China EVs & More

Episode #67 - Jumpstarting the Chinese Economy, Bosch & WeRide collab, and XPeng's earnings

June 02, 2022 Tu Le & Lei Xing
Episode #67 - Jumpstarting the Chinese Economy, Bosch & WeRide collab, and XPeng's earnings
China EVs & More
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China EVs & More
Episode #67 - Jumpstarting the Chinese Economy, Bosch & WeRide collab, and XPeng's earnings
Jun 02, 2022
Tu Le & Lei Xing

Tu and Lei start out with a discussion about the challenges of China’s overall economy and some of the stimulus that the Chinese govt. has announced they’d provide in order to get it jumpstarted. Shanghai is finally opening back up on June 1st, so factories should begin to product more product consistently in June and beyond but Tu cautions that any outbreak could jeopardize the recovery. 

Lei then shifts the conversation over to May sales numbers and how he expects BYD to be much further along in their sales volume than the other EV makers. This opens up a broader discussion about BYD including their boldness in entering the ultra luxury market with a vehicle launch later this year that’s supposed to be in the ¥1.5M price range but they both question whether BYD is stretching themselves too thin?

Tu shifts the conversation over to Jidu and their impending vehicle unveil scheduled for June 8th. Jidu is the brand that was created by a collaboration between Geely and Baidu. Lei laments that their messaging is a bit confusing, specifically the claim on being a ‘autorobot’ and he wonders if Jidu is overpromising what the product can deliver?

The pod moves onto the news about the strategic investment Bosch made into WeRide the Guangzhou based autonomous vehicle startup and the possible reasons for the investment and how they could provide each party access to an area that they currently lack or that isn’t available to them.

Tu and Lei close out the show with a brief discussion on ECarX, the software intelligence startup owned by Li Shufu aka Eric Li, the founder of Geely and then a quick chat about XPeng’s earnings as well as who they believe may be moving to the US market first. 

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Show Notes Transcript Chapter Markers

Tu and Lei start out with a discussion about the challenges of China’s overall economy and some of the stimulus that the Chinese govt. has announced they’d provide in order to get it jumpstarted. Shanghai is finally opening back up on June 1st, so factories should begin to product more product consistently in June and beyond but Tu cautions that any outbreak could jeopardize the recovery. 

Lei then shifts the conversation over to May sales numbers and how he expects BYD to be much further along in their sales volume than the other EV makers. This opens up a broader discussion about BYD including their boldness in entering the ultra luxury market with a vehicle launch later this year that’s supposed to be in the ¥1.5M price range but they both question whether BYD is stretching themselves too thin?

Tu shifts the conversation over to Jidu and their impending vehicle unveil scheduled for June 8th. Jidu is the brand that was created by a collaboration between Geely and Baidu. Lei laments that their messaging is a bit confusing, specifically the claim on being a ‘autorobot’ and he wonders if Jidu is overpromising what the product can deliver?

The pod moves onto the news about the strategic investment Bosch made into WeRide the Guangzhou based autonomous vehicle startup and the possible reasons for the investment and how they could provide each party access to an area that they currently lack or that isn’t available to them.

Tu and Lei close out the show with a brief discussion on ECarX, the software intelligence startup owned by Li Shufu aka Eric Li, the founder of Geely and then a quick chat about XPeng’s earnings as well as who they believe may be moving to the US market first. 

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

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CEM #67 Transcript
Recorded May 27


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 Chinese 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. A feeling better Lei. Can you please introduce yourself?

Lei Xing:
good evening and good morning Tu, I am your co-host Lei Xing, former chief editor of China Auto Review. This is episode #67, a special Friday evening U.S. time, Saturday morning, Beijing time edition. First of all, I truly apologize for asking you to do this episode on a Saturday morning. This was rather a sh*tty week for me as I’ve been under the weather, had a fever. So that's why the last-minute change in our show this week, but much better today and luckily tested negative for COVID. So thanks for accommodating. It's actually Memorial Day weekend here. Can't believe it's officially summer here, just filled up gas for my old Buick today, $72.55 for 15 gallons of gas, painful. This is the weekend when more Americans are supposed to get on the roads and start traveling for the summer season. The gas prices obviously ain't helping. So much going on this weekend, the Guangdong, Hong Kong, Macau Greater Bay Area Auto Show or simply known as the Shenzhen Auto Show is going on. There is actually an auto show going on in China!

