China EVs & More

Episode 126 - VW's Blockbuster Investment, Indian govt says 'Not Interested' to BYD

July 31, 2023 Tu Le & Lei Xing
Episode 126 - VW's Blockbuster Investment, Indian govt says 'Not Interested' to BYD
China EVs & More
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China EVs & More
Episode 126 - VW's Blockbuster Investment, Indian govt says 'Not Interested' to BYD
Jul 31, 2023
Tu Le & Lei Xing

Tu and Lei take the bulk of the pod talking about Volkswagen Group's investment in XPeng. They go over the why's, how's and what's and whether it ultimately makes sense for Volkswagen and what it should say about their situation in China. Lei believes it will go down in Chinese Automotive history as one of the most notable ever. 

They also give a brief history on XPeng and how they got to where they are including a brief discussion about their newest product, the G6 which XPeng hopes will pull it back into high sales growth. 

The pod ends with Tu asking for Lei's reaction on BYD getting the Heisman from the Indian govt about a $1B investment to build a factory in India. It seems to be BYD's first real hiccup over the last several months. 


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Show Notes Transcript Chapter Markers

Tu and Lei take the bulk of the pod talking about Volkswagen Group's investment in XPeng. They go over the why's, how's and what's and whether it ultimately makes sense for Volkswagen and what it should say about their situation in China. Lei believes it will go down in Chinese Automotive history as one of the most notable ever. 

They also give a brief history on XPeng and how they got to where they are including a brief discussion about their newest product, the G6 which XPeng hopes will pull it back into high sales growth. 

The pod ends with Tu asking for Lei's reaction on BYD getting the Heisman from the Indian govt about a $1B investment to build a factory in India. It seems to be BYD's first real hiccup over the last several months. 


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

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CEM #126 Transcript
Recorded 7/28/23

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 sectors. This is really becoming a global thing. What Lei and I discuss today is based on our opinions and should not be taken as investment advice. For those that are new to the show, welcome. And to our loyal listeners, welcome back. We ask that you help us please get the word out to other enthusiasts about the podcast and tune in again next week. 

My name is Tu Le. I am 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 you all to do. Lei, it's been such a boring week for you. I don't know how you kept busy, but how are you doing? Please introduce yourself.

Lei Xing:
I know, right? Coming to you live from Beijing. Good evening. This is your co-host Lei Xing, former chief editor of China Auto Review, and this is episode #126.

Tu Le:
I wrote the wrong number on the thing. So anyways, I did write 126, sorry.

Lei Xing:
You did. So we are on top of things. So a boring week as you've described it, I guess X marks the spot twice, because this is our first episode on X spaces. That's one piece of news. And the other piece of news obviously. What do we call it, Volkspeng or Xwagen?

Tu Le:
Xwagen, I think it’s Xwagen. But also, one thing that I will bring up later in the show that I think is worth talking about for a good few minutes that was completely overshadowed because of the investment announcement. I won't bring it up right now, but I'll get your surprise take on it because it was actually a gangster moved by a country that we'll talk about, so. But let's start out with the announcement earlier this week that Volkswagen Group is going to take a 4.99% stake in Xpeng, and they're going to invest 7, is it 700 million Euros or US dollars? I don't remember.

Lei Xing:
$700 million.

Tu Le:
So that would value Xpeng at $14 billion effectively, so, which is kind of sort of what they're trading at. After the announcement, the share price increased by between 20 and 30%. I think it's settled at 26. So huge move in and of itself. But then when you take a step back and the week before, we talked about Audi licensing an SAIC platform.

Lei Xing:
That was overshadowed.

Tu Le:
And then we look at ok, what does this mean? What is the, so let's talk about the single transaction and then Lei, you and I can talk about taking a step back looking at the 30,000-foot and what it indicates. Okay?

Lei Xing:
Yeah, so I actually, I couldn't sleep that the night when this happened…

Tu Le:
Partying too much. 

Lei Xing:
No, I mean I was trying to digest and absorb this because this was under wraps for what, 8 months, which means the discussions started probably end of last year, right, December. So good job on keeping this a kind of a secret and at the last moment. So Ralph was, is in Germany. So I think what happened was they got the supervisory board approval, and then the announcement came out.

Tu Le:
Let me stop you right there. Was this Ralph's decision or Oliver’s decision? In your opinion.

Lei Xing:
I say it's Oliver’s.

Tu Le:
I agree. I don't think Ralph could make that, I don't think Ralph could write that check. 

Lei Xing:
And Oliver, remember, maybe not many people know this, but he has a degree from Tongji University. 

