Episode #120 - Revisiting the NIO price cuts, Li Auto wants to outsell ABB, NIO Q & A

Lei starts the podcast a deeper dive into the NIO price cuts and a bit of commentary on the quick after effects.

Tu poses a few questions to Lei about whether the ¥30K cut was enough to build positive momentum.  Tu thinks that the price cut will offer a temporary positive push but that NIO still needs to reconcile its product and business strategy to ensure that the gains are longer term.

Tu moves the chat over to Li Auto's bullishness and whether Li Auto will be able to outsell ABB. 

Lei doubles down on his thoughts that the China market will reach 9 million units including exports. 

Tu jumps on his soapbox about what he believes to be the misperception of German engineering being best-in-class after Dieselgate & their current challenges with EV products. 

Tu and Lei spend the last few minutes answering questions from listeners about NIO. 

Transcript

CEM #120 Transcript
Recorded 6/15/23

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 space. What Lei and I discuss today is based on our opinions and should not be taken as investment advice. If you enjoy this room, please help us get the word out to other enthusiasts and tune in again next week. 

My name is Tu Le. I'm the managing director at Sino Auto Insights, a global 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 all to do. Lei with the controversial tweet. Can you please introduce yourself?

Lei Xing:
What's controversial? Good afternoon. This is your co-host Lei Xing, former chief editor of China Auto Review. This is episode #120. Where do we begin? It's been a busy day. For me personally, my daughter just had her 6th grade graduation in the morning, and then I had a flat tire that I needed to get taken care of. And then…

Tu Le:
Do you have a full-size tire or a doughnut? 

Lei Xing:
No I have a full size.

Tu Le:
Nice, that's good.

Lei Xing:
Yes that’s taken care of. And I'm still marveling at the kid, at the kid who jumped into the Argentina-Australia game.

Tu Le:
Is he a kid?

Lei Xing:
High schooler.

Tu Le:
He looked like he was about 27 years old.

Lei Xing:
No. He got released immediately afterwards, because he was under 18. So this is the latest news. I think it is just so good to see the new Gongti and the fans. It's definitely one of the things on my bucket list is to see a Guo’an game when I go back at the new Gongti.

Tu Le:
Gongti as you know was about a 8 minute bike ride, 7 minute shared bike ride from CBD where I lived.

Lei Xing:
Yeah and not far from where my office was either, so.

Tu Le:
And so Gongti, you know how most, for our audience, most stadiums are out in the burbs, not in city center. They are, in Detroit, most of the stadiums are in city center, but a lot of other stadiums are out in the burbs. This one is right downtown. And Gongti was super old. And I want to say about 5 years ago, they tore it down and built a new one in the exact same location. And Messi, for those who aren't familiar with what we're talking about, came and his team had a friendly at Gongti in Beijing and on WeChat on China Twitter and WeChat, there is nothing but yeah, there's nothing but Messi pictures, people, Chinese people wearing Messi shirts. I have at least a handful of sports fanatic friends that live in Beijing, and none of them could get tickets. So that's how hard it was to get a ticket to go see Messi. So my claim to fame with Messi was in 2008 for the Beijing Olympics. I got to see them. I was at the Bird's Nest about 300 rows up, but I saw a little speck of him, right? And running around the pitch. So that was pretty cool, but anyways.

Lei Xing:
You didn't jump down the 3-meter stand and run in.

Tu Le:
I am not 16 years old. I would have been thrown right in jail.

Lei Xing:
Yeah, so I think that blew up, blew up social media just a few hours ago.

Tu Le:
It made me smile, seeing people out, seeing the nice weather, seeing my old neighborhood. I just couldn't help but smile and kind of be happy for that. So.

Lei Xing:
Yeah, so I was just marveling at it and back on topic: NIO NIO oh NIO.

Tu Le:
SO what do you think? And you had been commented in or you had been quoted in Technode? I believe, right? So.

Lei Xing:
Yeah, Jill, I mean we exchanged some thoughts and that NIO NIO oh NIO is kind of a mixed emotions and feeling, because the stock by the way, is up over a quarter in the last week, I think, ever since the price cut earlier in the week. And I think for the longest time, NIO has been stuck in neutral, if not in reverse. And with the price cut, with the ET5 Touring, we are finally seen a momentum that was supposed to be there all this time. Potentially, you pointed out in the newsletter that this has been a roller coaster ever since the recall in the summer of 2019. If we compare, you compare it to Li Auto, right? I we also compare it to Li Auto. In terms of, we say this so many times: consistency, month on month, momentum. We need to see a stretch of a good run I think for NIO, really, it's to get out of this funk that they're in, that they have been in. So I thought the price cut itself, I put a kind of an asterisk, to me, it’s one of the most complicated price cut announced because of the benefits of their existing owners. What to do with them, the battery swap, all this. That's number one. And second, number two is what I told Jill is that this is long overdue. Because Li Bin, I mean he just, right? He did say we…

Tu Le:
He's stubborn. 

Lei Xing:
It's the bigger market environment. I think they were thinking about this probably for a few months now, just trying to find the right moment to do this. And now we're seeing this fervor again, that's my take.

Tu Le:
Let me add a little color to your two comments. So unlike Tesla, NIO is very protective of how they treat their customers. So that first thing you said about, it's complicated. Yes, because it's probably going to create some hard feelings with current customers of NIO in China. And the second thing is that this is not completely of their doing, this very situation that they're in, because the Chinese economy is really bad. It's worse than people think. What are the first things to go when people are scared about the future and their ability to pay for things? Luxury item. So NIO is firmly planted in the premium segments. And so they probably saw some of the economic data and matched it up with the continued weakness of sales for their product. And we're like, this is not a good situation for us. So to your point, maybe that they just came to the realization that combine two things, made it untenable, or maybe there's pressure on the production side that they just needed to get going, because their costs were kind of spiraling out of control, because the capacity is not being utilized. I think it's a little bit of everything. So.

