China EVs & More

Episode #137 - Li Auto's Ambitious Plans, Porsche's Woes in China, Tu's Bay Area Adventure

October 16, 2023 Tu Le & Lei Xing
Episode #137 - Li Auto's Ambitious Plans, Porsche's Woes in China, Tu's Bay Area Adventure
China EVs & More
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China EVs & More
Episode #137 - Li Auto's Ambitious Plans, Porsche's Woes in China, Tu's Bay Area Adventure
Oct 16, 2023
Tu Le & Lei Xing

The pod starts with a brief update on the UAW & US Three situation but moves quickly over to a brief disussion about Li Auto's openly stated and ambitious goals of selling 3M vehicles in China by 2028. 

Tu then pushes the chat to Porsche and the struggles they may beginning to see in the China market, a market they've only seen growth in since entering in 2001. 

Tu and Lei move the discussion over to Great Wall Motor's Haomo.ai announcing a very inexpensive ADAS system that starts at less than ¥10K and how LiDAR and overall sensor pricing for ADAS systems will quickly move into commodity territory as Chinese providers continue to try to compete on price. 

Tu brings up how GM has offered to unionize its US battery facilities as a carrot in the ongoing UAW negotiations and they both talk about how the LG & BYD partnership could be used to skirt the Inflation Reduction Act restrictions. 

The podcast ends with Tu talking about his trip to SF and and both of them talking about WM's bankruptcy filing. 

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Show Notes Transcript Chapter Markers

The pod starts with a brief update on the UAW & US Three situation but moves quickly over to a brief disussion about Li Auto's openly stated and ambitious goals of selling 3M vehicles in China by 2028. 

Tu then pushes the chat to Porsche and the struggles they may beginning to see in the China market, a market they've only seen growth in since entering in 2001. 

Tu and Lei move the discussion over to Great Wall Motor's Haomo.ai announcing a very inexpensive ADAS system that starts at less than ¥10K and how LiDAR and overall sensor pricing for ADAS systems will quickly move into commodity territory as Chinese providers continue to try to compete on price. 

Tu brings up how GM has offered to unionize its US battery facilities as a carrot in the ongoing UAW negotiations and they both talk about how the LG & BYD partnership could be used to skirt the Inflation Reduction Act restrictions. 

The podcast ends with Tu talking about his trip to SF and and both of them talking about WM's bankruptcy filing. 

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

Listen on: Apple Podcasts   Spotify

CEM #137 Transcript
Recorded 10/13/23

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. 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. To our loyal listeners, welcome back. We ask that you please help us get the word out about this podcast 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 you all to do. Lei happy Friday the 13th. Can you please introduce yourself?

Lei Xing:
I'm not sure if the word happy is the right word. 

Tu Le:
I know, right? 

Lei Xing:
But, this is your co-host Lei Xing, former chief editor of China Auto Review, and this is episode #137. Yes, welcome to a special Friday The 13th edition, in October, of China EVs & More. 

Tu Le:
Spooky edition.

Lei Xing:
The UAW strike is getting spookier, and the onslaught of more competitively priced and feature rich Chinese smart EVs is getting scarier.

Tu Le:
Nonstop. It's relentless. It’s relentless.

Lei Xing:
Li Auto wants to do a frightening, frightening 3 million in 2028. Let's go back right to the beginning of last episode when I said rabbit out of the hat from Tesla. And as we were talking about it, the 3 and the Y prices were cut in the U.S.

Tu Le:
As we were on the podcast.

Lei Xing:
Yeah, and later, earlier this week, they're offering the leases, right? The $329/month for 3 and $399 for the Y. And I'm hearing someone is about to pull the trigger. Plus the fact that the treasury and IRS announced that new point of sale credit, rebate, which make this all the more complicated, especially when you talk about Tesla, when to pull that trigger, right? Because of the $7,500.

Tu Le:
And January 1, language could be finalized about batteries, about where you can source and whether or not you can source through a third party. So at first glance, the POS makes it simpler, but then, like you said, you tweeted or you texted me like, wait till December, I will probably do that. But I have a 13-year old car right now that is on its last legs. And so I was prompted to look into electric vehicles because this 13-year-old car has been nothing but a headache since we've owned it. So.

Lei Xing:
Hopefully you don't get another headache. Sorry for me saying that.

Tu Le:
But honestly, how much lower can they go? Tesla I mean.

Lei Xing:
Wait till December to find out.

Tu Le:
Yeah because it's going to be that mad dash that always happens, right?

Lei Xing:
Q4, end of Q4 push, right? 1.8 million units, you know? So.