Tu Le:
Yes. They speak some zhong wen (Chinese). Keyi shuo yi dian (speak a little).

Lei Xing:
The board spent some time here in back in April, but again, right, this discussion started already last, end of last year.

Tu Le:
So let me add a little wrinkle there, because Xpeng was down for the better part of the last 6.5, 7 months.

Lei Xing:
Few months, yeah.

Tu Le:
Then the G6 launched. And now you see a bit of green shoots, a bit of momentum. So I'm sure some of the terms that had been agreed to in the past, because Volkswagen kind of sort of had more of the leverage in the negotiations, probably changed over the last 2 months, because the G6 launched and the positive reviews it's been getting in the market.

Lei Xing:
Which I'm driving right now. Yeah. Do continue. 

Tu Le:
No you go ahead. That's all I wanted to say that I think that Xpeng at the end probably got a better deal because of the momentum that was built recently from the G6 launch.

Lei Xing:
So this I think surprised a lot of people in the industry because of the Audi SAIC rumors, and which is basically now confirmed.

Tu Le:
It's an MOU, it hasn't been signed.

Lei Xing:
Except the details. So Audi officially signed the deal on July 18, three days after Volkswagen Audi signed the deal, signed the MOU with FAW and this kind of overshadowed the Audi SAIC partnership, because it was so surprising. And this is the first ever instance of a well-established, the top German auto company, for many years the top global automaker, investing, let's say, a 85-year old company investing in a 9-year old China EV startup. So that's unprecedented, right? And if we elongate the history, so in my 20 years of covering the auto industry, the Chinese auto industry officially is 70 years old, starting from when FAW broke ground in 1953, so since then, let's say the only events that are really worth, let's say, blockbuster, century worthy are that, the start of the Chinese auto industry, in 1983 when BAIC and former AMC Chrysler set up the Beijing Jeep, the first ever Sino-foreign joint venture, and then 2010 when Geely bought Volvo. And then this year, a couple of days ago, Volkswagen investing in Xpeng. So there's only a handful. 

Tu Le:
I only have the recent history knowledge. I don't have the depth that you do, but I would argue that the, and this is not a single date in time, I think, because we are talking about the NEV era. So I would argue that collectively, Li Auto, Li Xiang at the time, Xiaopeng at the time, NextEVv at the time launching all within 14, 18 months of each other. And then in 2014, along with Tesla entering the market via imports of the S, I think those were also super significant. And then I would say that December 17, 2019, when job one of the Model 3 rolled off of the Shanghai Giga factory. I think that's a significant date.

Lei Xing:
So I mean there's obviously a lot more, but I think really there's only a handful of super blockbuster events on the Chinese auto industry with global implications. And Volkswagen Xpeng is one of them. That's how I mean the significance is, cannot be overstated.

Tu Le:
It cannot.

Lei Xing:
For this happen.

Tu Le:
And I think with all the media coverage of that announcement, it's well deserved. I think all of the media, global media outlets are finally really starting to wake up, because I've been ringing that bell about how VW has been struggling and how really in dire, in dire need, in dire straits they were. Okay, I don't think a lot of media woke up to, wow, they're actually really in a bad way. I'm going to take some credit for that because I was in the right place at the right time in Beijing talking to the German guys, right? So, but this kind of points to that because it's two things and we beat to death about the make or buy decisions. They decided to buy two things now from Chinese companies. And so I look at in a broader sense, because Volkswagen, in particular, with amazing brands, they have Volkswagen brand, historic. They have Porsche, they have Audi, all these great great brands, but you look at diesel gate and then their inability to react and pivot in order to save their market share in China. You look at, you have to blame the board of directors, you got to blame the management because there have been no real external hires to really inject a new philosophy, a new way of looking at things at Volkswagen Group. And so a lot of those managers, currently they were part of diesel gate. So I think to your point, and we need to drive this home, there is some incompetence at the board level and at the management level. That's the only way I can explain it. Do you agree?

Lei Xing:
And in sharp contrast, the capabilities nowadays of these China EV Inc. That's the sharp contrast. That's the, and Xpeng being the leader, or one of the leaders in the ADAS and connectivity space, platform, right? Smartification that Brian Gu has talked about. These are what the legacy lacks, right?

Tu Le:
This is not just a single transaction. This is a first date, because if the cooperation works well together, they will go deeper in their relationship, whether that means Volkswagen aquires a larger stake. I'm not sure, but.

Lei Xing:
They could sell that stake if things don't work out.

Tu Le:
Exactly.

Lei Xing:
Like what Ford did with Rivian, right?

