Lei starts off with a hammer, throwing all of the mindblowing numbers from China EV market from 2021. Tu & Lei marvel at how it really was an amazing year for EV adoption and growth.
After the long discussion and unpacking of the statistics, Tu and Lei talk briefly discuss the history and catalysts that helped get the sector to where it is now. Inflection points like Tesla entering the market, NIO & XPeng launching, transitioning to Tesla then launching ShanghaiGiga and manufacturing vehicles locally.
Tu moves onto how western media still tends to lump all of China EV Inc into the same bucket and argues that since the sector is market-driven, a more nuanced discussion needs to take place that includes, pricing segments, features, and positioning.
Lei moves to discuss the media interview with current Volkswagen China CEO, Dr. Wollenstein, and his post-mortem on 2021.
Lei and Tu then talk about the announcement of BYD and Nuro partnering to deliver autonomous delivery vehicles to be manufactured in California by BYD.
They close out the pod discussing U Power, an electric vehicle platform developer looking to find partners that can develop top hats for their platform and takeaways from U Power's keynote.
Lei starts off with a hammer, throwing all of the mindblowing numbers from China EV market from 2021. Tu & Lei marvel at how it really was an amazing year for EV adoption and growth.
After the long discussion and unpacking of the statistics, Tu and Lei talk briefly discuss the history and catalysts that helped get the sector to where it is now. Inflection points like Tesla entering the market, NIO & XPeng launching, transitioning to Tesla then launching ShanghaiGiga and manufacturing vehicles locally.
Tu moves onto how western media still tends to lump all of China EV Inc into the same bucket and argues that since the sector is market-driven, a more nuanced discussion needs to take place that includes, pricing segments, features, and positioning.
Lei moves to discuss the media interview with current Volkswagen China CEO, Dr. Wollenstein, and his post-mortem on 2021.
Lei and Tu then talk about the announcement of BYD and Nuro partnering to deliver autonomous delivery vehicles to be manufactured in California by BYD.
They close out the pod discussing U Power, an electric vehicle platform developer looking to find partners that can develop top hats for their platform and takeaways from U Power's keynote.
Tu Le:
Hi, all and welcome to China EVs and 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. We will open the room up at around the 40-minute mark to anyone who's keen to ask us any questions. We have one rule, although we appreciate vigorous debate, let's all be considerate and respectful to each other. What Lei and I discuss today is based on our opinions and should not be taken as investment advice. Even if it sounds like investment advice, it isn't. We encourage those who enjoy this room to please connect with us on LinkedIn, get the word out to your friends and tune in again next week.
My name is Tu Le and I'm the managing director at SinoAuto Insights, a Beijing based 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 and you can sign up for it at sinoautoinsights.com, which I encourage you all to do. Lei, can you please introduce yourself?
Lei Xing:
Yes, sir, and good evening from my side. My name is Lei Xing and I am the former chief editor of China Auto Review, which published newsletters and the only tabloid magazine in English focused exclusively on the Chinese auto market. Pre-pandemic I spent pretty much 20 years on the ground in China covering the industry. Since the pandemic I’ve been in the U.S. as an independent analyst/consultant looking afar and still trying to keep tabs on the rapidly evolving market.
Every minute, second, and day of the week, almost. This is Episode #49. There's just been another BYD sighting, I just tweeted. Ford topped $100 billion in valuation today, congrats! It stands at $99.99 billion according to the stocks App on my phone. $10 billion more than GM.
Tu Le:
So peaked over $100 (billion) and then it went back down.
Lei Xing:
Both the CPCA and CAAM December and full-year 2021 numbers came out. Monster numbers again. Some numbers from the Ministry of Public Security are worth a mention.
Tu Le:
It looks like a lot of new people who have not joined before. Can you explain what CAAM and CPCA really quickly is?
Lei Xing:
CAAM or China Association of Automobile Manufacturers is the country’s semi-official auto association, sort of like VDA in Germany. CPCA is even a lesser, a semi, semi-association of all the passenger vehicle manufacturers, which report their wholesale and retail numbers to the association, and the association publishes the data, and this association publishes the Tesla data that are often (quoted around).
