Tu and Lei start out the podcast by wishing each other 'Happy New Year' and discuss a bit about the holiday and their traditions and how it's celebrated by their families.
Lei then moves over to discuss the Chinese Opinions on NEV trade cooperation and both of them add their opinions about how the language and roll out of the opinion piece should be interpreted.
Tu then spends a few minutes discussing how the premium used passenger vehicle market has changed and is now more of a buyers market.
He then talks about being a guest on Autoline and some of the topics they discussed including Chinese brands entering Mexico.
Tu and Lei then transition to the news that Ford has a skunkworks team in SoCal working on a profitable small vehicle and unpack their thoughts on that.
The podcast closes with news that HiPhi may be about to close its doors for good and others that have likely built their last vehicles.
Tu and Lei start out the podcast by wishing each other 'Happy New Year' and discuss a bit about the holiday and their traditions and how it's celebrated by their families.
Lei then moves over to discuss the Chinese Opinions on NEV trade cooperation and both of them add their opinions about how the language and roll out of the opinion piece should be interpreted.
Tu then spends a few minutes discussing how the premium used passenger vehicle market has changed and is now more of a buyers market.
He then talks about being a guest on Autoline and some of the topics they discussed including Chinese brands entering Mexico.
Tu and Lei then transition to the news that Ford has a skunkworks team in SoCal working on a profitable small vehicle and unpack their thoughts on that.
The podcast closes with news that HiPhi may be about to close its doors for good and others that have likely built their last vehicles.
CEM #153 Transcript
Recorded 2/9/24
Tu Le:
Hi everyone, 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 global EV, AV and mobility sectors. It is, in the U.S. anyways, Lunar New Year Eve, it's already New Year in Asia. So a lot of our friends are already celebrating, spending time with their families, so very happy for them. A lot of times, it's the only time of year that they all get together. So if you're wondering, it's the most important holiday of the year for many countries in Asia. What Lei and I discuss today is based on our opinions and should not be taken as investment advice. For those that are new to the show, welcome. And to our loyal listeners, welcome back. We ask that you help us please, will you please help us get the word out about this podcast to other enthusiasts, and tune in again next week. And we'd actually like a lot more participation. So if anyone has any questions or comments, you can post them in the DM or whatever, or just raise your hand, we'll get to you after the 40-minute mark.
My name is Tu Le and 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, happy new year! Can you please introduce yourself?
Lei Xing:
Good morning. Guo Nian Hao. Xin Nian Kuai Le (Happy New Year!). This is…
Tu Le:
Let me add this, sorry to interrupt, but in Vietnamese, you say, Chuc Mung Nam Moi.
Lei Xing:
Chuc Mung Nam Moi.
Tu Le:
That's close. That's close. Your Vietnamese is better than my Chinese. How is that? So.
Lei Xing:
Good morning, good morning. Your co-host Lei Xing, former chief editor of China Auto Review, and this is episode #153. The last day of the Year of the Rabbit and the last episode in the Year of the Rabbit. History, a little bit of history. We started off, we started this podcast in the Year of the Ox. And then we went through Year of the Tiger, Year of the Rabbit, and now we're going into the Year of the Dragon.
Tu Le:
We're in our fourth year? Wow. Geez.
Lei Xing:
Fourth year, fourth year, already. So time flies, time flies. So this morning, we talked a little bit about this Lunar New Year celebrations, this morning after waking up, what I've been doing is responding to these messages and “Hong Baos” (red pockets). So it took me quite some time just to reply these messages, right? I'm sure you did as well. That's the kind of the custom. By the way, what animal are you, do you know?
Tu Le:
I’m a tiger.
Lei Xing:
You are a tiger. So you already been through your Ben Ming Nian, which is, I don't even know the English for it. But…
Tu Le:
For those that are wondering, there's a 12-year cycle. And Lei was just going through it in Chinese in his head. And so every 12 years it repeats itself as a new animal for each year up through the 12 years. And this year happens to be the dragon.
Lei Xing:
Yes, so I’m a snake which means next year and for those who know the years, you can guess how old I am, but next year would be my year, the so-called Ben Ming Nian, which is your zodiac. Last year, Rabbit was my daughter’s, so her first. And, the year, the interesting thing about dragon is it's the only mystical animal in the 12 zodiacs. It's supposed to mean, it's mystical, it's supposed to mean power and strength.
