Episode #63 - April sales ..so far, China Autonomous Vehicle update, VW's Cariad China

Tu & Lei start out the pod with a discussion on how the current April sales numbers look to be shaping out. It doesn't look good for most of the legacy OEMs with the exception of BYD. 

Tu gives a Covid update for Beijing and what he expects to see in the next few weeks.

Tu transitions the conversation over to the China autonomous vehicle update and they both share their thoughts on all of the announcements that came out last week from Pony.ai, Baidu Apollo, Momenta and WeRide, who partnered with Pony.ai for the latest investment round of OnTime, a mobility platform whose other major investor is GAC Group. 

Tu shifts the discussion over to Volkswagen (VW) opening a China office for their software division, Cariad and moving over a Volkswagen veteran to over with strong ties to China to lead the group. Tu and Lei spend a few minutes debating the merits of the moves and the leadership appointed to launch the team in China with, surprise, Tu being a bit skeptical of the moves and whether or not it'll get VW where they need to be with SW development in the timeframe they need to do it in. 

Tu wraps up the pod with a few quick updates on CATL's swapping station, BYD's substantial increase YoY from Q1 sales, and finally a comment on Elon's purchase of Twitter and whether he'll be pressured by the Chinese govt. to promote a more positive tone on the platform.



 

Transcript

CEM #63 042822

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. I am your co-host Lei Xing, former chief editor of China Auto Review, and good evening from my side. This is episode #63. It's been a busy week to say the least. Let me go through my headlines, you can stop (me) wherever. The biggest news is obviously Elon’s $44 billion takeover of Twitter. It seems to be hanging in the air a little bit. But this episode at least, is now linked with the richest man on earth, and Tesla, a company we mentioned pretty much every single episode.

Tu Le:
Should we only say good things now about Tesla?

Lei Xing:
No, I mean we should say anything we want, right? Free speech, no?

Tu Le:
I'll take my chance. Yes, this is the public square.

Lei Xing:
So NIO's big milestone, 200K cumulative production, welcome to the 200K club, as we say, despite the myriad of challenges, they've done it and going forward if things continue to improve and doesn't get as bad, and if there hadn't been this outbreak, I mean 300,000 by the end of the year, was a foregone conclusion, right? That's their trajectory, but that remains to be seen.

Tu Le:
Here are some quick statistics, three years to 100,000 with the ES8 and ES6, one year to 200,000. So it took three years to get to 100,000, one year to get to 200,000. I think, barring the pandemic and the supply chain issues, they could have gotten to half a million with the ET5, ET7, ES7 within a couple of years, I think.

Lei Xing:
And we'll see what happens. And then just tons of AV news. Pony.ai three times, right? The taxi license, the investment into On Time and just yesterday the “driverless” robotaxis, plus Baidu, plus WeRide’s robosweepers, Volkswagen Group’s CARIAD China launches. And we'll talk about that a little bit later on. F-150 Lightning job one, so this comes a month after the LYRIQ, right? But I think that obviously the F-150 is much more, whether you look at it as symbolic or a key product, Jim Farley taking a swipe: “you can even charge other EVs for your friends that own Teslas.

Tu Le:
I think this is good. I think a little bit of competition, a little bit of friendly…

Lei Xing:
He’s busy doing coke, I can't believe I said that.

Tu Le:
I thought that was a meme and then I looked at the actual address or the Twitter handle and I was like he really tweeted that.

Lei Xing:
Oh boy and then a couple of interesting products launched for started pre-sale were from the two of the Japanese brands, the Honda e:NS1 and the e:NP1, and Toyota’s bZ4X, and then more news from Horizon Robotics, announcing their second partner for the Journey 5 chip. And I guess that's it. And we've seen some preliminary reports of April registration numbers that's pointing to an interesting picture. You want to go there a little bit first?

Tu Le:
For me, I’ve only seen the ICE numbers and they are double digit drops, significant double digits across the board for the foreign automakers. Is that what you're referring to? But let's start with that.

Lei Xing:
So CPCA they've done the weekly updates. And it's gotten worse, I think, by the week, the latest numbers they had was from April 18-23. This is including everything, so PVs, including NEVs, across the board its 30%, 40%. 

