Tu starts with a brief update and discussion with Lei on Tesla in China and the overall slowdown in the EV space around the world.
The conversation quickly moves to Bill Ford's comment about Chinese EVs 'coming to our shores' and a brief discussion on Ford's recent moves.
Tu and Lei move onto discussing European brands Citroën, Peugeot and Mini and how they continue to be built in China and in Mini's case, will be built in China and exported to the rest of the world.
Tu then asks Lei if he likes the recently unveiled Li Auto Mega MPV. They spend a few moments discussing the vehicle's merits.
The podcast ends with Tu and Lei giving an update about the Chinese government restricting graphite for export.
Tu starts with a brief update and discussion with Lei on Tesla in China and the overall slowdown in the EV space around the world.
The conversation quickly moves to Bill Ford's comment about Chinese EVs 'coming to our shores' and a brief discussion on Ford's recent moves.
Tu and Lei move onto discussing European brands Citroën, Peugeot and Mini and how they continue to be built in China and in Mini's case, will be built in China and exported to the rest of the world.
Tu then asks Lei if he likes the recently unveiled Li Auto Mega MPV. They spend a few moments discussing the vehicle's merits.
The podcast ends with Tu and Lei giving an update about the Chinese government restricting graphite for export.
CEM #138 Transcript
Recorded 10/20/23
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. For those that are new to the show, welcome. And to our loyal listeners, welcome back. We ask that you please help us get the word out to other enthusiasts about this podcast 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, a power outaged Lei. Can you please introduce yourself?
Lei Xing:
Yes, good morning. Welcome to a dark episode. This is your co-host Lei Xing, former chief editor of China Auto Review, and this is episode #138. Speaking of dark, a dark period, would you say for Tesla, panic button?
Tu Le:
I think it's a dark period or a darker period for EVs in general, in the U.S. for sure, I think China early 2024, we're going to see some tough sledding. AIWAYS, WM, they're bankrupt. Effectively, well AIWAYS is not bankrupt. So I take that back. They haven't officially, and WM WM has denied it too, right? So.
Lei Xing:
Denied that they filed for bankruptcy. They said it was something else.
Tu Le:
And is Freeman still in country? Or is he just visiting another country?
Lei Xing:
It's a mystery, it’s a mystery. No one knows for sure. I mean he's fast becoming the…
Tu Le:
Poster child.
Lei Xing:
The YT Jia of…
Tu Le:
But to be frank and honest, Freeman doesn't have that track record like YT does. So with YT, he kind of left Leshi, LeTV, LeEco, all in a lurch. He's been in LA since just chilling at this amazing home overlooking the pacific ocean, so.
Lei Xing:
Yeah, so Tesla, I mean, I think the expectations were, after these rounds of price reduction, obviously we're going to see a drop, all the data that they've showed were pretty whether it's earnings per share, whether it's margins, took a hit, in order to get that volume up. I think the street saw it as kind of, anytime you have these quarterly, short term view, then right, stock dropped pretty big yesterday.
Tu Le:
And Lei, indirectly, we now know why Berlin Giga hasn't ramped completely, because they were trying to keep Shanghai Giga at close to capacity and they were exporting. I think that's one of the reasons you don't see Berlin Giga churning out vehicles at close to capacity, because they'd rather keep Shanghai Giga going at a high rate. And with softness in demand, that was becoming more challenging, hence the price cuts. But to your point, all indications were pointing downward with pricing pressure, because the price war has not ended, has clearly not ended. We're still seeing new products, we're still seeing new brands. We're still seeing reconciliations on strategy, and the China market for a Tesla has a lot to do with their weakness in my opinion, so.
Lei Xing:
Yeah, and they just launched the new, what the 3 and Y I believe.
Tu Le:
So they had to have known that that Highland revision of the 3 for the China market wasn't going to really move the needle that much. I think they were hopeful, but they're smart over there, not with the velocity of change that's been going on Lei, for a better part of a year. Okay, so it's not like it's only been a couple of months and we're seeing a lot of changes into the market. This constant barrage is, could really put any great company on its heels. And Tesla is a case in point.
Tu Le:
But that, that map of all the prices, starting prices of the Model Y in the U.S. right? You saw that right? With federal and state subsidies, I mean that, come to think of it, it's, does cheap sell? I mean the Model Y is one of the cheapest models in the U.S. now, right? Not even talking about Model 3.
Lei Xing:
One of the guests might be getting a new car in December because of it.