Tu Le:
I agree. I agree.

Lei Xing:
So, yeah too many news to count, to list.

Tu Le:
Let's do this, because I’ve been out of town over the weekend and then this week was Michigan Tech Week. It was in Ann Arbor at the big house in the Michigan Stadium. So that was, as a Spartan, it was, I have to admit it was still kind of cool to like see Michigan Stadium empty and how massive it is. I do know that you've been tweeting quite a bit, lots going on, as you'd mentioned in the intro. So can you tell us a few of the more memorable tweets this week that you've tweeted about with regards to certain brands, certain products or the market in general.

Lei Xing:
Well I mean Li Auto threw out two flags, right? One was the planning for 2028 to be 3 million units, and the other one was that they’ve hinted that they will get to 40,000 a month in October. So in all likelihood, I mean that they'll get to their 360,000 for the year. And then next year, if you remember, they wanted to beat the BBAs, and the BBAs, Mercedes and BMW they did 600,000 units in the first 9 months. So they are about 800,000-unit brand in China. And Li Auto.

Tu Le:
Coincidentally they all are between 650 and 850, most of the time, all three of them.

Lei Xing:
So their growth is low single digit growth, whereas…

Tu Le:
Effectively they are flat.

Lei Xing:
So they're kind of flat or maybe on the way down. And I mean, we were talking about Porsche this morning, right? That was pretty dramatic, I think for China. So they're kind of on their way down, whereas Li Auto…

Tu Le:
I got to stop you there, Lei. What did I say? I said Porsche needs to worry, and we're seeing weakness in Porsche sales in China.

Lei Xing:
At least they got North America, right? So they got coverage, so, but…

Tu Le:
Which is probably, I don't know, do you think the from a gross margin standpoint per vehicle, China is more lucrative I would think?

Lei Xing:
I would guess, but I was looking at the Q1, Q2 and Q3 growth numbers. They were +21%, +8% and -12%, the three different quarter growths. The only line that the presser said was “challenging economic conditions,” which you and I know what that means, right?

Tu Le:
We have to remember that Q1, Q2 are smaller month or smaller quarters than Q3 and Q4 in China. The percentages are meaningful but remember that it's a much smaller base in Q1 and Q2 generally for China market.

Lei Xing:
And the other I guess the big news is Volkswagen board and Supervisory board members. I think there were like two dozen of them. Probably they may have just left China, they were in China earlier this week, meeting I mean vice premier, meeting in Hefei, going to visiting Gotion, big trip I mean, and becoming frequent. And they posted, Ralph and both He Xiaopeng, posted some more details of their meeting in Wolfsburg.

Tu Le:
As the board goes to China, He Xiaopeng and Brian Gu get their passport stamps again for Germany.

Lei Xing:
So I think I mean, Hefei is becoming the new, I don't know, what would you call it the hinge, right? For Volkswagen Group.

Tu Le:
Well it’s China's, it's Volkswagen Group’s Wolfsburg for China.

Lei Xing:
Yeah exactly. Because of what they're going on with Gotion developing the unified cell in both, I guess LFP and NCM format. And they're the biggest shareholder of Gotion. They have Volkswagen Anhui which is producing and exporting EVs from China.

Tu Le:
We still continue to see Volkswagen Group executing on its strategy, because they also announced through their PowerCo battery division that they're going to be partnering with Umicore to have a joint venture called Ionity I think. And it's going to help them source rare metals, effectively for battery cells to be put in Volkswagen Group vehicles.

Lei Xing:
And that's coming next, well Q42024. So in about a year.

Tu Le:
You saw my tweet though, did you, about He Xiaopeng and Brian Gu with Blume, Brandstatter. And who's the third guy, the Volkswagen Brand China guy.

Lei Xing:
Stephan Mecha..

Tu Le:
Mecha. I tweeted that picture or I retweeted that picture and I said honeymoon period. Because Volkswagen Group is really trying to find any silver lining they can. They're seeing growth of the ID. series vehicles, sales in Europe and Germany specifically. So I think that's a plus. But they are still not able to gain any real traction in China, which is, has to be very concerning, because a point that should be made and we can talk about Li Auto a little bit more. But if Li Auto’s forecast or projections are correct and 90% take rate for NEVs by 2028 in the China market, let me assure you that there was no legacy automaker that had that forecast at 90%. That means that ICE sales are effectively zero for most of them. And they had to have had a forecast that looked way past 2030 to get to that 90%. I think that forecast sounds really aggressive by Li Auto. And just to remind from a number standpoint, last year was around 22 million cars sold in China. So in order to get to 90%, that means 21 million NEVs will be sold in the China market in 2028 according to Li Auto.