Lei Xing:
Yeah, and if you remember many episodes ago, I mentioned NIO was facing a demand problem, not only a supply problem. And going back to the price cut, I think the reason that it was complicated because first, they had to find a cutoff date for the people who already took delivery before June 12. So that cutoff date was May 24. I think that was when, was it when ES6 was launched?

Tu Le:
Yeah, something like that , right around that time.

Lei Xing:
From then till June 11, the people who took delivery could get their RMB30,000 back if they chose to get the new benefits, right? The benefits if you buy it now, which does not include free battery swapping. And then the other thing is, for the ones, existing owners, the ability to purchase, and then bring over the prior free benefits to the vehicle, new vehicle, or get RMB30,000 toward the purchase of the new vehicle. So I mean all of these things that they had to think of and William said they were talking about this, burning the 3 am oil to pin this down.

Tu Le:
But let me ask you this, because I think it's important that you give everybody a sense of what's behind the scenes and the considerations they had to make in order to finalize this decision. But do you think RMB30,000 is enough?

Lei Xing:
Well, I think it's, well for the ET5 Touring and the ET5 itself, putting a, so getting a NIO under RMB300,000, I think it's quite a psychological thing in the consumer's mind. Whether it's enough, I don't know. I mean it's not really a price cut. It's basically valuing that benefits. They valued it at RMB30,000. I think it definitely brings more customers. And the analogy I would make is if you have this all-inclusive all you can eat buffet, suddenly they ordered, they come out with ala carte. That's how I look at it, basically. Or a hotel stay without breakfast. Let's say that's how they used it. But so you can say it’s a price cut or not. It's just a matter of trying to bring more customers at the end of the day.

Tu Le:
And I also think about them looking at it like maybe we were giving away too much. And so in lieu of free battery swapping, they saw more value and initial price cut with being charged a monthly fee for the battery swapping as a good alternative to that. So trying to soften the blow a little bit. But I think overall we should see, because to your point outside of Messi being in Beijing on Chinese WeChat, there's a lot of chatter on NIO reducing price.

Lei Xing:
And I'm seeing some of the NIO people really believing that this will actually be the Model Y competitor because of the price, starting price, right? It's, with the BaaS…

Tu Le:
You are talking about the ET5 Touring. 

Lei Xing:
ET5 Touring, not the ES6, but the ET5 Touring with the BaaS.

Tu Le:
But this is the crazy thing Lei. Let me ask you. So ES6, ET5 Touring and I know they're different cars, I get that, but ES6, ET5 Touring, ES6, ES7, ES8. So to me, I think from a pricing cut standpoint, you and I know that's a temporary fix, long-term in order to kind of create an overall better, long-term strategy and plan, I think they need to reconcile kind of their product plan as well.

Lei Xing:
Yes definitely agree. And if you also remember a couple of episodes ago, I said NIO needed some subtraction instead of addition, this is what I also told Jill. And really their product lineup, now with eight models, it's basically the 5566 taking up, I don't know, 85-90% and then the 7778 taking up the rest. That's their probably plan, and right, just…

Tu Le:
If we can make bold predictions, we’ll probably see in the next 48, 72 hours, the Messi excitement go away, and then we'll start seeing pictures of NIO Houses being posted with a lot of people in them, right?

Lei Xing:
I've already seen that, they’ve already started deliveries. 

Tu Le:
So predictable. That’s so predictable.

Lei Xing: 
Yeah so tomorrow. And then the other thing I think for the audience is that sometimes I think Li Bin, I also talk to some of the other mid-management level people, is that Li Bin likes to sometimes, so the word is counter reality. I think Li Bin sometimes, even Lihong, they like to over promise a little bit, so saying things like ET5 within a year we're going to beat the BMW 3 Series. We're going to double sales and I tweeted that if they can, forget about doubling sales, forget about 200,000, if they can get to 180,000 and that's predicated on them delivering average, 20,000 a month the rest of the way. So even with this price cut and ET5 Touring, it'll give a huge boost, but 180,000, I'm still, fingers crossed, but it's not going to be easy.

Tu Le:
It is not going to be easy. Second half of the year, the economy, new competitors. It's just going to be. Let me also add that NIO is probably just made a chess move that other companies will follow suit. But they are also looking at, again, the economy, and seeing weakness in the economy. And so we have to also credit, not credit, what's the right way to say this? Any price cuts that are going to be made by competitors of NIO, it's also going to be because they might also see weakness in the economy. So it's not just NIO did this in a vacuum, and everybody else is following suit. It's also going to be just a greater economy and how the second half of the year for China shakes out, so.

Lei Xing:
And this also, the series of moves really sets up the next stage, which is the Alps and the Alps is the RMB200,000-300,000 range brand. And now you already have the cheapest NIO model under RMB300,000 range. So this they'll have their work cut out for the even the pricing some of the Alps models right coming on next year.

Tu Le:
I almost feel cause just cause like you, I also talked to a few people, and I got the impression that Li Bin was being a little bit too careful in thinking things would kind of just right themselves a little bit. And so after several months of not showing great sales numbers, I think he just kind of looked himself in the mirror and said, okay, if I keep on doing this, I'm a little delusional. So we have to make a drastic move, right? Then they did everything. They seem to have done a lot of everything but a price cut. So this was kind of their final frontier, right?

Lei Xing:
Yeah. So most of the responses have been positive toward this price cut because of the way it was structured and how they compensated existing owners without alienating the existing owners. But the same time bringing more owners.