Tu Le:
Would it be like NADA? Would it be like the National Association of Dealers?
Lei Xing:
No, China also has a CADA, so somewhat like NADA, but in terms of numbers, CPCA and CAAM are the primary go-to associations.
Tu Le:
And primarily official.
Lei Xing:
Right, “official” with asterisks. So the numbers are out and I went digging for more EV numbers and really found some surprises that we can talk about. The big announcement by BYD and Nuro. Actually Nuro made the announcement first, and then BYD was brought into the picture. Upower, they launched their Up Super Board. It's more than a skateboard design I guess, we'll talk about it. And I had an interesting comment from a senior executive from a major German supplier. I put up a WeChat moment (on UPower), and he commented: “nobody is interested unless UPower makes it its own cars.” So there's a first critical comment.
Tu Le:
So really quickly for those that are more familiar with Western brands and startups, UPower would be loosely the equivalent of a REE Automotive. So they (UPower) make a skateboard or they're designing a skateboard platform that they'll either license or manufacture on behalf of startups, starting in China.
Lei Xing:
Right. REE Automotive.
Tu Le:
Israeli company that's going to have manufacturing in the U.S.
China EVs: by the numbers
Lei Xing:
Let's go back to the numbers. I know we talked about some of the preliminary numbers that came out, but really the CAAM, the CPCA numbers, again, are the semi-official numbers that are often quoted by all the press. Monster numbers, the first time in December, 530,000 NEVs, and our good friend Michael Dunne, who we’ve just spoken to a moment ago, he tweeted that in the U.S. this year, it's 600,000 units. So China does one month of NEV sales as the U.S. does in a year. So think about that。
And then the whole year 3.52 million, more than 1 million from when we started this pod in April, we predicted it was 2.5 million because the base number was 1.37 million in 2022, 2.5 million will be double, almost double. And people are like that, that's a lot. And now we're seeing 3.5.
Tu Le:
So for those that hear about the chip shortage and battery capacity issues, those are real issues. But despite those constraints and not all constraints are equal to at the brand and OEM level. Despite that, we're at 3.52 million.
Lei Xing:
And again, one of the caveats that I often point out is China exported, the CAAM official number is 310,000 NEVs and pretty much you can say half of that belonged to Tesla. And the overall export numbers were over 2 million of everything, ICEs and NEVs, cars, trucks, buses. So that's double the number in 2020. So if we subtract those numbers, I did a bit of calculation, a lot of talk is on penetration. So if we have the export included, December was a little bit over 19% and 2021 was 13.4%. But if we cut out those exports, my numbers came out to be just slightly, a little bit less, 13.2%. But anyway, still very significant and last year, or 2020.
Tu Le:
There was a progression.
Lei Xing:
2020 was 5.8%. So in one year, the penetration rate pretty much doubled.
Tu Le:
Almost tripled.
Lei Xing:
So that was the year. And then CPCA's numbers, good thing I wrote these down, was a little bit different because CPCA are only passenger vehicles, which include cars, SUVs and MPVs. They also have two different numbers, wholesale, which include exports and retail, which subtracts exports. And those numbers even higher penetration rates. For wholesale December was 21%, for retail December is 22.6%.
Tu Le:
Bananas.
Lei Xing:
To put it into perspective, China's goal is to have 20% NEV share by 2025. And we've already reached that in one month.
Tu Le:
So currently, one out of every five cars sold in China is an electric vehicle.
Lei Xing:
You can pretty much say that. For the year, CPCA’s numbers are pretty much around 15%, a little bit higher in the passenger vehicle and here's again, more numbers to put these into context. Within the Chinese passenger vehicle brand, the penetration rate is 39% on a retail basis. For the premium brands, 32.7%, and for the mass market foreign brands 3.3%, one-tenth of the Chinese brand share and the premium brand share. That's the dynamic.
Tu Le:
Dunne said 600,000 total sales in the U.S. this year (2021) on a base of 16 million vehicles. So that's much less than China. I'm trying to figure this out from a calculation standpoint, but it's insignificant.