Tu Le:
And I think that I do see this going deeper because I don't see Volkswagen Group in the next 10 years being able to catch up on anything significant specifically for the China market, because the competition is not moving slower, it's moving faster. And if you're buying, you're not getting these skill sets in house. So.

Lei Xing:
Yeah. So you know, I've been driving the G6 the last couple of days. And every time I look at the steering wheel with the Xpeng logo, I see a Volkswagen logo on it. I'm like when that happens, you know, what is that? That's a, right? You kind of think a VW-badged with Xpeng inside. It's hard to process, hard to digest what that would be like.

Tu Le:
I think the other thing Lei is that it's important to note that Tesla’s valuation is an anomaly. And so let's throw that out as an outlier. If we look at Toyota’s, we look at Volkswagen’s, we look at Porsche’s, the $14 billion is, seems more reasonable. And if we look at it, that's almost half of what Hyundai is worth. Even these Chinese EV companies that are only selling 150,000, 170,000, 200,000 units annually, mostly in China, their valuations are pretty significant with regards to foreign legacy auto. So they still have to fill in a lot of that potential in order to maintain that share price. And I just saw that Morgan Stanley is re-rating them. And so.

Lei Xing:
Yeah the China Big 3.

Tu Le:
Yeah, so this should scare a lot of people, and everybody's been talking about who's next. You've seen that picture of Ola and Li Bin, that meeting room with Paul Gao, circulating around the inter webs. But to me, that seems like a bit more of a complicated partnership, so.

Lei Xing:
I think you and I would agree that this opens the floodgates, and this is not going to be the last time something of this magnitude will happen. I think we can agree that there's more coming. In fact, there's this rumor now that LeapMotor is doing something next Monday and supposedly, there's some Japanese automaker involved. So we don't know, but I think these type of things are starting to, that’s why we say, again, the market for technology, technology for market, that this is new era being ushered in.

Tu Le:
So it's funny that you had mentioned the Japanese automaker, because I got an opportunity to speak to our mutual Japanese American journalist friend yesterday, because he dropped a huge article about Tesla. I immediately tweeted #rangegate. So for those that are following me on Twitter have a look at that article. I won't tell you who the journalist is, but he's very well respected globally. And I asked him, does he see a Japanese automaker making a play similar to what Volkswagen has? And I think you would agree, he thought that most of them would be too conservative in their management to make a move like that. But I, we agreed that the Toyota BYD thing really puts everything on the table. Okay, so to your point, do I see a GM or Ford making a huge play? No. But I could see another European or potentially a Japanese.

Lei Xing:
So the other perspective on this Volkswagen Xpeng thing is, the caveat is the only thing that will trump this from being an even bigger blockbuster news is that this technology is being used on Volkswagen vehicles elsewhere, outside of China, so everything that you know, BYD Toyota, this, and maybe a couple of others, Audi SAIC are only exclusive to the Chinese market. So there will not be any other models that will be based on this type of partnership outside of China. So that's one caveat. And from that perspective, in the battery space, the CATLs, the others, the CATL with Ford. Ford is already depending on CATL in the U.S., right? So it's not like this is first ever thing with Chinese tech inside. So there's many ways to look at this.

Tu Le:
So I've quickly ingratiated myself with the local market here in the United States. So I believe that I know a lot of what's going on, a lot because the folks here are kind of clueless on the EV space and the battery space. But the Ford CATL deal is, there's a chance that it doesn't go through. So I still think it's a small percentage, but there's a lot of push back. And about that. With regards to your statement about bigger news being platform would be used outside of China that would get like fu za, right, like very complicated, I think.

Lei Xing:
So I mean Geely is already doing that with the SEA and right, things like that, but except Geely is not a foreign legacy. So that's the difference.

Tu Le:
So, and Volkswagen is in Europe, so tied to the union that every major move, if they take jobs away from Germany, is going to be scrutinized to the 10th degree.

Lei Xing:
And it's going to happen no matter what.

Tu Le:
And that's. And that's what you and I believe, we won't get into the individual things that we know are going to actually happen. But there are going to be some things that are still going to surprise Europeans and Americans that you and I know for sure going to happen. So we won't talk about it just yet, but there are a few things that are worth mentioning in upcoming podcasts.

