Tu and Lei begin the podcast and take quite a bit of time to share their thoughts on NIO Q3 earnings and how to look at the numbers. They back out of the earnings to briefly review the announcements that NIO has made over the last several months.
Tu moves out a few thousand feet to talk about the China market and some of the players in it and then the discussion quickly moves over to the Stellantis announcement regarding their partnership with Silicon Valley battery swapping startup Ample.
Tu and Lei push on to a discussion about the final language for the Inflation Reduction Act that was released last Friday and how it may affect the market and the strategies of all involved in the EV space.
The last two topics touched on were Tu's attendance and thoughts on the Mary Barra fireside chat and her answers relative to EVs, batteries and Cruise.
He then pushes into the rumor that Tesla is ready to double capacity at ShanghaiGiga from about 1.2M to over 2M units of capacity.
Tu and Lei begin the podcast and take quite a bit of time to share their thoughts on NIO Q3 earnings and how to look at the numbers. They back out of the earnings to briefly review the announcements that NIO has made over the last several months.
Tu moves out a few thousand feet to talk about the China market and some of the players in it and then the discussion quickly moves over to the Stellantis announcement regarding their partnership with Silicon Valley battery swapping startup Ample.
Tu and Lei push on to a discussion about the final language for the Inflation Reduction Act that was released last Friday and how it may affect the market and the strategies of all involved in the EV space.
The last two topics touched on were Tu's attendance and thoughts on the Mary Barra fireside chat and her answers relative to EVs, batteries and Cruise.
He then pushes into the rumor that Tesla is ready to double capacity at ShanghaiGiga from about 1.2M to over 2M units of capacity.
CEM #144 Transcript
Recorded 12/08/23
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 to other enthusiasts about this 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, a very busy Lei this morning, good morning. Can you please introduce yourself?
Lei Xing:
Yes, good morning. This is Lei Xing, your co-host, former chief editor of China Auto Review, and this is episode #144. More numbers are out. We've heard NIO on their earnings, more activities over there. There is IRA stuff that's making it more clear or not.
Tu Le:
Clear as mud.
Lei Xing:
That's what I thought. What else?
Tu Le:
There is rumor that Tesla is trying to double their capacity at Shanghai Giga.
Lei Xing:
Yeah the $25, plant 3 and $25,000.
Tu Le:
Well, let's start with NIO earnings. So they shipped a little over 55,000 cars in Q3, better revenues, better gross margins. But what do you think?
Lei Xing:
It was a great quarter, relatively speaking, I mean they are still losing a shit load of money, but it lost less than they did in Q2, so I think everything was looking up. I thought this was probably, I think, since their IPO, one of the earnings calls, I thought was one of the most minute details, as detailed as how many sales associates they hired over the last one or two months, and as detailed as telling you or informing the investors that this is probably something that's both good and bad that they have 50% of their sales coming out of three regions in China. That shows you how much more potential there is outside of those regions.
Tu Le:
It honestly, it points back to the reason they're adding sales associates.
Lei Xing:
Yeah, right. So they're all connected, right? William said, there's two things that's kind of the bottleneck or hindering. First of all, this premium user psych. Second, because they still don't think they have enough power swap network. Again those three regions, right, the 700 stations. That's one-third of what they have in all of China. I mean it just went over 2,200 yesterday, right? But and I thought it was clear what William said was what they want to do and what they do not want to do. And the battery, being one example he shared, right? And they'll continue to develop cells, materials, but they’ll have to sub-contract it out instead of making it on their loan, which is the BF1 that's inside at F2. And they just don't have the money for it. That's plain and simple.
Tu Le:
So on one hand, they are acquiring assets, on the other hand, they are still trying to outsource certain operations. So it's a delicate balance. They already have all this capital tied up into the facilities, right?
Lei Xing:
And they hired about the same number of people as they let go, although they're not the same type of employees, but…
Tu Le:
Titles are different, roles and responsibilities are different.
Lei Xing:
Right, the 3,000 are all sales and while the other ones are probably related to the business that they don't see making money anytime soon, right?
Tu Le:
And you and I, I think it's important to point back to you and I both, I think, agreeing that they were doing a lot, and were likely pretty spread, pretty thin. And I think this really validates what we were talking about, because they lost some employees on the phone stuff. They lost some employees on non-essential business growth opportunities. And so they're doubling down on people, but are really focusing on a handful of things instead of 10 or 12 things.