Tu Le:
Fiery.
Lei Xing:
Fiery, right. And which means if we talk about the market, the EV market, or let's say the economy in general, people are looking forward to what this may bring, because we have this new greeting called Long Xing Da Da, which means a bunch of dragons flying into the future or flying. And it's supposed to mean bright future and that Da is a character made of three dragons. And it's becoming a big a greeting this year. So that's part of this whole culture thing going on. And have you, by the way, do your kids get Hong Baos?
Tu Le:
They do. So my wife had them last night before they went to bed, send messages to grandma, some of, our old Ah Yi (nanny), so this week or last week, she put those signs up, those red signs with all the sayings and stuff like that. Some of them I can't read on the door.
Lei Xing:
On the window.
Tu Le:
But I think for us it's very important to keep these traditions. I never thought that much of them when I was a kid, but…
Lei Xing:
Same here, so my wife prepared a dough last night to make buns and red bean paste buns: Dou Bao. And then we're having dumplings later tonight, but…
Tu Le:
But you don't fry them, right?
Lei Xing:
Well, we do. There's two methods. And then you know we're here in the U.S., so it's just another Friday. My daughter has a piano recital this evening. My sister’s, my nephew, he has a hockey tournament. So we're not going to be able to have dinner until like late at night, which the custom anyways is to have dumplings like right around midnight. So that's what we're going to do. And then a big feast, I guess, tomorrow for family and my parents got back. You know my dad, he’s in Shenzhen. He's opened up that golf museum I told you about. Which something I should tell you offline that if you plan for the April Beijing Auto trip, the Volvo China Open is in Shenzhen during the May holidays. If you want to stick around, you're welcome, get tickets. So think about it. But. All right, so we talked enough about the Chinese New Year stuff.
Tu Le:
Actually one thing that I do want to also mention really quickly and we can edit this out of the podcast but I remember my first year celebrating Chinese New Year in China and this was before all the regs about or the restrictions about how you couldn't light fireworks in the city center. So the first time…
Lei Xing:
You still can’t, in Beijing, at least.
Tu Le:
The first year I was there on Third Ring Road at around 11 o'clock. We're driving home. After being at grandma's watching the CCTV Gala. It was like a war zone. There were people on the highway with huge boxes. I'm talking like almost the size of pallets. And they were real fireworks that exploded in the air. And they were right next to these huge, tall buildings. And so they've stopped doing that. The restrictions now because in Beijing, anyways, there next to the CCTV Tower, there was supposed to be a Mandarin Oriental Hotel that was being built. It went up in flames because of some fireworks. So those were the days. Now you have to go at least an hour and a half, two hours outside of city center in order to be able to light those types of fireworks. But man, it was kind of crazy back.
Lei Xing:
Yeah the air quality would go up past that, what do you call it the threshold?
Tu Le:
It was like 4 or 500, but that's a normal day in Beijing sometimes anyways, right?
Lei Xing:
But I mean we all loved it, right? Good times.
Tu Le:
And EVAdam, yes, I'm 4 years old. You are absolutely right. No, but let's get to the business of the day. So.
Lei Xing:
So I guess the big headlines this week, I think that there are a few, so one, some more January sales numbers and then GM’s big moves on the cathode material side and hiring of, what's his name? Kurt Kelty from Tesla. That new document, opinions announced by China on the NEV trade cooperation, which I thought was quite interesting at this point in time. And then, I think those were the big headlines.
Tu Le:
I think it's important to note that there's a lot going on behind the scenes, from the Chinese government, working through foreign governments to try to smooth out some of the relationships so that the Chinese EV brands have a clearer path to market entry in some of these foreign countries. Now, that's their hope. And this document that you're referring to, I think, formalizes that.
Lei Xing:
So to be clear, the wording of the document is very important because the title of it at the end, it says Yi Jian. Yi Jian means opinions. So it's not something that's going into enforcement anytime soon because it is what it is, opinions. But I think again, we've mentioned this before on the show that anytime you have nine ministries and commissions, and at the very top, it said approved by the State Council, it’s pretty big. Second, it's a big message because now that we're seeing China autos and EVs going into overseas and China becoming a big exporter. I think these things that were mentioned in the opinions, things like IP protection, data protection, environmental protection, I think they're trying to elevate this awareness.