Lei Xing:
If you look at, let's say, roughly half a million, also by CPCA, nearly half a million new energy PVs sold retail, that accounted for, the Chinese brand new energy PVs, accounted for 75% of all brand new energy PVs. So we often talk about how the Chinese are leading, there's a number to give you a perspective: three-quarters of the NEV PVs sold belong to Chinese friends.
Tu Le:
This scares a Volkswagen. This scares a Toyota.
Lei Xing:
And obviously the remaining 25% Tesla has a big chunk, over 300,000 units sold. There's another number that's very important that don't get written about often in the western press, I think, is the Ministry of Public Security publishes the automobile parc, the number of vehicles on the roads at the end of every quarter. So for the MPS, China registered 2.95 million new energy vehicles, and total automobile registration was 26.22 million. So if you do the math, it's 11.25%. And this is a truer picture, because it's domestic registrations. It doesn't include exports. So I tweeted out the other day, this is one of the caveats, when you look at these penetration numbers, 15%, 20%, whatever. I think the Ministry of Public Security number is a better picture. So 11.25%, but it’s still almost double the 5.85% in 2020.
And by the end of 2021, China had 7.84 million NEVs on the roads or 2.6% of the 302 million vehicles on the roads. In 2017, 650,000 NEVs were registered. In 2021, almost 3 million were registered. So U.S. is about where China is at in 2017.
Tu Le:
To give people a sense of context and scale, this year Lei had already mentioned 26 million cars sold in China, or not this year, in 2021. In the U.S. around 16 million. China became the NO. 1 automotive market back in 2009. So they've been the No. 1 automotive market in the world for over 13 or 14 years, the U.S. is second and EU as a region or Europe as a region is third.
And so when you think about these numbers and there's plenty of reasons to point out why China is leading on the EV and NEV stuff. A lot of it has to do with how long the Chinese government has dedicated to nurturing the sector. Since 2009, there have been subsidies, there's been investment. And in 2014, Tesla came in and started importing Ss and Xs, 2020 they started shipping products locally from Shanghai Gigafactory. And then just the sheer number of products that are available to Chinese consumers is mind boggling here. So if you're wondering when Europe in the U.S. might get to this tipping point or surpass this tipping point, there's infrastructure issues, there's product issues or challenges in these other regions, not as much in Europe, because they're growing significantly because of the subsidies at the country level that are being provided.
So Norway is a good example of providing a lot of incentive for Norwegian to purchase EVs. The U.S. is not there yet. The Build Back Better has some subsidies that should come into effect, hopefully this year. So that will give you a bit of context about scale and sheer numbers.
Lei Xing:
The one word you mentioned was nurturing, right? Here's some more numbers on the crucial charging infrastructure. By the end of 2021, 75,000 charging stations, 2.62 million charging piles or stalls or whatever you want to call it, 1,298 battery swapping stations. So if you do the math, 7.84 million NEVs on the roads, 2.62 million charging piles, that's 1 to 3, one pile for three NEVs, basically. And what's the ratio in the U.S? It's a lot higher. And that's part of the reason I think why sales are taking off. And they've been taking off in the past few years.
Tu Le:
And we should also emphasize pricing. They're actually competitive with ICEs here in China.
Lei Xing:
And these numbers were given by, there was a Ministry of Industry and Information Technology press conference specifically on the auto industry. They gave out some numbers on the battery size. The battery cell energy density, average industry has reached 300 Wh/kg, and the pack or the system 200 Wh/kg. In 2016, a BEV average range was 253 km. In 2021, it was 400 km. So just all of these numbers are pretty much you know mind boggling.
Tu Le:
At a high level, cost per mile is decreasing significantly. The cost of operation per mile to operate an EV in China has shrank considerably over the last 3 or 4 years. And that needs to happen a bit more quickly in the U.S., in Europe, in order for take rates to really take off. So I did a quick calculation. The penetration rate or the take rate in the U.S. is under 4% versus 21% in December for China.