Lei Xing:
So the question mark, are those 3,000 and 5,700 whatever that they shared? Are they going to translate to sales? Is that a directly relationship? I don't know.
Tu Le:
One of the things that I don't get a real clear vision of is their app gets half a million, 600,000, I think, monthly average users. What are they doing to convert those who have not, those users on the app that have not purchased a NIO, because you think that that would be their easiest path to sales growth.
Lei Xing:
Right. That hasn't translated to results. There are probably many, I don't know if you are on there. I'm on there, but just as a pure outsider, right?
Tu Le:
I downloaded it but I haven't used it as…
Lei Xing:
Sometimes that's where actually you get information because William and Lihong they post on there, right? They answer people's questions, sometimes they reveal stuff.
Tu Le:
But let's dig into this a little bit Lei because I feel that it's a positive to be associated with NIO, but not enough to commit RMB400,000 or RMB500,000 yet. And that's that gap that I don't know sales associates really are going to help bridge. So unless they have a lot of data that they're building and executing on in order to close that gap. But again, they talk around the issue, the important issue to me, because they already have captured a decent number of potential buyers within their ecosystem. And to me, that's easier in theory, because this is not happening for NIO, not on paper anyways. In theory, it would be easier to convert them than a random person off the street, I would think.
Lei Xing:
And then longer term, right? So these Chang’an, Geely battery alliance, the F1 and F2 assets that they just recently purchased. These are what I call the distant water, right? The present thirst is basically margins and getting that sales which I think normal expectations would put it at 20,000-30,000 a month by now. They're not there yet.
Tu Le:
Let me piggy back off that 20 to 30,000 based on the number of products they have in the market, the number of swapping stations they have in the market, because I don't know, maybe the data they see points to not enough swapping stations, but I think there's enough for the volume that they're selling per quarter.
Lei Xing:
Right. So speaking of the swap stations, so going forward, they have to continue to build out these NIO user dedicated Gen-3, maybe Gen-4 is coming up, power stations at the same time in 2024, build out the other Alps, standardized battery, shared swap network with the other partners.
Tu Le:
Now we get into some redundancy, because is it a, is it just a skin, a different skin on the swapping station? Or are there really major technical differences that make a NIO swapping station very unique versus and Alps, or in the future, a potential AVATR swapping station or Geely swapping station. Because we know that in the automotive space, economy as a scale ultimately wins. Because that's why BYD is winning, that's why Tesla is winning, because they're able to get 60, 70, 80,000 units a month via production. So I'm talking Tesla because BYD is much higher than that, right?
Lei Xing:
And it looks like the business model is that they, NIO is kind of the station hardware provider also, right? So they'll buy these and then somehow they'll have these, because they want to set up these joint venture, asset management companies with the partners, right? So they'll utilize what? NIO’s cloud network. And right, we talked about this balancing act a couple of episodes ago.
Tu Le:
And I think it's important to also say that this is an expense that they bear, that the other EV makers do not. Because the uniqueness of the swapping station, so the revenues generate the additional revenues and the additional investment from Geely and Chang’an and potentially JAC can't come soon enough to offset some of the expenses that up until now, NIO has been taking on themselves.
Lei Xing:
The whatever that's coming out on NIO Day.
Tu Le:
Let's switch to that.
Lei Xing:
It's definitely going to be a 9.
Tu Le:
It's a halo.
Lei Xing:
The only question is which 9 it is. I heard that this is going to have like 900V platform.
Tu Le:
You and I were just in LA, I think it's probably going to be something like a Gravity. That’s my guess, like an MPV, massive crossover, because I don't think it's going to be this, this Defender competitor, super rugged. I think it's going to be very haloish.
Lei Xing:
I was thinking along the lines of the FF 91.
Tu Le:
Exactly. But hopefully I don't think it'll come in at $275,000.
Lei Xing:
I heard it's going to be a RMB1 million type of vehicle. I don't know, they want to get up to the Maybachs, the Bentleys.
Tu Le:
Which doesn't move the needle for them on a sales standpoint.
Lei Xing:
No. I think it’s more of a technological prowess showing what they plan to do with the next NT3.0 platform.
