is one of the first to be put on the market by a legacy premium, right? There was the I-Pace. That's one of the earliest ones. e-tron, I think, was very, quite early, 2018 or 2019, right? Just didn't seem to catch on. Neither was the EQC or the iX3. And they've had quality issues.
Tu Le:
I have a friend I met. Did I say this last week I had a friend who ordered an EQS or his father ordered an EQS in the Netherlands. Originally, when he ordered it, he said that there's 3 to 4 months. He got a response from Mercedes said, there's a 3 to 4 months wait to deliver his EQS to him. And he got it in less than a month and a half or two months. That tells me that demand isn't where they want it to be for the EQS globally. It looks like or at least in Europe, and in China.
Lei Xing:
I mean, speaking of EQ, right, Mercedes and they've just seems that recently their EQ lineup just ballooned, right? They basically completed. The only one more that's coming is the EQE SUV but everything else has been either announced or launched.
Tu Le:
I'm making a bold prediction Lei, they're going to rename all these cars because the EQS SUV, the EQS sedan, I don’t know.
Lei Xing:
They wouldn’t call it the EQSS?
Tu Le:
They paid design agencies or branding agencies a ton of money, probably to come up with these names, right? And they're like, what about the EQSS? This is great.
Lei Xing:
But seriously, last week, I didn't expect to be talking about reproduction this week. So in that sense, it's gotten better. But then when you go back further to when they announced the lockdowns, 5 days in Puxi and 5 days in Pudong, and now looking at what happened.
Tu Le:
These announcements are as much a signal to the markets that China is not shut down, that they're open for business. I feel it has less to do with the individual automakers and more about the general economy and the market.
Lei Xing:
Right, that and the fact what I mentioned that the auto industry is really a big part of the GDP upstream and downstream, the number of jobs affected and how they affect the economy. So you can be sure that this is a priority at the very high levels. If EVs, if battery swap, if these things are mentioned in the government work report, then you can bet that high up, they're working to coordinate.
Tu Le:
So reliable source, and you had mentioned this last week, there are over 40 cities in various forms of restriction or lockdown, totaling almost 300 million people. So that is not going to be resolved in a week, and so. I sound like a broken record Lei, but we talked about this at the beginning of last year, right? We talked about the chip issue, we talked about COVID, less about COVID, but supply chain issues, right? Everything's just a fixed bag of challenges that creates a huge mess that's going to take months to get so out from.
Lei Xing:
So the latest from CPCA, I just read somewhere is that so Q2 will be bad, relatively. And this is not only the EVs but the entire passenger vehicle market, Q2 will be bad. And for the whole year, I think CPCA is expecting zero growth, but this is the entire market, but for EVs, I think we should be able to see, not the 6 million units, but we should still be able to see growth not only in terms of volume, but penetration. So 20% could be a possibility, but volume wise, it's not as…
Tu Le:
So I think a general number that we can look at is almost half a million units. We lose a month of production, we lose half a million units of demand or supply from the EV side. If we're looking at 6 million units in January, maybe we're looking at 5.5 million.
Lei Xing:
That's still pretty optimistic.
Tu Le:
Optimistic? Agreed.
Lei Xing:
But China always surprises.
Tu Le:
It does.
Lei Xing:
Good or bad, it always surprises.
Tu Le:
I was looking at this Lei, I'm always kind of negative, and I was like, but it always crushes my prediction.
Lei Xing:
You need to be more negative. Everything works out but.
Tu Le:
But again, we're still only in April, so we have a ton of time to make up units. But before June, things need to really really be managed. Shanghai needs to be 80 percent open.
Lei Xing:
This is so much different than Wuhan because back then it was pretty much Wuhan was the center of, right? And now Shanghai is sort of Wuhan, but really there's a lot more places that are facing similar.
Tu Le:
There's two or three Wuhans right now.
Lei Xing:
That's the difference.
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 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.