Lei Xing:
Well that's if the overall threshold stays the same, say if we could do, you know, the same every year. And the only thing that's growing is NEVs. But come 2028, right, you have a good point: 3 million will look small if Li Auto’s projection is correct.

Tu Le:
So let's back up Lei, what's, let's talk about what they announced and what they talked about this week.

Lei Xing:
Who?

Tu Le:
So Li Auto came out and reiterated that they want to be 3 million units in 2028 in the China market. They had said that their forecast showed 90% take rate for NEVs in the China market by 2028. And 3 million units would make them a top five automaker in China.

Lei Xing:
Well, it's similar to what He Xiaopeng said at the Auto Shanghai, right? Remember about getting to 7, 8 players, each getting 3 million units.

Tu Le:
And you and I know that life doesn't work like that, because there's always an 80:20 rule, but.

Lei Xing:
But I think people will still underestimate the growth of China's NEV market in the long-term. And so far, Li Auto is the only one aggressive enough to say something like that. I mean no legacies will…

Tu Le:
Let me ask you though. Do you think it's going to be 90% by 2028? 

Lei Xing:
So this year, let's say it's one-third. 

Tu Le:
 We have 33%.

Lei Xing:
We have five more years ago. What do you do? I mean that the simple math is, you add 10% each year, conservatively. And what do you get so 5 years, 50%? It's 80%, I don't know. I mean I’m just. It is quite aggressive. I have a hunch that it's not going to be that high.

Tu Le:
Yeah I don't think so either.

Lei Xing:
But China always. I mean, like this year again, I’m going back to my 9 million including exports. It's going to be not question of getting to 9 million, the question of how much over 9 million. So I mean, I know I was going back and forth. But right, it always surprises everybody.

Tu Le:
The one thing about that number, though, Lei, that I find, should create some friction is a move that aggressively to NEVs over a 5-year period is going to really displace a lot of people in a sudden way. And that's not how the Chinese government works. So that to me, so the market might want to push towards that super high take rate. But I don't know if China is ready for that. And there's a lot of baseline assumptions on that number, like, for instance, the Chinese economy will get out of this funk, get back into total growth mode. And the other part that I wasn't clear on was how much growth is Li Auto forecasting the market to grow by 2028? If we're at 20, 22 or if we're at 22 million vehicles in 2022, are we at 26, 27 and 28? Because 90% of 28 million is a lot different than 90% of 22 million, okay? 

Lei Xing:
Right. So that wasn’t clear.

Tu Le:
I guess, I guess I could put in, I kind of answered my own question because they said 3 million would make them a top five player. So I can kind of back into that number, but it sounds like they're not forecasting the market to grow that significantly over that 5-year period. But 90% is a lot, right? Because to give you an example of where the United States is. We're at less than 10% right now. We're kind of struggling because NEVs or electric vehicles inventory is building. So we're plateauing a little bit, but I believe we're plateauing more because there's not enough product in the market and specifically product at the right price. So I think a Tesla is playing defense a little bit, but they're also trying to gain share by dumping price in the United States. I could see a mad dash for a lot of American consumers, getting some 3s and some Ys out the door before the end of Q4. Including maybe me.

Lei Xing:
Including someone. Yeah. Even I’m interested, but I'm already paying a car, so I'll wait untill after 2025 and see what happens.

Tu Le:
This is a better price than most ICEs.

Lei Xing:
That's the thing right? It's below the average price of new cars in the U.S. And then what else? So, yeah, some numbers, industry numbers came out, the CAAM, the CPCA and the Ministry of Public Security, basically all pointing to one direction that records are keeping, the take rate, the records, right? Whether you're talking about domestic take rate or the overall sales, including export and export. In particular, it looks like it's going to head over to about 1.1 million NEVs exported. That's out of my 9 million assumption.

Tu Le:
With a lot of those headed to Europe.

Lei Xing:
Yeah. And then just a bunch of recently new models, like I said at the beginning, launching at very competitive priced, feature rich. Last night right, the IM LS6, is one such example, hitting right into the G6 and the AITO M7 segment with Orin X and high level NOA all standard, starting from 200, what, RMB214,900. But IM I mean that their sales have been poor.