Tu Le:
This definitely widens their tent for sure. Because people that weren't considering them are…

Lei Xing:
Myself. I tweeted that it's, I like the ET5 Touring. It will be something that I would consider out of all the NIO models.

Tu Le:
You know that Li Xiang is looking at this too, okay. Are they going to come out with something in the next week or two. My bet is 50:50. What do you think?

Lei Xing:
Something in terms of what? 

Tu Le:
I don’t know. Maybe price, maybe like a promotion or price cut or something that…So because remember, now NIO is going to get 24, 48 hours of like the world paying attention to what they're doing. And so we know that Chinese EV CEOs don't really like that when one of their competitors gets all the attention, so.

Lei Xing:
Every time Li Xiang would post something that kind of pokes at his competitors, right?

Tu Le:
So Li Auto said, they had a bold statement this week for sure, right? I don't know. Let's keep on talking about NIO until do you or do you want to say anything else?

Lei Xing:
Yeah, I mean I think I've said pretty much all I wanted to say about NIO, is just that the, I think finally, they are into a better rhythm maybe, than before.

Tu Le:
They had to jump start it, right? I think you're putting the cart for the horse, because I think this is the catalyst to hopefully get them on the right path. Because let's hope towards the end of this year, they get to that 25,000 a month number, okay? Because I think to your point, right? 180,000, if they can do more than 180, will book that as a win for them for 2023. But the momentum needs to continue to build into 2024. That's what I want to see. 

Lei Xing:
Yeah. So June they probably should get to 10K based on the guidance. And then we go from there and just a matter of…

Tu Le:
Because you and I believe that the ET5 and the ES6 should be sales leaders for them by far, like 2.5:1 ratio for ET5 and ES6. For every other product in their lineup like they should sell at least 2:1 on these cars. Because the ES8 is still like $70,000, starts at $70,000, right? So there's a huge delta between the ES6 and the ES8, and then the ET5 and ET7, the ET7 I think it's the large sedan, high price, large sedan that is just going to have a limited market. And so I don't know, maybe they make a derivative out of that, right? Like maybe an RS7 type of station wagon or a touring, that would be pretty cool.

Lei Xing:
And then on the management and organizational wise, I think they are or will be going through some of the pain that Xpeng went through the last few months. I mean Li Bin he talked about that in the earnings call, efficiency, right, getting more out of each sales associate, fellow, whatever. 

Tu Le:
But this kind of goes back to the price war. And the outcomes from the price war. We're seeing a lot more cost consciousness. And it doesn't help that Xpeng, Li Auto, and let's leave Li Auto out of this. It doesn't help that Xpeng and NIO are publicly traded in the U.S., so there's, the scrutiny is magnified now, right?

Lei Xing:
And then the ET5 Touring pricing, I think surprised almost everybody, everybody was posting, wow I didn't think that this would be the same price as the sedan. So I said that is the true price cut, not the ES6, not the RMB30,000 price cut, but this ET5 Touring really.

Tu Le:
What do you think is going to be the ratio on that? You think they'll sell more Tourings than they will ET5 sedans?

Lei Xing:
I think definitely more.

Tu Le:
I think so too.

Lei Xing:
Than the sedans.

Tu Le:
I think it'll be at least a 1.5:1 ratio probably.

Lei Xing:
Just because of the utility and space, whatever.

Tu Le:
Chinese are like Americans, men, they love their SUVs and crossovers. So.

Lei Xing:
What's the English for Xixin Yanjiu, you like the new and you ditch the old.

Tu Le:
Yeah. Out with the old, in with the new, right? But speaking of Li Bin, because you had made the statement a few minutes ago speaking of Li Bin talking about matching 3 Series sales numbers, Li Auto said…

Lei Xing:
That was Lihong that said it last year.

Tu Le:
Lihong, Lihong. Li Auto said this week said that by 2024, they're likely going to outsell ABB, so ABB in 2022, BMW sold around 650,000 units, I think. So, do you think that's going to happen in 2024?

Lei Xing:
At the current momentum, I don't see why not.

Tu Le:
That was the other thing that I wanted to emphasize. When Li Auto is talking about getting to 600,000 units, it doesn't matter if he hits, hits more than BMW or not. If he hits 600,000, that's freaking kneel out, right?

Lei Xing:
The simple extrapolation is that they have the 789. Now they'll have the 5 and 6. And based on, if each of those model gets 10,000 a month, we are pretty much there. Remember the RMB200,000 to 300,000 range that the 7 is already right, the Air starting price is pretty close to RMB300,000.

Tu Le:
It's a cool little SUV man. I like that L7 and stuff. So I think it's nice little car or a nice little SUV. So in order to complicate things even further, I’m going to bring in Brian Gu from Xpeng who said in a CNN Market Place Asia 4-minute video that I have a little cameo in.

Lei Xing:
I saw that.

Tu Le:
He said that global players by 2030 would need to be, remember, we sat down with him before the Shanghai Auto Show, he was saying that in order to be considered a global player, you need to be about 3 million units, right?

Lei Xing:
3 million, 4 million, yep.

Tu Le:
So that would, if Li Auto gets to 600,000, that's well on their way to 3 million. And I don't know at the current rate, Xpeng and NIO are going to be hard pressed unless the Alps mass market brand really explodes. But when you get into more of the mass market, now you're getting into the meat of BYDs kind of expertise, right? And it's just a brutal market to begin with.

Lei Xing:
The only other thing I want to bring up on NIO is this mirroring the Tesla GM Ford charging play is, NIO is among the four rumored to be working with the national standards on the swapping, right? The other three are Geely, CATL and SAIC which has this “mofang”, the magic cube battery swapping or batteries that can be battery swappable. So the upside is really because NIO now has the footprint, what 1,500 or so swap stations.