Tu Le:
Was there nine? I think there was nine?
Lei Xing:
Nine ministries and commissions.
Tu Le:
No but there was like six priorities or nine priorities kind of outlining each one of those.
Lei Xing:
I think there's like six categories. And then a bunch of, within each there's a lot of different aspect of doing business overseas.
Tu Le:
The other thing to point out Lei, is that if you look at each of these categories, it's almost a line by line addressing of concerns that the EU has called out, the United States has called out. And so they're directly addressing and saying, we're all in alignment, at least domestically as to how the playing field should be set for our companies to enter your markets.
Lei Xing:
Yeah, so it's a message and then there's another document that I didn't tweet about was about used, Chinese used vehicle export. I think these two are kind of related. But I think it's the first time I've seen this on used vehicles because I remember China does not export used vehicles.
Tu Le:
Not officially.
Lei Xing:
No, not officially right.
Tu Le:
They do but not officially.
Lei Xing:
But I think when you get to a certain size and it makes me think because of the domestic economic head wind that these things are becoming and the globalization anyways, that they're becoming more important as when we talk about China's auto market, right? We talk about that transition from being a domestic-led to an export-led, maybe.
Tu Le:
One thing that, let me allow me to piggyback off of that used car thing like because like your opinion, we were DMing with a mutual friend of ours. And I had mentioned that I'm in a WeChat group and one of the people in that group bought a used 911 Turbo S Cabriolet, which in years past, during the boom years, would have been 2X the cost or the price of in Europe or the United States.
Lei Xing:
And you had to pay extra most likely.
Tu Le:
Yes. Now, for those that do know, it's a 992 Turbo S Cabriolet. So it's very rare, number one, and it's even if you can believe this, it's very, very rare in China. So he got RMB1 million discount or close to it. So now those used car prices because Porsches are like gold in China. And the limited editions always sell for much more than retail or MSRP and so we're going to start seeing used cars at least on the premium end, really compete against new cars. Now for sales, there's a number of used cars that are terrific and I can't afford that 911, but everybody was like, man, what a great deal. I've never seen that blah, blah, blah. So if Porsches get, are getting and this is the crazy thing, they're not really discounted, but they are in a way. For those that know Porsche and know 911, these Turbo S Cabriolets aren't, there aren't many of them around the world. And this one had less than 10,000 km on it. So.
Lei Xing:
Yeah, I think so going back to the documents, it’s a message. Also, I think of China saying, alright, we are becoming a top exporter, auto exporter and we're going to try to do this the right way. We just saw another ship, I think someone tweeted, a ship of BYDs headed out
Tu Le:
That’s basically going to be their growth engine in 2024 or a decent part of it.
Lei Xing:
Yeah, so going to the sales, I think we talked about export share in January, at least, I think was a little bit higher than last year's average. So something to look, closely watch this year, how much of these sales numbers are indeed exported. So last year was close to 5 million according to CAAM, I don't know this year, maybe six out of 30 million plus based on the current trends, pretty significant, all likelihood, any way you look at, will beat out Japan again.
Tu Le:
Yeah. Let me throw some statistics. I was a guest of AutoLine again. One of the things that we wanted to talk about was the Mexico imports from China. Currently, I think these numbers actually are a month or two old, so they actually might be more, 30% of all imports into Mexico are Chinese. Three out of every ten cars and we're not just talking NEVs. We're talking gasoline. Excuse me, and one out of five vehicles sold in Mexico. Actually, I was corrected. John McElroy said two out of or one out of five vehicles or 20% of vehicles sold in Mexico are Chinese. And one out of every ten vehicles sold is a Chinese brand. So when the reason there's this difference, this discrepancy, one out of five versus one out of ten, because MG is not considered a Chinese brand. But the companies that are currently selling, BYD, BAIC, Chang’an, Chery and MG, and JETOUR, which is also a Chery brand.
Lei Xing:
JETOUR is Chery, yep.