Lei Xing:
The other angle that I wanted to bring up to this Volkswagen Xpeng is the two protagonists, Ralph Brandstatter and He Xiaopeng. They had that lovely selfie posted on different social platforms. Ralph, on the one hand, is now in his first full year. So come August, he would have been in China for exactly one year since being appointed. And if we look back his one-year tenure in China, there's two or three major deals, I guess, last year, the investment into Horizon Robotics, 2.4 billion Euros. Before he came, in 2020 or 2021, I believe, the investment in Gotion, and I think that was at 1.2 billion (Euros), working with Thundersoft, the $700 million investment in Xpeng, total, that's over 4 billion Euros of investment in Chinese companies. So I think for him, it's almost like trying to show the board that you know what I'm saying like, this is me trying to do this in China for China and being bold, whether it's his decision or Blume’s decision. But…

Tu Le:
No, I want to give Wollenstein a bit more credit, because I do think he was smart enough to see the writing on the wall. I just don't think that he had the capabilities to convince, and he didn't have the ear of Diess as much as Ralph has with Blume. Because I’m sure Wollenstein had initial outreach for some of these things happening. I do think that Ralph's going to get credit for a lot of it, but I think Wollensteain should be kind of applauded as well, because I don't think these things happened without his view and his take on things. So.

Lei Xing:
Yeah, because in our podcast with him, I mean he already mentioned that they were speaking to many Chinese local companies, DJI being one of them.

Tu Le:
And in all seriousness, what's important to remember here is they ultimately had a come to Jesus moment, because it didn't happen during Wollenstein, a lot of these things didn't happen during Wollenstein’s tenure, because I think they were still hubris. I think they were still false sense of we can turn this around, we can do this with our own. 

Lei Xing:
I think there still is.

Tu Le:
Well, two things that happened in the last 2 weeks Lei will point to my disagreement with you. So I think there are some managers that don't want to acknowledge that they can't compete without the help of the third party, specifically a Chinese third party. But and remember this goes back to, and I told you this, we talked about this offline, but think of it from the standpoint if you're a tech startup Lei and let's rewind. Let's say you're 35 years old and you have half a billion dollar tech startup, and Volkswagen acquires an equity stake, a large equity stake, controlling stake. And now you become a director, now you become a vice president. All these silver backs that have 40 years with the company. They don't want to report to you, right? So that's the culture part that you and I both pointed out in that Technode article that is just not going to match.

Lei Xing:
Yeah, I mean we had the exact same.

Tu Le:
Yeah I saw that dude.

Lei Xing:
Perspective.

Tu Le:
I’m glad you see it my way.

Lei Xing:
Yeah, so that was good. Yeah, I was just saying that Ralph you know, taking his credit and then the other thing is Volkswagen in China, in terms of in China for China with Chinese tech is going down that rabbit hole deeper and deeper. And…

Tu Le:
They are in danger of hollowed out.

Lei Xing:
They're probably the most, among the foreign automakers, they're deepest down in that rabbit hole, because they are also the most, they have the most market share in China. That's the interesting thing about this deal.

Tu Le:
Compare and contrast that to GM with the Ultium platform. So you got to give Mary a lot of credit. Whether they can be successful with the Ultium platform or not, they're not going to buy it. They're not going to get licensing from somebody else's platform. So you got to give Mary credit for, I think it's important to acknowledge that.

Lei Xing:
Speaking of Mary, she said on the earnings call, so Adam Jonas asked her about the Audi and SAIC, and SAIC being a partner of GM in China. And she said that basically her position is that they're open. So anytime there's a possibility to bring kind of cost-effective way products to market without compromise. So she's like we're open to that. So who knows? Maybe GM?

Tu Le:
Maybe she is much more pragmatic. She doesn't have this ego that I believe a lot of traditional automotive, let's be real, men, mostly white men, have that this pride. And there's that saying pride comes before the fall. And so it was, it had to have been very tough to swallow all that pride for Volkswagen Group, because this is also during the week where they lowered guidance by half a million units globally in 2023, most of that half a million is being lost in the China market. And so the ID.3 was priced, it had a price cut last week or week and a half. I think it's like $16,000 now, and so ID. series sales, now combining SAIC and FAW are lower this year than they were last year. So they are getting, they're bleeding from both ends, loss of sales on the ICE side and no momentum.

Lei Xing:
12,800 units for Skoda in the first half of this year, less than what many of the smart EVs sells in a month.

Tu Le:
That is a, that's less than 1,000 a week, right? So the one thing that is a head scratcher to me is that Volkswagen is going to use the older G9 platform. Did Xpeng not want to give them IP for the new G6 platform? That's the thing.

Lei Xing:
That's thing, right? That’s probably something that was discussed plenty of hours on.

Tu Le:
And maybe Volkswagen did that on purpose to create flexibility, because obviously the G9 is a larger vehicle.

Lei Xing:
Right. Well, the G9 platform, it does have, it is on the 800V platform, but the G6 is on more of the latest SEPA.