Tu Le:
Yes, in person!

Lei Xing:
 In person! So just not in Beijing or Shanghai. So maybe we'll talk about it a bit next week. So Top Gun Maverick just got some rave reviews, so I guess I’ll have to see it sometime this weekend. I guess it's not showing in China, cause what, Tencent backed out of the investment, right? We saw the article.

Tu Le:
So originally Tencent had signed on to fund or invest about 12% in the movie’s budget. They backed out when they thought it might be too American, pro-American. And so, yeah, it's got to be just one of those super entertaining movies that pushes the limits on filming. There is a really cool piece, a funny piece, I'll send it to you if you haven't seen it yet, Lei, where Tom Cruise takes James Corden in a plane.

Lei Xing:
Yeah I saw that. 

Tu Le:
So, hilarious stuff.

Lei Xing:
I'm rooting for my Celtics tonight.

Tu Le:
But man, close game, close game.

Lei Xing:
Back to the topics. Let's first talk about the stimulus a bit. I'm not talking about stimulus pertaining to the auto industry or the stimulus. I'm talking about the entire economy, so maybe kind of combine that with what's happening on the ground. Maybe you kind of give us some of your perspectives from on the ground.

Tu Le:
I think that we are getting to the point where the entire economy is seized potentially. And so Li Keqiang had an internal meeting with thousands, was it thousands? 

Lei Xing:
Tens of thousands, reportedly.

Tu Le:
Basically the largest zoom call ever. But they have this all hands-on deck mentality. And there's going to be billions and billions of dollars that will be invested, because there's practical reasons because the economy is in jeopardy of actually shrinking for the first time in a quarter over the last 30 years. And then the drivers of the economy, the ports, the manufacturing, those are really, really slow to get started back up. So part of the strategy to create the stimulus is also June 1 supposedly, Shanghai is officially going to open back up. Now. It's not a binary thing, everything's closed and everything's open. It's going to slowly open back up, but we have already seen videos, Lei and I have already seen videos of people out in the streets in Shanghai, just kind of celebrating. That's good to see. But yeah I tweeted earlier just now Lei that we will need or Shanghai will need also the people that keep the city running, the taxi drivers, the DiDi drivers, the servers at restaurants, the delivery people, they'll all need to come back in order for Shanghai to really, really, really get going. Because if you have workers and then no support staff, then it's just going to prolong the recovery.

And so you and I have seen how fast things move in China, but there's this governor on how fast things can move called COVID. And that really hasn't changed. The policies haven't changed. And so there's always going to be a risk, whether it's in Shanghai, Jilin, Shenzhen, anywhere, there's going to be risk that an outbreak could happen, and everything gets shut down again. So it's puzzling to I think a lot of westerners why they're sticking to this policy and a very common refrain I’m hearing is that they had 60-day Shanghai shutdown. Why didn't they mandate people to get vaccinated? So these are questions that we have as well. But I feel it's going to be a very slow recovery. I think this is going to be a year that scars the Chinese economy awhile, not only because it might shrink, but also because all the expats are gone and getting them back is going to be pretty challenging as well.

Lei Xing:
And we've seen the studies or surveys put out by the European Chamber as well as the AMCHAM, right, we've seen the numbers, but within the last, what, couple of weeks or so, premier Li Keqiang, he's held three different events or meetings, right? There's that executive meeting, where he mentioned as far as relating to the auto industry is the RMB60 billion kind of the stimulus on the purchase tax and the RMB90 billion in car loans that can be kind of delayed, right, the principle and the interest, right? And then he held another meeting with these foreign what dignitaries on the CCPIT anniversary, okay, and the third meeting, which is the one on May 25, that all hands-on, it's actually called the National Stabilizing the Broader Economy Tele conference, where the full text that's been circulated around is not officially reported. There's only that summary officially reported by the official channels. And it's, the picture, I don’t want to say dire, but it's not good.