Tu Le:
GAC, Bestune. Hey, there's one brand that I’m not sure of, ARRA Mexico. What SOE builds that? I’m not sure. I couldn't think of any. I’ve never heard of ARRA. So maybe you can look at it and we can update everyone. But there's more than ten brands that are currently selling in Mexico. And Mexico's market is 1.3 million units. So much larger than Norway's, but tiny compared to a United States or Europe or China. But that's going to be probably a pressure point between the U.S. and Mexico in 2024. So just kind of thoughts, and Winston, saw your question, we'll circle back to it towards the end and appreciate your patience.
Lei Xing:
Something to watch is this year again, announcement regarding China autos Mexico, and North America, could be something going on there. I think. And then this will be a good. I didn't talk about speaking of the export, right? Jim Farley’s comments in the earnings call of them, Ford having a profitable export business ICE and EV, I think the surprising number for Ford last year in China was not how many vehicles they sold in China, but the 100,000 vehicles exported out of China. That's a big number. I think, I love Jim's kind of his stance and strategy. I think, of the U.S., let's say that the Big 3 or 4 including Tesla. Besides Elon, I'd say him and Tavares are probably two of the most, I guess, practical
Tu Le:
Pragmatic.
Lei Xing:
Straight, right, of China, understanding what they need to do and what they need not to do. Speaking of the bloodbath, the EV price war, so smart, I think.
Tu Le:
Yeah they reconciled that China is a challenging market for them both, and they are, they as in Ford and Stellantis, are in a different position than a GM or a Volkswagen who still have significant volume, but are bleeding really profusely in that market. So whereas GM and Volkswagen Group are trying to stop the bleeding, Ford and Stellantis are trying to make the best out of what the current situation they have is in that market. And where Ford is very insignificant relative to the entire market, 400,000 or 500,000 units sold last year domestically. And you tweeted a picture of that Bronco. That's not going to really, I don't see that moving the needle from a standpoint of 20, 30% increase in sales, overall sales, but I think it'll be a good seller. I don't know if it's going to rescue them.
Lei Xing:
I think Ford is clearly trying hard to go to that kind of the offroady branding of themselves, commercial vehicles, kind of the macho, just different than what everybody else is doing, right, at least from the U.S. and the foreign automakers that they're doing it differently.
Tu Le:
I've been convinced Lei that Ford Pro is going to be a driver of growth for them, because if you peel back the layers of the onion a little bit during their earnings call, they're doing really well in Europe and they're attaching services to those Transit vehicles that they're selling. So this is a huge opportunity for them. So. But let me ask you since we are talking about Ford, what were your thoughts on the whole skunk works, small vehicle, EV profitable, we have a team in Irvine. It's a small team of ninjas. To me, I just looked at that as a nothing burger.
Lei Xing:
Why keep it a secret? I don't know if that's what you're thinking, but…
Tu Le:
I think it should be critical path as opposed to like this little side hustle that they're trying to do. I question whether or not, so I get it, and I'm kind of being rhetorical. I just wanted your opinion, but maybe that was impossible in Dearborn for a small team to really just carve out in fast moving fashion, a platform that they feel is going to be profitable. There's still a ton of questions about it. If it's basically the same strategy as Tesla, then they're not really being that innovative, but more questions than answers. But so the cynic in me says you got out of the small car business because you couldn't convince American consumers you could build one that created value like a Toyota or a Honda or a Nissan, so.
Lei Xing:
The Focus was an awesome product back in the days, I think, in China and globally. But it's too bad that…
Tu Le:
No but the U.S. Focus was kind of crap. The Focus in the UK was great. Bcause we didn't get the same ones.
Lei Xing:
Yeah, but Focus, I mean, I think Focus in part defined what Ford, defined Ford in China in the early days, their success was built on the Ford Focus.
Tu Le:
And it was a young demographic that was really attracted to it.
Lei Xing:
But let's see what they get out of this, I guess, a third-gen platform.
Tu Le:
What do you want to talk about next?
Lei Xing:
Just, I guess the GM's big deal with LG Chem. $19 billion, right? 25 trillion Won? It sounds big and it is big like, anyway you look at it and the key word in there, guess what, its sourcing of materials from North America, which means trying to erase China out of that equation to meet IRA requirements. I think that was the key for this. The guy from, formerly from Tesla, right? These in tandem, I think it's two big moves from GM’s side.