Tu Le:
How, obviously Tesla still has what, more than 50% or 50-60% of the U.S. market. But you would think that this would be a big pull or draw. I mean you being an example.
Lei Xing:
The other side of that Lei, is that there just aren't any real other products of significance at that price point, specifically in the U.S. market. We're seeing Ford pull back, we're seeing GM pull back on EV production, at least for a year. And that's because they're trying to sell these super expensive car or EVs, trucks that no one can afford. And there's the challenge for charging infrastructure still. So we knew that it was going to be lumpy in the United States. But the battery cell importing and the Inflation Reduction Act, I think, has something to do with that, because there's a bit of uncertainty about whether or not these cars that they're building are going to get subsidies, because again, the only game in town for affordable batteries is you know who. And so there needs to be clarity from the U.S. government on what is in and what is out from the standpoint of the tax subsidy for the consumer, but also the production subsidy or the production credits that the automakers will get for building locally, right?
Lei Xing:
So batteries, speaking of batteries, Bill Ford’s comment the other day on the Chinese coming to our home market should be our real competitor or it's what we should be going up against while at the same time Ford needs CATL.
Tu Le:
Full stop. There is no…
Lei Xing:
We need the Chinese, but while we're also confronting the Chinese, kind of.
Tu Le:
And he's the first U.S. CEO that's acknowledged that China EV Inc. is going to get a passport stamp for the U.S. in the next 18, 20 months, I think.
Lei Xing:
Yeah, at least publicly, right? So I thought that was a kind of a shock heard around the world, but not so much shocking to us.
Tu Le:
The Ford guys have seen this coming because they're bleeding pretty heavily in China and don't have any real strategy for China to grow, hence pulling back. But they effectively only have two vehicles. And he said version two of the platform that they're building. And you saw that Kumar got promoted to COO. You know, Kumar, have you met him? You talked to him?
Lei Xing:
No, not directly. But he was in China for a while right?
Tu Le:
So Kumar was, yeah he's head of PD for China, product development. And so I was told that Kumar is going to be managing like the operational side, not the planning side. Doug Field is still leading the software development and the planning of the EV stuff. And Bill Ford leaned into that platform that they're building a la Ultium, because the Mach-E and the F-150 Lightning are one offs. They are their band aids. In order to get to this complete platform, hardware software, integrated EV platform that all of the forward future vehicles will be using. So. And then you and I had heard this week that Stellantis and someone else was supposed to ink a deal.
Lei Xing:
Yeah the other one of the Big 3 here, well they did announce something with Dongfeng on the DPCA which one sticking point was exporting the C5X, and by the way, the C5X is one of those models that's produce exclusively in China for the global markets. And you have a CEO that's all against China basically.
Tu Le:
While his team is negotiating with Chinese companies. So it's interesting to note that they're looking at the EREV platform, not an EV platform, but I guess it's flexible enough for EVs too. But it's an EREV first platform. So.
Lei Xing:
Well what they announced was the three points, right? They'll continue to produce the Citroen and the Peugeot models in China, putting on the DPCA as an export hub. And then the NEV side of it is what will be interesting is whether they will, in fact, go ahead with the LeapMotor pending official announcement and using that platform for their upcoming models, for the DPCA, or have it in a different, I guess, entity. That would be interesting to see.
Tu Le:
I heard the deal was on the verge, but it has not blown up yet. So we could still hear something. But they can say they'll continue to produce, quote, unquote, Citroen and Peugeot vehicles, but there's no real demand for them. And to remind everyone when FCA and PSA merged, Stellantis became the 4th largest automaker in the world. And that's effectively without having any real sales, significant sales in China. So I don't know how long they'll continue to be the 4th largest automaker with a hole, a China sized hole in their portfolio. But again, it creates all these interesting dynamics and strange bedfellows, because Tavares is thumping his chest about how China EV Inc. entering Europe is going to gut the European domestic automaker sector while trying to ingratiate himself back into China market with partnerships.
Lei Xing:
Yeah, and also Dongfeng, I think, buying some assets of the DPCA, couple of the plants, I believe. And speaking of, right, we just heard NIO is trying to do something with JAC to kind of have that as a standalone licensed manufacturing asset. Not sure what is going on there, but it looks like some activity.
Tu Le:
And it should be noted that this week, the first electric MINI Cooper rolled off the line and it's going to be a global car that is built in China. So let that sink in, another British brand that is primarily going to be manufactured in China and shipped to the world. If we're keeping count, keeping score, it's MG, it's Lotus. And now it's MINI Cooper.
