China EVs & More

Episode #73 - BYD outsells Tesla in NEVs, NIO Power Day, VW's SalzGiga

July 14, 2022 Tu Le & Lei Xing
China EVs & More
Episode #73 - BYD outsells Tesla in NEVs, NIO Power Day, VW's SalzGiga
Show Notes Transcript

Tu and Lei start out the pod with a brief review of June sales numbers and both agreed the market seemed to recover well with the major automakers all rebounding from low April / May sales caused by the lockdown in Shanghai. 

Tu and Lei spend a few moments to discuss the latest news about Covid in China including steps the Chinese govt is taking to restart the sector again. 

Lei that discusses the controversy about the claim of BYD outselling Tesla for the 1st half of 2022 since BYD sells a combination of PHEVs & BEVs while Tesla sells ONLY BEVs. 

The next topic of discussion is about the city of Shenzhen opening parts of the city up to L3 capable vehicles. 

Lei reviews all the numbers that were revealed during NIO’s Power day likely to dispute the short report that came out on them last week. Tu counters the NIO numbers with some Tesla numbers of his own, specifically about the number of superchargers that have been installed in China.  

Tu then pulls back the discussion to what the US needs to do to really help speed up EV adoption in the US including a laser focus on rolling out more EV charging infrastructure. 

Tu & Lei close out the the pod with a summary of the VW battery manufacturing announcement. 

CEM #73
Recorded July 7, 2022


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. 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 management 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. Good evening Lei. Can you please introduce yourself?

Lei Xing:
 Good morning sir, and good evening from my side. I'm your co-host Lei Xing, former chief editor of China Auto Review. This is episode #73. Before we begin with today's topics, a special announcement: we will be dropping our next MAX episode next week, and it will feature Frank Wu, the head of design at JIDU.

Tu Le:
Award winning Frank Wu.

Lei Xing:
Award winning. That's right. They just won two red dot awards yesterday for the design of the ROBO-01 and the Robo charger. So we spent, my goodness, almost 3 hours. So it's going to be another two episoder, I guess. And he shared some really intimate and exclusive stuff with us. So stay tuned.

Tu Le:
He is, I feel like we're brothers because he went to undergrad at the College of Creative Studies (CCS), which is a design school where a lot of automaker designers have come out of. So there's three or four design schools, the Art Center in Pasadena, the CCS in Detroit, I think there's one or two in Europe that are very significant for automotive design. Then he spent 7 years at Cadillac in Detroit and Warren, so spent a ton of time. I think he said 11 years in Detroit and then 5 or 6 years go move to China, what a great conversation we had.

Lei Xing:
So I went through the transcript two times already. So it's tons of interesting insights about his life journey and just design itself in the smart EV age, so very much…

Tu Le:
I think that's the key because in the smart EV age and to when, so Frank described the red dot awards to us as the Oscars for industrial designers or for designers. So very prestigious award that the JIDU team has won. Very, very happy for them. And then he had actually told us that they won, but he didn't want us to say anything because it wasn't official yet, so.

Lei Xing:
And now it's execution phase right, now you got the award and the production version still waiting behind the scenes and we wish him good luck. So stay tuned, will probably drop middle of next week. I guess.

Tu Le:
I'd say Wednesday.

Lei Xing:
Sounds good. So let me run through the list of topics, just quick phrases, June EV sales, BYD Tesla global EV sales crown debate, the AITO M7 talking the talk, the HiPhi Z reveal, NIO Power Day, Volkswagen’s got power with SalzGiga, Evergrande’s Hengchi 5 finally starts pre-order, Shenzhen, the first Chinese city to allow L3 automated driving on roads, 10 million NEVs on the roads, and China issues more measures to expand consumption of NEVs. We don't have to go into details on all of them, but first off the list is the EV sales. So without much surprise it was record for everybody pretty much, right?

Tu Le:
Yes, they quickly turned the corner after a challenging April and May.

Lei Xing:
Yeah, so we said it was going to take the entire Q2, and that's exactly what happened. In retrospect, after a scintillating year in 2021, we had high hopes at the beginning of the year. And we're pretty much agreed on NEV sales getting to that 6 million mark. And then the lockdown hit and we were kind of thinking, is it going to get past 5 million? And now, after June, I'm predicting it's going to be over 6 million. This is my latest prediction based on the current trends. It's been a very much roller coaster ride in terms of the up and down sales because of the up and down, in and out COVID cases and you probably can provide some update because there's been another surge, not surge, but Shanghai has had more cases. I just read Shandong Province, one city has 66 cases reported. So whack a mole, whack a mole. What are your thoughts?