Lei Xing:
I think these numbers, this is a buildup of many years of nurturing the market. We're finally kind of seeing this takeoff. And the other word that I was thinking of was parity. You know, a lot of these EV segments, the models that are out there are on parity with their ICE counterparts.
Tu Le:
I think feature wise, some of them are, because of the connectivity, even better.
Lei Xing:
How users are serviced, community being part of the brand. These are all at play.
Tu Le:
It is the nurturing thing since 2009, but the catalyst, right? You fill in the blanks if i'm missing anything. Tesla, NIO in 2017, Xpeng in 2017, 2018, them and these guys entering the market. The Wuling Hongguang MINIEV being such a hit. These are all catalysts that helped that nurturing that helped bring attention to the sector.
Lei Xing:
I think you're right on point. I would also say, one that these new smart EV startups started in 2018, Tesla 2020 but obviously quite a while before when they had the imported Model S, and the Model X, then the Wuling Hongguang MINIEV, plus BYD which has been doing this for over a decade.
Tu Le:
The OG.
Lei Xing:
I mentioned earlier some of the quirky numbers. I did a bit of digging. Nobody probably knows is: who was the fastest growing, not the biggest volume. I was quite surprised to tell you the truth, that the fastest growing in terms of pure percentage growth was the Renault Dacia Spring manufactured by e-GT which is a joint venture between Renault-Nissan and Dongfeng. And their percentage growth in 2021 was, get this, 1,042%, so 100X over 2020. And the biggest reason is this little car was in hot demand in Europe, the Dacia Spring, I think over 40,000 units were sold. The latest number I saw was they exported like 5,000 units a month in Q4. So it's not a Chinese brand.
Tu Le:
In addition to that Renault is effectively nonexistent in the China market.
Lei Xing:
No. That's probably the only highlight for Renault in 2021 in China. I think i'm done with the numbers.
Tu Le:
Let me throw out a quick number: over 50% or 51% of global production for Tesla came out Shanghai Giga. So the Western analysts they miss the boat. There's a huge blind spot for the effect on the global markets of China EV Inc. and China EV industry for the rest of the world. So we can say all we want, bad and good about Tesla, you and I we're pretty objective. We call balls and strikes. If something good happens, we say that, if something bad happens, we say that. I don't have a horse in the race. 70,000 units in December for domestic sales crushed it. And of the almost 490,000 units manufactured in China, 360,000ish were sold to Chinese consumers.
Lei Xing:
Just over 300,000 by the CPCA numbers.
Tu Le:
Yeah, so they exported around 150,000 units or 160,000 units to mostly Europe and some parts of Asia, Japan, Australia, Singapore. But they should be applauded. And they almost doubled their sales from last year. And China has a big part to play in that.
Lei Xing:
I think Tesla is the only one producing at full capacity, over capacity of 450,000 units.
Tu Le:
Their utilization rate towards Q4 was over 100%, had to be, which they shouldn't try to do long term.
Lei Xing:
So now we're done with the 2021 numbers. I think the last couple of days,
Tu Le:
Let's close the door on 2021.
Lei Xing:
The debate has been on, sort of what's going to happen in 2022 both in terms of the overall market and some of these players. How much is Tesla going to do? How much is BYD is going to do? I think we said last time, both of these companies are going up towards over 1 million.
Tu Le:
Easily next year.
Lei Xing:
At the current trajectory. In 2022, there's three numbers. For overall NEV sales, there's 5 million, 5.5 million, and 6 million. I think 5 million is, without a question, 6 million, I'm a little, I'm not as optimistic. And then by the end of the year, it’s like, why did I say that?
Tu Le:
Nine months ago, you and I were debating whether or not the market could get to 2.5 million units.
Lei Xing:
So basically in order to get to 6 million units, you have to pull a December 2021 every month of 2022. That's how we look at, on an average basis.
Tu Le:
And we know that the markets don't work like that. So Q1 always the slowest because of Chinese New Year. December of 2022 is going to have to be absolutely bananas like a million unit quarter kind of thing.
Lei Xing:
That's exactly what I was thinking of, something that could be like a humongous number, crush all previous records.