Tu Le:
But Geely has the volume and SAIC has the volume.

Lei Xing:
Well, NIO has over 330,000 owners, right, supposedly. That, and also they're kind of an early mover. And they are willing not Mercedes per se, but they're willing to either license or have this open to a third-party, shared, let's say, shared. This is something to watch going forward kind of the upside. 

Tu Le:
I think there will be a standard within the next 3 years. No problem.

Lei Xing:
It would be interesting how much sway or that NIO has over others, let's say, because they've been doing this the longest. 

Tu Le:
They have that data and it would help create incremental sales, it'll generate incremental revenue for them, obviously right? Licensing, and then the per-use incremental revenue from outside of NIO network. So. Yeah man.

Lei Xing:
I'll say for now: sigh of relief.

Tu Le:
But this is the crazy thing, right? You and I have been talking about this since forever about what's going to do. It's good to see that they made this one aggressive move, swallow a little pride, and then took this price cut, and a pretty significant one: $4,200 or RMB30,000 is not insignificant. So I think it's the right time to be doing it, because again, to Chinese consumers probably looking at their bank account, looking at their wallet a little more closely right now than they have been over the last few years anyways.

Lei Xing:
I'll get a ET5, and with the RMB30,000 I can get another Hongguang MINIEV or something. 

Tu Le:
Yeah you could buy two cars, right? You're going to go test one when you're back in Beijing there in China?

Lei Xing:
I definitely will. 

Tu Le:
So I did not get a chance to drive one yet, so I want to check out the Touring. You let me know. If it's any good, because it looks great.

Lei Xing:
I have a fellow that's been on my, you know, when are you going to do this? When are you going to do that?

Tu Le:
What are your thoughts on Tesla, GM and Ford?

Lei Xing:
You know, like you said it the best: you buy or you make it yourself, you buy. And whatever is the most frugal way to do it and do it. And that's great. It's great to see the U.S. companies working together at least.

Tu Le:
I think that's a win for EV adoption in the U.S. for sure. The NACS standard in the U.S., or the Tesla NACS standard is probably going to be the U.S. standard now.

Lei Xing:
Though I would have never thought that Mary Barra and Elon Musk would be on the same Twitter Spaces because they don't see each other, right? They that was. Ford not so much, because Ford has been that the most bold among the three, right?

Tu Le:
And we see that Stellantis is also kicking the tires on the NACS plug. So I think everything else kind of falls in line, but this is a coup for Tesla, because they'll get more money from the U.S. government now that they've opened their supercharging network. It sucks for Tesla owners, because they'll probably have to wait in line now for certain chargers.

Lei Xing:
That's the thing that's the double-edged sword, right? And if you had, like a month ago, if you had invested $1,000 in Tesla, you probably would have $1,600 right now. That's how crazy it is.

Tu Le:
Now what do you think about Xpeng being the first to launch NGP or advanced ADAS in Beijing? Do you think that was a coup? Do you think…

Lei Xing:
That’s huge. I think anytime you put that Beijing on the headlines, it's huge, I think.

Tu Le:
Yeah, I texted a mutual friend of ours and I was like, hey, congratulations, how and I'm like, how did you get that? How did you make that happen in Li Auto’s back yard, right?

Lei Xing:
Yeah so Bei Shang Guang Shen, the four, I guess the four most modern cities in China or the biggest cities now have this city NGP capable, I guess.

Tu Le:
And I think this makes the G6 a lot more attractive too. So.

Lei Xing:
Yeah G6 is launching at the end of the month, in Guangzhou. I heard.

Tu Le:
I don't know if you saw my newsletter because I was a day late sending it, but.

Lei Xing:
I did. You are late this week.

Tu Le:
Do you think this creates a real disadvantage for Tesla? Because this makes me think that he went to go plead his case with the folks in Beijing about being able to launch FSD in China. So I think you could create a disadvantage.

Lei Xing:
No and not, at least not yet. I think the aura around Tesla is still, I mean really they are still competitively priced vehicles, EVs in China and with a supercharger network. It's still a huge pull. And month in month out, they've been getting pretty strong numbers even domestically, not export, right? We're still waiting for the refresh to come out.

Tu Le:
I'm thinking September.

Lei Xing:
So they have another card in the pocket to play with. That I mean, right? These are the dynamic that NIO will enjoy its few days of…

Tu Le:
In the limelight.

Lei Xing:
Limelight and then it'll be some other brand. 

Tu Le:
Yeah. Yeah, agree.

Lei Xing:
That's how it is.

Tu Le:
What else do you want to talk about? Because all you wrote is NIO.

Lei Xing:
Because I thought that's because right earnings, the price cut, and then the ET Touring the series of happenings that's been seen that it's been all NIO last few days.

Tu Le:
Now, the Xpeng thing came out this morning, right? Or yesterday.

Lei Xing:
Today, or yesterday China time.

Tu Le:
Yeah, man.

Lei Xing:
And speaking of the G6, right? So RMB225,800, I think was the pre-sale price. They probably will launch it at a slightly cheaper actual price, starting price.

Tu Le:
That is so key to any turnaround that they're going to make.

Lei Xing:
And then sometimes you would think that the ET5 and the Touring with the BaaS also starts at RMB228,000. So who do you compare it to, right? Do you compete with the Model Y or do you compete with the G6?

Tu Le:
I think they do. I think it's all the above.

Lei Xing:
Right? So no one's immune, no one's saying, we are the only, nobody competes with us.

Tu Le:
But this really makes the Model Y look and feel old, I think.

Lei Xing:
Feel old but at the same time still feel good, because still selling, right?

Tu Le:
You're right. And so I and for all intents and purposes, for our audience, our friends, our KOLs our car reviewers, the ChinaDrivens, the Inside China Autos, the Wheelsboys.