Tu Le:
So it is a bit of Groundhog Day because my friends in Shanghai who feel they have PTSD because some of them, and I kid about the PTSD, but in all seriousness, some of my friends really, really had, really struggled during that 60 days in Shanghai. So I feel really bad for them because of the lack of food and or just not being able to plan and understand when the next delivery of food was coming and things like that, right? So there are pockets of Shanghai that a friend of mine said that his wife was 30 minutes late or 20 minutes late to a meeting. And she was lucky because they locked the building down. And the people inside the building were going to have to quarantine there for 2 days for 48 hours. So it's not citywide. And there are areas in Beijing also that have been restricted. But knock on wood. I don't believe entire cities are going to be shutdown, locked down like Shanghai. But I heard there's also a new variant, so.

Lei Xing:
we had someone asked us this question last episode and you kind of repeated the answer right just now, it’s always going to be a whack a mole. And it's been happening the last few days. Beijing’s got like two or three cases, I think reported, some district. And compared to here like here, the recent chatter is this BA.5 variant is causing another surge. But these aside, I think people, I tweeted that everybody's had a collective sigh of relief as far as reporting the numbers. So BYD, Tesla we're supposed to hear about Tesla today, what, I think it was 78,000 units that was predicted by CPCA and that should include exports, but majority of those will be in China because of the EOQ right? That's as expected. So it's home run but pretty much for everybody. And part of that reason is it's a lag, right? You have all these orders that were supposedly delivered in April and May that was pushed out to June, so if you average it out, it's roughly slightly more than Q1. Q1 was like 1.25 million. I think Q2 is going to be 1.3. So second half’s always supposed to be better, higher than the first half, especially with this new round of stimulus that are in place, right, national and local.

Tu Le:
They are injecting, they're injecting a lot of steroids into the system to really try to artificially push the momentum back to where it was pre lockdown, pre Shanghai lockdown, so.

Lei Xing: 
Yeah, and then the headline just now is the 17 state level departments jointly issuing a notice that I mentioned, measures to expand auto consumption and NEV is specifically the consideration of a delaying or extending the NEV purchase tax exemption policy. I believe it will happen.

Tu Le:
Yeah. I agree.

Lei Xing:
Anything that is discussed, especially at a very high level. It's more than likely that it'll happen, just a matter of how long it will be continued.

Tu Le:
It points to how important the automotive sector is to China, China's economy. And they're going to do whatever it takes, I believe, to try to get EV sales really driven back to a level where all of the major players can thrive.

Lei Xing:
Yeah. And the other numbers to share is the over 10 million NEVs on the roads, 2.2 million registered in the first half out of those 10 million, right? That's 22%, and then 19.9% of the 2.2 million, that was the penetration for the first half. So we are right at the 20% target for 2025, right? That's a foregone conclusion as well. And the amazing thing was we just had the Chinese Ambassador to the U.S. Qin Gang, he just treated a chart of the NEV parc or stock, and just 4 years ago it was 2 million, so quadrupled in the last four years and doubled in the last year and a half. So this is, despite, right, despite all the disruptions, despite COVID, imagine what would have happened without those, right?

Tu Le:
It's also not just the COVID, everything, if we're at 10 million, that means that there's enough investment and charging infrastructure and opening of new charging stations. There's no constraints on battery supply, there's the chip supply’s recent, but at the end of the day, if we're hitting a 1.5 million units for a quarter, we're still doing pretty good. Right? And I tweeted last week, we were joking around earlier that the seat, or the floor is going to be raised to 20,000 units a month. I think in order to for us to hit 6 million units this year in China, almost everyone that's in the 10s right now, or 8,000 or 9,000 units a month needs to get to 20,000, right?

Lei Xing:
And I think some of these psychological milestones or thresholds that we can look forward to is BYD doing 150,000 a month, potentially 200,000 a month.

Tu Le:
Hold on but hold on Lei, is that BEVs, PHEVs or NEVs? 

Lei Xing:
We’ll go in to that. NEVs. NEVs. 

Tu Le:
I'm just messing with you.

Lei Xing:
If Tesla does 70,000, 80,000, can they get to that psychological 100,000 units in China, including export, and these smart EV startups, who's going to be the first to get to 20,000. So these are the things that we can look forward to. I think general rule of thumb that I personally have is June is over half a million, so 2.5 million first half, and you just add, you just multiply by two, and that gets you to five and you add one more million. Because I think second half is going to be more than 3 million and

Tu Le:
Everyone just think about what Lei just said. He's talking about Tesla getting to 100,000 in a month, at an annual run rate, that's 1.2 million units coming out of the Shanghai Giga factory. And just last year, it was less than 500,000. So an increase of 700,000 units in a year is just a mind bogglingly crazy number. 

Lei Xing:
They're doing this production stoppage this month, I believe, could turn it up a little bit. So at least right, the 500,000 capacity there, they plan to double it.