Tu Le:
They have a lot of holes to fill, a lot of bleeding that needs to stop, the whole Cruise fiasco. And Reuss’ response saying that we're going to get these robotaxis on the road in 2 years. That's crazy talk. That's conceding to me anyways, and 2 years. I'd mentioned this yesterday. FSD provides, and I read this from an analyst or I heard this from an analyst. So I'm assuming it's close to true, FSD provides 2 million miles of data a day from Tesla users. As Tesla continues to collect data to feed its machine learning algo, Cruise is not going to collect anything. I think they still have something in Dubai, but we're talking very few vehicles on the road. And this doesn't even talk about China autonomous vehicle or AV Inc. But I don't believe that we will see that many Chinese autonomous vehicles in the United States and we will definitely not see American autonomous vehicles in China. So I don't know how relevant that global competition is unless we're talking about carving up the Middle East and in Europe.
Lei Xing:
That's the whole thing going back to that document, right? The opinions, IP protection, data protection, not only EVs, but obviously AVs as well. So.
Tu Le:
Yeah, there's, I just feel this year could be pretty challenging from a diplomacy standpoint between the United States and China, because it's an election year. Exports are really going to be front and center. There's this code that they need to crack, the U.S. government and the U.S. 3, and the rest of the OEMs in the United States that are zeroing out. And I am exaggerating, zeroing out their forecast for EVs over the next few years is not helping. Because I think the Biden Administration did the right thing, create this Inflation Reduction Act. Now, if Trump comes in and guts it, we're at zero. But and you knew this Lei, it was never going to be this smooth transition. And so we all expect this stuff of this lumpiness, this fits and starts, but the momentum needs to keep pushing forward if there's going to be EV adoption and a healthy GM, a healthy Ford, a healthy Stellantis in 2030. So.
Lei Xing:
Because the Year of the Dragon is not going to be Long Xing Da Da for any significant EV uptake. At least not here in the U.S. maybe the way looks and maybe even in China, right? We talk about Long Xing Da Da, in China, I predicted, I made my first, always at the beginning of year, I said last year I said more than 9 million. So this year I’m saying more than, just a little bit more than 11.5, which is like around 20% growth. It's, I mean 20% growth sounds really, it's like nothing, right, in China terms. But you feel that it's not going to be like the years past where it's just going to have explosive growth.
Tu Le:
Gangbusters. Tong Yi, Tong Yi (agreed). But I do think that the herd will thin out. You had mentioned this last week that the Hengchis, the WMs will completely disappear from the market. Now, the question is, which one of these struggling EV brands has any real IP to save or to acquire. HiPhi, there was that statistic last week that was pushed on Twitter about HiPhi being tested among 50 other EVs or something like that. And it having the longest range.
Lei Xing:
That was the Norway. Was it in Norway, they do this annual winter range testing, right?
Tu Le:
So that implies to me that HiPhi at least potentially has some engineering IP that they know what they're doing. So is that worth acquiring? Is HiPhi a viable brand that may be one of the legacy OEMs can bring into the fold and extract that IP and inject it into their vehicles or their product portfolio. These are all questions, legitimate questions that I think if the foreign legacy leadership is not really kicking the tires in some of these opportunities, they're not doing their job. So I don't know whether HiPhi’s going to survive. It doesn't seem likely, not in this difficult, high interest rate environment. I don't know if there's an appetite to fund a company like HiPhi anymore, but it's a ripe opportunity. They've built cars, they're on the road, so it's not like, ok there's a potential here. They've proven out their business model. And I think they just ran out of money.
Lei Xing:
Yeah, HiPhi is when they formed, I call it the gang of, the GM gang, right? Because Phil Murtaugh was there, Ding Lei was the former Shanghai MG President, a bunch of other people, and they're now producing at a plan, excuse me, that was acquired from Yueda Kia in Yancheng (Jiangsu Province).
Tu Le:
Yeah. And that's one of the dimensions that we should discuss really quickly Lei, is that when you have your own factory, it really completely changes the economics of your company. There's a lot when you're doing well. Owning your own factory has a lot of benefits, but when you don't have any money or any capital, it really weighs you down. So there's good and bad with that stuff. One thing that I did want your opinion on and there's a couple of questions. So we can get to them in a few minutes was Hesai being added to that list, Lei.