Tu Le:
We're not going to be able to point to just one thing. It's this folly of challenges and errors and tragedies that are causing, not only the auto sector, but the greater economy of China. So we're talking China is going to lose a point or two of growth potentially if this doesn't get sorted out.

Lei Xing:
So we look at this in different buckets, we put BYD in its own bucket. And it's still based on the numbers that we've seen, right? It's probably still could do close if not over 100,000 units, despite, I guess, being where they are and being what it is, they've been less, they’ve been shielded, sort of from all the challenges, relatively better than the others. If we put the smart EV startups in a bucket, I doubt any of them will top 10,000 units in April, psychologically, right? I don't see any of them passing that threshold. And then the legacies, the mass brands, they're probably, special the VWs and Toyotas that are over proportionately affected. They're down big.

Tu Le:
Let me ask you, put a scenario in front of you. If you're NIO or an Xpeng, and let's say April numbers come in less than five figures, like you and I think, so less than 10,000 units and then May comes in, less than 10,000 units because of the struggle. You're supposed to launch the G9 or you're supposed to launch the ET5 and the ES7 later this year. Now, would you push that out? Would you prioritize current production first? Because let's assume that their order log is still increasing, right? And with an order log that's still increasing, but production is either at a crawl or nonexistent. That means that lead times for a car that I order, ES6, that's currently in production might go from 4 weeks to 6 weeks to 8 weeks, okay. Would you push out launching these others to keep vehicles, or would you keep the launch cycle the same?

Lei Xing:
That's a tough one. In the case of NIO, you have the ET7, which is right now THE model that they have to take care of, because these people that have ordered the car have been waiting for a year and a half, basically. So I think that NIO would veer toward the ET7 a bit, whereas the other ones, right, the G9 and the L9, they've had the cadence of delivering starting the more toward the second half of the year. So it's a bit more pressing for NIO. It looks like for everyone, has the worst gone past us, maybe, right? The newest numbers out of Shanghai today looks like the numbers have gotten a lot less, but that's numbers. We don't know the…

Tu Le:
So let me interject there because as Shanghai goes down, we are looking at districts being restricted and locked down here in Beijing.

Lei Xing:
Have you done your testing today? 

Tu Le:
I have not. 

Lei Xing:
Is this show interrupting your testing?

Tu Le:
Yeah

Lei Xing:
And school got out one day earlier, right? 

Tu Le:
So the education minister, so we have May holiday. So it's a holiday weekend and the kids would normally have Monday and Tuesday off, I think.

Lei Xing:
You're off until the 4th.

Tu Le:
Yes and so the education minister yesterday, so two things this week. Monday the kids were in class, some kids in Beijing that were in certain districts or certain areas of Beijing went online, but my kids being in CBD we were fine until Wednesday and then surprise, we wake up and the kids are online. So my youngest, his teacher actually wasn't prepared. He didn't have school for the part of the morning. And then on the afternoon he logged in. My oldest was ready.

Lei Xing:
So I've seen some of the notifications were sent out at 2 am in the morning, in the chat groups.

Tu Le:
That's right. Which tells me that these people are wavering a little bit that the powers that be are wavering a little bit, right? And it's amazing to be able to test this many people, because it went from 3.5 million people in Chaoyang district, where I live to citywide, which is 21 million people or 21ish million people, but it's not mandatory. There's no way to penalize you if you don't get a test. So there are people that I know that are not getting tested. And so if that happens, that filter, that net, has holes in it, so it's very challenging. So I know you're a bit optimistic about Shanghai, Lei, but I'm hopeful that Beijing learned its lesson. First of all, Beijing, it doesn't have the politics involved that Shanghai does. So they seem to be more decisive and they seem to be more prepared. So on Sunday, they released 100 tons of eggs because there's a run on the grocery stores. So and this is part of what we talked about. Just now NIO, Xpeng, these decision making things, right? Because as planners, as supply chain guys, as sourcing guys, what we want is someone to tell us this will end on June 30 so that we can plan, right? So the unpredictability of everything really creates not only in the manufacturing teams’ mind, but in the consumers’ mind, I want to buy a car, so although BYD is kind of able to be shielded, if this lasts into 2, 3, or 4 months, there's no way that they're not going to be affected on the sales side, if not to production side. So again, we're lucky in Beijing that it's a holiday weekend, because I think there would be a lot more anxiousness if not.