Lei Xing:
And quite a few others obviously.
Tu Le:
So that's going to continue. That's not going to end anytime soon because MINI Cooper. That's their strategy moving forward. It's not like they have this diverse manufacturing footprint outside of China. So again, I guess it's importantly to treat the UK separately from the EU so we have to remember that too due to Brexit. So let me ask you, any notable tweets that you tweeted this week about any specific China stuff?
Lei Xing:
Just I think on the battery side, it's picking up, the pace is picking up. So the CATL Shenxing was announcing one of the Chery’s, I think it's called the EXEED Exlantix.
Tu Le:
It was weird. That's…
Lei Xing:
It will be one of the first to adopt the Shenxing battery, right? The super-fast charging that CATL announced a couple of months ago. That's after AVATR I think was one of the first and then right before they also announced with ARCFOX. There's three brands are now using this Shenxing battery.
Tu Le:
And ARCFOX is kind of an also-ran because their sales volume is not very significant.
Lei Xing:
That also I think had to deal with this Huawei CATL triangle, which is also the AVATR, BAIC, and Chery, I think right, Chery has come out with that new I forgot the name.
Tu Le:
I forget too, gigo or something like that.
Lei Xing:
That's what the Huawei CATL inside, that business model. And then while at the same time, Wuling, they had their Tech Day announcing their own hybrid system, their own Shenlian battery. You see, these companies, their own motors, becoming more vertically integrated, moving to the PHEVs. They had that new Starlight, Xinguang sedan, right? These are fast moving like this, becoming more self-sufficient, right? Becoming more competitive on different technologies and trying to not depend, let's say, a Wuling depending on CATL, this is a dynamic that's happening.
Tu Le:
Remember that Wuling is a GM joint venture brand. I think I will also bring up a couple of things that I think are very interesting. And I want to get your take. First of all, Chang’an announced that they're building a factory in Thailand. They're going to invest $240 or $250 million. So I think that's and then I kind of had to think and step back for a second Lei. There are like 3, 4, 5 brands that Chang’an has just launched within the last few years. So I was like AVATR, they have Qiyuan, right? I was like, I don't know which brand is going to be manufactured there. I don't know if it's multiple brands, but they're looking to build 100,000 units out of the factory in the next couple of years. So it is happening. Southeast Asia is an opportunity, I think Chang’an has really come up and been aggressive lately. The other announcement Lei is that NVIDIA and Foxconn had or Foxconn had their Tech Day or EV day, this week. And man, I forget his name now, shoot, Foxconn CEO shared the stage with Jensen Huang. They're leaning in and partnering on some AI stuff for those that are thinking that Foxconn does not want to build cars. They continue to say we want to build for other people. But that door is closed. There's nobody that is going to be super attractive to them…
Lei Xing:
Except their own
Tu Le:
And I'd mentioned this, because we talked Lordstown. We talked the four companies that they recruited: Fisker, Monarch, Lordstown, and INDIEV. Lordstown, INDIEV bankrupt, Fisker, trying to raise capital, Monarch, don't know that much. They wanted to get 300,000 units by 2028 out of that factory. No way that's going to happen, the U.S. automakers are not going to be in play for Ohio, because that is strong UAW country. And GM and Ford will not be partnering with Foxconn to build EVs, because the unions would have a fit. So in order to get that type of volume Lei, they would have to look towards Volvo, Hyundai, Mercedes, or BMW who also build in U.S. but do not have union reps. But again, I don't know how attractive that is, because there's a ton of capacity in the U.S. that just needs to be converted.
Lei Xing:
It's funny you mention MPVs because the past week was pretty MEGA on that front.
Tu Le:
Ni Xi Huan Ma? (Do you like it?)
Lei Xing:
I loved it. Simply because it's a way to bring noise. It's a way to have people talking and they have. So that worked. And Li Xiang posted that this will be something having a pretty nice, a great Cd, so I wonder you know like when you get into that, so basically 0.2 to 0.25. Now that's pretty good for any car. If they can get that thing between those numbers, that’ll have people talking.
Tu Le:
Lei you are getting too wanky. Cd means drag coefficient, and that's extremely important for fuel economy, but even more important for range, because the more the wind slows down a vehicle, the harder the electric motor needs to work.
Lei Xing:
It is the first BEV model from Li Auto.