Lei Xing:
They just posted some ES6 reviews, right?

Tu Le:
They've talked about the G6 as well, right? I think they are all pretty high on the Xpeng G6, they're all pretty high on the new refreshed ES6. And I think they also did a few of them get a chance to drive the Touring?

Lei Xing:
Probably, I've seen the reviews coming on social.

Tu Le:
So this is going to be a real competition because I trust that they are good judges. When I see that all of them generally have really good things to say about those three vehicles, I think it's a great time to be a Chinese consumer in the market for mid-size crossover SUV because you could probably get one now for about RMB240,000 right?

Lei Xing:
And it's a great time because of that Wall Street Journal article about this huge stimulus that China is considering coming out and the second half, the campaigns that MOFCOM announced. So I think this is a great time to buy a car.

Tu Le:
I guess I'm going to put you on the spot. Are we going to hit 8 million?

Lei Xing:
I tweeted that it's going to be over 9 million including export, at the current momentum, with the considering these measures coming, boosting, especially on the rural side, not only in the cities.

Tu Le:
Because we talked about that last week, that 1,000 city thing, right?

Lei Xing:
The CAAM numbers, my magic number will be 9 million. And how much over would depend on the really these price cuts?

Tu Le:
And what's your confidence level on that? 9 million?

Lei Xing:
Confidence level, pretty high.

Tu Le:
Nice, dude. And we're so for audience that may not know this China in Q1 overtook Japan to be the number one exporter of passenger vehicles. Or is it vehicles? Is it just passenger vehicles or commercial as well? I think it's vehicles. Let's just say vehicles.

Lei Xing:
Everything I think it’s vehicles, but predominantly passenger vehicles.

Tu Le:
So they become the number one exporter of vehicles in the world.

Lei Xing:
Yeah, so the caveat to your question is really domestically think it'll be over 8 million. And you tag on a million units of NEV export, that's 9 million. So that's my rough calculation.

Tu Le:
So I want to say and correct me if I'm wrong, last quarter, not including, no, sorry, Q1, they exported 800,000 total units. I think 30 something percent or close to 30% of those were NEVs, and mostly to Thailand to Belgium. But Belgium is basically Europe, because Belgium is a port. It'll….

Lei Xing:
Right. And then it gets distributed.

Tu Le:
When you see Belgium, it's actually kind of meaningless. It means rest of Europe, basically.

Lei Xing:
So simple, if they do 4 million export this year, 30% of 4 million is what, 1.2 million, NEVs, that's the number we're looking at.

Tu Le:
That helps them get over that 9 million, right? So the other thing I wanted to, do you like the D7, the Denza D7? 

Lei Xing:
I'm not sure. I'm not a big fan of Denza SUVs, because I always think Denzas are about MPVs, because the D9 is so good, because I sat in it and I played with it at the Shanghai Auto Show.

Tu Le:
You can’t push your mind, you can’t.

Lei Xing:
I can’t. 

Tu Le:
Oh dude. I actually think that the D7, the shape it looks great I think.

Lei Xing:
Also I think there is some Twitter about this IM LS7 or the new model, that it looks, the proportions is just a little too overexaggerated. 

Tu Le:
Dude, press rewind who's IM Motors? And who are they made up of?

Lei Xing:
SAIC and Alibaba.

Tu Le:
And IM stands for In Motion. They plan to be a major player in the EV space, but they have some awkward designs. There's an L7, L6, and LS7 or something like that, right?

Lei Xing:
Yeah the LS7.

Tu Le:
Are they three different cars?

Lei Xing:
I think so.

Tu Le:
I think so too, but it's like why so confusing on this?

Lei Xing:
I think like one sedan and two SUVs coming out.

Tu Le:
The IM vehicles are semi premium. They're not in the premium segment, but they're not really mass market either from a pricing standpoint. So if I'm GM and if I'm Volkswagen, because those are my SAIC joint venture partners, I'm not very happy.

Lei Xing:
Well Buick is pretty quick and coming out with the E4 right after the E5. So they're pulling a Chinese smart EV startup speed.

Tu Le:
Yes, Mary did say 10 by 2025 on the Ultium platform. So what they're doing is the Ultium platform is very flexible. And it can be extended or shortened, and they're just creating derivatives off of that thing. And that's what you're supposed to do, right? You create this platform, this very flexible, robust EV platform, and you just make new top hats. That's what they're doing. So in essence, this is really shortening production, kind of product development, timing. So I'm surprised that Buick is able to do this, but that means that Jim is going to get really aggressive because we know that they're going to come up with a $30,000 Equinox, a $40,000 Blazer, both EVs by the way. So man, they could flood the market really quickly in the next 3 or 4 years if they can get enough battery cells anyways.

Lei Xing:
And yeah, speaking of the foreign volume brands, Volkswagen brand’s announcement of a new plan or program, good thing now headed by one of our MAX guests, Dr. Stephan Wollenstein, the former CEO of Volkswagen Group China. So good for him. I think he deserves it, but it'll be tough, right? 

Tu Le:
It'll be tough. So.

Lei Xing:
Cutting some of the models, right? So doing subtractions, I think sooner or later, we will see more of these not only out of the foreign brands, but even some of the Chinese.

Tu Le:
Totally agree. Totally agree. The last thing I'll bring up is Toyota is kind of made an announcement of really pivoting to EVs now. So I think now that Toyota

Lei Xing:
Talking the talk.