Lei Xing:
I mean this is like almost like a whack a mole, right?

Tu Le:
It's exactly what it is.

Lei Xing:
Starting with Jilin, moving toward Shanghai and how Beijing is so far so good, but.

Tu Le:
And remember, you know this. So let's go over. We know that Volkswagen or we know Volkswagen, GM is in shanghai. We know Volkswagens is in Jilin. We know that Baidu is in Shenzhen, Beijing has Mercedes, Beijing has or Tianjin has Hyundai. So everyone is going to be touched. Eventually if this whack a mole, goes to all these different cities, right? We've talked about this as well. We're only talking about the tier-1 suppliers, the seating suppliers, the door handle suppliers, the IP suppliers, the overhead suppliers. They buy things too, and their sources are likely in these smaller, little cities. When Lei and say small, we say 2-3 million people small, right? That we don't even know about. That are probably locked down, right? Especially the southern border near Shenzhen in Yunnan province, there are cities and towns there that have been locked down for 60 days that you'll never even hear about.

Lei Xing:
Yeah, so basically the general outlook for April is it'll be down. But like last episode, I said it's better than I expected, but you look at the different buckets, you are going to see different performances. So BYD’s pretty good, some of the other ones in the southern parts of China are doing relatively better. Shanghai, Tesla, right, Volkswagen, Toyota, they will be more affected. So you're going to see slightly different variations of decreases for April. But hopefully they can make it up in a later month, but we'll see, yeah.

Tu Le:
I think it's important to note Lei, that there are still those handful 5, 6, 7 or 8 EV companies in China that have open order books for Europe too. So expect delays on shipments for exports, right? Because there's an article this week from, I want to say Auto News or Nikkei that said that route the train route from Germany to China and that one lane has closed, because they're afraid Russians might steal those cars, or they might not make it to the final destination for whatever reason. They have to ship them on boats now. So two issues: you don't have production, you don't have supply. So there's going to be delays in deliveries for European customers, too, for those handful, BYD, Xpeng, NIO that are ordering in Europe. 

Lei Xing:
But everybody's hoping it doesn't get worse.

Tu Le:
I think what Lei and I have decided is that we will spend a few minutes to update everyone on the production and manufacturing the latest news. So I think that's important. And that's something that we are pretty good between Lei and I think of getting the latest news, not just what you see in the media outlets. So how about we move on to what was mostly going to be our AV update episode?

Lei Xing:
Yeah, what would you think? It seems all of a sudden these…

Tu Le:
So let's look at this sequentially. So Pony came out with an announcement about a taxi license. So if we look at it at a 50,000-foot level, they all seem kind of similar, right? We're launching this, but Pony is actually a paid service in Nansha. That was the original announcement earlier this week. So milestone for them, milestone for China, Nansha is a relatively small city in China, but nonetheless quite establishment. 

Lei Xing:
District.

Tu Le:
Yes, a district in Nansha, but we have to remember for the folks that have never been to China or only hear about China, a district in most Chinese cities is probably as big as the entire city in a lot of Europe or parts a lot of the U.S. The next biggest announcement, I believe, was the Baidu announcement. And they have announced and two things here that are significant the city of Beijing. They're launching their non-safety driver pilot program in Beijing, okay, so the significance of Beijing shouldn't be lost on people. Beijing is the capital city. It is much busier and much more hectic than a Nansha, any part of Nansha. And you had made a good point on twitter: the safety driver is gone, but there does need to be someone in the car, a badged Baidu employee in the vehicle. So huge deal. Something they should pat themselves on the back on for sure. And what were the next announcements, Lei?

Lei Xing:
Just the other one relating to Pony was the On Time Mobility, right? A ride-hailing platform from GAC group, getting the RMB 1billion round of financing and actually Pony and WeRide are two of the investors in that round. That's the three pieces of news related to Pony.