Tu Le:
Again, the volume drivers are going to be Wuling or the Wuling clones. It's going to be Tesla, it's going to be BYD across the board their products. Because those guys are driving the volume.
Lei Xing:
I think the volume drivers will continue to be the two sides of the dumbbell. The low-end and the premium-end, if you look at all these Chinese smart EV startups, doubling, easy, from 100,000 to 200,000, there's a plan.
Tu Le:
The other thing, too, is whether you believe in the Mach-E, whether you believe in the Cadillac LYRIQ, they're going to need to do their part to get to 5.5 or 6 million units. We're talking significant sales.
Lei Xing:
One of the foreign leading brands, Volkswagen, they're planning 140,000 for the ID. They'll have a couple more Audi e-tron models, a Q5 and a Q4. Hopefully that will drive some of the sales. But I think for 2022 the middle part of the dumbbell, it will rise, but continue to be something that a lot of people wished would balloon. But it's just been the two ends of the dumbbell that's been growing. I think 2022 will continue that way in a sense. But there will be more models in the handle part of the dumbbell.
Tu Le:
The other thing that is important to note is this is occurring in a shrinking ICE market. ICE sales have really shrunk versus 2020, number one. Number two, premium and luxury sales, non EV premium luxury sales, continue to gain more share of the overall market. I think it's at 12 or 13%. So Audi, BMW, Mercedes, Bentley, Rolls Royce, Aston Martin to a lesser extent. They're all having record years, mostly driven by China market.
Lei Xing:
All of these players, they could simply easily double because of their low base, 20,000 units here, 30,000 units there. I just saw another number that's worth mentioning is CAAM, they did an aggregate of all the so-called startup new brands, not only the NIOs and Xpengs but probably includes ZEEKRs and VOYAHs, these aggregate number came out to be almost 950,000 units accounting for 3.6% of the market. So almost a million from these startup new brands in 2021. I think that million probably includes Tesla, because I did a bit of calculation and there's a big discrepancy once you add all these Chinese players. So I’m not sure whether CAAM counted Tesla as one of these new brands, but significant, almost 1 million units and taking away shares from the traditional (Chinese auto) groups.
Tu Le:
And this is the important thing that we need to also communicate about 2022. I believe that NIO and Xpeng will kind of separate themselves from a sales volume standpoint. We have to remember that NIO is a premium automaker. Their price point, on average, is much higher than a typical Xpeng vehicle. So we should see Xpeng actually move farther away from a sales standpoint than NIO. And it's not concerning. It's just because the P5 is at RMB250,000-300,000 or less than $40,000 price point, and G9 is probably going to be less than $50,000 versus an ET5 and ET7 and ET7 is an $80,000, $70,000 car. So ou're not going to get hundreds of thousands of sales of that ET7. And that's okay, because they're going after different market segments.
Lei Xing:
And that shows in the financial earnings reports.
Tu Le:
But I think one of the things that it doesn't irk me, but I think the Western media also kind of lump in these EV startups into one big bucket, and we really need to look at, because it is market driven, there is segmentation, there is a price point differential, features are different, X is different. So we need to start talking about these segments individually. So where Tesla is kind of sort of at an advantage is that they do play in both a little bit of the mass market because of the Model 3 starting at less than RMB300,000 and then all the way up to the Model Y those are their volume drivers. The S and X they import here, but they're not really moving the needle from a sales volume standpoint. So the Y is going to be the big runner next year.
Lei Xing:
The S and X in December were one units each. Remember the chart that was put out by HiPhi? HiPhi X did like over 900 units and beat out the Porsche Taycan in December for EVs priced above RMB500,000, that was another surprise. This new player that just surprised everyone.