Tu Le:
But that means they're probably working at least 6 days a week. And there is no issues with supply, there's no issues with COVID. It has to be running like a machine. Not one day can be a bad day.

Lei Xing:
Let's see where this recent Shanghai COVID cases, let's see where this goes, hopefully not another lockdown. I don't think people can take it, but.

Tu Le:
Let me just add this Lei, right now when the getting’s good, everybody's working overtime. Everybody's overbuilding. In case, there is a kink in that supplied chain. So it's nonstop right now, as long as the local governments and the central government is not impeding the production they are working their butts off.

Lei Xing:
So it's just been a roller coaster ride that people just want to look up more than anything else.

Tu Le:
So I'm not sure we're going to get to 6 million. I'm a bit skeptical, just because I just don't know how they're going to be able to contain, COVID without any outbreaks. And again, everybody needs to be doing their best to get to 6 million, right?

Lei Xing:
I would always add an asterisk after the prediction of 6 million, that asterisk being, barring any right, further disruptions, whether COVID or other supply chain issues. But the current based on June, based on May, based on June that this trend, based on this all out kind of stimulus, these policies encouraging people to buy NEVs, I don't see why it can't reach 6 million. So that's my take.

Tu Le:
I will say this as well: in order to get to 6 million, there's probably going to be one or two surprises that you and I probably have not are not going to predict. There's probably going to be a pleasant surprise with one or two EV companies that surprisingly are able to sell 2X more than we would think they would.

Lei Xing:
Somebody like an AITO or something.

Tu Le:
Yeah. Because that's who is going to make up the meat of that 6 million units. It's the domestic EV players. It's not going to be a Volkswagen, it's not going to be because we already have Tesla baked in for 600,000 to 700,000 units, full stop in China this year. If they get to 1.2, that's a bonus, but they may, almost half a million last year, so they should be able to get to 700,000 or 800,000 this year, 1.2 is a stretch. And I think you would agree that that's a stretch, but it is going to be an AITO, it is going to be maybe a Hengchi, I'm not saying that, I'm not predicting Hengchi is going to be a pleasant surprise to be honest with you.

Lei Xing:
And the other kind of the wild card to throw in here is the number reported by the State Taxation Administration, that in June alone, there were about 1.1 million ICE vehicles that enjoyed that half-purchased tax policy. I forgot the total tax savings, but so that's in place until the end of the year. So that might draw away some of the demand. So I believe we may actually see a slight fall of the penetration, but regardless is going to be 20% anyway you look at for 2022.

Tu Le:
I should note Lei that all of the Chinese schools are officially out for summer. So the next week or two are probably not going to be that great for sales. They're traditionally not anyways. So my sons both finish their, and I say this in jest, because they're in third and 4th grade, but they finished their finals yesterday. And we'll talk about this personal thing for 30 seconds. My oldest son, he's in 4th grade, and about a third of his class is leaving. They're leaving to move abroad. So the exodus is real. And so Lei knows about Fangcaodi, but Fangcaodi is a local school in Beijing, one of the better local schools that's located in CBD and that's where my sons go. It's taught in Chinese. There's about an hour of English every day, but they get plenty of English at home. And so they are special because they have a “guojibu” so an international department. So you have to have a foreign passport to enroll in that section or that department. And so technically all of his classmates are foreign students, but many of them are just Chinese except for the passport. And so it feels different this time Lei because in the 20 years that you were here, things moved in cycles, right? All people would leave, new people would come in, but this time it does feel a little bit different because of what's been happening over the last several months.

There's going to be new foreigners that come in, but the constraint that I think is the difference this time than the other times that we felt Lei, when people come in. People leave is that teachers are leaving. And so the only, well, one of the reasons that vice presidents get shipped over here is because there's international schools where their kids can go, and they're filled with foreign teachers. And those foreign teachers are leaving. So it's going to be much harder to convince and up and coming executive at X company or Y company to leave Germany, to leave the U.S. and come to Beijing or Shanghai. And I was told Lei that Shanghai is now, again, a hardship, a post for executives from foreign companies. So hardship post meaning that if you moved from a Los Angeles to New York City or Los Angeles to Frankfurt, it would just be kind of a transfer, but hardship means you need extra convincing to come. Shanghai was not a hardship post for a very long time, but I was told now it's becoming a hardship post because of what happened with the lockdown, but let's get back to talking cars.

Lei Xing:
Yeah, so Fangcaodi is where Tesla’s first ever showroom is located in China that opened in 2013, I think so almost 10 years ago.