Tu Le:
As an aside to that Lei, let me, I've written in my newsletter that GM launched an API for software developers in the United States in order to push connectivity in vehicles, in their electric vehicles in the U.S. and I have to point to China, because of the level of connectivity, the standard features that you've just mentioned where we're talking, there's going to be hundreds TOPS in the hundreds for each Chinese vehicle, standard. These Orin chips, the systems are really high-end for even basic borderline mass market vehicles, right? And I don't know if GM and Volkswagen can do two sets of hardware/software stacks, one for China and one for the rest of the world. So I think they're really just trying to pull in connected vehicles into Europe and the United States. So look for the GMs and the Volkswagens to really begin to offer the same types of digital features or connected features in Europe and the United States that that is happening in China. What do you think?

Lei Xing:
I mean it's, China is all alone. I think what's going on there, there's, the rest of the world is just a few miles behind, right? In terms of what customers expect feature wise. Look at, competitive price, but at the same time, there's the second model priced above RMB 1 million, the Hyper SSR, right, at the same time that these type of vehicles.

Tu Le:
That's a GAC AION vehicle?

Lei Xing:
Yeah GAC AION, the Hyper sub-brand.

Tu Le:
Super car.

Lei Xing:
 Yeah, super car, China's first super car, one production, one, only one will be produced per day.

Tu Le:
Would you consider the Yang Wang U9 a super car?

Lei Xing:
Yeah. I guess it would fall in the same category, hyper car or a super car or whatever.

Tu Le:
Right. There's so many angles to study the China market. And I don't think it has anything to do with dumping. I just think there are so many brands that have really big ambitions. It might seem like dumping because I will be the first to tell you, yeah, they can't sell in China so they're undercutting the market in X country or Y country. But right now, I spoke with, who did I speak with? I spoke with a contact in Germany. They were like a lot of Chinese car companies are actually pricing their European imports much higher than they are in China. So Ursula von der Leyen’s comment about cheap Chinese EVs. I don't think that holds, because all she needs to do is do a side by side comparison between a lot of the Chinese EV brands, including BYD with the Han and the Tang specifically, where it's almost twice as much as what they charge in China. So I think people should be careful about labeling these EVs as cheap Chinese EVs anywhere they go.

Lei Xing:
So, well, speaking of cheap, right? So another example, so some news on the AV ADAS side of it. So Haomo.ai which is the Great Wall Motor, they announced that RMB3,000, RMB5,000, RMB8,000 NOH stack, right? It’s getting more cheaper and cheaper, right, without the HD maps. Xpeng is going that way. And then RoboSense, right? Announcing that the 20,000 ADAS LiDARs. Now these are all equipped on privately purchased vehicles, not the robotaxis, 20,000 in a month in August.

Tu Le:
This is why also Lei, I've spoken about this, and we've spoken about this in the past. That's why LiDAR and all these sensor pricing is going to go much lower than, I think westerners think they will, because RoboSense, Hesai, Innovusion, they're all going to fight aggressively. And unfortunately, I believe Luminar is going to get pulled down, because I know we talked about them, really positioning, sell themselves as a premium. And they're moving into more different sectors within the connected vehicle space. But their LiDAR, I think, is just going to get pulled down, because they want to compete in the China market.

Lei Xing:
While they're supplying Rising Auto as an optional package and Rising Auto, is not, I mean the sales, similar to IM, haven't been really doing well. And so they probably will only depend on these big guys, right? The Mercedes, the Volvos, Polestars.

Tu Le:
We have to remember that with LiDAR specifically it's a different commodity than a typical traditional OEM supplier tier-one part. LiDAR needs to be calibrated, LiDAR needs to be integrated into the hardware software stack, LiDAR needs to be designed into the vehicle. When a supplier and an OEM make an announcement about we're going to work together. You said Luminar and Rising Auto.

Lei Xing:
And then Hesai with NETA just signed a deal for first half of 2025, right?

Tu Le:
So that means that Hesai is going to have a super cheap LiDAR because NETA, their average vehicle price is less than $15,000. So when they announce partnerships, that means the engineering teams need to work really, really hard and work well together. There's a lot of investment that needs to happen in order to incorporate someone's LiDAR into your vehicle. So it's not like a buy sell thing. It means there's a lot of work together. So when the volumes don't materialize, like you said, with the Rising Auto, that's kind of a loss for Luminar, right?

Lei Xing:
Yeah, and it's not standard. And then couple of AV investments, right? Nullmax, DiDi, getting that GAC investment.

Tu Le:
So you saw that announcement that DiDi is basically completely out of the doghouse, I guess. And now they're back into getting really aggressive to try to take share back, so. That's the other thing really quickly. The other thing with ride hailing, we don't hear much about it because it's so embedded into the Chinese culture. Now I don't know one person that doesn't use ride hailing in China, I don't know one person. So.