Tu Le:
Yeah, and so that's one. And the second thing I want to gripe about, because first of all, this is a bold move from Volkswagen Group. And I think it's a necessary move, it’s also, when you take it collectively with the Audi and the Xpeng deal together, it's a desperate move. And we're talking that Volkswagen will have to close factories if they don't turn it around. But launching in 2026, I think that's still, that means that they're going to really need to lean on Xpeng’s expertise in order to get a product out by 2026.

Lei Xing:
I think the words that come to mind super bold, super desperate, super strategic, super risky, all of the above.

Tu Le:
I think the risky part Lei, is that culturally, they might not be able to find a fit, cause Xpeng team is super smart, Volkswagen Group team, super smart. Can they work together?

Lei Xing:
I said in the Technode article that it does nothing to guarantee success with the Volkswagen-badged Xpeng tech-inside vehicle. It’s three years away. Who knows what happens in 3 years? A lot can change in 3 years.

Tu Le:
So much can change, especially in China.

Lei Xing:
And the other protagonist, He Xiaopeng. I think it's really, in retrospect that his bet on this full-stack, hardware, software inhouse development has paid off. And that was his strategic bet, being stamped with approval from Volkswagen right, and the Volkswagen investment. Now, $700 million is not going to save Xpeng. It's really a pocket change.

Tu Le:
It's a revenue stream for Xpeng, a new revenue stream for Xpeng. But…

Lei Xing:
Definitely, definitely. I mean Brian Gu talked about it, right?

Tu Le:
And I think for folks that are listening who don't have a big background or understanding of Xpeng, you should listen to Brian Gu’s interviews. I think he's very clear on the things that they're trying to do. He believes that by 2030, 2035, there will be about eight or nine global automotive companies. They could be Chinese, European, American, Japanese, Korean that will be building at least 3 million units in order to or selling building and selling 3 million units around the world. So there's still going to be dominant players. I'm assuming Tesla BYD are going to be still at the top of that list. But if you're not building at least 3 million units, he's not going to consider you a global automaker.

Lei Xing:
And Xpeng, is Xpeng going to be one of those companies that do it? We don't know, right? It's still a huge question mark.

Tu Le:
We've seen growing pains from Xpeng and NIO. I know there are a lot of NIO followers that listen to us as well. We've seen Xpeng NIO struggle a little bit. NIO not struggle, but expand internationally. When Xpeng did it 14 months ago, they did struggle a bit. They had to reorg the team and stuff like that. But the third company that is U.S.-traded, Li Auto, they're crushing it. They're going to hit some record volumes this year. And their lineup is super strong, but they're domestic only. So Li Auto is eventually going to venture out. And they're going to have those same growing pains that Xpeng, NIO, they're just pushing it out, because and what I believe to be a very prudent move is to focus on the China market. So.

Lei Xing:
Yeah, and all Brian Gu talks about is smartification. And I think he, you know smartification is not only Xpeng trying to be the leader in the ADAS. It's the other things. And I can speak to it because I’ve been driving the G6. And I mean I won't go into details, but I can now see why Volkswagen is investing in Xpeng, because some of these surprising features that you would never expect. As the smart side of it, I’ll give you one example. When you're on navigation and when there's passengers in the car, and they're trying to listen to music, the navigation voice automatically changes to your headrest, the driver’s seat headrest. I mean these little things that was really a present surprise to me.

Tu Le:
And that's an example of the 70% software engineers and 30% automotive engineers that EV first companies have, whether it's Tesla, Rivian, Xpeng, Li Auto. Now, the legacies because they've traditionally had very non-connected vehicles. They have a lot of terrific engineers that don't have the current skill sets necessary to make those types of features or to create those types of features. It's not enough to create the feature. It has to be seamless. It has to work with all the other features in the vehicle and it needs to be bug free. And that's where a digital world is completely different than a hardware industrial design world, right? Because that's all software that has nothing to do with building this or building that or designing this with your hands. That's all software. And Volkswagen does not have that, they can’t even build an entertainment system with latency that matches an iPhone, right? It's improved a lot over the last 20 months, but they're still struggling with the blocking and tackling part, a software development.

Lei Xing:
The other example is the XNGP, I correct myself because I tweeted that this was a 755 Max, the one I'm getting, I double checked, it's actually the 700 Max, which is their top trim. It's about RMB276,900, but it's got the XNGP and it has the city-NGP in Beijing. But there's a caveat: it only works on the ring roads and the elevated highways, but still I've been driving the AVATR 11and I said the LCC, the lane control, cruising control, works pretty well. And now with this NGP I mean that's another level, automatic lane changes, going on to ramps. Man, it's not perfect. I'll tell you that, but it's just a huge step up. And from what I hear, so the version I'm using now is called 4.3.1, the 4.4 push later on before the end of the year will allow more city level driving NGP in Beijing. I think it's already available in Guangzhou and some other cities.