Tu Le:
I also think they're trying to pull up the NIO brand in order to separate from Alps and the other brand a little bit further, give it a little more distance.
Lei Xing:
But then looking ahead to Q4, we already know that it's going to be another roller coaster? The deliveries are down Q on Q, as well as revenues, but they want to stick with that 15% margin, which I think for them, it's already pretty good. I mean considering the situation that they're in maintaining that kind of, they want to get it over 20% in the long term.
Tu Le:
I feel that by mid ‘24, if they're not selling 80, 90,000 cars a quarter, their strategy that they're trying to implement in the coming months is not effective.
Lei Xing:
Yeah, so that's why I think next year 2024, is really quite crucial. I mean there's really no new products.
Tu Le:
No new products, but you can believe that there will be likely major refreshes.
Lei Xing:
Well I mean, probably not even major refreshes, minor tweaks here and there, maybe.
Tu Le:
I think there have to be major refreshes because they just, yeah.
Lei Xing:
Because they just refreshed the NT2.0 right? I mean that’s…
Tu Le:
But if we think about it, Lei, Galaxy, Geely Galaxy is coming on, BYD the Fang Cheng Bao and the Yang Wang, they're really going to start ramping. And the Lotus, the Polestar, and the Volvo is really going to start being a major premium choice for the Chinese consumer. And so it doesn't get any easier. One of the things that William Li did not mention about the challenges was that the price war is still going on, and that the premium segment has just over the last 6 months, 7 months, it's gotten really crowded. And so NIO not only has to kind of reframe their strategy, they have to do it in a much more crowded space.
Lei Xing:
And launching the Alps into the RMB200,000-RMB300,000 range is, what happened to JIYUE, right? I mean work is cut out basically.
Tu Le:
And then because Xiaomi is coming on next year, so and that, well, not only, not even that. It's just BYD just dominates that space.
Lei Xing:
So Xiaomi SU7 is supposed to be debuting I heard by year end.
Tu Le:
We've seen some pictures of it, right? So.
Lei Xing:
There's this like, a dozen new cars that are being launched or starting pre-sale by yearend.
Tu Le:
I also think that, and this is a sneak peek into our look into 2024. The wheels will start to fall off of a couple of companies that we've talked about throughout this year, I think, so. But let me add a couple of things here. November 841,000 NEVs sold.
Lei Xing:
Record. 40%.
Tu Le:
Yeah. Tesla sold, 40% take rate. Yes. The envy of the United States and I think because the United States I think is probably going to be around 8 or 10% take rate. Tesla had about 8% of that share. They sold 82,000 and shipped about 65,000 of those to the China market, 16,000 were shipped abroad, mostly to Europe. The other notable thing for November is one of every three NEV sold was a PHEV so that's a big number. I think that PHEVs will steal a little bit more thunder from the BEVs in 2024 and BYD’s like, either way, we're…So, what else?
Lei Xing:
The Stellantis Ample, right? Yeah, I mean that's another. NIO should be happy about it, right?
Tu Le:
Let me summarize. I think that I had written in the newsletter that swapping is contagious. So for those that are wondering what Lei and I are talking about, there is a battery swapping startup in San Francisco called Ample. Until now, they have had challenges, convincing legacy OEMs to join their platform. But there was an announcement yesterday or two days ago where Ample and Stellantis are going to be partnering in Spain for fleet vehicles, on Stellantis’ Free2Move car sharing platform. The idea would be, there will be a 100 Fiat, 500es that will be converted to battery swapping and Free2Move for those that aren't familiar. You can rent or lease a car for an hour, or you can lease it for several months. And the idea would be, this creates more flexibility because now the utilization of that vehicle is much higher, because you'll be 100% charged after a 5-minute swap versus hours and hours potentially per week in recharging if you plug it in. So to me, because, right when that announcement got made, I got pinged by like three or four people. So my thoughts Lei, and let's listen to yours after. Symbolic, huge symbolic win. And because 100 vehicles is nothing, but Stellantis sold 6.2 million cars last year. I'm not saying they'll convert every single one of those to swapping, but that's the potential. That's the TAM, that's the total addressable market. Having a legacy automaker endorse your technology is a huge win for Ample.