Lei Xing:
So a couple of U.S. EV startup news, one is Fisker is opening their Shanghai, first Fisker Lounge in China in Shanghai end of this year.

Tu Le:
Taicanglu. 

Lei Xing:
Yeah Taicanglu. And then FF delivered the FF 91 to YT Jia.

Tu Le:
Still alive, still alive. 

Lei Xing:
Yeah. And then in the world of design, I tweeted that Klaus Zyciora, formerly known as Klaus Bischoff, joined Chang’an as VP of global design. And I tweeted that this is following many prominent designers joining Chinese automakers. 

Tu Le:
Frank Wu.

Lei Xing:
Pretty big, Frank Wu, Wolfgang Egger, the late Peter Horbury, Stefan Sielaff. 

Tu Le:
It was funny you tweeted that and I think somebody quote tweeted you or commented like so we're going to see boring design from Chang’an now. Did you see that comment?

Lei Xing:
I know I saw. 

Tu Le:
I was like oh man, but some, honestly, though, Lei, some of these designers are trying to stay relevant.

Lei Xing:
But go back to LA Auto Show when we met, when we talked to Klaus. If you remember, he already had some harsh words for Volkswagen Group then, and only earlier, I think earlier this year that I think he gave up his Group design role, I believe. And then now I mean, I think it was…

Tu Le:
Within that 15-minute conversation we had, you could feel the push-pull between Volkswagen management and him, yeah, and him representing the design side. They probably wanted to break free of being so conservative on the design side. And I got the impression that Volkswagen was really trying to just maintain status quo. It is, he sounded frustrated, yeah. And that was within just a 10-minute, 15-minute conversation, we had with him on the floor of the LA Auto Show. So.

Lei Xing:
All right. And then the other one just, you wrote in your newsletter, I think big chunk of it is just the latest on the UAW strike, which is a month old, right? It was four Fridays ago when it started, and it's getting worse, getting, I don't know where this is headed. What's your take? When is it going to end? Let me ask you, if it ever will.

Tu Le:
I predicted that it would be ending after Halloween, but before Thanksgiving. The UAW for sure, dialed up the level of intensity because the Ford Kentucky Plant builds the Super Duty F Series Super Duty, the Ford Expedition and the Lincoln Navigator. Those vehicles probably bring between $10,000, $20,000, $25,000 profit per vehicle. It is the largest factory for Ford Motor. It generates almost 30% or 20% of their revenues, one-sixth of their revenues globally. But it also highlights and nobody has mentioned this. It also highlights how single country or single region and focused Ford it is. And how something like that, if for an extended period of time, a strike at that factory could cripple them, one-sixth one factory, because they have hundreds of factories around the world, right? So.

Lei Xing:
It looks like Ford is right backed up against the wall. They have no more concessions to make, right? Based on what they are…

Tu Le:
They do, because I don't think they, because GM put on the table that the battery cell factories could be unionized. And I don't think Ford has offered that. Now the UAW might be trying to force feed them that. But remember that Ford already has the most UAW employees in the United States between Stellantis and GM.

Lei Xing:
Which, yeah that was the point that they made.

Tu Le:
So and I think that GM, that was a big concession, because GM hasn't really announced outside of the Koreans and the Japanese, any cell factories with any Chinese partners yet. So, but speaking of the Chinese battery cell manufacturers Lei, do you think that LG and BYD the joint venture that they've created in Seoul to primarily produce LFP cells for the European and U.S. markets. Do you believe that to be an end around that they're trying to get around the Inflation Reduction Act? And do you think that the U.S. government is going to allow that once they finalize and the ink dries on all this language?

Lei Xing:
Well the answer to the first one is yes, and the second one depends on, right, we're still waiting on this entity of concern. How that, if it's, where does it come from? Where does what come from? Where does origin? What is the originality? I mean these are debatable. So I think they will find it. I mean the Chinese Battery Inc. will find as many loopholes, let's say, or end around as much as they can to meet whatever the regulations of the policies are in place.

Tu Le:
And remember, this is not just for the Chinese battery cell manufacturers because Korean manufacturers that are disadvantaged because a lot of Korean EVs are currently imported from Seoul or from Korea. So the Inflation Reduction Act actually doesn't really, it excludes them in a large part as well. You see that they're already at a disadvantage, because Tesla with the 3 and the Y are starting at less than $42,000. Now. So with the $7,500, especially at POS we're talking $35,000 car. So it puts, so GM is probably the best positioned to take advantage of it because they have the $40,000 Blazer, they have the $30,000 Equinox, I want to say.