Tu Le:
So for those, Pony is a Shanghai-based and Guangzhou-based.

Lei Xing:
Guangzhou based, they're everywhere, Beijing.

Tu Le:
And WeRide, is Guangzhou headquartered. So they're actually chopping up China from a pilot standpoint, but they're competing on the AV side, but they're cooperating on this ride-hailing platform.

Lei Xing:
If you look at the competitive landscape and we look at it from two different perspectives: one is the location. So Nansha, Guangzhou and Yizhuang, Beijing are shaping up to be AV capital of the world, at least in China, from these news, right? Nansha is where WeRide is going to put 50 of those robosweepers into testing.

Tu Le:
Yeah.

Lei Xing:
So if you are in Nansha right now, you're on cloud nine, right, if you're an AV enthusiast or fanatic. And the other side of the competitive landscape, I think looking at it currently is Baidu and Pony are definitely in the leadership position as far as advancing or progressing into the next stage of, let's say, what Cruise is doing in San Francisco or what Waymo is doing in Arizona. They're not there yet quite because of the, I was laughing yesterday because I’ve learned a new word in the Chinese presser. It says fangxiangpan hou wuren, which means no one behind the steering wheel driverless, which means, obviously, there's somebody sitting in the passenger seat.

Tu Le:
Somebody's sitting shot gun.

Lei Xing:
I mean all these terminology, that was interesting, but nevertheless right? It's a progress. The next stage is obviously removing that passenger safety driver or employee.

Tu Le:
He's not a driver, he’s a safety employee

Lei Xing:
In the middle of the armrest, there's this yellow button, right? That he can press anytime there's a situation that comes up. But that's the competitive landscape. And it seems Pony and Baidu are kind of that they're moving ahead together, they are shoulder to shoulder. But there's also that competition of Pony is now in two cities, I think Baidu, they're already in all four tier-one cities, and then you look at the mileage, Baidu always has a little bit more mileage tested, but Pony says I'm the first one to actually get that taxi license, which has a set of stringent requirements that you need to meet in order to get it, right. And I think the other part of it about On Time is this mobility platform, it’s less than 3 years old. It was established in June 2019, so almost 3 years, invested by GAC Group. And I think being in Guangzhou, served it well because of the Nansha, because of the local AV ecosystem that Pony and WeRide would invest into the ride hailing platform, the CEO of On Time, he says something which was interesting is that there's a point in time when the competition in AVs moves from technologies, sensors into the operational management side of it. So any of these AV companies, they would need a operational partner to put the AVs onto the streets. And right, so that's why I think On Time is, I think they're pretty lucky. And in sharp contrast, we haven't heard much about DiDi, right?

Tu Le:
So let me add some color here, so Nansha, Guangzhou versus Beijing. Guangzhou is almost tropical, hot, no snow, so bodes well for AV companies to be able to test 365 days a year. Beijing doesn't snow that much, but it does snow. But Baidu for them, it's really a feather in their cap to be able to say we're making stuff happen, or GSD: getting stuff done. The S actually stands for something else, but we'll say we're getting stuff done in the capital city. If we're keeping score DeepRoute, Maxwell Zhou said, and he alluded to the same thing: we need operational partners. And so the idea that AV companies are software plays, that's going away, okay? In China, we need an operational partner full stop. And Baidu, by way, of being the biggest monster, are able to put the most kilometers in their algo. And WeRide has also partnered with a few operational OEMs as well. And so to summarize, NIO has, and these guys are going international, so I’m jumping ahead of myself. So NIO has a pilot program in Munich, that's going to be launching with Sixt. WeRide has a pilot program that's going to be launching in UAE believe, Lei, and correct me if I’m wrong. And then they all have operations and pilots and testing in Silicon Valley. So there's no lack of ambition for any of these folks. And we can't forget Momenta who GM has sent or committed to writing a $300 million check for. And that's just the robotaxi guys. There is commercial trucking guys, like TuSimple, like Plus. And so we're seeing a bit of maturity here and On Time is happening, while DiDi is still in the box, they can't catch a break. The Hong Kong Stock Exchange rejected them. The Chinese government said you're still in the box. We're keeping there for a little bit longer. So they're still in limbo, okay, they upset somebody pretty badly, it seems.