Lei Xing:
I mean Stellantis, right? Who else but Stellantis, having gone with LeapMotor, having reached that CATL agreement, right? They've been on a, Tavares has been on a tear in terms of getting into these unorthodox, not what you expected partnerships. So that's one. And the other one I think the reason why this is happening in Europe, first, I think is also because the local, let's say this is already happening, battery swapping in Europe, and I'm speaking of XEV with their YoYo smart-like two-door EVs that are battery swappable, except the huge asterisk is that these are manually swapped batteries. So three of them in the back of the car, you have to have a special person to take them out because they are heavy. And this is happening in Italy, right. So I think there's that kind of ecosystem there already.
Tu Le:
It's, for those that are familiar with GoGoro, it’s the same concept where.
Lei Xing:
Yeah, and then that's all over the place in China, right? With the scooters and you just pop it in and take it out, right? So, yeah.
Tu Le:
I think that we're seeing examples and I jumped on my soapbox in the newsletter. I said this is something that the United States should really, really look into, and I think that NIO, I compared the NIO partnerships with Chang’an and Geely a little bit differently than Stellantis, because Stellantis is a global manufacturer, number one. Number two, volumes are much higher, sales volumes from Stellantis. Combined, Geely and Chang’an are about 4 million with most of that being in China. So Ample, I think, creates a bit more opportunity for themselves by partnering with Stellantis. And both very notable, but Ample, it hould be noted is a battery swapping startup, it doesn't build vehicles. Now, they're likely going to work with Stellantis on creating that standard. But could you imagine LeapMotor, let's say, in 18 months working with Ample for the European market on their BEVs, not their EREVs, on their BEVs, to create a LeapMotor swapping, the swappable EV, that would be pretty wild, wouldn't it?
Lei Xing:
Yeah, well, depending on whether they want to move into from the fleet into the private purchase, individual customers. Now they're starting as a fleet-based swapping, let's say, a trial. And then they'll go from there, but it looks like it's only focused on the fleet for now.
Tu Le:
And you make an important distinction because in order for Stellantis to grow this Free2Move, because there are a growing number of younger people, mostly younger people that have no interest in vehicle ownership. A lot of them live in the cities, they don't have a place to park the vehicle. Living in the cities is already expensive. So to have that flexibility is a big thing. And a huge constraint, I think, for potential users of Free2Move was that, well, I don't have anywhere to charge it. This eliminates one of the potential barriers for using Free2Move as a service.
Lei Xing:
And also because of the size of these typical European cities, the congestive space that's why you're going to have these smaller vehicles happening first, using the 500e, and then the XEV right? And you're not going to see a huge, let's say a NIO being put on this Free2Move platform.
Tu Le:
So I could see in a 10-year time frame a few different standards and the swapping stations becoming a bit more robust, able to manage 2-3 different sizes of batteries depending on the vehicle. And then you having a choice or an option to say, I'm only a city car, I only need the small battery. Then let's say, for instance, I'm a city car, but I'm doing a long road trip so I use the same size battery that has a longer range. So that swapping is not a kind of single use, single item thing, it gives you options, it gives you choices. So that's where an Ample and the NIO swapping station would really create some opportunities for itself.
Lei Xing:
And the other difference is it's something called the modular battery swapping. And I take it to mean a little bit different from NIO is that they said they don't need to mess with the existing architecture or chassis, maybe it's a simpler form of swapping than NIO, so that's probably another reason Stellantis is taking on. But I don't know the technical details, but it looks like it's a bit simpler than NIO’s mechanism.
Tu Le:
The other thing that I'd written about Lei, was that with the Inflation Reduction Act revised, or I won't say revised language, I would say more focused language, we're likely going to see a decent amount of overcapacity in the next 5 years for LFP batteries. One of the constraints for swapping is also the cost of building an inventory of batteries and where they'll sit financially on someone's books. Now, if LFP batteries become commoditized, that becomes less of an issue. And I know for a fact, within the next 10 years, because China with CATL, BYD, an CALB, Envision, Gotion, they are building ton of capacity in China, a ton of capacity, a lot that we likely don't know about. And so if the United States and Europe also starts in a few of these facilities, Lei, you and I have talked about in the past, the Gotion factory in Michigan, the CATL Ford factory, some of these factories, the Envision AESC, the CALB in South Carolina. And so we're building out capacity here. There's going to be more capacity in Mexico likely and Canada. And so that's going to drive down rare earth metal pricing. It's going to drive down battery module pricing. So swapping, I feel in the United States, especially because our use cases are such that Lei, you probably have neighbors that have these big SUVs that sometimes they haul their trailer, they haul their workload. And so it's really impractical to, even if you have Level 3 fast charging, it’s still 15, 20 minutes every 4 or 5 hours, whereas it's 5 minutes in a NIO swapping station. So the United States really take a long hard look. And I didn't know if Ample was right for the U.S. market, but I’m starting to kind of evolve my way of thinking about this. So.