Lei Xing:
Starting price.

Tu Le:
The Blazer now starts at $52,000. If we, if I get a check, or if I get an instant rebate of $7,500, that's a $45,000 car. That's where it needs to be. That's the price where it needs to be. And then the Bolt is going to be a $30,000, $35,000 car. So we're getting into under $30,000 with the $7,500. So to me, GM seemed pretty well positioned to take advantage of the Inflation Reduction Act starting in 2024.

Lei Xing:
Yeah, I expected that once that's in place, I think 2024 and also with the NACS starting to be utilized on all of these brands that have announced to go there. Maybe 2025, I would say end of 2024, 2025 would be a huge shot up of the take rate because of all these pieces in place, right?

Tu Le:
I want to point something out Lei. I talked for 30 seconds about two cars from GM. I can't think of really any other cars in the U.S. market that are going to be sub-$45,000, $50,000 outside of the Tesla and the GMs now. And if we did this about the China market, we could talk for an hour about all the products under $45,000.

Lei Xing:
I think right now if you look at China, this probably goes into maybe our last topic of today which is we were talking with our good friend Steve about Xiaomi. Now, every, let's say if we divide the segments into RMB100,000 buckets, every one of those segments are full. 

Tu Le:
 So hold on a second Lei, when you say RMB100,000, we're talking depending on the FX rate $15,000 and $17,000.

Lei Xing:
Yeah. So if we put those in those buckets, right?

Tu Le:
Starting at RMB150,000. 

Lei Xing:
It's full, every one of those segments full. So what Xiaomi is facing now compared to when they announced in 2021 the climate, the cutthroat competition, the “juan”, is completely different. So I think that's why they are, I think under a lot of pressure first to deliver and then to get these licenses. And second really to have a product that will compete. It's right, it's, their work is cut out for them compared to two years ago.

Tu Le:
And you better believe that and this is where I'd like to talk to Frank offline a little bit, but you better believe that Xiaomi a year ago, they had a list of features that they were going to make optional and try to make margin off those features. They've pulled them into standard features for launch. Now those margins are gone because not only can't they sell them as optional features, they probably have to reduce the overall price that they had targeted at launch initially about a year ago, because that price is not going to sell the vehicle at all. They probably have to lower it by RMB50,000, RMB75,000 in my opinion, it was my guess, because I was surprised when JIYUE said RMB259,000, I thought that was like I thought they were going to be well over RMB300,000 when they launched. So.

Lei Xing:
Yeah, Xiaomi, there's a few issues. So the license, so they got the NDRC license, still waiting on the MIIT license. Manufacturing, I think they're going two paths, right? And then also on the technology route, they're also going with two paths, so BEV and the EREVs. And then battery, so the latest I heard was that they may go with EVE instead of BYD.

Tu Le:
Which is a risk. 

Lei Xing:
And the other one should be CATL but I mean these are still swirling around. So.

Tu Le:
My week, starting last Friday, I went to, back to the Bay Area, had lunch with an old Apple colleague who's still there. You know, just living in the Bay Area, I felt, or him living in the Bay Area doing really well. He's like 18, 17 years with Apple. So.

Lei Xing:
So what's his level now? What, isn't there like a level within Apple?

Tu Le:
He’s like a senior director, VP I think. And so, but just talking to him because he lives in, he moved from Aanta Cruz to San Jose because Apple is requiring 3 days a week in the office. So that could get back to 4 or 5 days in 2024. He didn't want to do that commute, but talking to him because he's a big car guy. He drives a Rivian R1T, I drove his Rivian R1T and I wanted to get one. I was like really impressed. I've driven one before, but not for super long. I got to drive his for a while and I was, and he loves it, loves it. And he has driven many cars. He's more of a German guy, a European car guy. And he told me specifically, because I'm from Detroit and so we talked cars all the time when we were working together. He told me he would never buy an American car. So.

Lei Xing:
Rivian is American.