Tu Le:
But Toyota is traditionally very tight lipped and conservative. So for them to boldly make all these statements, I think it's meaningful. And a couple of the things that they discuss that they'll get into more detail, I think tomorrow is that they're doing R&D on LFP batteries to gain range. They are also going to be launching solid-state batteries by 2028. They are going to re-engineer their manufacturing process to take into consideration the production of electric vehicles. They're going to be adopting a Giga press so that they have a single piece, front chassis and a single piece rear chassis. And then the middle pieces, the body to cell kind of pack. So a la Tesla. So.

Lei Xing:
Yeah, I mean that NIO, part of the reason for the NIO hiccup was of that mega casting.

Tu Le:
Yeah the Giga press.

Lei Xing:
On some of the newer models.

Tu Le:
So Tesla should be credited for charging in the U.S. and now from manufacturing standpoint, this Giga press that everybody is kind of jumping on board with, so as much as we as in generally speaking, not me, we as in you and I because I think we're fairly fair. We're pretty fair with Tesla, for the FUDsters man, Tesla is very influential. They also are very good at hoovering up government dollars. So because there's a, did we talk about this last week? There is a study from Benchmark or something that said that Tesla is going to take down over $1 billion in subsidies from the U.S. government this year, and GM is only going to take down like $200 million and Ford is going to take down zero.

Lei Xing:
Well the volume is there, so.

Tu Le:
That's really, let me see here. Tesla, the Model S Paid with the track package reset the Nürburgring record, 7 minutes 25 seconds. The Mission X, the Porsche Mission X Concept, one of the reasons that was launched was to take that throne back. So anyways.

Lei Xing:
Hyyper car. Congrats to Ferrari on the Le Mans, finally.

Tu Le:
Corvette won GT, the GT series, Le Mans too.

Lei Xing:
Cadillac, or?

Tu Le:
Corvette, so Chevy, and then Cadillac, I think they placed third overall. Congratulations to Cadillac, but that's all I have man. Let's open it up. If anyone has any questions. I see there is two comments. One is inviting others to join us. That's great. And thanks. Yeah. The other is, fair enough, Li Auto makes EREVs, NIO makes EVs. We get that.

Lei Xing:
I think that to that point, I believe, first of all, is it's the market. And second, it's regulations. If it's EREV, it's a PHEV right? It's considered NEV, so if you do the product right, it sells. But eventually, I think the competition will be on BEVs, and Li Auto is moving there. But they definitely have the upper hand or the first mover on this EREV thing.

Tu Le:
Yeah. I mean PHEVs in China will still be a play for quite some time. BYD is going to make sure of that. So, but if anyone has any questions or comments, feel free to raise your hand and we'll pull you up, other than that, I don't. Let me take a look at my newsletter. I don't really have anything else.

Lei Xing:
Yeah other than that, I'm I got a couple of more days of packing to do, because I'm leaving on Sunday night. And I’ll get into Beijing on Tuesday morning. 

Tu Le:
How many days are going to be there? 

Lei Xing:
So I'm flying through Frankfurt, like you did.

Tu Le:
Do you have an 8-hour layover?

Lei Xing:
No. I have a 3 hour, three and a half.

Tu Le:
I actually flew through Munich, on the way in. On the way back, I was supposed to fly out of Frankfurt, but I changed my flight, remember, so.

Lei Xing:
Right. So this time I'll be going back with family and they're looking forward to it. I'm looking forward to it because I've been setting up some, talking with some of the robotaxi people to check it out in Beijing and just to now more spend some more time, because the last time I spent one day in Beijing and a few days at the auto show, but really just kind of see the…

Tu Le:
You just scratched the surface man.

Lei Xing:
Yeah have time to, more time to experience and just to see the dynamics.

Tu Le:
How long are you there? 

Lei Xing:
Two months. And I'm little anxious with the internet and stuff. I have to make sure that I can jump on the Twitter Spaces. I have a plan, my wife, she has a, she's going to get some plan in terms of jumping the wall and just trying to make sure that we can still get to talk.

Tu Le:
So we do have a question. What's your opinion on the Mercedes Bin Li picture where he's meeting with Mercedes I think?

Lei Xing:
So I think it's worth a little bit of time to talk about this.

Tu Le:
Because it was in a conference room, right? They were in a conference room, correct?

Lei Xing:
No it was at the NIO House at the Shanghai Auto Show, which is not surprising at all, because these smart EV startups, they’ve, this is a common occurrence that they meet these foreign companies, that the CEOs of, and Ola is not the only one that met with NIO, I can tell you that. So I think that picture was, the way, I think it's overblown a little bit, because for these foreign legacies premiums, they're there to learn. The best way to learn is to talk. The best way to talk and learn is to talk directly to the CEO. In my mind, because I’ve interacted with Ola before. He among these foreign CEOs, I think understands the most about China. And as he spent three weeks in China, the most among these CEOs, right? So it could be anybody.

Tu Le:
Well and we have to remember also that NIO is entering Germany, entering Europe. So it's a two way street. I don't think it's just Ola trying to glean any insights from Li Bin, so I think it's a two way street for sure.

Lei Xing:
Yeah. So I wouldn't read too much into it, even if Merc did go, jump on this battery swapping with NIO. First, I don't think it will be surprising.

Tu Le:
Yeah, I don't think it would be a huge thing to be honest with you.

Lei Xing:
I think we have to hold off on this kind of national standards and really who really want to play it. But for a company, especially for a German company, it'll take some time.

Tu Le:
And I got to say, man, I think so let me just say this. If Mercedes were to tie up with NIO on the swapping, it would be a global thing. It would probably happen in Germany too. Let me just say that, number one. Number two, I think the veneer of these German companies, highly engineered, blah, blah, blah. It should be pierced by now, because they're now coming off as slow, unable to read the market. And to me, and this is me being super biased because I'm colored by diesel gate in how bad and how terrible that was, that people that nobody got thrown in jail. And the companies still exist, because somebody should have kind of gone out of business because they, the company literally sold something they knew was false to millions and millions of people over a number of years. So the whole Germans having superior engineering talent that to me is complete BS so.