Tu Le:
They need to push on the accelerator, be they need to match the accelerator because with the LYRIQ coming out, there's going to be also some domestic premium luxury, like BYD is coming out with a new brand this year. If Audi, if Porsche and BMW and Mercedes can successfully transition their lineup over to EVs, and we're talking they have EVs in the market, I get that, the iX, the e-tron, the Taycan, but those guys are pretty niche, right? Their main sales drivers are the 3 Series, the E-Class. And so if they're able to get those in and draw success from those EVs, then we're going to have major competition because the younger buyers here in China, they're fine being seen in an Xpeng, they're fine being seen in a NIO. So domestic brands they resonate with the younger consumers here. It's not an issue for them to buy a local, not a local but a domestic brand. So foreign premium automakers, they have their work cut out for them, so they can't make mistakes when they launch these new vehicles that are going to replace the ICE versions.
We've been talking about sales the whole time which is awesome, but let's move on to BYD NURO. And then let's talk about UPower a little bit and then we'll open it up。
Lei Xing:
You want me to start?
Tu Le:
I wanted, because this is for selfish reasons, I didn't watch or read up on the Wollenstein media interview. So maybe we start out with that.
Volkswagen Group’s tough year in China: highlights from Wollenstein media roundtable
Lei Xing:
Yeah, we’ve talked about the Volkswagen group which includes the VWs, Audis and Porsches. So basically, there was a long media interview. Wollenstein, who is leaving in August to be replaced by Ralph Brandstatter, was quite open and frank, and he addressed the questions head on, there was no curve balls.
So he said it was for Volkswagen Group, it was a tough year. They lost 630,000 units of production. There's another number that he declined to reveal, which is an internal planned or expectations of a group sales. So they did 3.3 million, he said it's a lot more than the 630,000 lost. So I think they were looking at maybe over 4 million in 2021. And it came crashing down. And he addressed a few incidents. Again, this smokescreen for the chip shortage, there was the Renesas fire, there was the Ningbo which affected December production and sales, the Ningbo COVID cases. And they have a Shanghai-Volkswagen plant and surrounding suppliers in Ningbo that affected their final month of numbers. So he talked a lot about the chip shortage affecting especially they are so dependent on the MQB platform as well as the MEB platform. And he said for the ID. obviously they wanted to do 80,000 to 100,000 units, and at the start of Q4, they were looking at about 92,000 units but ended up doing just over 71,000, so 20,000 less. And they were thinking if they did 90,000, then in 2022, 180,000, basically doubling. But now they're saying 140,000. And the other thing he talked about was the upcoming, there's two different joint ventures, new ones which Volkswagen have majority ownership. One is the Volkswagen Anhui, and the other is the Audi FAW NEV JV which will be producing the PPE platform vehicles in 2024. Volkswagen Anhui is actually becoming their new innovation hub. So all the CARIAD software organization will be over there, they will have a China team, they have a new Chinese guy, I think Chinese Germa, that's leading the organization. They'll be working with Gotion which is based in Hefei, not too far from the Anhui plant. And Gotion is the battery cell supplier which Volkswagen invested into two years ago.
Two companies he mentioned that they're working with are very interesting. One is a A123. So they now have three cell suppliers, CATL, Gotion and A123.
Tu Le:
Let me throw some light on that. A123 was a battery cell startup based out of Michigan years ago, 10 years or 11 years ago, went bankrupt, got acquired by a Chinese company. But they're back in business. A123 is now back in business.
Lei Xing:
So they're working with three Chinese cell suppliers. And another company they're working with on their autonomous driving or assisted driving effort is DJI believe it or not, the drone company. So very interesting. This is what he shared. And then another part of it, I think, was he opened up about NIO’s battery swapping strategy or tactic. And he just basically explained that as a volume brand who are looking potentially at millions of NEVs in China, he just didn't think, he didn't say the battery swapping was right or wrong, but he said it wouldn’t be the right strategy for a brand like Volkswagen, because of the sheer volume, and you have to produce additional batteries for the swapping stations and invest in the swapping stations. And he just said out into the future, when the solid-state batteries come on, when the 800V architecture with fast charging that you can probably charge 5 to 10 minutes to 80%, out into the future, it just doesn't make sense for Volkswagen to do battery swapping.