Tu Le:
Let me give you a little history on that because you tell me when you left. So there was that right when you walked into the south entrance of Parkview Green, on the right side, that was where the Tesla dealership was. Now, they've moved it to the bottom floor, and it is a massive retail location. And HiPhi moved in to that location. And then HiPhi left. No, it was, Celine moved into that location, then Celine went out of business and then HiPhi moved into that location. And across from HiPhi, there's Polestar and Polestar closed now. And so right now, I think there's only Tesla and HiPhi, but HiPhi moved out of the retail store too and became a kiosk in the bottom because in malls in China, the bottom floors are normally where the canteens are the cafeteria yeah. So HiPhi has a kiosk in the middle of the eating area of Parkview Green. Just so everyone knows, Parkview Green is one of the most high-end malls in Beijing, there's a Rolex, there is a Lulu Lemon. There is a Gap right.

Lei Xing:
Across from it is that Shimao Tianjie which is also pretty upscale as well. The Place, right, it’s called?

Tu Le:
It wasn't, but it was losing a lot of foot traffic to Parkview Green. So it upgraded itself. Now there's a Muji, a Uniqlo, a Jordan store. That AIWAYS store, Lei, closed. But there's still an Xpeng kiosk in Shimao Tianjie.

Lei Xing:
So they come and go. It's a sign they come and go, just like these smart EV startups, they come and go.

Tu Le:
There's always brisk foot traffic in the Tesla retail store. So no surprise there.

Lei Xing:
Anyway. So speaking of Tesla, we had this kind of a social media debate mostly on Twitter, I guess about BYD getting that sales crown. There was…

Tu Le:
Even Steven LeVine kind of lectured us.

Lei Xing:
Yeah, and I had treated that for China EVs & More, we go by the Chinese national standard which includes PHEVs and BEVs and fuel cell vehicles. Because I think the term new energy vehicles is a China specific term, whereas in the rest of the world it is just electric vehicles, right? But and even the Chinese “xinnengyuanche” NEV versus “diandongche” for EVs actually, “diandongche” or EV, what's the word? It describes how the car is powered. It's powered by electricity, literally, “diandong” literally means electricity powered vehicle whereas new energy, it's like what the heck is new energy, right? For people that are not familiar with the term. But it's anything that's driven, right, so if it's electric driven, then it will be considered an NEV which includes PHEVs and BEVs.

Tu Le:
And the Chinese names for, Lei is literally defining what the “xinneng” means, new energy, literally. And “diandong” means electric powered. So it literally means what it says in English. So there's no transliteration with any of that. And I just like poking the Tesla guys because it feels like anytime you say something bad, they take it personally, you're taking money out of their pocket or something, right? So it's like and I ingest, I wrote that in my newsletter, I was like here I’ll just read it real quick: BYD sells both PHEVs and BEVs, but Tesla sells only BEVs. So it depends on who you ask, but we talk about NEVs because we're talking about the China market, and there's no denying that Tesla is the global leader.

Lei Xing:
And also there's a difference. If you look at the Chinese press, I didn't see that much, because the way Chinese press reported it was BYD was the global sales crown in the “xinnengyuan che” which is correct because it includes PHEVs. But in the western press, you often see EVs being used. So when you say BYD takes the EV sales crown over Tesla, then right?

Tu Le:
That's journalist, that's journalists being lazy.

Lei Xing:
But everybody uses EVs. Nobody uses NEVs in the western, whether industry or generally the press. So I think that's where the confusion came from.

Tu Le:
And if you talk to the Li Auto guys, they will tell you that their cars don't run on gas. The engine recharges the battery.

Lei Xing:
Yes. And that's why there's even a difference between EREV and PHEV because EREV the engine don't actually power the wheels. It's always the motors and the battery that's powering wheels, the engine is there to replenish the battery. That's the difference between EREV and PHEV, whereas the PHEV the engine also powers the wheels, right? And somehow, there was a debate several years ago on Li Auto being, what is that, people, right? So finally, they said it's PHEV essentially. But actually, it isn’t. 

Tu Le:
Bu yi yang (they are not the same). And I've been corrected a few times now.

Lei Xing:
And that's why there was another debate that this CEO of WEY, he called out Huawei’s Richard Yu for basically, and indirectl Li Auto also, he basically said EREV is old, old, old technology that the regular hybrid is better. The DHT or the PHEV is better. I don't know. It's because the AITO and SERES are, they're all EREVs, right? Going with the Li Auto route.

Tu Le:
The L9 is still in an EREV.

Lei Xing:
Yep, Li Auto L9 and ONE, they're all EREVs, right.

Tu Le:
And we're lucky enough to have Steve LeVine who’s I want to say one of the foremost battery experts in the world on a group chat. And he did, I didn't think about this, but after he had posed the question and maybe think and so if there is a delta between raw material supply and battery forecasted battery cell manufacturing production, then it could be the PHEVs and the EREVs that make up that delta. If we're not able to build BEVs. So he made a good point, I think that's worth thinking about.