Tu Le:
I think it looks like so I tweeted this out. I said, I'll take a Li Auto MEGA. But can you super-size it? Or I’ll take a OPrius, but can you super-size it? Because to me, it looks like a Prius. Like if you squint, right? Like it favors a Prius, it's just bigger. And it does look futuristic. I don't know what design language it carries over from the SUVs, but I’m assuming that the interior is very similar, but good for them. And I believe it's going to be built in Beijing at the old Hyundai factory, correct?
Lei Xing:
I believe so the first BEV model and then they're claiming that to be, it’s going to be the best selling half a million RMB model ever, whatever, ICE, BEV.
Tu Le:
Half a million RMB for everyone is about $80,000.
Lei Xing:
Roughly $80,000.
Tu Le:
When we're back in Beijing for the auto show guess where we need to go visit I guess huh?
Lei Xing:
At the same time Volvo is coming out with a disguised ZEEKR 009 basically, just a bunch of MPVs, all of a sudden.
Tu Le:
And then BYD thanks to Jiri and CarnewsChina is coming out with a pickup truck, because they had written an article about a BYD pickup truck. So, man, it is just so hard to keep up with everything that's going on. And this is not to mention that this week, the U.S. government is trying to close all of the loopholes to the restrictions from Chinese companies to buy the highest end or highest speed AI chips from NVIDIA and the U.S. companies or companies more appropriately that use U.S. IP to fab the chips or U.S. software to design the chips. That's a pretty broad.
Lei Xing:
Well that sound means my power is back.
Tu Le:
Nice. Dude, good for you. Nice. It sounded like you are in a car.
Lei Xing:
Sorry, my printer just, no, printer, it’s my printer, sorry for the noise.
Tu Le:
So not a day after that kind of revelation or announcement, the Chinese government talks about restricting graphite, which is a major component in battery modules and battery packs. So tit for tat.
Lei Xing:
Speaking of, so one big news that came out this week was the Belt and Road Forum where Xi announced the removal of all restrictions on foreign investment access in the manufacturing sector. So this is after, 2022 is the year when China lifted all requirements on foreign vehicle manufacturing, right? Joint venture requirements that you can. So I thought I was trying to say that we're more open, but at the same time, there's these restrictions going on.
Tu Le:
Not only that, but there's also still a bit of controversy because executives are still getting blocked from leaving the country. So I think companies are fearful a little bit about investing still and sending executives. I think it's one of those and go at your own risk kind of things in specific industries are more at risk than others.
Lei Xing:
But and then the other one that should be significant is also Xiaomi moving from their MIUI to HyperOS which has great ramifications for their EV ecosystem going forward. And we'll see what happens there. And Baidu World, I thought that was, I watched a little bit at the beginning when Robin used the Chang’an Qiyuan to do a few prompt and generating images and videos. Did Chang’an Qiyuan pay for it? But I think what's, aside from the Earnie Foundation, whatever those are quite techy, I thought. What was interesting was JIYUE basically put out an announcement saying that there are de-LiDARing. So they're trying to move away from LiDARs with their own BEV+transformer and occupancy network to achieve high level of ADAS. They showed that they're doing this in Shanghai already. Basically PPA is almost like JIYUE’s own FSD.
Tu Le:
We're starting to see a bit of divergence on strategies for ADAS and AI because we'll also start to see a bit more bifurcation. You saw that announcement that Cruise GM and Honda are going to be launching an autonomous vehicle service in Japan. So I think that's a huge win for Cruise. And it means that the Chinese AV companies and the U.S. AV companies are, again, looking to slice up the rest of the world to see where they can enter markets, foreign markets, and it'll likely end up being looking at the allied countries and doing that. So where the Middle Eastern countries are going to land is anyone's guess. So I think that'll be pretty cool. And GM and Honda, GM and Honda are already working together. This is just an extension of that, I think.
Lei Xing:
I'm surprised that this Origin, they haven't done a better job of sensor integration with all these sticking out of the corners. Aesthetically, I thought it could be better by now, but I guess.
Tu Le:
Sounds like they're, the GMs and Frds and Stellantises are really trying to reconcile their strategy of yesterday to match the volatile environment of today with regards to the global EV and mobility space, because talking to a couple of startups in the battery space. I mean my first question was, do you have risk management teams? These are startups, small companies. Most of them do not. And for those that don't know what each major company or conglomerate as a risk management teams in their entire job is to look at where the company has a presence, either a sales presence, a manufacturing presence, or an operational presence. What the risk of being in those markets is from a sales standpoint, from a manufacturing standpoint, from a supply standpoint, the announcement from the Chinese government that they're going to restrict graphite, the risk management teams need to be all over that. They need to be looking at what the pricing is going to be. They need to look at where else they can get and how that exposes the company. And remember, these companies are publicly traded companies. The expectation from the investor is that they have a plan for sourcing, alternate location or supplier non-Chinese. But if there's no capacity or if there's little supply, the price of graphite is going to increase significantly, because it's going to be a mad dash from everybody who uses graphite to try to find suppliers. And so these risk management teams are extremely important. And then the other part is the core corporate development team Lei. They're probably looking at startups in the graphite space to see if they can invest in them, partner with them, acquire them, because maybe they want to transition out of graphite. And I know synthetic graphite is one of the areas of opportunity for startups.