Lei Xing:
Yeah, but, and then Li Yifan, he came out, I think they came out with a statement and he’s like BS right? Because, yeah, and today actually is their one-year anniversary of their IPO. I don't think their stock has been doing that well, but these are the things again going back to that IP, data scrutiny that they will continue to face.
Tu Le:
And that's actually one of the questions. So let's just talk about it. There's a Bloomberg article about Chinese EVs and what they're going to do with the data that the Biden Administration is very concerned about. I think they're trying to point to many different things that could create risk, and whether it's legitimate or not, they're pointing to these things. And again, we're in an election year. It's popular on the left and right to kind of bash. And in Europe too, not just the United States. So it's going to be very difficult for any Chinese company that collects data in any significant way to convince, at least in 20 24, I think in 2025 and beyond, we’ll get to a more homeostasis as how they can operate in the United States. But.
Lei Xing:
Once things settle down.
Tu Le:
I just don't know if there would be any agreement or settlement in 2024 as to how they can work together, so. Anything else?
Lei Xing:
No, I guess, pretty much.
Tu Le:
BYD was outsold in January by Volkswagen.
Lei Xing:
Geely?
Tu Le:
Yeah, so.
Lei Xing:
Total, right? But BYD, they're all NEVs, right? So, how you look at it.
Tu Le:
So I had to qualify that too.
Lei Xing:
Again, January, I mean it's right, we don't. I say it's a reset, right? You start that year afresh and you go from there, you're supposed to go up as the year goes along. So it's something to watch. But clearly if you look at the trends over the five, last 5, 6 years or so, the, it’s no longer growing at the pace, you look at the bar charts that sometimes I tweet about that, it's clearly slowing down.
Tu Le:
And the slowdown is going to cause customer acquisition costs to increase. And, so working against the price war because come March, April, we're going to see more price cuts. So with higher customer acquisition costs and lower chance of profitability due to price cuts, it's really going to force some of the weaker players to either wave the white flag, or try to find partnerships or some sort of injection of capital in order to stay alive. And so look for potentially more Xpeng Volkswagen, Stellantis LeapMotor types of investments, maybe.
Lei Xing:
Sure. They are not the first, not going to be the last.
Tu Le:
Actually, one thing that I wanted to also ask you, because you have an opinion about this. You know these guys, Stellanis Renault, does that make sense?
Lei Xing:
I don't know what makes sense anymore. Nothing makes sense yet they make sense. I mean look at Ford, right? Does it make sense? It makes sense. They're not doing well in China, but they are doing well in China, not from a volume perspective, but I think it's probably difficult because you got the Renault Nissan alliance, which just killed the AMPERE.
Tu Le:
Renault is in a lot of trouble, Renault is in a lot of trouble, because they're French. It is really, really difficult to lay people off. I was actually told that they have to give a two-year runway for plant closures and layoffs. French law says that, I could be wrong, and if anyone lives in France that's listening, please correct me if I'm wrong. But…
Lei Xing:
Yeah, it's just complicated, never say never, but.
Tu Le:
I'd written Lei that it doesn't do two things which any major partnership should do. It doesn't address their lack of product in the short term in the China market or NEV sector, and it doesn't really help them either of them in China. So because Stellantis has already built a strategy out. We're going to tie our success to LeapMotor. Renault is still kind of sort of out there on its own with virtually zero sales in the China market. So it just makes and adding those two big companies together with 13, 14, 15 brands between them. Man, I actually think it would slow decision making down.
Lei Xing:
Yeah, there's probably going to be a lot of overlap, product wise as well. Small cars, European.
Tu Le:
So here's a question for you Lei, and this is where I don't get too much into it, because this is more very, very Chinese research. I have a question, what is the current EV inventory in China? What is the inventory number normally? And I'm assuming it's like 30, 40 days, how they calculate that? Why does it seem like exports are so vital to the success of China short term? If you have an answer for that first question, I can take on that second one.
Lei Xing:
I'm sure you're the expert on the second question. Actually, the first question you just do the simple math of there are several institutions that report numbers: CAAM, CPCA, then the statistics bureau and the Ministry of Public Security. I think we talked about this that the numbers domestically registered NEV sales, I think, was like 7.5 million. The CAAM reported sales were 9.5 million. Now of those 2 million in difference, delta. Let's say half of it are exported, and the other half will be the inventory. That's the simple math that we can point to. But in terms of number of days, I don't have the exact numbers. But that give you a sense, right? The way the numbers are reported, we always put a grain of salt because they mean different things, depending on the organization that reports it. But let's say 1 million roughly in the inventory will be my rough estimate.