Lei Xing:
And speaking of competition, right? You mentioned GM and Momenta. It's as much a competition among the AV startups as it is among the OEMs behind them. So Pony is invested by Toyota, so they're running these Lexus vehicles. WeRide is invested by the Alliance, so they're running the Nissan Leafs and the Sylphys, or the EVs, some of the EVs produced by Nissan, right? Whereas Baidu, they are working with several OEM partners, right? Hongqi and ARCFOX, right, on a robotaxi. So, right, this is a competition on so many different fronts, right? The regional governments, policy makers, AV companies, the hardware suppliers, the software and OEMs.

Tu Le:
And we're only talking about the first gen AV companies. We haven't even spoken about Qcraft, DeepRoute. So there are newbies, relatively newbies right? Like On Time. It's a 3 year old company, but they saw an opportunity and these SOEs want in on that, right? Because it sells their car, it sells their capacity to the AV companies, so they can get more of them on the road and keep their factories open, because if they're not partnering with these AV companies, then whenever robotaxis in 10 years becomes a real thing, they're going to have to deal with that. They're going to become collateral damage unless they're partnering with these guys. And we should mention Lei, that Huawei has also mentioned that they're going to be a bit slower on launching their vehicles with their partner SERES and a couple of other Chinese companies I forget now, I have them in my notes, but so effectively. And you please correct me if you're hearing different things, Huawei has contract manufacturers now because they're running the show. The brands, the EV brands that they're partnering with they don't really have a say, I don't think。

Lei Xing:
And Huawei has in itself, it has three different types of approaches. Huawei is a supplier, is a tier-one supplier. That's one level. Huawei is a Huawei Inside partner. That's another level. So let's say ARCFOX and SERES. And Huawei is on a third level, in the case of ATIO is more of a participant on even designs, right? The car designs that they are involved in and their investors into some of these new brands, right, AVATR, companies like those.

Tu Le:
So let's move on to CARIAD and that announcement that they now have a Chinese division that they're going to really lean on.

Lei Xing:
So for those of you that may not know, CARIAD is essentially Mobility Asia rebranded. And if you knew Mobility Asia was headed by Wei-Ming Soh, who is off to doing something new and we mentioned this many times.

Tu Le:
He's technically just the CEO of Renault China.

Lei Xing:
I think we tweeted back and forth on Twitter, that the CARIAD China interesting as much as what they're doing as who's running the show. The CEO is a guy who's a lifer at Volkswagen. He is a German, but he was born and raised in Harbin. And he's one of the guys who actually started very early days of the CARIAD. I guess he's called back to run the show in China. So this is a guy that's kind of have had the at least cultural wise, a diverse background. And the CTO…

Tu Le:
Cultural wise within Volkswagen.

Lei Xing:
Yeah. The CTO who used to be at IBM for almost two decades before arriving at Volkswagen, I think, in 2017. So technically, these are both VW guys with the CTO having had the kind of the IBM experience. But I think you had some issues with that. I think. Is that a good thing or bad thing? Do you want somebody from the internal elevated to these types of positions? Or do you want someone else from the outside to run it? That's…

Tu Le:
I know externally I might seem a bit hard on Volkswagen Group, but that's because I’m here in Beijing, I hear from their employees. And I see the frustrations on the ground, because they want to do the right thing. And they're just not capable because decision making is still very centralized. And Lei, are you getting the same impression from when you talk to people, you know, Wollenstein he did the best that he could, I think you and I agree with that, but again, his replacement is somebody from Germany. It’s not, why would they allow or why would they hire, well, and here’s the thing, right? He's German. He has 20 years in Volkswagen, most of that time in Germany. So they're saying the right things. I read the media release on the CARIAD website. So Dirk Hilgenberg is the global CEO of CARIAD. First of all, why do you separate the software development team into an entire company? I don't get that. They need to be embedded in part of the company. And they need to drive the change, right? Not as some separate company. And it says together with our China team, we are working towards one goal to code the future of mobility. What does that mean? No, you're there to enable the best user experience and customer engagement through your brands as you can, coding the future mobility, what, that tells me right then and there that they're not thinking, the bogey is completely different than what it needs to be, right? They said this in a media release.