Lei Xing:
I mean Ample is focused on fleets, again, right? For now.
Tu Le:
For now, that's the easiest path for them, right?
Lei Xing:
In the big cities. I think it's viable for the ride hailing fleets. But so IRA, so this is when we got off last week, this new language…
Tu Le:
It just dropped.
Lei Xing:
I said in another chat group that that, is this a truce in the sense that the FEOC for critical material minerals do not kick in until 2025. So I mean they had that table right, in one of the documents that, to receive $7,500, there is the FEOC on battery components that's required, but not on the critical materials in 2024. And then the 60% on the components requirement and the 50% on the minerals. We've already seen repercussions of Tesla not getting the full in 2024, the Mach-E not getting anything, even though it's a North American made, right? That, so it's still confusing, right?
Tu Le:
But they can move forward.
Lei Xing:
And the thing is though the Martial facility, I think that's shielded from this new language, from what I’ve, right? Because it's, the assets is owned by Ford. So I mean, right, there's still these loopholes. I think that's why Joe Manchin wasn't happy, right?
Tu Le:
I think that so there's a few different things going on. And I think that the urgency that I saw has kind of gone away a little bit because of the sudden sales loss and sales momentum of electric vehicles. I should point out that GM said that most of their vehicles should be eligible for the tax credits starting in 2024, which is important because they have an Equinox, they have a Blazer, they are still going to be building the Bolt, although volumes are a little bit lower. But if hybrids in the United States take a third of sales from EVs, then batteries and capacity and local capacity becomes less important, at least ramping in 2024, so that when 2025 kicks in, and the constraints are even a little bit higher, then it's not as important, right?
Lei Xing:
I mean just from a consumer point of view, the point of sale rebate is great, right? But you have less number of choices that will get the full $7,500 credit or the savings. So this I mean in terms of affordability, in terms of getting that take rate up, this does nothing to help drive adoption. I think that's a kind of conundrum that we are, like this is good for America but…
Tu Le:
But I think that the U.S. 3, the Biden administration, were way overestimating the ability to design, engineer, manufacture affordable EVs in the short term. Now, Inflation Reduction Act is a decade and a half long process. And so is it ok that the U.S. doesn't get to 40% by 2030? I think so. Especially if the rare earth metals get re-shored or are finally sourced from friendly countries or whatever, right, free trade partners or whatever that term is, countries of concern or something like that.
Lei Xing:
FEOC: foreign entity of concern. And also the 25%, what do you call it, anything the government that owns 25% or more, right, those specific language, it's also interesting.
Tu Le:
That’s specifically directed at China.
Lei Xing:
And three other countries, right? So. China specifically.
Tu Le:
It's basically China specifically. But if we look at it from the lens of I’m a startup or I'm a new company in this space that creates a lot of opportunity. I'm an American. Let me specify that, I’m American. But I think the wild card is. So I should press rewind. I on Tuesday, you know this Lei, I was, attended Mary Barra’s fireside chat in Detroit. I was told that she has this every year for media with the exception of, I think COVID a couple of years during COVID. I didn't attend last year, but I attended this year. She is a total pro. She did not, what's the right way to say this?
Lei Xing:
Very diplomatic.