Lei Xing:
And I’ve heard that Shanghai starting January of next year is no longer giving out these sort of green license plates for somebody like a Li Auto. I have to fact check that, but I heard there's some…

Tu Le:
It’s purity test.

Lei Xing:
Local policies going on tat kind of, I think eventually it'll be BEVs even from BYD right? They have more than 50% BEVs, and the rest are PHEVs. The DM-is. Li Auto eventually they will get rid of the EREVs, I believe, in the future, right? So they're coming out with two BEVs next year.

Tu Le:
I told you the challenge that the rumor that I heard about Li Auto in the challenge with the EREV being exported, right? So, yeah, I haven't verified that. So we won't bring it up. 

Lei Xing:
But while we are at the other thing about BYD and Tesla is MIIT just announced or published the dual credits for 2021 and lo and behold, BYD and Tesla are the top two getters. I don't go into the details, but basically lot of money on the table because of these credits.

Tu Le:
If we recall back, Tesla was profitable last year or a year and a half ago for a couple quarters because of the credits. So it's a lucrative business for them.

Lei Xing:
So BYD let's say if they do 1.5 million this year, Tesla, 700,000 or 800,000, you can do the math, right? The credits that they have at disposal, to be transacted, to be traded, another income source.

Tu Le:
So Lei is talking about OEMs being penalized for the ratio of ICE vehicles to new energy vehicles, because let's be clear, they can be plug-in hybrids and EREVs currently and you'll get a credit. You won't get as many credits as a pure battery electric. So those credits get accumulated. And they can be sold to a Volkswagen to a General Motors who still predominantly manufacture internal combustion engine vehicles. And so it's a huge revenue source, and it's not something that's sustainable, because the credit system is going to go away. And if we recall 10 or 15 years ago, California had the exact same policy, because China’s policy is mimicked from California’s. What Tesla does is they sell these credits, last year famously, they sold them to Volkswagen here in China. And I think there was kind of a bit of irony with that. So there was a year or 2 years, I believe, 4 or 5 years ago, maybe 3 or 4 years ago. And you correct me if I’m wrong Lei, where BYD made up to $1 billion in profit from those credits. No, no, subsidies, sorry, I’m talking two different things.

Lei Xing:
Subsidies and credits. So quickly on the three new models that I mentioned, the AITO M7,HiPhi Z and finally, the Hengchi 5, these were the sort of the significant model reveals and launches this week. I feel like there's been every week there's been key reveals ever since the ROBO-01 we’ve been tracking, right? I think it was just interesting to see not the products themselves, but the talk that these CEOs make, right, the M7. No, not the M7, the Hengchi 5, the best under RMB300,000, the guy, he said the best under RMB300,000. And when the price came out, it was RMB179,000.

Tu Le:
So $26,000 with the current FX, right?
Lei Xing:
They have this sort of an escrow account with a notary where you pay, and you don't have to pay until you get your deliveries. You can return the car within 15 days if you're not happy with it. But I’m sure there's all kinds of small print written. But

Tu Le:
So for those who are wondering why Hengchi is doing this is because their parent company Evergrande is a real estate company that is terribly in debt. I think they might be the most indebted company in the world. And so they started this EV company. The rumor was when they started this EV company was there was a way for them to get cheap land, because they wanted to get manufacturing licenses, but they've assured the buying public that they are in it for the long haul. And as a way to allay concerns that they are not going to remain an ongoing concern, they are offering these escrow accounts and these guarantees and these refunds to customers.

Lei Xing:
Yeah, and I think what everybody's seen that SOP and started of deliveries and and actually people driving it past the 15 days and owning it. Everybody expecting and when’s that going to happen and it's been delayed, like tons of times.

Tu Le:
It is dizzying, the number of products, the midsize SUVs that are under RMB300,000, it is dizzying, and they're mostly domestic right, so.

Lei Xing:
Right. And the HiPhi Z which actually we talked a little bit with Frank Wu of JIDU on some of the design features. That HiPhi Z I thought it was even more futuristic than the ROBO-01, right? The way it’s designed, the very hardcore lines of that body, right? And the features. And this is something that's selling for over a $100,000.

Tu Le:
I want to say it'll be at least 2X the ROBO-01 pricing wise. I want to say, Lei that it's the closest thing to almost like today's rice rocket or what a gamer would buy as a vehicle.

Lei Xing:
What’s that movie called kitt, Night Rider. I think they actually used that video to present that model from the Night Rider.

Tu Le:
I’m anxious, I’m curious because and they just opened their own Twitter account about a month ago. And so they're trying to get some western eyeballs looking at it. They sent me…

Lei Xing:
Well they are going into Europe.

Tu Le:
It'll be interesting to see because I really do think it might be too edgy for Europe.