Tu Le:
Let me throw a little background. The reason that they're launching city by city is because of the HD maps that are required for the city-NGP and also, each of the cities have to approve of the use of that ADAS system. Xpeng had announced city-NGP awhile ago and then they were delayed in actually rolling it out because Guangzhou where they’re headquartered, took a while to get those HD maps out. And so now we're seeing momentum getting built and we had tweeted about this earlier. Xpeng being a Guangzhou-based company, getting city-NGP, being the first to be able to launch a premium ADAS service was a huge win for them. And it gave them great marketing and press.

Lei Xing:
And the other pleasant surprise was how efficient this G6 was. Even with the top trim, it’s an all-wheel drive.

Tu Le:
You got the orange one?

Lei Xing:
No, just the white one. I keep looking at the kWh/100 km number. It's been about 13 to 14 constantly, which is really good, because the AVATR 11 is over 20. Now obviously one is a RMB400,000 renminbi and the other one is a 200 some thousand RMB.

Tu Le:
So when Lei says RMB275,000, that's about $45,000.

Lei Xing:
So it's really efficient. And I’ll say it's not premium premium like the AVATR 11, but it's the most, let's say, Tesla feel cockpit or fit and finish that I should say that.

Tu Le:
This points back to their struggles. This should have been their P7, this should have been their P5, the quality levels, the technology levels and the styling, they should have had this two products ago, three products ago. If they would have, they wouldn’t be struggling with sales, the way they have been over the last 18, 20 months. So the one thing that I do want to say and a lot of media outlets kind of talk about this. I don't think any China EV Inc. needs any validation about their technology. I think that some of the articles that I've read and I might have said it too, but I took a step back and said you know what they are actually leading the world, they don't need anybody. And it's just the western media that's actually waking up to say, wow, what's the surprise here? Why is this is so surprising? I'm like no, this is not surprising. We've been talking about this for for since the beginning of this podcast that the tech in Chinese electric vehicles is second to none with the exception of a Tesla, so.

Lei Xing:
Yeah, that's the thing that what the foreign legacy automakers think are differentiators are really the qualifiers for these China EV Inc. That is the thing that I think that the foreign companies still don't understand. And that's why Volkswagen the teaming up with Xpeng.

Tu Le:
I did a presentation two weeks ago, and one of the slides was like a flow chart slide, and I put electrification, and then I put an arrow, smartification, then I put an arrow, servification, and then I put an arrow, autonomoufication. I just made up that word. So on top of electrification, I put the United States, I put Europe, and I put India. And then on top of smartification, I put China, servification to me means that these companies will create mobility platforms, Lei. And then obviously autonomification is that we're getting to Level 4/Level 5 autonomy. And so China is still ahead because they're not worried about EVs anymore. They're not worried about take rates, they're not worried about batteries, they're worried about how to differentiate them. The market has matured to where, ok, what smart features do we have? And I can't, we need to talk for 30 seconds about JIDU Auto, because supposedly they're going to be next next level on smartification. So wait till the ROBO-01 rolls off the factory assembly line later this year, job one does, and they start delivery, because we've been told that they've gotten it right. And so the proof is in the pudding, but what we're seeing now in vehicles is not going to be super impressive once this ROBO-01 comes out, if everything pans out the way it's supposed to, so.

Lei Xing:
And going forward, it'll be interesting to see because based on Xinzhou, Dr. Xinzhou, the VP of ADAS (autonomous driving), he's saying that by 2025, Xpeng could theoretically reach the kind of FSD or above, everywhere, all-scenario XNGP right? And remember, Xpeng is also doing the G9 robotaxi. We haven't heard a lot about that, but let's say if this converges into something very interesting, maybe that's another thing that Volkswagen saw that kind of convinced them to invest in Xpeng. 

Tu Le:
And remember, for the Europeans, NIO has launched a pilot. I believe they've launched it, but they launched a pilot with Sixt in Munich for robotaxis, with their, I want to say ES6. So that's in play, the actual robotaxis and that goes to the servification. So we might start seeing more pilots from non-autonomous vehicle companies in partnership with companies like Sixt potentially Hertz, because Sixt is basically Germany's Hertz. This is what I'm told. So it's an exciting time. If you're not a foreign legacy, I think it's a very…

Lei Xing:
Exciting time for everybody.