Tu Le:
Remember that about a million and a half NEVs were exported last year.
Lei Xing:
Yeah, that's reported officially reported by I think CAAM, then the rest of it just in transit or in inventory. And then the export you can take up the export.
Tu Le:
Yeah. So to answer why does it seem like exports are so vital? So when the domestic market is going gangbusters, even the struggling companies can sell product because the pie is growing, and it's growing pretty quickly when the market slows down. And we have to remember that each of these automakers either have a contract manufacturer or their own factory like HiPhi. And if you're paying for a house that you're not using, then you're potentially or not generating revenue off of. Then it creates a lot of pressure from a balance sheet standpoint. And we also have to remember there are factory workers involved, there are suppliers up and down the supply chain involved. And a lot of times, you still have to pay those factory workers or you lay them off. And if you lay them off, it's not some willy nilly thing, because you might not be able to hire them back if and when your demand increases. And so to put it simply, if you have a factory of 100,000 units, unless your utilization rate is at 70, 80%, you're probably losing money. And if you do that after a month, after a quarter, after two quarters, you have you're going to run out of your working capital. And so effectively, the most important thing for automakers is scale, but when demand slows down that scale, if you have a lot of it creates, it becomes a weight. And so that's why the pressure is going to be so high if the China market is weak, because that volume needs to go somewhere. Otherwise, you're closing factories, and you're in a situation like HiPhi. Hopefully that helps Winston.
Lei Xing:
And the other simple answer is just simply there's demand and there's availability. That's the simplest way…
Tu Le:
I made it much more complicated, sorry…
Lei Xing:
Yeah you are talking about it from a business operational perspective, of manufacturing and the finances behind that, right? Inventory, working capital. But there's demand, all over the world that there's demand for EVs. There's, and China has the availability and the quality to supply these on top of the business aspect of it that you just talked about.
Tu Le:
This is actually very different for foreign automakers than SOEs, like a Tesla, if they get up to 2 million units, they get these tax breaks from the Shanghai government or Ling Gang District.
Lei Xing:
Yeah and that's the other aspect of it.
Tu Le:
So they have KPIs that they need to hit. They don't hit these KPIs, those tax subsidies or that free rent or whatever they've been provided, that stuff goes away. And so Tesla really wants to time properly the expansion with the launch of that Model 2.
Lei Xing:
January, we saw that what, roughly half of the 70,000 were exported, right? There's also element of kind of the quarter end push for domestic and quarter beginning push for export. That kind of thing going on, but that's specific to Tesla.
Tu Le:
So that's why I think both Lei and I believe that come late March, early April, we'll see a mad dash from some of the weaker players to really try to capture some of that sales back. Tesla could also get pretty desperate because they don't have a new product. The 3 refreshed, Highland wasn't great. I don't expect the Model Y refresh to really bring a lot more traffic into the showrooms there.
Lei Xing:
So it will be interesting, right? If we look at December, I think they did over 90,000, close to 100,000, 94,000 was it, total out of, shipped out of China, including domestically and export. January was roughly 70,000. I just think they are, they are still pretty good at this point in time.
Tu Le:
I mean we're still only at 38% take rate on NEVs so there's still a lot of new buyers out there that are open to the Tesla brand in China.
Lei Xing:
Yeah, and so it'll be interesting as the year goes on, we see if the all of these for every one of these brands, I would keep a close eye on how many of them they get to actually the December levels, and whether they can get there. If they can. I think we have a sigh of relief. If not, as you pointed out, last episode that maybe they need to get out the panic buttons.
Tu Le:
Hey, so Jeffrey had posted any thoughts on the Bloomberg article about new possible blocks of Chinese EVs. I think I've answered that Jeffrey and that would be extreme to me that they would create a separate brand for the U.S. market. It would create a whole new set of complexities.
Lei Xing:
But which brand was this?
Tu Le:
NIO, he said, when I spoke to NIO, they hinted that a new ground up brand in this hemisphere would be created. I haven't heard that.