Tu Le:
An indication of how real this is Lei is first Volkswagen, Diess saying we're going to double down in the U.S., we're going to increase our investment, we're going to try to double our market share from 5% to 10% in 2030. And then also, Hyundai offering up over $10 billion combined investment by 2025, right? So companies are really making that move, are shifting away, what, 5 years ago would have been a no brainer to invest into China. Now they're looking at other countries, specifically the U.S. for these two automotive companies. But that should give you an indication, a broader indication that foreign companies do see despite all the immediate challenges that we had in, including that tragedy, this amazingly sad tragedy this week in the U.S., they feel it's more stable and they feel more economic opportunity for growth in the U.S. than a China. So that should really, really point to a lot.

Lei Xing:
I tell you the world is a crazy place right now. And we're just lucky to be able to do this to do our thing here, and you put things into perspective. But yeah the pendulum is definitely swinging as far as investment is concerned. Although we do see these news, let's say, CH-Auto, ECARX being SPACed in the U.S. right? Chatter of NIO trying to build in the U.S., all of these things going on, some are in the longer horizon, some are happening or happened already.

So stimulus, we talked about this the last two episodes that they were going to come. And so far, I looked at some of the numbers more than, I guess, a couple of dozen Provinces and regions have launched their own kind of the stimulus measures on auto sales, not just EV sales. But a lot of stimulus are pertaining to EVs, so besides the RMB60 billion stimulus on purchase tax, a couple of examples: Shenzhen is giving RMB10,000 directly on the purchase of EVs. And Shandong Province I tweeted this, they're giving RMB3000-6000 depending on the price of the vehicle. So these things are happening in larger volumes that reflects the current state of production, on the one hand is getting back up, but then there's the consumption side of the equation, right? And also…

Tu Le:
We want to be clear about that Lei, because the first thing, if you're out of a lockdown for 60 days, the first thing that you're thinking about is probably not buying a car. So these stimulus is necessary to get people into the showrooms and looking online and interested in perhaps buying that vehicle, right? And so.

Lei Xing:
We also do get the illusion that what's happening in Shanghai and Beijing, that does not represent China, by the way, right? So there's other parts of the China, major cities, Shenzhen is doing the auto show today, starting today. And other parts of China seemed to be relatively more normal. There's still activity, it’s just affecting some brands more than others. And it's almost June and we're going to hear those May numbers. I am expecting particularly, let's say for BYD, it’s going to be again, head and shoulders above everybody else. BYD is not going to do 100,000 units, they are going to do 100,000 units MORE than everybody else. That's the kind of the numbers we're looking at based on the current conditions, we said this also the past few episodes that you say it's going to take a year for the economy. So I’m saying it's going to take the entire Q2 for the industry to get back to normal, right? I think May based on the current numbers, CPCA, it's better than April. But still, you won't get back to normal anytime soon.

Tu Le:
And we have to remember how amazing if BYD is able to get to six figures or over 100,000 units. How amazing it is because they're threading a needle. If we go to Xpeng earnings earlier this week, there are actually forecasting Q2 sales to be about 6% less than Q1 sales, and Q1 sales were already challenging, right? 32,500 units for Q2. So as most other automakers are struggling to keep their factories open, BYD is effectively printing money. So it's an amazing thing. I would love a deeper dive and understanding how they're managing it. Maybe it's just the luck of the draw because their factories, number one, they have more control of it. So that's not lucky. That's just part of their strategy. But the other part, it has to be luck, right? A lot of where they're getting the raw materials aren't closed up.

Lei Xing:
Aside from that Changsha factory story that we talked about, it's been pretty much positive, every phase of the game, new products, more announcements, right? We can kind of go into BYD a little bit. The high-end, the BYD Seal, new technologies, CTB from CTP to CTC to CTB, all these acronyms, this new kind of the quattro style technology that they're bringing out, right?