Lei Xing:
I think what you mean is this use of mobility is becoming too much of a catchphrase or cheesy term. Whereas I look at this, first of all, I think at least they have, right, obviously, even though he's a German national, but he is Chinese in some ways, right? So the CEO and the CTO are Chinese. So I guess that's good.

Tu Le:
And I don't know them. So I’m not trying to be personal.

Lei Xing:
By the way, when I talked to Wollenstein in the MAX episode, he kind of mentioned this guy, but it wasn't included in our final recording. Now, I kind of understand and going back actually to what Wollenstein said, his quote that “China has made it” and put in that, translating that into CARIAD, and one of the very important phrases that they use in the press release was in China, for China and in China, for the World, with China speed. So this CARIAD China entity’s actually very important to the CARIAD global, they are developing I think somewhere is said 70% of development was led by the China entity on some of the global programs. But here's, they, Chang Qing (CEO), when he spoke, basically, there's a three-step process that their end goal is to launch this all-new uniform stack, right? That's the end goal.

Tu Le:
By mid-decade。

Lei Xing:
And then kind of the second, I’m going backwards. The second was to have this high-end software platform suitable for the PPE which is also coming in a few, couple of years later with the Audi and Porsche, and this is all, I’m talking about China. The first priority is…

Tu Le:
So let me interrupt you there because Audi had Artemis, Artemis got rolled into CARIAD. I think that's what they're talking about。

Lei Xing:
And then going back further to the present, their first priority of this CARIAD China is to actually have this so-called production software platform that will be able to OTA for the ID. family. So this will happen in the second half 2022, all for China. So this is their three-step process. When the CTO came on to talk, he gave a few examples. So one of the examples he gave was this kind of there's this forward, innovative action that they're taking. There's this rainbow project.

Tu Le:
I didn't understand that at all.

Lei Xing:
They showed this lady sitting in the car. So what they're trying to do is offer this, what you're wearing that day, the type of clothing, the color, based on that, they will have a way to create a smart cockpit that kind of meshes with your mood or your style that day. So that's something interesting that they're doing. I don't know how, it's almost like, what's the word? The feel inside a cabin, right? They're trying to create that. It's just one of the examples that he gave. There was tons of others that were quite technical, but he also talked about this management tool kit for developers. This process, method, tookit or PMT, but at the end of the day, this is again, this is reflecting “China has made it” comment where the times or the days, it's the other way around. I think Wollenstein he kind of alluded to that in the conversation. And this is reflected now by CARAID. And I think CARIAD, look forward to post-2025 on what they have. The immediate concern is ID.

Tu Le:
If it takes them until 2025 to develop this hardware/software stack, they should just go buy DeepRoute. They should just go buy, honestly, right? Like they're getting it done every 6 months, there's announcement, right? Like it's tiring, just hearing you saying this is a three-step process, dude, its software development. It should be freaking agile, I mean you should be coming out with something all the time. I don't care how big your team is. They did say that they're going to go from what 1,200?

Lei Xing:
600 to…

Tu Le:
600 to 1,200 by 2023, right? So remember this, they have to compete against JIDU, Baidu, NIO, Li Auto, Xpeng, for talent, right? That's the key for talent. If I am the Chinese developer that's worth my way in gold, then I would want options. Volkswagen’s options aren't going to be worth a damn. Incrementally, I might make 10, 20% more over a period of 4 years. But if I’m at a startup, man.

Lei Xing:
Maybe I'm not as pessimistic as you are. This entity is sort of Volkswagen’s vengeance play, I think I feel a bit that way. This is not something that will have immediate fruit in the next few months, right?