Lei Xing:
Yeah, I think on what it looks like, at least on the surface, it's really showing a lot of respect to each other. I'm talking about the NIO and Ola and Li Bin meeting. That's first. And second, really, Merc has its problems, and NIO has its problems. It's not like NIO’s on top of the world, and we Mercedes, we have to…

Tu Le:
The answers. 

Lei Xing:
Right. It's everybody has their own tactics, problems, that the strategy that they need to evolve and solve and tweak. And that's, right?

Tu Le:
Another question, what are the chances that NIO’s battery technology will become the standard? So we kind of talked about that. And I took it a step further that if NIO and Mercedes or if NIO and one of the premium brands had a partnership, it to me, I would think it's more than just China. I think it would be multi-regional. So hopefully that answers your question.

Lei Xing:
That's the plan. I think it's a global footprint for NIO.

Tu Le:
And let me ask you Lei. I wasn't clear the RMB30,000, there is no pricing changes in in the international markets, correct?

Lei Xing:
Yes. I believe this is China only if you look at the ET5 Touring prices, it’s different, right, in the different European markets and I think slightly or more expensive, which is, I guess, normal than the China pricing. Yeah, so it's really a China thing.

Tu Le:
The last thing that I'll say, unless anyone has any questions, feel free to write it in the chat or raise your hand. But the ZEEKR X started delivering, right? So it'll be interesting to see how sales ends up for that.

Lei Xing:
That's a race, that's a model to watch.

Tu Le:
For sure. Because I sat in it and I was like this is great for $28,000-$30,000 hers, man. Because I literally compared that to the Bolt because I was looking at buying one here.

Lei Xing:
Yeah, the Bolt EUV right? 

Tu Le:
Yeah I was like, man, the ZEEKR X is so much nicer than the Bolt. Anyways, let me see. Is there another question here? Let me see. I think we are good. Yeah. So what should NIO consider for its nex-gen technology platform, NT3.0? What do you think about that? That's something I don't know we can answer in like 10 seconds.

Lei Xing:
That's a pretty big…

Tu Le:
So let me tackle it this way by saying that Xpeng launching its NGP is huge. And then you with the robotaxi companies, you'll see more pilots, so the familiarity. So I think NT3.0 really needs to lean a lot into advanced ADAS features, I think. So.

Lei Xing:
Well, it's not that NIO is so much behind. I mean if you look at for those of you that didn't watch the live stream of the ET5 Touring, I think there's a specific segment on in Shanghai they were driving through city streets and using this NOP+ and NAD right? Supposedly, that's as good, as let's say a city-NGP I think the way it's marketed and the way it's the coverage, it's probably a little behind Xpeng. So.

Tu Le:
It's so hard to tell there is no absolute way to verify anything to measure and compare apples to apples. It's just really, really hard, even if you take the same streets in each one, Lei, two different robotaxis. The traffic patterns are different at different times of the day. And so it's just really kind of impossible to, unless you're really looking at the data and they're allowing you to look at the data. 

Lei Xing:
Yeah. Pretty much if you look at these competition that NOP+, Xpeng’s, they are all now subscription based, right? You have to pay, I don't know how the number for the NPO+, how many RMB a month. So that's probably going to be the normal way to do it.

Tu Le:
Let's revisit this and 3 or 4 months to see what the take rate on that is. And because if it's a high take rate, I definitely believe that until FSD is launched in China, disadvantage to Tesla.

Lei Xing:
But one thing I would think of on the 3.0 is the really the next gen, some of these new next gen battery technologies possibly being adopted. 

Tu Le:
Sodium ion and stuff like that.

Lei Xing:
Yeah. And then NIO is still waiting for the 150-kWh, which has been MIA for forever. The BF1, I think it's called, is coming online in about a year's time, maybe less, in Hefei. So NIO's own battery. So that's another thing that's going to play.

Tu Le:
Here's a statement from NIO fan Canada, NIO CEO states that he's open minded to having a partnership with OEMs. I think that NIO should be banging on doors, getting other automakers attention, especially the German brands, look at Ford and GM joining Tesla super charger network. Only a fool would think it stops there. I believe that NIO has had conversations with many traditional and EV first company. And here, and I think they've done it in Europe. So I completely agree. And it's a matter of how long and again, large, traditional OEMs, they want to control environment and they want to be the ones to control it. So giving the battery pack to someone else to be responsible for it is just not how traditional automakers are wired. Okay? So it'll take a bit of desperation from a traditional OEM because they feel like they're super behind on their EV portfolio or it'll take, and I just don't know if anyone is ready at a foreign automaker to make that plunge just yet. They're still kicking the tires and looking at a wait and see attitude. But what do you think Lei?

Lei Xing:
Remember that NIO is not about battery swapping only, 80% of their charges, not the number of charges, but the electricity charge on their own charging network are non-NIO models. So that's already happening. NIO is already the Tesla of, in that respect.

Tu Le:
And we can't look at, for NIO customers. It can't be an either or right. It's a both. The charging service is both charging and swapping for many new owners, right?

Lei Xing:
I think still a lot of OEMs, let's say, competitors, they are still having doubts or second thoughts about whether to go, to even consider the battery swapping route at all, because this charging now, let's say a Tesla, their network, let's say the technology itself, the grid, they have to benefit, the way the benefits and things like that. So it's going to be difficult if really making the battery swapping mainstream. So it's not, charging is still the way to go, but NIO hasn't mentioned. Sooner or later, I think some will follow that route.