Tu Le:
We need to take a step back too Lei, because if we think about the timing of this, BYD had perfect timing on all these product launches too, because as other EV companies are doubling up on launches or not launching anything at all, in Tesla’s case, you just see what seemingly every quarter we're going to show this vehicle off, we're going to show the Seal off, we're going to show the Tang off, we're going to do this, we're going to do that. And so they've been able to manage new products every quarter. So staying in the news cycle, which is important if you're an automaker. And so it's, again, the quietest EV dominator in the world. But I think more people are starting to see that.

Lei Xing:
Taylor is teasing us with the BYD Han. But seriously, I think, in the Chinese chatter, is BYD ballooning, all of a sudden too much, right? The high-end going up to that price range. So think of that brand as a TANK plus a HiPhi, and even higher. or a G-Class plus a HiPhi and even higher: $250,000 or RMB1.5million.

Tu Le:
That's aspirational. That's not even luxury. That's rarefied air so.

Lei Xing:
This is coming in the second half, soon, actually, they'll make the announcement. 

Tu Le:
I love the boldness. I'll always give credit to anyone who wants to push the envelope and push themselves, but can the execution meet the promise? So that's what is, I'm a little bit wondering about because you're not going to build a $250,000 car on the same line as you're building a Seal are you?

Lei Xing:
And the disparities at the same time, they're even coming out with even smaller, their Ocean series of models, the Seagull, which is smaller than the Dolphin trying to compete with the I guess even the Wuling Hongguang MINIEV segment. And that's the range of vehicles that they have now: from a Seagull to RMB1.5 million whatever that thing will be. And we don't know what the brand is yet, but it's coming.

Tu Le:
And we have to remember that these decisions, again, they did not happen in the last 12 months. They have a 5-year product plan that they were probably just tweaking. So these decisions were probably made 3, 4, 5, or 6 years ago. And they're looking at this from a timing standpoint is as being the right time. Otherwise, they would delay it. So.

Lei Xing:
Yeah, no, I’m just saying that the Seal seems to be hitting all the sweet spots in the market with these latest technologies. So that should be another, BYD right now has got so many of these star models, right? You name it, the Tang, the Han, the Dolphin, now the Seal. Then we haven't even talk about the other series yet, the frigate or what's the name, right. Destroyer. 

Tu Le:
Yeah, then they have Denza.

Lei Xing:
Denza is coming out with more models. And you have this high-end, oh boy.

Tu Le:
Maybe we can transition to a quick chat about JIDU.

Lei Xing:
Yeah, and I think JIDU the surprise was first Robin made these announcements, second that this car is pricing in the RMB200,000 range, which was a lot lower than I expected. What was your reaction?

Tu Le:
Yes. He's going right into the meat of the market, right? So they will be, JIDU will be the first vehicle from a technology company. So I don't think that Geely is offering much in the form of software or digital features to the vehicle. So the key points that I wrote down from Robin’s conference call was that they're leaning into intelligent, right? It's not about electric, it's about intelligent. He emphasized that it's going to be so different than everyone else because of its ability and focus on hardware and software integration. And RMB200,000, if again, the execution fulfills the promise, they're going to sell a ton of those things.

Lei Xing:
But the other things that I have my skepticism is they keep calling this a robocar, but what exactly is that? Is it the consumer AV that GM is trying to be doing, or ZEEKR is trying to do with Mobileye? Or is it something that's going to offer those city-level NGP style, assisted driving, or is it something else? And pricing it at RMB200,000? I don't know, is JIDU over promising? I feel like they are.

Tu Le:
Of course they are. That's because if we look at the landscape though, Lei, every other part of the market is occupied. So they have to be even further out. You are absolutely right, I don't know what an auto robot means, have no idea what that means. And I’m sure it'll be confusing once we see and touch and feel what they mean by auto robots. But it's a technology company building a car. So the way they look at things is going to be completely different from the jump. I'm hoping that there will be at least a handful of features like that makes a ton of sense. And because Baidu is all about bits and bytes, they can actually execute on that.