Lei Xing:
No, I think NIO would just come in as NIO.
Tu Le:
Beause NIO is fairly well known in the west now. So one more question, is the central government looking for consolidation in the industry, failure of weaker offerings? They're always, they're always looking to consolidate. It's not up to them, it's up to the provincial governments.
Lei Xing:
It's, consolidation, it's more consolidating. It's always been ongoing process. That's you always talk about it. It's not as easy as today, we just shut down a company and let the assets go. And right, it involves too many interests, let’s just say that.
Tu Le:
And the incentives at central government level versus the provincial level, they aren't aligned.
Lei Xing:
Right. Then we talk about the startups versus SOEs that you stressed earlier, how they are treated.
Tu Le:
To put it very simply, if Lei is the mayor of Shanghai, and he wants to go to the, to higher levels of government, he needs to show that he's generating revenues out of Shanghai. He needs to show that he's creating jobs. So the last thing you would want to do or last thing that Lei would want to do as the mayor is shut down a factory in Shanghai, even if the central government wants consolidation, which they always do, because there's that threat of overcapacity in the ICE sector, or in the ICE side, there's definitely overcapacity. And then on top of that, all these companies want to create new factories as opposed to rehab existing factories. So there's that dimension, too, but there's this misaligned incentives for consolidating and shutting down poor performing EV brands. Now we've kind of reached a plateau because we went from 1.5, 3.5, 6.5 to 8.5. So we're never going to get to 50% growth or 100% or 80% or 70%. If we track at 20%, I think that's a pretty good number, because the base or the denominator is much larger. Now, the one thing that I think is important to note is that smart people smarter than me think that the challenging economy, there's not some quick fix for it. I don't know what you're hearing, but that's what I believe.
Lei Xing:
Yeah, no. The other thing I was going to answer the question was, so the weaker players that we're already seeing that happen. So let's say another example will be like a HYCAN from the GAC Group of brands, not doing well.
Tu Le:
Not Taycan, but HYCAN.
Lei Xing:
HYCAN, not TAYCAN. HiPhi, we’ve talked about HiPhi. There's a bunch of these brands that are newly launched during the pandemic. Not, some of them are not doing that well, so what you may see is just simply the disappearance of these brands because these companies and groups, they have other brands that may be doing relatively well. So you see these brands come and go and that's fine, I think. But that's the other aspect of it.
Tu Le:
That's the thing, Modern Auto. I don't know, who, because all of the other brands out of Mexico, EVAdam, are closely aligned or not all of them, but most of them are closely aligned with SOEs. So I was wondering if ARRA is a brand affiliated with one of the state owned enterprises. But thanks for that. I don't have anything else Lei. How about you? I think this is good discussion. Gordon, come back next week, man, we'll talk more. But…
Lei Xing:
Or the following week, if we are doing housekeeping.
Tu Le:
Yes. But man, I'm looking forward to celebrating Chinese New Year or Lunar New Year this weekend with my family.
Lei Xing:
I have to fork out $300 of Hong Bao, because two for my nephew and niece. And then.
Tu Le:
So if you have an ethnically Chinese, Vietnamese, Korean, Korean celebrates it?
Lei Xing:
I think they do. They have a holiday like today.
Tu Le:
Please wish them a Happy New HYear. Thanks for listening, everyone. We will talk with you all in the Year of the Dragon.
Lei Xing:
Next week, we will have a break. Is that correct? And then we'll be back.
Tu Le:
Oh Wo Men Xiu Xi (we’ll get a rest).
Lei Xing:
We'll be back on the 23rd. That'll be our first episode of the Year of the Dragon.
Tu Le:
So we're like a Chinese restaurant. The only time we close is Chinese New Year. And then we are open the rest of the year.
Lei Xing:
It’s crazy. It's weekly in, weekly out.
Tu Le:
We will have a lot to talk about probably maybe not on the China side, but western world side. So.
Lei Xing:
Sure, we will keep watch, yeah.
Tu Le:
Modern Auto is manufactured by BAW. So cool. Thanks, man. Thanks for the research. Cool, everyone. Good morning, good afternoon, good evening. We will talk with you all in about 2 weeks.
Lei Xing:
All right, same here. Bye bye. Guo Nian Hao.
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.