Lei Xing:
And then the AITO M7 is basically a Li ONE wannabe. That's my conclusion based on everything they presented: the price, how they did the marketing videos, everybody is like they're talking Li ONE, even the design.

Tu Le:
I WeChatted my Li Auto insider, crickets, nothing. What do you think of this? Nothing, didn’t say anything?

Lei Xing:
Yeah. But I think, like we said, it might be one of those sleeper models.

Tu Le:
That's the thing, right? Because the L9, the ES7, and what was the other one? There's one more. But they all had this the families in those videos could have been the exact same family and they're all camping, and looking at the stars. So they are going after the exact same thing and it isn't. I wish it was the better product will win, because I just don't believe that I think it's going to be marketing budget, I think it's going to be. And this is where these CEOs are getting out in front and saying, no, I’m more Li Auto than you are Li Auto, right? So it's kind of crazy, and it's fun to watch.

Lei Xing:
But the thing is they didn't specifically say they're competing against Li Auto, all the spec comparisons they put up on the presentation are the BMW X7s, the Mercedes GLSe, that's the segment and the brands and the products they're targeting.

Tu Le:
And this is where it's a stretch, because do I think LI Auto, the L9 can convert what would be a BMW buyer? Do I feel the M7, sorry, AITO M7 can convert? I'm a little more skeptical with that

Lei Xing:
Sleeer, sleeper. 

Tu Le:
You know how aggressive Huawei is being entering this market. So they're going to do everything in their power.

Lei Xing:
Richard Yu, he was at an industry conference, the Bluebook Forum, and he basically said the only division that we're losing money is this automotive business. I think they’ve even turned a profit on their cloud business, but and then he's like we need to get rid of, or end sales of ICEs as soon as we can.

Tu Le:
But to me, this is a technology company being really naive about the automotive industry because why hasn’t Apple built an Apple car? Because it's super expensive and they don't know if they can do it. The way that they can build their products. Huawei to think that they would be able to turn a profit in 26 or 24 months, 36 months is ridiculous to me, but there's still a lot of pressure because their handset revenue just disappeared instantly, right? So the irony of Shenzhen announcing that they're going to have that designated areas that will allow for L3-capable vehicles to be driven, and I think the main thing that is the requirement for all Chinese vehicles now is that there's going to be some sort of light or indication that says the autonomous function is on. The reason I say that's ironic is because it's the same time where Cruise had this huge traffic jam. And there was a crash, a Waymo crash in the U.S. So it's, on the other side of the world, we're still having problems blocking and tackling, but you know.

Lei Xing:
The thing that sticks out to me for this new, by the way, it's a new regulation I think that's going into effect on August 1. I believe it says that under L3, they didn't specifically say L3, L4 or L5, but under conditionally automated driving the kind of this the safety driver, whoever is behind the wheel, is going to be responsible in case of accidents, that sticks out to me. That's a bit interesting and debatable. Whereas let's say a Mercedes, right?

 Tu Le:

Because it's a grey area, right?

Lei Xing:
So I don't know that's interesting.

Tu Le:
We're just not going to see all these videos of people doing using their L3 ADAS or autonomous function while they're sleeping and stuff. I just don't know if we're going to see that in China.

Lei Xing:
Yeah, just quickly on the NIO Power Day, a lot of numbers were published, released. I think a couple that stand out to me was they actually showed how many batteries are in their swap stations. Did you catch that? It’s 3,821 long range, and 5,140 standard range. So that comes out to be about 9,000. If you divide by the number of stations, 1,000, that's, and then you average nine per station. So you can go back to the Grizzly report and kind of compare. This is what NIO said and whether Grizzly report had it right or not. So that was interesting.

Tu Le:
I'm certain that was one of the reasons they came out with all these numbers, because there are a lot of numbers that they threw out.

Lei Xing:
I think that was one of the aims of this Power Day, just indirectly tell the report from Grizzly, shut your mouth.

Tu Le:
You're full of shit.

Lei Xing:
And three quarters of the more than what roughly close to 220,000 NIO owners have done a battery swap, three quarters. And then 100 of the 1,000 are actually sort of the maintenance free stations. So there's nobody there. You just go and do the battery swap yourself. So there's nobody physically they're looking afterward after it. But there's somebody behind the scenes looking at. They showed this NIO Power Cloud and how it helps with smart swap station selection, smart operations, smart planning, and the electric grid, how they can interact with the electric grid.

I think the other most important thing out of the Power Day was the hint, the hint that their third generation power swap stations and the 800V platform batteries, they basically said this is open to the entire industry, the battery swap system and the packs. So that's very interesting, because this is going on the same time as the White House announcing that document that the Tesla Superchargers may be opening up to potential third party brands in the U.S. so I thought that was what I got out of the Power Day is this potential of utilization of non-NIO brands. And we talk this quite a few times before, and it looks like it's got good potential that, it may happen. And the other number I got was the one-click-service actually served 54 different brands.