Lei Xing:
And it's also supposedly a sedan and competes, targeting directly at the Model 3, I mean with that price range and autonomous driving, ADAS features, plus he also unveiled the second model, starting ordering in 2023 and deliveries in 2024.

Tu Le:
But Robin isn't technically part of management of JIDU is he?

Lei Xing:
Not really. 

Tu Le:
So that was a little bit confusing to me.

Lei Xing:
I mean JIDU doesn't have a quarterly earnings call. But you can see that this is very important for Baidu. It's supposed to be Joe Xia, right? That should be.

Tu Le:
Yes. And it's important because Baidu has kind of trailed off from a revenue standpoint and profits standpoint. So they need a different business to help them generate more revenue.

Lei Xing:
Definitely, I mean on these earnings calls, investors are looking for these type of information.

Tu Le:
And Baidu is definitely trying to be more friendly to western media as well.

Lei Xing:
Sure. So we'll look forward to it on June 8, when this thing gets revealed and more information is shared.

Tu Le:
The sedan just tells you that they're targeting BYD and Xpeng P5.

Lei Xing:
I don't know, but also this teleporting LiDARs that they have on the hood, right? Which is a very interesting design feature. The LiDAR that pops up and closes down, right? So that'll be interesting. 

Tu Le:
Want to talk WeRide and Bosch?

Lei Xing:
Yeah, WeRide and Bosch, I think this is actually the first ever global tier-one teaming up with a Chinese AV startup, first. And second, this is WeRide’s official move from L4 focused business to L2 and L3 driver assistance market, which to me shows that either Bosch has to find help or the other way around that WeRide sees this lucrative segment of this AV sector, and that's why they teamed up with Bosch, so this is very interesting collaboration.

Tu Le:
So Lei, I point back to, here's a shameless plug. We just dropped our 7th episode of China EVs & More MAX. This time we have a chat with Omer Keilaf, CEO & Co-Founder of Innoviz, a LiDAR company. And they had just signed a partnership with LiangDao Intelligence. In the pod, he specifically said that we can't collect data, so we needed a Chinese partner. And so to me, I feel that Bosch had the same situation, so they use WeRide to be able to be their partner in order to try to generate revenue via the Chinese partner. And so I do also think that Bosch probably reconciled there. They looked objectively at their strengths and weaknesses and said what WeRide is much better at X, Y and Z and maybe they looked that WeRide because they were the most affordable AV startup from a valuation standpoint, because Pony, I was reading the Pony’s like $9 billion. I have no idea how they're worth $9 billion, but I don't know if WeRide has that level of valuation yet. So maybe that's another reason.

Lei Xing:
This is a very good point you're making, because recently, right, Luminar investing into ECARX, that's one kind of sign or example. WeRide working with Bosch, Innoviz working with LiangDao, they're finding, these foreign companies are finding different ways of what, moving in, right?

Tu Le:
I think that they've gotten to the point where I think the European market, the Chinese market have gotten to the point where we need to execute. We can't sit on the sidelines anymore and try to figure out how policy is going to be shaped.

Lei Xing:
So the thing is though, for Bosch, I mean Bosch is as a Chinese localized company as you will see in China among all the not only global tier-ones, but any global automotive company, right? The CEO of the China business, he posts viral videos. He has his own video channel of what's going on in the lockdown. He recently posted a video of an empty Bosch China headquarters, right? And he was saying, I wish you guys are all back to work and people are like, aw, so for for them to still work with one of these AV startups is, again, interesting. And again, going back to the Innoviz episode, I said in my take away that these domestic LiDAR companies are already the Goliaths, whereas these foreign companies are the Davids, they must find ways to work together in order to play in the market. That's how it's going to be. And you're going to see more of these, and also more of Chinese working with Chinese companies. So the classic example is Horizon Robotics, and also their competitor Black Sesame just teamed up with JAC right, all of these different camps happening.