Tu Le:
She did not diverge from, I think, the narrative and the bullet points that she was told to kind of continue to communicate. She said that GM is going to follow the customer when it comes to EVs, they're going to try to fulfill the demands of the customer. They still plan on being all electric by 2035. She did not tell us what the LFP strategy for General Motors is, but they alluded to the fact this week that they said, many of their EVs will be eligible for those tax credits. I don't know how to reconcile that. I just don't know. I know they're building capacity in the United States, but for 2024, I don't know where the cells are going to be coming from in order for that to happen, but maybe they're only looking at NCM for 2024 and then transitioning to LFP as local capacity gets built out in Kentucky, I think, for General Motors. And so she talked about Cruise still very focused on Cruise. And then she pointed to Investor Day in March where Mike Abbott is going to spend a lot of time on the software strategy. Now, for those folks that don't follow GM very closely, GM has the Ultium platform, which is their modular electric vehicle platform that's used for every single electric vehicle for General Motors. It can be shortened, it can be extended, so it works for small crossovers, large SUVs. Their software system is called Ultifi. So Mike will talk about Ultifi a little bit. I think if you read everything that's going on with GM, then you didn't really need to attend Mary’s fireside chat, because she didn't really disclose anything else. But it was good to see her talk. She seems very positive and good for her, because what, over the last 2 months, there hasn't been a ton of really great news for coming out of GM so.
Lei Xing:
It's funny because I tweeted that picture of the original Bolt that was unveiled at CES 2016, which was the first time that I attended that event. And GM, she then had a keynote which unveiled the Bolt. And she's basically, I mean at that event was saying that we as the legacy or the traditional, we're going to drive the change, we are going to change the industry. But 7, 8 years later, that kind of hasn't happened. Yet.
Tu Le:
One other thing that I will mention was that because I asked a two part question, I asked her about, she had mentioned during her like 15 minute present, there wasn't a presentation. It was just kind of like an overview. So she just stood up on stage and just kind of summarized the year. She had mentioned that the Ultium modules had production challenges. And so I raised my hand and asked her, can you be more specific about that? She just said that there was an aggressive ramp, and there weren't enough components to support this ramp. They were chasing parts effectively. So she said an aggressive ramp, like 2 or 3 times or so they just weren't prepared. And she said that should be all resolved by the end of Q1 2024. So there should be a much higher supply of General Motors EVs starting in Q1, Q2 of 2024, hopefully. Anyways, that's kind of all I had, man. Did you have anything else yourself?
Lei Xing:
No, I mean yeah, I mean just starting from 2024 I mean the selection here in the U.S. of the number of EVs that you can get for, full point of sale rebates, $7,500 rebate, still not that many. Not even Tesla, right? So for someone like you or let's say someone that's trying to pull the trigger, what do you do? Okay, I guess I’ll do it this month, right?
Tu Le:
So my 13-year-old car is knock on wood, has been working, okay? And so I don't really want to have a third car. Let's just say that. If I can wait, I will.
Lei Xing:
I think I can probably also speak for many of the Americans owning a hybrid, because I have a hybrid and it works, right, perfectly fine. I don't, I mean for the driving, the usage scenario.
Tu Le:
And to your point, so there was a conference on Tuesday, here in Michigan. John Mcelroy was one of the moderators for a discussion.
Lei Xing:
Right, you posted that MPG comment.
Tu Le:
So since you brought up hybrids, he had mentioned during his monologue, stop calling it a hybrid, just call it a car that gets 50 miles to the gallon, and there goes your hybrid, because of the politicization of clean energy vehicles. And he's absolutely right because I bumped into him on Tuesday as well. And so we got a chance to talk. He's a little bit skeptical about a few things. But I never thought of it like that. But when I read that comment, it just made a ton of sense. And that's why I tweeted it. But hold on a second here. NIO Chicago posted that Sixt, which is Germany's Hertz, is going to dump Tesla. No surprises there, I think that was mentioned a while ago. And we should also note the last thing that I'll bring up before we open it up, if anyone has any questions, please feel free to raise your hands. The one thing that I did want to say is get your thoughts on, have you heard anything about Tesla getting approvals to increase capacity or complete phase 3 of Shanghai Giga? I have not heard anything yet.
Lei Xing:
Matter of time, matter of time.
Tu Le:
But there was an article.
Lei Xing:
Yes. On the LatePost.
Tu Le:
Yes. So, if we're to believe that there's currently about 1 to 1.2 million units of capacity at Shanghai Giga. And it's not a supply problem currently in China. It's a demand problem. So the last thing they would need to do unless they have a vehicle or vehicles ready to launch in the China market would be the double capacity of Shanghai Giga. So I'm going to just say this, if it's confirmed that they are adding capacity to phase 3, then I would say within 18 months of that announcement, there's going to be a Model 2 that will be rolling off the line in Shanghai Giga.