Tu Le:
That's what I'm saying, but that's what he was like. Remember, when I wrote, this was probably 3 or 4 years ago that bought that e-tron, and my buddy in Silicon Valley. That was him. He's the one that had to return the e-tron for like 6 months, because they had a battery issue. Anyways, this is what the OEMs are up against, because I want to be clear here, to China from what we had just talked about is completely in the smartification phase of electric vehicles, Brian Gu said it, and with the Orin ships, with the NOA coming in all these standard features now where we've gone past electric vehicles and range anxiety, Europe and the United States still gripping with that. And then I got flashbacks. I got PTSD when he was talking about his typical day, and what he is still doing and stuff. And I was like, man, the OEMs have to really compete with this because he reminded me about the level of detail that Apple works and operates at. And he works on the finance side. And he was like, not even a million, couple hundred thousand dollars, $200,000, that stuff is not accounted for. It's always going to be accounted for. People will a get a lot of visibility if they miss any small detail. And I was thinking to myself. And these guys are the largest company in the world, and they are still scrutinizing to a level of detail where I worked there a lifetime ago, but the level of detail because of what Tim brought to Apple is still there. And it should be no surprise as to why they're the most valuable company in the world, because they ring out operationally. They should be given a ton of credit for how efficient they are operationally like from a supply chain, from a not stocking out right? Because part of being operationally efficient is being able to sell, okay? And then not only selling in high volumes to be able to supply that, right? And that's why I always talk about BYD as not getting a ton of credit on the operational efficiency side, because not only do they push, or they have a lot of demand, but they're able to supply that demand. And so there's two sides to that story. Just thinking about the OEMs, not only do they need to bring more electric vehicles and get the battery stuff, right? They, because GM is still building by hand battery packs, Ultium battery packs. They can't even mass produce them. So we're still talking about basic blocking and tackling that the OEMs are struggling with on the EV side, whereas a Tesla,a BYD is like full bore, we're going to produce as many as we can. And we're going to keep on adding capacity. And that's a constant pressure on the OEMs, number one. Number two, once they figure out the EV stuff Lei, we've talked about this before, so I don't want to belabor it but, then they need to do digital as good or better than a Google, Waymo, Apple, Amazon, Meta. I mean how impossible the task is that holy cow. Because if you can't do software, almost as good you're done.

Lei Xing:
I think for you like living in the Detroit area and then heading over to the Bay Area, it's almost like the understanding is completely different, right, about this new ecosystem. It's almost like I don't know whether whenever you go to Bay Area, you feel like you're almost half in China, right? Almost, like the vibe, and whereas Detroit is just…

Tu Le:
I'm glad you brought that up because on Sunday, I was invited to sit on a panel.

Lei Xing:
What university was that? Berkeley? No, not Berkeley.

Tu Le:
Yeah. So my friend knew that I was going to be in town and I was going to leave on Sunday. But he was like the CAL Berkeley China Summit, was the annual summit, annual conference. This year, it had a bunch of venture capitalists. It had a bunch of AI stuff. So the founder of Ocular, who's also a professor at CAL Berkeley, he was one of the keynotes. Then there is a company called Data Rricks. I'm sure you've heard of it, but now it's a $43 billion company. With like six founders, they were talking about AI open source, closed source. So I learned a ton. My panel was all about trade and supply chain stuff between U.S. and China. So for those of you have heard about Flexport, Anthony Chen, who's employee number one at Flexport. He was also on the panel and one of the managing partners at Foothill Ventures who specializes in AI investment, he was part of the panel as well. I talked about electric vehicles. And unfortunately, there's a lot of interest, not unfortunately, but I’m kind of being facetious because even the panelists were like asking me questions about the EV sector in China. And so after the panel was over, I was approached by a number of people and I wrote this in the newsletter. It’s not lost on me that more people in Silicon Valley knew about the NIOs, the Xpengs, the BYDs than anyone in Detroit.

Lei Xing:
That's what I was getting at.

Tu Le:
Yeah. But me, man, I don't want to live in that bubble and I want to push and I feel that Detroit can compete, but I'm that Tiger Dad, Asian Tiger Dad for Detroit, that's trying to push them and be tough, but certain moments when I'm talking to people, I just come to the realization that it is almost like an impossible task. One of the highlights I got my selfie with Amy Chua, yeah, the original Tiger Mom. So my wife and I on a personal note really quickly, just we don't struggle, but we are trying to balance the Asianess in us.

Lei Xing:
And the Westerness

Tu Le:
With the kids because yeah, and it's not a challenge that, it's not an identity crisis, but it's definitely something that differentiates Asian Americans from, I think, a lot of other immigrant families and just other Americans, right? Because you think about it, too, I’m sure.

Lei Xing:
Yeah. All the time.

Tu Le:
But so doesn't look like…

Lei Xing:
Great. We'll get another chance in about a month out west.

Tu Le:
Yes sir and I saw, the last thing is I met a couple of founders of some startups. And what they can do in a 2, 3-week period would literally take 2, 3 months, 4 months here. Another quick anecdote. There's an executive, old executive from Salesforce and was working at one of the Chinese tech companies. And he said that what took 6-7 months for his salesforce tech team or Dev team to launch, it would take about 3 weeks in China for his Dev team to finish and launch.