Tu Le:
You're going to see a lot more chip design, chip companies from China emerging, because there's a lot of investment from the Chinese government, a lot of encouragement to build out that sector here. So we talk about Horizon all the time. And we talk about SMIC but I don't really know that many others besides Black Sesame. So we'll start hearing more about them. I feel in 18, 20, 30 months, so Taylor, you should probably hear about more of them as well. Once you hit Shenzhen, you'll probably hear about them. These companies that are just starting out because that's going to be huge opportunity for Chinese startups to fill a void and mitigate risk effectively for the Chinese government because they're worried about getting cut off.

Lei Xing:
And yet going towards the ECARX news a bit, you know, we're still seeing, right, there was a Wall Street Hournal article about SPACs over the last 2 years not doing well? Quite a majority of them not doing well and yet you have CH-Auto and ECARX. And the interesting thing about ECARX is ECARX is based in Wuhan. So Wuhan, Geely has several entities in Wuhan, ECARX, Lotus Technology, which is an investor in the current IPO or SPAC. And I heard that one of or a daughter of Eric Li’s is a board member of ECARX, and the CEO of ECARX used to be with Pateo. And Pateo is kind of a competitor and one of the earliest Chinese companies into this telematic space. And if you remember the history, the founder of WM Motor Freeman Shen, when he was with Pateo, they tried to launch a car. I think this is back in 2014 or 2015. And so the founder of Pateo and Freeman, they had a disagreement. He left to start WM Motor and the CEO of ECARX, Shen Ziyu, he left as well. And then there were some lawsuits that never got anywhere. So Geely sued WM Motor, I believe. So I mean all this history.

Tu Le:
Geely and WM Motor definitely have a tangled history, with lawsuits in place right now. So, yes. And so there are finger pointing. I heard that Li Shufu or Eric Li is upset at Freeman about a few different things, but I had a few questions about the ECARX because this is effectively the CARIAD of Geely.

Lei Xing:
Sort of.

Tu Le:
And they were talking about how they already have generated revenues from OEMs, you know what, they've generated revenues from OEMs that Geely owns, so do they have any revenue from an outside OEM, I don't know.

Lei Xing:
Yeah, here's a point I want to mention because you just talked about this. In the presser, they listed all those brands, including Mercedes-Benz, by the way, Volvo that they have teamed up with with the ECARX but right now ECARX is only on Geely branded vehicles, not found on some of the higher, other brands. And the other point is Geely has so many, Polestar is being, they're preparing for their IPO right, in the U.S. in the third quarter.

Tu Le:
I think all IPOs are going to get pushed out. I don't think this is a great environment.

Lei Xing:
They have so many entities, right? That can be listed. It seems that this ECARX is something, first of all, that Eric Li really likes this guy, the CEO of ECARX, so I think it's pushed to the front a little bit, but the other story is that it's not utilized as widely as they are reported.

Tu Le:
The one thing I will throw out there, Lei, is, if Chinese listed companies start getting booted off of U.S. exchanges in early 2024, and these two companies successfully IPO and in the U.S. at the end of this year, what's going to happen to them? So this is completely confusing to me why they would, it's obviously money grabs, but ECARX is a Chinese company full stop. They can say they have foreign customers, but like you said, you pull that veil back. It's just Geely And if you talk about Lotus, if you talk about Mercedes being these foreign brands, Geely owns 9% of Mercedes and they completely own Lotus. So it's not really these independent foreign companies that have entrusted ECARX with d entertainment and data services solutions, right? So they did say that there are two OEMs that are looking to utilize ECARX, don't know who those are, but the key though, is that I was told that ECARX and Eric Li or Li Shufu did get permission from the Chinese government to IPO, so I think one of my questions was, are they doing this like cowboys, like mavericks or no, but I was told that he got permission, so.

Lei Xing:
The timing is definitely a little bit strange on both CH-Auto and ECARX, and through SPACing, right? Both are through SPACing.