Tu Le:
It's a stressful time if you're a foreign legacy, because there's a lot of potential pitfalls and land mines because of diplomatic challenges between countries. This quickly segways into one thing I wanted to talk about, because I wanted to talk to you and get your take before I give mine on BYD getting the Heisman from the Indian government for their billion dollar investment. And this would have been the top news this week, had it not been for Volkswagen’s investment in Xpeng. So what's your take on that?

Lei Xing:
Was that all that surprising? Not really right, because the last episode I said the India government needed to maximize their interest and BYD following the requirements. So there was this beef, anyways, right, beef between China and India. So this is not surprising to see that this is being rejected.

Tu Le:
I'm a little surprised because BYD already has established…

Lei Xing:
The leverage, right. We also talked about the leverage that they had.

Tu Le:
But I think and one of our listeners, Steve Levine, he had written a newsletter post this week about that transaction. And I look at it like, maybe it wasn't as much of the Indian government. And maybe it was Tata, Mahindra working behind the scenes asking for a rejection so that they can have more time to put some viable product on the road, because that's what the Inflation Reduction Act does for American automakers. It kicks the can down the road, because you and I know China EV Inc. is coming to the United States. It's not an if, it's a when, but we do know that most of them have recalculated because of the challenging U.S. and China relationship, but also because the Inflation Reduction Act just makes imported products from China extremely uncompetitive on the price.

Lei Xing:
And does that give a huge advantage to Tesla? A little bit.

Tu Le:
So what BYD has said, they want to not take that billion dollar transaction off the table now. But if, you know we're playing 3D chess here between those two companies, because they are head and shoulders above everyone else when it comes to expansion. The match between high demand and their ability to supply that demand. And increasingly, the competition between the two outside of China. And we have to remember BYD is already in 55 countries. India is a key country for them. If they're going to be the top global player in the EV space, and India for all of its people and you can read Steve's post this week if you have a subscription to The Electric, they've become the third largest car market, passenger vehicle market in the world. There's an appetite for clean energy vehicles because there's just choking pollution in a lot of their cities. So the two wheeled electric vehicle market is going to explode in India. I believe the sub- $35,000, four-wheel passenger vehicle market in India is ready to explode as well. They have the same challenges, they have charging infrastructure challenges, they have energy, grid challenges, but and infrastructure, building outs, roads, proper roads, and things like that. But it's a billion and a half people. So it's a market that a Tesla, a BYD need to be in. It's going to also be an export hub for them. For Tesla, it'll mitigate some risk, because it won't be the only location in Asia, for Tesla to build. So that is in the early innings, but that's going to be a 3D chess game. And Elon knows that Wang Chuanfu is a formidable adversary, okay? But I think BYD will come back and work behind the scenes to make sure that their next proposal doesn't get rejected, but it is a setback.

Lei Xing:
It's a comma, probably not a period, so.

Tu Le:
Yeah I agreed. But it's their first real hiccup, because you and I have only talked about how much momentum they're continuing to build, right? They build kits. They build electric buses in India. So I feel that and Europe should look at this the same way, the United States should look at this the same way. They will not get that lower end of the market back. Their domestic players, the domestic automakers will not get that lower end of the market back if BYD is coming in and they don't have viable product in the market already, I’m talking about Tata, Mahindra. I'm talking about GM, Ford. I'm talking about Volkswagen in Europe. So because you're driving a $35,000 or $40,000 car, it's really good. It's better than an ID. series vehicle. So there's still going to be challenges. They're going to still be. And this is where the Chinese government needs to take a step back. Because some of the policies that they've created in the past and some of the current challenges that they have, some of that stuff is going to play out. And it's going to create a un-level playing field for their Chinese EV players outside of the China market. Okay, so.

Lei Xing:
Yeah, and going back to the Volkswagen Xpeng a little bit, so Volkswagen itself is launching, remember, 30 EVs in China by 2030. They can't depend on the two models on the Xpeng platform for volume. They got to depend on the 30 EV models. So it not like it's going to save them, even if they are successful at all, right, as we said at the beginning.

Tu Le:
They are still, they will be probably through 2030, they'll be building the plane as they fly it, so, Lei, that's all I had.

Lei Xing:
I mean Volkswagen Xpeng just sucked everything out. There's obviously other news.

Tu Le:
Yeah and we didn't even talk about kind of the secondary and tertiary implications of that transaction. Maybe we can reconcile that and get into it. I'll get into it in my newsletter. So for those that

Lei Xing:
And there's a lot of questions to be asked, what happens to CARIAD or the two models.

Tu Le:
Oh my god. Dude, so I delayed my newsletter this week because that news came out when I was about to press send. And I was like, because I don't want to turn it into a 4-page newsletter, right? But I was like, I have so many things going on in my mind.