Tu Le:
Sure. So the reason I'm imploring them, it hurts my feelings that they're not thinking about this differently, because they've lost 14%, 7% in the last two years of production volume, right? And the ID. series is not doing well. So they can't wait 3 years, this is my point. And they aren't emphasizing speed. They've said it in the media, but 3 years is not fast. And so I just, and that's why the whole point of me saying somebody from outside needs to go in there and kick some ass like a Doug Field from Ford. He's probably given 3 years. Farley’s probably given him 3 years to turn that stuff around, right? He's not, and we're talking about the entire company being turned around, not a hardware/software stack being developed for your nine brands. So again, it's just.

Lei Xing:
I think for Volkswagen a lot on their plate right now. And they have their work cut out for them right, on the one hand of production issues, production loss, ID. sales, all of these issues that they're all. Now the Volkswagen, many of the foreign legacy brands are confronting this funk in China. And Volkswagen had to start somewhere, so CARAID China is a starting place, at least on the kind of the in-house vertical innovation. And then I was going to say the other thing that they announced a couple of weeks ago is the selection of 20 Chinese tech companies for their SSP future models, not in China, but for the other western markets. So I guess they're going parallel, right? So in-house plus partners. So how that plays out? How do they balance going forward?

Tu Le:
I had tweeted, this is the challenge with using significant partners, at least on the software side. For hardware it's fine, right? To have a Lear build your seats for your Audi R5 or A6, that's fine. But when it comes to software and hardware on the tech side, a lot of that, if you Frankenstein a system together, there's the potential for just a ton of bugs. And so you lose control of the complete design process. And so I don't know what the balance is for Volkswagen, for GM or for Ford when it comes to, when do we outsource, when do we insource and keep things in house? But think of it, the more in house, the more control, but the more out source, the faster you can probably get it done, right, generally speaking. So if they want a compelling user experience, they need to bring a lot of that in house, right?

Lei Xing:
For us, the industry observers, this is great to see because you have the seesaw battle, right? The foreigners led, now the Chinese are out in the front, the foreigners trying to catch up, right? It's not to the point where, we can't say that, right? We always say many times that the startups are not out of the woods, and the legacies are not dead. So let's give it a couple of years, but if they can get this right, if Volkswagen get CARIAD China right, they'll have a chance. But if they don't, then I don't know, right? Let's be patient a little bit. That's not call, the fat lady hasn't, right? So it's not to that point yet. So I tend to kind of, I tend to root for Volkswagen a bit, not that I’m biased, but just to see whether they can come back or they can do this.

Tu Le:
When I was in my 20s and still super, super car guy, like I still love Porsches, I still love Audis. Audis were never that big in the U.S., but I always thought they are beautiful cars.

Lei Xing:
The Porsche Taycan Grand Turismo that was launched in China a couple of days ago. I said that was my favorite car, because it met three criterias: first, it was a Porsche. Second it was an electric car. And three, it was a shooting break. That one car satisfied all my three desires.

Tu Le:
Sure. Let me be clear, Lei. Because I have been dumping on Volkswagen, but it's almost like, I want them to succeed, I want them to succeed so bad, right?

Lei Xing:
See, that's exactly, that's exactly, I think what I was trying to say.

Tu Le:
I want them to win. And I’m biased. I want everybody to win. Unfortunately, that's not going to happen. And that's why we make these comments, right? That's the reality of it. And so but to see such a huge company over the last several years. And I’m still a little bit jaded with diesel gate thing that still bugs me a little bit. I just think that there should have been more severe penalties for that, but anyways, I'm pretty tough when we talk about GM, when we talk about Ford. I like to think I’m pretty tough when it comes to those companies as well. I just need to have a better outlook.

Lei Xing:
And the only other thing was going back to the sales, was the State Council released a circular a few days ago. Basically, it's just said to support sales of NEVs and vehicle sales in general and no longer put any more restrictions in the place in limiting sales. So that there's one sign. And if you look at the production reboot, right? I think we're seeing this coordination going through various levels of the government. So that's why earlier I said that it feels like it's getting better and the worst may be behind us. You see these signs, you see these announcements pointing to some kind of stability.