Tu Le:
And they didn't know that the economy, inflation, when they started the process months ago, was going to be like this. But I believe COVE, the ECARX SPAC owner, is or the SPAC that they're going to merge into, I believe they have about a year to find a partner before they had to give the money back, because you only get two years, right? And so maybe it's a desperate move, who knows? Right? But just because you have Luminar as an investor that doesn't do anything.

Lei Xing:
Also remember that the other thread or this lineage is remember, Geely was moving into mobile phones, smartphones, there's some chatter about them buying up some phone brands. All of these, it's connected.

Tu Le:
I think you're going to find that these car companies that want to become consumer products companies, their products are just going to be crap. They are two different things and to break into a market where Apple dominates on the top end and Xiaomi dominates on the low end is just going to be brutal. It's going to take attention away from their core business. And I get, it makes sense strategically, but there's going to be a painful several years if they try to become this hybrid company that builds cars, but also builds mobile phones, right? If it made sense, BYD would have done it a long time ago, right?

Lei Xing:
BYD has too much on their hands, already, anyways, even though they are very steep vertically integrated company, what Geely is trying to become as well. Quickly on this, NIO, in the U.S. and Xpeng earnings, I think, kind of compare. Earnings that I think there were different headlines on the Xpeng earnings, some were about their bigger losses in Q1. I think it was over RMB1.7 billion and net loss, and then some chatter about their executives departing. I didn't see, did you see any of the major, did you watch some of the Brian Gu interviews?

Tu Le:
Some of it.

Lei Xing:
What was his, I think the tone is that they are still positive that this, I think one thing that was mentioned on the chips was that there's what 5,000 different chips in a car and the bottlenecks now are not on the expensive chips but relatively cheap chips. So that was one thing. And the other thing was the P9, which is going to be priced in the RMB400,000 range. The other thing was they are still way behind, I think, in their margins, I think there are about 10% to 12%. Their goal is 25%. If you compare to NIO, right, NIO is relatively better, although deliveries are not as good, but right, you balance these out in how you look at these companies.

Tu Le:
So there's a couple of different things that I want to talk about really quickly about Xpeng. So on these, these chips that aren't the high end chips, what normally happens is that there are customers that might hoard them, just a basic understanding of how the chips stuff works. And this works for memory, too. The high-end stuff that is going to be much more customized, but the more commoditized chips that Brian Gu refers to, they can be used on refrigerators. They can be used on Play Stations and vehicles, their control trips and things like that, transistors, resistors. So what companies do is they want to protect their production and they'll buy and they'll hoard them, though, buy 20,000, extra, 30,000, extra, 10%, 20%, 15% extra chips and hoard them. And then if they don't use them in production, they'll sell them on this gray market. But the gray market is a complete demand supply thing. And so if there's high demand, low supply, the price could be almost twice as much as you would buy directly from the fab. There could be a couple different challenges here. Xpeng is buying off the gray market and that is squeezing their margins, or they are refusing to buy on the gray market, and that's limiting their production a little bit. I don't know which situation is theirs and I’m speculating that this is happening to a lot of the automakers. But I also want to say that the struggling economy in China, the challenges in the rest of the world, inflation and everything else, Warren Buffett said when the tide is out, that's when you see who swimming naked.

Lei Xing:
That's often quoted in China as well. Luo Yong, swimming naked.

Tu Le:
Yes, exactly. But what is exposing is how these different strategies that these companies have is affecting their production, their margin, their branding, their positioning. And so Xpeng is actually taking a beating because I’m reading that Li Auto and NIO, they have much more control over their retail and channel sales. XPeng is relying on dealers, and so that's really giving them challenges on the sale side. So I think Xpeng can be fine long term, but they got to get past some of this stuff, because remember, they're only forecasting 32,000 cars being built in Q2. So they don't have to buy that many chips in the grand scheme of things, right?

Lei Xing:
Yeah and also, proportionately, P7 still accounts for a quite a big portion of their deliveries. If you look at the numbers that they put out, right? Supposedly they have so mixed wise, they should be getting better margins. But then again, they talked about some of the stuff off setting that a price mix or product mix.