From my interaction with him over the years, usually you don't talk about competitors, but he actually talked about that business model quite a lot. So that was interesting. And I think he has a fair point. But he's not saying it's wrong. He's just saying that for company like NIO, it's a strategic thing to do, because they were starting with an entire new model. So that's the way of doing it, but it's not going to be Volkswagen’s way of doing it. And it's just that he thinks it doesn't make sense.
Tu Le:
To be fair, part of NIO's calculus on that battery swapping, it was strategic from a business model standpoint, but it also lopped off $10,000 on their vehicle which made it more attractive. And if we rewind, the Chinese government effectively gave them a carve out, because the subsidies available for vehicle sales is capped at RMB300,000. If you look at Tesla, their Model 3 was over RMB300,000 starting price, and then they reduced the price to start under RMB300,000. And at that time, the Chinese government made an exception for cars. The cars could receive the subsidy if they're over RMB300,000 if they had swapping capabilities. And so the Chinese government, I don't know, you tell me. I don't know if there's the central government or who decides that, but effectively, the Chinese government gave a carve out or a handout to NIO specifically for them to be able to take advantage of that subsidy.
Lei Xing:
Almost like a bailout, almost. Another subject he addressed was the agency model, which had some issues in 2021 when you switch from the traditional channel of selling ICEs versus NEVs. I think that caused some friction, across Shanghai-Volkswagen and FAW-Volkswagen, they have 2,000 dealerships. Let's say 10% or 20% of those will be doing the traditional ICE channel and ID. agency model at the same time. So there was some friction, but it looks like after a year that these dealers are completely on board so that hopefully that will help out.
Tu Le:
The change in or the evolution of that business model, the director consumer with the retail stuff that confused buyers, too. It wasn't just a dealer, a coordination challenge. It was, okay, if I’m a Chinese buyer, and I’m curious about this ID. series, I go to my dealership, I don't see it, and they don't know anything about it. So what do I do? Where do I go?
Lei Xing:
So they did this media interview at an ID. store in Solana, the Shanghai-Volkswagen ID. Store in Solana.
Tu Le:
I was just there like 2 weeks ago.
Lei Xing:
The he also mentioned that Volkswagen Anhui, when it starts operations in producing and selling, will completely use the agency model. So I guess a new network.
Tu Le:
This is one of the crazy things about U.S. The U.S. dealership model is even more entrenched than it is in China. The franchise laws in some States are very, very restrictive. Tesla needed to carve out or a loophole to start selling in Michigan. So still very bothered by the dealers boxing out new business models because for the brands, it's an opportunity to directly engage the customer. Rivian is using it, Tesla is using it, Lucid is using it. So this is the way for the future and for the dealers to say, no, you can't do it in certain states is beyond me.
And let me also make one more comment about that chip shortage. So there's a terrific article in the Wall Street Journal a couple weeks back about Tesla, how despite the chip shortage affecting other OEMs and we're talking globally not a China thing. It's written by Rebecca Elliot, who covers Tesla in the U.S. for the WSJ. There's one part in the article that said that Tesla was able to swap out chips that were short, replaced them with other chips that weren't, update the software, and they're off and running. OEMs don't know how to do that. So these are kind of the challenges and constraints that the legacies have, because they're not that good at software.
Lei Xing:
The Founder and CEO of you power actually took a shot at Dr. Diess. And he basically said, it's not as simple, just adding software engineers, it's not about just adding these hardware, LiDARs to make things work. It's not about just adding people.
Tu Le:
I've been preaching that for forever. You just don't build out a dev team, and then all of a sudden this magic dust falls on them and they know how to build software, they know how to debug software.
Lei Xing:
Let's wait and see when the unified cell comes out, when the SSP, Artemis, Trinity, how that would be received on the market. You saw that chart that Volkswagen put out for the 2026 planning round. Every other year they want to double their share of EVs. So they want to be number one by 2025. All the articles right now are saying Volkswagen is doing how much worse than Tesla? We’ll see. I think it’s a nice rivalry brewing.
Tu Le:
You can spotlight Volkswagen, but most of the legacies aren't doing very well against Tesla. If you can call out Volkswagen in particular, but you could probably point out most of the legacies.