Tu Le:
We can't forget Ample who are also looking to make partnerships outside of the United States, specifically in Europe for battery swapping. So it's, I think, much closer than people realize or the potential of widening the use of swapping stations to more than a handful of brands, or specifically one brand outside of China anyways. So keep an eye on Ample. They're looking at fleets specifically right now, but you never know, they're trying to convince people too. So what we need is more competitors in the space, and then it will be more widely adopted for sure. So, man, but that's all I had. No other questions. Shoot. Do you know this freaking, in the past, NIO co-founders said battery swapping was not the endgame, but it means to an end, do you think NIO's outlook on this has changed with all their swapping investments?

Lei Xing:
No. I don't think so. They're still sticking with the 1,000 stations to be added this year, right? And that they're adding more in Europe and potentially other parts of the world. I think this is still there. If we talk about NIO, we think about NIO, we think about two things. We think about service and user community, and we think about battery swapping, right? That's their USP and really, it is not the end game, it's about flexibility, right? It's that's what they want to achieve with. And the next stage, I think, would be this asset utilization. Can it be utilized by third parties or competitors, let’s say.

Tu Le:
And we can't forget that NIO is working with Shell in Europe and China. So.

Lei Xing:
Shell and some of the, Sinopec, right?

Tu Le:
So they are spreading some of that risk, right? And investment, though, it is linchpin to their overall strategy, but it is not the de facto strategy. I agree with you.

Lei Xing:
The thing really to add with that RMB30,000 price cut as it is, I believe that now even before the price cut, it's not affecting, I hear the margins because they booked that on, the benefits before the RMB30,000. They booked that on deferred revenues. I'm not an accounting guy, but somehow that with the new this cut, I don't know how it works, but it looks like they're pretty confident that they can still get to double digit margins later this year. So.

Tu Le:
Well, I mean, but the bottom line Lei, is more car sales kind of solves a lot of those problems, right? So.

Lei Xing:
That’s right. It's always the, right, that you balance that out.

Tu Le:
No questions just a couple comments from Nio fan Canada: in attention to what I was saying Ford and GM will leave FSD aka Level 4 autonomous driving to Tesla and license it from them. And then he also writes no time to kick tires here, there are always 3 to 5 top dogs in any market segment. So don't agree with the Ford and GM statement at all. I think Cruise is going to be a viable competitor. NIO’s, if battery swapping is going to make it, NIO is going to be a leader in that space. So those are kind of the responses I have to those statements. And let me see one last time and go through this. That's it, man. So I got to run anyways, so ready close up shop. Hey, had a good lively crowd. Thanks for joining us today.

Lei Xing:
It was a good talk.

Tu Le:
Yeah, we will talk with you all next week, good morning, good afternoon and good evening.

Lei Xing:
Yeah, so housekeeping next week and the time will start to be different because I'll be in China. But what we did before is Thursday evenings, U.S. time and Friday mornings China time. We may be going back to that routine, but….

Tu Le:
Actually, to your point, a couple other housekeeping, we posted the latest MAX episode with James Hind. So we invite you all to have a listen.

Lei Xing:
I think he had really several great comments on, for China EV Inc. entering Europe based on his knowledge.

Tu Le:
For those who don't know, he is the founder and CEO of carwow, Europe's largest buying selling content platform for the automotive sector. We talked to him for about an hour 15 minutes. He had nothing but great insights to share with us. And mutual respect because he wanted to learn more about the China EVs that were going to be entering his markets. They have a decent sized presence in Germany as well. Now so for those of for European listeners, specifically it's a great podcast. It'll give you a lot of new data points for to consider. And then lastly, I had the pleasure of being on Joe Lowry, the de facto lithium expert in the world, so that just posted today for those that want to have a listen and Lei. And I told you this in a direct message…

Lei Xing:
So he's agreed to be on our pod as well, right?

Tu Le:
So we get to pepper him with some questions and there's another person that volunteered to be on our pod. And I’ll tell you about that after we get off. But again, thanks for joining us. Good morning, good afternoon, good evening.

Lei Xing:
And I will talk to you next from China.

Tu Le:
Yes man. Very cool, hold on.

Lei Xing:
Yeah yeah, no, not yet?

Tu Le:
What do you think is the ceiling for vehicle margins for NIO?

Lei Xing:
Internally, their target is still, I believe 20%. They to get to, they expect 15% by the end of this year, but long term, right, it's 20% seems to be the kind of the sweet spot.

Tu Le:
Which gets them into technology margin.

Lei Xing:
But I think realistically for a NIO, that's playing, I don't want to say playing with fire, but now they're kind of NIO, this, now their ET5 starting price below RMB300,000. Now you have to pay for, really, I think, going forward, we have to see how many of these new buyers they actually pay, either they choose to pay the RMB30,000 or they pay on a pay per basis for the battery swapping. That's part of it, I think. But realistically, let's say, okay, and compared to Li Auto, I don't think 20%, or let's say this, it's going to be difficult to achieve the 20%.

Tu Le:
That's the crazy thing, right, Lei, because vehicle margins, I don't believe, I'm not 100% sure, but the battery swapping revenues aren't part of vehicle margins. So they are part of the services and so different pockets, but same pair of pants, right? So without the swapping vehicles, they wouldn't have swapping revenue. So thanks again, everyone. We'll talk to you soon.

Lei Xing: 
Talk to you next week. Thank you, all. Bye bye.

Tu Le:
That brings us to the end of this week show. Lei and I thank you for tuning in. My name is Tu Le and you can find me on twitter @sinoautoinsight. You can find Lei on twitter @leixing77. If you wouldn't mind rating and or reviewing us on Apple Podcast, Spotify or wherever you grab your podcast from, we'd appreciate that as well. Even better if you enjoy this show, please tell your friends about it. Please join this again next week as we track down all the latest news on China EVs & More.