Tu Le:
NIO is just a really interesting company because they're doing a lot of things that I’ll make a general statement. For anyone, any westerner who thinks that there's no innovation coming out of China. Let me tell you that you're completely wrong. Just a piggyback off of your numbers about NIO, Tesla also announced that they have now 2,000 super charging stations in China. Compare that with 1,400 in the U.S. These 2,000 charging stations, supercharging stations consist of 8,700 chargers. So it is very significant for Tesla as well, because if they're going to get to that 1.2 million production number Lei, and let's say that 70% of those units stay in China. They're going to have many more Teslas on the road in China. So having the 2,000 charging, super charging stations and it's funny because I was reading that they had that milestone of 1,000 swapping stations. And then 2 days later, I see that the number creeped up to 1,011. So NIO, they put out these swapping stations pretty quickly. So this is where my concern is for the U.S. like I just, I think they're still debating about how much to invest in charging infrastructure. They're still trying to figure out who the right partners are. We had that conversation with XCharge. And I thought I think it's interesting. I think it’s a huge opportunity for them, the U.S. market. But they need help. The U.S. government needs to just have some really laser focused plan to get these, get this stuff going, so.

Lei Xing:
But just I think we're now talking NIO the kind of the pie, not the pioneer, but the one who's most successful with battery swapping and Tesla, one who's most successful with supercharging, these two different players now opening up to others. This gets really interesting. One is whether they want to do it, NIO wants to do it. Tesla might be hesitant. And if you're a Tesla owner, do you right? Do you? Do you want that to? I guess NIO really don't care, but it becomes in the future, I think one comment that Qin Lihong he made was that all the EV owners in the world, whatever the brand, we're all in the same family, it's kind of cheesy, but.

Tu Le:
It indicates to me, because at the end of the day, it's still probably dollars and cents thing, right? Where maybe utilization rates aren't as high as they need to be. So and it's not a key that they are churning right, I think they designate which swapping stations, which supercharging stations are open to everyone. I don't think they're opening up 100% of them right away.

Lei Xing:
So many factors are making this you know, potentially, the next kind of big movement in the EV space that you can charge wherever. So I would like it, you know, because it expands, you have less ranging anxiety.

Tu Le:
And if there's any standards that need to be set, guess what? They are in the driver's seat because everybody else is using their standard potentially. It's but to your question, right? Or to your statement earlier, currently, supercharging stations with Tesla. That's one of the main motes that they have that differentiate themselves, swapping stations for NIO. Although when CATL gets involved, when Geely gets involved, it's going to be quickly commoditized. So if there's a premium experience for NIO swapping stations that they can maintain the differentiation between a CATL swapping station, then they should. Then they should. But how fast things happen in China men like you get copied and it's not a differentiator anymore.

Lei Xing:
Right. And then there's the other side of NIO wants to do it, but as a non-NIO brand, do I want to accept it? That's another issue, right?

Tu Le:
So I think one of the Euro brands will eventually sign up. I won't say a German brand, but a struggling French band, perhaps or struggling you know what I’m getting at. Because there's going to be companies that need to ride coattails here in China, foreign companies, because the numbers just aren't good. So the two feel good stories right now on the premium segment is Lincoln and Cadillac, but they come from a low base, they're growing, but they're coming from a low base. Audi is struggling a little bit. I think Mercedes is struggling a little bit specifically on the EV stuff. I don't know if they're going to be able to fight back, to get that market share back, I think it's gone forever. 

Lei Xing:
It’s bleak, very bleak. So anything else? Volkswagen?

Tu Le:
The last thing. Let's talk about Volkswagen. Yeah. What do you think of SalzGiga? Let me start off the conversation. There was a groundbreaking it was yesterday. And Diess announced Salzgitter is going to be the first location for up to six Giga factories in Europe alone. With potentially more coming out of North America, they've created a separate company called PowerCo. That's going to be managing the manufacturing, the data, the clean energy aspects of each of these factories. The second factory is supposed to be in Velencia, Spain, and it will get up to 60 GWh by 2027 or something like that. But the first battery cell which will be prismatic and an LFP will not come off that line until 2025, which in EV terms, in EV years is a lifetime away. So they're moving. And let me get on my soapbox for a second Lei, because Diess also said over the last couple weeks, we're going to overtake Tesla in 2025 for sales volume. We're hiring thousands of coders in China, for China, not Germany, for China, but then so he speaks out of the right side of his mouth when he says we're going to hire a bunch of coders, they're going to be for China. But then we're going to send Ralph Brandstatter over and managing them. So that's talking on the left side of his mouth. Anyways. This is a good thing because we know that the legacy automakers, GM, Ford announced plans in Kentucky, Tennessee, Ohio, and Michigan to build giga factories. So this is necessary, right? But 2025 is a lifetime away.