Tu Le:
If they can wall off and really create closed loops, let's say, for instance, blocking off Beijing, I hope it doesn't, but if it gets more serious here being able to block that off as Shanghai goes down in infections, kind of restarting that. I just feel that it's just really difficult, especially with this variant, to be COVID Zero. And there's always going to be that risk. So for the summer anyways, this risk is going to be here for sure, and yeah. April is going to be a mess. Do you think that the ICE sales is an overall indication? Do you think the EVs will be a little bit better, at least?

Lei Xing:
Well, the EVs are, because right, we're still talking about a relatively low base. And ICE market share, were going down anyways. So that's why I said if both are going down, but EVs, especially BYD right, at the level that they've had, then I expect to see similar penetration rates on NEVs from months past, right? Though the volumes are down. So that's my expectation.

Tu Le:
A couple things that I made notes of that I failed to talk about really quickly. CATL’s EVOGO has their first partner.

Lei Xing:
Oh, AIWAYS, second partner.

Tu Le:
Second partner, sorry, for battery swapping. 

Lei Xing:
I heard so, by the way, I’ve also heard some of the second, third tier EV startups are coming on board and announcements are imminent.

Tu Le:
Yes, for sure, I would think that CATL probably bullied them a little bit to come on board, a few of them any ways.

Lei Xing:
And if you look at the FAW Bestune, AIWAYS these are the two brands that are not…

Tu Le:
They need this push。

Lei Xing:
Right, they haven't resonated with the Chinese domestic market, right? So you tend to think that these type of companies are the early ones that will work with CATL’s battery swap, and not the prominent once, at least not yet.

Tu Le:
You have to point back to AIWAYS being in 12 markets outside of or 14 markets outside of China. Maybe that is CATL’s way of moving there, EVOGO, swapping abroad.

Lei Xing:
AIWAYS did say, in the presser that they were looking at this battery swap abroad as well.

Tu Le:
And you and I had the pleasure of speaking with someone this week for our MAX episode that didn't seem to think battery swapping was going to be very successful outside of China.

Lei Xing:
In particular in the U.S. I think that was.

Tu Le:
And we should give BYD kudos. Their cash flow increased significantly from Q1 sales.

Lei Xing:
That was out of this world number: 8,000% increase, right?

Tu Le:
We have two of our Snowball Capital friends on. So they've been, besides us, obviously, they've been ringing that bell since we've known them, right?

Lei Xing:
Yeah. And also a little bit debate on who that LFP partner was for Ford, right?

Tu Le:
I think it is Gotion.

Lei Xing:
Could be Gotion or SK, I don't know, but obviously Gotion’s announcement was with a big American public-listed automaker, right? I mean who, there's only three of them, GM, Tesla and Ford. Who else?

Tu Le:
Yeah, because Dodge is actually part of a French company now, right?

Lei Xing:
So housekeeping, basically you'll be on a little mini vacation. I don't know, but obviously, next week we get to talk the April sales numbers, because they'll be out on May 1st, which is Sunday. So we'll be back on May 5, right? So we'll have the same time next Thursday.

Tu Le:
I think for, if you're looking for up to the minute or up to the day, updates just follow me or Lei on Twitter about production, manufacturing, life in China. Beijing is, and now Guangzhou, you've heard about Guangzhou now, right?

Lei Xing:
Righ. Speaking of, my friend got out of the quarantine, he boarded the bullet train this morning from Shenzhen back to Beijing. So I'm really happy for him。

Tu Le:
Into another quarantine.

Lei Xing: 
 No. I don't know I have to check with him. I think he said he doesn't have to quarantine for some reason. I don't know how it was, but I'll check with him, but at least he's gone through that process of leaving the U.S., seven days ahead of time you have to do this and that, right, board the plane, land, stay in the hotel for 21 days.

Lei Xing:
Just a push notification right now, Elon Musk sold around 4 billion worth of Tesla shares. That must be for Twitter or no.

Tu Le:
For sure. So I'm going to say this. We can end this on this note unless you want to retort.

Lei Xing:
No I think we're good.

Tu Le:
Good. Twitter being owned by Elon, and the Chinese government. There is leverage there, full stop. To say that he's not, the Chinese government's not going to try to influence him. That's wrong. That's a wrong way to look at it. Will he be influenced? That's another question, right?

Lei Xing:
I agree.

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.