Lei Xing:
And so I know that's why I couldn't sleep like my thinking about man what the long-term implication of this, significance of this tie up.

Tu Le:
Let me just really quickly say that it is not unusual for CEOs and management teams, small little teams to have conversations with each other. So the picture of Ola and Li Bin, although it's kind of great and juicy for social media. I don't think that it is shocking. And I had heard that Chinese EV company founders and CEOs have been meeting with foreign legacies. But so the fact that Xpeng and Volkswagen actually transacted.

Lei Xing:
You just haven't seen the pictures, that's all.

Tu Le:
And the fact that Volkswagen Xpeng transacted, that was pretty significant. But the, me hearing that they're meeting and talking and kicking the tires, I think that's proper due diligence of a management team. Because to Mary's point, we're looking at opportunities to make ourselves better. That means we borrow or license someone else's technology to do that. We should be open minded enough and be able to swallow our pride to be able to say what they do it better than us. They do it cheaper than us. Let's work together on this. And to answer your question, NIO is going to be launching two other brands. One of them is going to be mass market, so they will be competing directly with BYD within the next 2 years.

Lei Xing:
And they've already tweaked some of the tactics, right? Based on the recent reports about the features and options, hardware software on the Alps, right? And that's a constant thing because the market is changing. When the G6 comes out, right? When better equipped, cheaper models come out, I mean NIO has to think about where they position their brand and what pricing they're going to price it.

Tu Le:
I think when we can end the pod on this.

Lei Xing:
And to add, I think, Xpeng, if we were to pick one company that may be as close as to some of these AV companies, I'd say it's probably Xpeng. Do you agree?

Tu Le:
Yeah, and the, so in the China market, because the Europe market.

Lei Xing:
Pure AV companies.

Tu Le:
The Europe market in the United States market, there's going to be a need to reconcile their positioning in those markets, but in the China market, they have effectively tried to position themselves as the mass market smart EV company.

Lei Xing:
But then again, Li Auto is catching up. Huawei is catching up. SAIC is catching up. So.

Tu Le:
And DJI is the dark horse. DJI is the dark horse.

Lei Xing:
It could be someone that could leap forward.

Tu Le:
Well, and then our friends at Baidu, our friends at WeRide, our friends at DeepRoute, they're going to have something to say about that. So, again, this is the coolest, partly you and I, we know these people, we know these companies. It's so fun watching them just like try to outdo each other. And let me be quite frank, all these people that we talk to, they have the utmost respect for their competitors in China, but they want to beat them like.

Lei Xing:
The hell out of them.

Tu Le:
Yeah and they feel, I just think entrepreneurs, in general, when you're at a certain level of success, it's a zero sum game. If Lei EV company beats me to this, I need to beat him to that. So mojo or mojo did say  and thank you for the reminder, it was the three way partnership between Mobileye using NIO ES6s, having that robotaxi service in Munich. And he also said that there's a MaaS deal with Volkswagen in Austin, and Cruise also this week is launching in Nashville. So the United States, I think the competition for AVs is really starting to heat up way more, has abandoned commercial trucking, autonomous vehicles to focus more on robotaxis. And then Aurora Tech is also…

Lei Xing:
With its own LiDAR.

Tu Le:
Is making, they acquired a LiDAR company and then kind of incorporated into their stack. So.

Lei Xing:
Our good friend Omer from Innoviz posted some stuff about BMW L3.

Tu Le:
 Coming in China. 

Lei Xing:
That's another race, interesting to watch because it's basically BMW and Mercedes on the L3 part of it. And also in China.

Tu Le:
That is going to be the interesting thing because for the Europeans, you're going to see different tech stacks in these people's vehicles likely, or in these companies vehicles in the China market, you're going to see probably more announcements via partnerships with like Chinese LiDAR companies and things like that, sensor companies in the next couple of years without question. So, alright man, that's all, I think this was a good shot, I think, well attended. And I don't have anything else, because I need to press send on that newsletter.

Lei Xing:
Yeah, you do that. I don't have anything else. Next week, we talk about July sales. Hopefully we'll see some good numbers.

Tu Le:
Yeah Samaky, you better tune in because we talk about sales next month or next week. Hey, everyone, thanks for joining us. Please join us again next week or if you can't, we post these podcast normally a week after we record them. So good morning, good afternoon and good evening. We will talk with you all next week. Lei, have a good weekend, buddy, I'll catch you on WeChat.

Lei Xing:
You too, man, talk to you guys next week.

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.

(Cont.) Episode 126 - VW's Blockbuster Investment, Indian govt says 'Not Interested' to BYD