Lei Xing:
China controls were over 90% of graphite supply.
Tu Le:
So 90% of refining. Graphite is just like a raw material that needs to be refined before it can be put into a consumer product. 90%, it's significant. And it's a rare earth metal race that now you can add graphite to lithium, nickel, and cobalt. So that's another reason why LFP has become so popular, because lithium phosphate batteries do not use nickel or cobalt. What we should see in the next 10 years, Lei, a ton of emphasis and innovation out of the battery space due to these constraints and danger for China to be doing this is that just like the danger for the U.S. restricting chips is that China is going to create and design and fab their own chips. And NVIDIA and Qualcomm and these companies will lose out on future revenue generation opportunities. But for China, on the graphite side, because they have 90% of the supply and the refining that if the United States decides that we're going to move away from sourcing from China and they're forcing us to do that, will obviously domesticate it and will never need that again from China. And so that could leave a lot of oversupply now in the Chinese market, which is a danger for them. So.
Lei Xing:
Yeah, something's got to give.
Tu Le:
Man always a little bit of politics. Unfortunately when there's talk between the China and U.S. relationships. So. Hey man, we are at 9:37. I know you have a hard stop. Do you have anything else? Or should we open it up?
Lei Xing:
No, just a couple of other things. The price war continues with ZEEKR announcing new incentives. You saw that, right? RMB80,000 maximum for the 001, which brings it down below RMB300,000. And then I think BYD just announced something in this morning. I saw a tweet of the Qin, I believe, some additional incentives. And that goes back to the earlier topic on Tesla, what they're facing in terms of a pricing pressure. And a few interesting models that came out, right? The Geely Galaxy E8 which Chairman Eric Li commented on it. They had that video of him driving, which is basically the cockpit is I think it's the same as the JIYUE 01 with the flush that the screen across the A pillars and the yoke. Then the Hyper HT, the Model X-like SUV, $30,000, starting price.
Tu Le:
Yeah. Unbelievable.
Lei Xing:
A legacy model, the new locally produced Mercedes Long Wheelbase E-Class is launching with 8295 chip. And it's one of the Mercedes’ first global models with more advanced levels of L2+. On these two things alone is because of China competition, that they have to have the right features, right?
Tu Le:
I don't know if Mercedes knows how to get.
Lei Xing:
And it's not even an EV, it's not even an EV it's just a new.
Tu Le:
Smart and EV is normally associated with each other, but they don't need to be at all. Unfortunately, I don't think Mercedes knows how to get the most out of that ASIC or that chip. The last thing I'll talk about is, did you see that $700,000 Hongqi L5? Man, that's a monster car and it's basically China's Rolls Royce. I don't know. I'd love to see it in real life. It is massive. It is almost 20 feet, I think. So it is like a limousine for sure.
Lei Xing:
It's to flaunt like…
Tu Le:
It's China only.
Lei Xing:
Your status. It's definitely a way to do that. Chauffeured, driven.
Tu Le:
But we’ll see how many government officials, how many government vehicles get purchased?
Lei Xing:
Remember, in the summer I was visiting a Denza store and this kind of L5 that, the Hongqi L5 came. This guy stepped down, stepped outside and came into the shop and there was this whole commotion of people.
Tu Le:
Yeah right?
Lei Xing:
Denza so they delivered 100,000 units already.
Tu Le:
So Denza is BYD’s kind of SUV premium-ish just below the Fang Cheng Bao brand. So it's BYD, Denza, Fang Cheng Bao, and the Yang Wang. That's how, the hierarchy of BYD brands. So yeah man, that's all I had. I actually just got a text from my wife and I need to go right now.
Lei Xing:
Well I have a hard stop. Another MEGA week.
Tu Le:
We will not be able to take questions today, but thanks for listening, everyone. And we will talk with you all next week, good morning, good afternoon and good evening.
Lei Xing:
Likewise, we'll talk to you next week. 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.