Lei Xing:
Yeah. So first of all, this is big money, 20 billion (euros) over the course of next, how many, however, many years, and each of these are 40 GWh. So 240 in total. And this is actually that the six total were announced at the Volkswagen Power Day if you remember, in March of 2021 and the 2025 time frame timeline was also announced then and they had announced this Salzgitter as the first one, the second one is actually with the NorthVolt in Sweden. And the third one is the Valencia, which was recently decided. And there's three more. We also should point out that Volkswagen signed a strategic deal with China's Gotion High Tech to help them with this unified cell development for the Slazgitter or SalzGiga, that was signed a year ago, okay, and Gotion itself, remember they just opened up their first European plant in Germany two weeks ago, right? 

Tu Le:
6 GWh.

Lei Xing:
Yeah it looks like they didn't say anything this time on Gotion, but it looks like Gotion will be a key partner since Volkswagen is a shareholder in Gotion, and Volkswagen is a shareholder in NorthVolt, which is the second Giga, right, in Sweden. So this has kind of China written all over it. But they didn't specifically mention Gotion in today's event.

Tu Le:
I don’t know if that would have been politically.

Lei Xing:
Yeah.

Tu Le:
I think there was a reason that was in the fine print of a press release and not part of the headlining feature, so. 

Lei Xing: 
Then the other thing that you mentioned about Diess talking to Chang Qing, CEO of CARIAD China, in that Diess Talks series, he defined exactly the two issues that like, he understands what the problem is. The first, the UI/UX user experience and second the autonomous driving features. And he also said in that conversation.

Tu Le:
So everything.

Lei Xing:
And he also said in that conversation that we can't just hire a bunch of people outside the industry. And I bet you would agree with that, right? Because we talk about this. He said we need to do something big, which he kind of eluded, he didn't expand. So let's look forward to what kind of big things they are going to do.

Tu Le:
I've talked to a couple large OEMs, just kind of informal consultation. And I’ve white boarded with a few people, even some EV startups, one in particular that you know about Lei. And I’ve talked about this with them and help them try to build a strategy around it because and you and I on a group chat with another executive at a Chinese EV startup, he does not seem to be worried about Volkswagen poaching his best talent, because it's not just about software developers. It's going to be user experience designers and interaction designers. And it's going to be information architects and project managers, which the good ones are really hard to find and they're really expensive in China because you can find a coder, but the cost increase significantly to find developers in China full stop. But the talent level of software developer is nowhere near. And I’m speaking because the volume is here, but the quality in general is much higher still in the U.S. Generally speaking, so.

Lei Xing:
In the current Chinese smart EV narrative in China, I think the foreigners have been long forgotten by these Chinese brands. What I’m saying is if you look at the news and events and the debates, it's often Chinese, one Chinese brand talking the talk and trying to compete with another Chinese brand, right? The foreigners they're just forgotten like we don't care about them. That's the environment.

Tu Le:
Chinese EV startups can also offer much more upside in the form of options, restricted shares, etc. Volkswagen can't do that. So I would be intrigued if I was a decent designer to go to Volkswagen because of the history. But if I’m younger, I’m probably more pro China EV, domestic EV brands. So it'll be interesting to see how they get to that thousands of software developers that Diess is talking about hiring and a reminder to everyone that not only will this episode come out next week around Wednesday, but hopefully we'll have our conversation with Frank Wu, who is the head of design for JIDU Auto. A great conversation, the first parts, much more about his life story, working at BAIC, how he got to JIDU. And then part two is going to be much more about his actual working at JIDU, the processes and the design aspects for the ROBO-01. Yeah, we're really excited to share these two episodes with you.

Lei Xing:
So out of this seven MAX episode guests that we've had so far, Frank Wu by far shared the most on his personal journey. And he's young, he’s, I think he was born in 1989. So he's almost a post 90s. Imagine, right?

Tu Le:
Then he had nothing but good things to say about his counterpart in engineering and Joe Xia, his boss, the CEO of JIDU Auto. So again it, it's something that you should definitely listen in on if you're curious about design and the difference between, because he compares and contrast his experience at Cadillac, which he also was really proud of.

Lei Xing:
Yeah so, next week, next episode, we will talk, today, CPCA numbers come out. Next week, the CAAM number come out. And next week we still have a new brand reveal Geely’s RADAR electric pickup brand. So we'll talk about that.

Tu Le:
So I tweeted that in the U.S., Americans would call it a cute little truck, and Australians would call it a ute. But because to me, it looks much more like an El Camino, than a flat out pickup truck. I think it's just because it's not an F-150.

Lei Xing:
From what they showed. It looks nice. It’s a very niche market.

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. 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 the 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.