Lei Xing:
And I think Elon has hinted quite a few times of the cost of that, I guess it's based on the next platform or something, 50% lower. So I think $25,000 is just what it's to be known as, but I'm wondering how much lower they can get the starting price of the next Tesla model in China and how much lower that could be, comparing that with the Volkswagen’s coming CMP platform for China, that's what, 18,000 euros…
Tu Le:
You are putting a lot of faith into Volkswagen’s, what Volkswagen is saying, because they haven't been able to fulfill any of the things that they've said.
Lei Xing:
That's why.
Tu Le:
And if we're talking Model 2, I think the main the main pathway to reducing cost of the Model 2 is kind of getting that single piece chassis for front and rear. As I think right now, the Model 3 and the Model Y made in China have a single piece rear, which is reducing cost substantially. I think it takes out 60, 70, 80 parts from the rear. And they're trying to do that to the front chassis as well. And so that it would be like a module to pack, where there's a single piece front chassis, single piece rear chassis. And then a single piece module pack combines the two, creates the rigidity for the vehicle.
Lei Xing:
So if we look into the crystal ball a little bit, could it be a lull in 2024 before another takeoff in 2025? I’m just thinking, because of the next generation, these lower models that won't come out until then. I don't know. I'm just thinking.
Tu Le:
I don't see clear path to no mass from anyone on the price war. Because my assumption is that the Chinese economy will continue to struggle through much of 2024.
Lei Xing:
And also part of the reason is because of that RMB30,000 cap on the purchase tax exemption. That's I think valid until, is it next year? And then the two follow, two following years are RMB15,000, right? Gets cut in half. So these are factors that’ll play into the mark sales, market cycle.
Tu Le:
And the last thing I'll point to Lei, because you had mentioned a 40% take rate for November. If that holds, remember that Volkswagen, during the ICE days was selling about 4 million cars a year. Now proportionally, if they lose 40% of their sales, they've lost a substantial amount of sales on the ICE side, but they lose 40%. That is what? 1.6 million vehicles that's like two or three, four factories worth of sales. So these companies on the ICE side, the legacies specifically because let's not even talk about the SOEs because they manage somehow, right? But the foreign automakers that are still building or and are relying on ICE sales, they're going to continue. They're going to continue to hurt in 2024 in a bad way as we creep into the mid 40s, the high 40s, the 50% into 2024. So just keep that in the back of your minds, because Volkswagen announced, since we're talking about them, Volkswagen also announced Carizon, which is the weirdest stupidest name. But anyway, it's the joint venture between Horizon and CARIAD. They called it Carizon. Okay, anyways, no question. So I'm good to go.
Lei Xing:
Same here.
Tu Le:
Everyone we will in the next week or two probably have our yearend review. And then I believe you and I talked about first week, first episode for January 2024 would be our crystal ball look into 2024, Lei, so, appreciate everyone joining. Good morning, good afternoon and good evening. We will talk with you soon.
Lei Xing:
Talk to you guys next week.
Tu Le:
Hold on somebody's posted something else from tax and EV credit incentive perspective, doesn't it make sense to separate the battery and car financially? Why aren't more companies doing this on paper? Not saying they need to have swap station infrastructure like NIO? Well.
Lei Xing:
I don't know. I mean unless you have this BaaS model, I don't know whether that work. That was my initial thought.
Tu Le:
So NIO Chicago, in the U.S. they do separate it because you get a tax credit as the consumer. And then if you're buying components and battery and rare earth, and it's being manufactured by an ally or in country in the United States, I think you get $35/kWh, isn't it? Isn't that something?
Lei Xing:
I don't remember from the top of my head.
Tu Le:
But that goes to the manufacturer. It doesn't go to the consumer, so they do separate it. The U.S. government separated it in the Inflation Reduction Act. Now, if you're referring to China.
Lei Xing:
it's not the same, right? So.
Tu Le:
It's not the same. And China has really, really invested heavily already into the growth of the EV and battery sectors. We're seeing the result of that with a 40% take rate. So I just don't know how much more funding they're going to plow into growing the EV and battery sectors in China. Yeah. Cool. Hey, thanks again guys. We'll talk to you soon.
Lei Xing:
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.