Lei Xing:
So I'll give you an example. So when I was in China in the summer, I had test driven quite a few of these smart EVs. Now, with all the iterations, they're so fast. I feel like those are already old. And this is only what since I came back in August. So July, 4 or 5 months, 4 months, 3 months. That's how it feels, how these tech iterate and become better and cheaper. That's the difference.

Tu Le:
And this has nothing to do with subsidies, the Chinese government, that's the level of competition, that's the level of determination from an entrepreneur, founder perspective, management perspective, and also our good friend Phate who runs CNEVpost, one of the better websites for sure that cover the Chinese EV sector. He posted an article last night or this morning about how NIO is pulling in another refresh of its vehicles.

Lei Xing:
Faster, right?

Tu Le:
Yeah. So that points to, they know that the vehicles still aren't as competitive as they could be. Hey Will, if you're listening, actively listening, jump on up, we can talk for a minute or two. But how can they keep up?

Lei Xing:
Yeah, to add on what I said. So the Chinese customers now expect their smart EVs will, in fact, get newer as time goes on. And that's what you were saying, right? The NIO.

Tu Le:
And they can't slow down. Because there will be someone else that will trump them. And this is the crazy thing Lei, the physical features of the vehicle aren't as important.

Lei Xing:
And when all the dust is settled, we're going to have many WM Motors. I tell you, which was another news that…

Tu Le:
Do we bring that up last week or?

Lei Xing:
No, his was, happened, one of the headlines this past week, but.

Tu Le:
Ok, that's right, because I wasn't sure, but we should let people know WM motor. Both of us, I think thought that they were going to be a major player in the EV space 5,6 years ago, they never caught any breaks and they filed for bankruptcy. So it’s Freeman Shen.

Lei Xing:
There’s some pictures of their headquarters, all the stuff on the floor.

Tu Le:
Getting moved out, right? 

Lei Xing:
And Freeman, he's MIA. So.

Tu Le:
He's on to his next venture, but man, I texted a couple of my friends that were early WM employees. I was like, hey, do you feel responsible for putting WM into bankruptcy? Ha ha. And they were like, no man, I left a long time ago. So, there's going to be many more and there are already many more that we don't cover that even we don't know about. There's plenty that have closed their doors over the last 36 months. So anyways, that's all I had, sir.

Lei Xing:
Yeah, so same here. Yeah, and looking out into Q4, just watch, so, many records will be broken. Whether it's sales or anything else. I think that's what we are looking at.

Tu Le:
Oh actually now that Jiri is on the call on the space. I should note that CarNewsChina also posted an article that said that Tesla demand in week one of October was pretty damn lukewarm in China. So let's see if they pull another rabbit out of the hat for the China market Lei.

Lei Xing:
I do expect it, so.

Tu Le:
I do expect it as well. I do expect that BYD will get a bit more aggressive as well.

Lei Xing:
But I think at the end of the day Tesla doing good or not, but I think Tesla still owns, I think they are the benchmark in terms of the pricing the segments, right? So the RMB250,000-RMB300,000, I think they've lead to these, the G6s, the G9s launching at RMB200 some thousand, AITO M7 and now the IM LS6.

Tu Le:
Man, I could just picture this Lei, check this out like you and I are like EVPs at a Chinese startup, right? And we're doing okay. And then all of a sudden our chief of staff comes to us and says Tesla just cut its price and now they're competing directly with us. We just start like freaking out like we were fine yesterday, but today we just our demand just fell off a cliff because Tesla reduced price by RMB10,000 or RMB20,000. I mean that's literally what's happening in management rooms or management teams in China.

Lei Xing:
So you know the Powerball was won two days ago, $1.75 billion.

Tu Le:
One person in California. 

Lei Xing:
So you get $750 million roughly. I was like, man, that's more than enough for an EV startup.

Tu Le:
It is. Anyways. But so about that lottery, I was told that there was no State tax in California for lottery winnings.

Lei Xing:
Oh really?

Tu Le:
But there's federal, right? So they get probably, of that $700 million, they probably get $500. So, not poor, but that's a lot of money to be giving to the U.S. government. Anyways. Hey, everyone. Thanks for joining. We will talk with you all next week. Good morning, good afternoon, good evening.

Lei Xing:
Same here. Thank you. 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.

(Cont.) Episode #137 - Li Auto's Ambitious Plans, Porsche's Woes in China, Tu's Bay Area Adventure