Tu Le:
And remember that they're putting their, bringing online their own factory as well. Capital expenditures will be increasing over the last several quarters likely.

Lei Xing:
And I personally, I wouldn't read too much into these executive departures, right? Though it is one on their overseas. So that's kind of interesting, but you know people come and go, right? The CTO of Li Auto left. I think he joined a private equity, PE or VC firm, Wang Kai, right?

Tu Le:
Yeah, good for him.

Lei Xing:
And also now you see, right, the other news is NIO is putting these labs on batteries. I'm reading that Build, I can't pronounce that word, Build book by Tony Fidell and he specifically talked about how Apple finally decided to do their own chips when they cannot rely on Intel anymore, because it fluctuates, right? This is interesting.

Tu Le:
That's my claim to fame Lei, when I was at Apple, I transitioned the graphics chips from the Freescale Motorola semiconductors to the Intel platform. What was happening was Intel's level of innovation was decreasing over several years right, and so they just, Apple didn't want, Apple never wants to be behold into a supplier. They're more extreme about that stuff than any other product company out there. And so they're one of the few companies that can actually execute and design and build better, right? So that's one of those things where they transition out of Freescale into Intel. And then they finally are transitioning into their own silicon with the M1 and the M1 Pro and M1 MAX processors.

Lei Xing:
And even the moddems, right? They're trying to. And this Macbook Pro that I have right now is great.

Tu Le:
It flies. I told you man, you transition over to the MAC platform, you're not going to go back.

Lei Xing:
I think we covered pretty much most of the topics tonight, the U.S. right, NIO’s already in the U.S., BYD is already in the U.S. These are the two brands that I see launching or make announcement to that effect within the not too distant future in the U.S., so other than that, if we look at what's been happening with investment, whether its batteries, whether it’s building dedicated EV plants? There's a trend going on. There's investment. I can see all these states, Indiana, right, where the Samsung SDI investment just announced with Stellantis. Georgia, Hyundai, these southern states. But when you have this Chinese name, then it feels a little bit different. Okay? But I think you can bet that the conversations are going on, that the plans are being made when and how that happens. That's a different story.

Tu Le:
They're looking for their best deal. I will add this to your comment about NIO and BYD, totally agree. NIO’s degree of difficulty is a little more difficult or is little bit higher because of the battery swapping. If they truly want to bring that customer friendly service, then they need partnerships that they're not used to working with on the U.S. side for and to piggy back off your comment. BMW has a factory in Mexico that builds 2 and 3 Serioes, they're likely going to be building EVs in Mexico. So what we'll see is that Canada, U.S.and Mexico kinda sort of be the free trade area where we’ll start seeing other announcements from battery cell manufacturers. And that's part of it, right? Because what will happen in the U.S. in the next 18 months, more battery sell factories  are going to be opening. And more charging infrastructure is going to become popping up, investments and things like that. So look for those announcements a bit more frequent.

Lei Xing:
As a Chinese brand in order to put a global name onto your brand, being in the U.S, selling in the us, producing in the U.S., it's like, right? You can't get any better than that.

Tu Le:
Yeah, it's still meaningful.

Lei Xing:
Yeah from that point of view, but we also have to go back to this thing. I often say that the Chinese smart EV startups are not out of the woods by any means. And with the pandemic, with these political geopolitical things going on, it's difficult. But you have to push ahead, right? Your plan, you already have your plan, especially with NIO who's announced the most aggressive and a clear global expansion plans that anyone has made, right? The additional markets in Germany, in Europe, this year, 25 countries by 2025. So then you have to have those materialized.

Tu Le:
And then BYD this week saying they're going to be in 45 markets in Brazil. So, yeah, they're pretty aggressive, too.

That brings us to the end of this week show. Lei and I thank you for tuning in. My name is Tu Le. You can find me on twitter @sinoautoinsight. You can find Lei on twitter at @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.

 

(Cont.) Episode #67 - Jumpstarting the Chinese Economy, Bosch & WeRide collab, and XPeng's earnings