BYD inside Nuro
Lei Xing:
I think BYD and Nuro was a pleasant surprise for me or for a lot of people, and that BYD was involved at all. Here, you have two guys from the early Google AV, crucial engineers who started up Nuro, and now seeing BYD into this. It's almost like this is great because they've had this investment, localization, in the U.S. for years, and now it’s paying off.
Tu Le:
They build in other countries outside of China, not just the U.S. as well. So they've been international from a production and manufacturing standpoint for quite sometime.
Lei Xing:
And the fact that they're choosing BYD to assemble a lot of the hardware. Basically from what's been revealed BYD will be responsible for doing hardware at their Lancaster plant, the motors, the battery packs, and a lot of other things. And then the final assembly will be done at Nuro’s own plant in Nevada. But this is a huge, it gives BYD huge credibility on being an important part of the U.S. fabric. Don't look at them as a Chinese company, but look at them as a viable production partner that ok, Nuro, we've chosen you instead of somebody else. It's also another, we've been talking about how the Chinese are coming to America? This is how the Chinese are coming to America. You don't necessarily have to have sell cars in America. This is a perfect example.
Tu Le:
This is a layup for them. They're building buses. Buses are going to be much more complex than this little autonomous delivery vehicle.
Lei Xing:
And all of these BYD Han sightings. I'm not sure what's cooking under the hood.
Tu Le:
I'm thinking the Snowbul Capital team just ordered a bunch, probably more.
Lei Xing:
I guess that's the take away. So just trying to play, again, ZEEKR with Waymo playing into the AV and mobility space, now BYD and Nuro playing in the same space, although a bit differently. But still.
Tu Le:
As we see, these cross-border partnerships emerge.
Lei Xing:
This is not cross-border, this is a U.S. and U.S.
Tu Le:
Technically, you are right. But since we're seeing these handfuls kind of emerge, you know the picture of the iceberg where you only see the tip over and above the water, that means dozens of conversations are being had by foreign and local Chinese manufacturers, suppliers, technology partners, these meeting rooms are filled with discussions about how they can work together.
Lei Xing:
One of the things that BYD is also helping with Nuro is even the HMI, this is BYD’s expertise that many people don't know that they've done these sort of the screens and electronics. This is their expertise.
Tu Le:
This is where they have a huge advantage over there. Domestic Chinese EV competitors. They have these channels already open. They have offices with teams of people. Stella Li, the head of BYD for the U.S. So they already have a head of U.S. for many years, I have spoken with Frank, who's down in LA, he's the head of comms for BYD in the U.S. they already have the infrastructure in place. Now, they're looking at a timing standpoint to make sure that when they enter the market with a finished product that it will be received well. And how can they do that? By pointing back to: guys, we've been here in Lancaster for years, we've been employing American employees for years. That's how we're different than these guys that are going to start exporting into your market or importing into your market. So God bless them because they are just out there, grinding it out. And they're not really pointing at themselves saying we're just this kick ass company, but they are kicking ass.
UPower’s Up Super Board
Tu Le:
Let’s talk about UPower.
Lei Xing:
Did you get to watch that replay of the press conference?
Tu Le:
I watched the first 15 minutes. I actually really enjoyed his opening because I’ve watched some of these and I’ve attended some of these. And they're pretty dry, but really that woman that spent 300,000 for an RV. That's not normal. It's not like everybody does it, but it's not unusual. You know kids travel pretty far to get to school sometimes, because and you know this in Beijing, people will spend in Haidian, they'll spend over $1 million on a 300 square foot apartment in order to use that address to get their kid to go to the school in the district. We're talking extremes here. So that kind of resonated with me when he started talking about that stuff.
Lei Xing:
So his underlying message was this Up Super Board, which is what he refers to as car making model 2.0, which is the independent development of the under Super Board plus the Tophat. This Super Board is basically everything, chassis by wire, cell to chassis. There is cell to pack, but he's going with cell to chassis, CTC. It's upgraded from the skateboard chassis concept in a way that he says this is as rigid as a uni-body, rather than body on frame.
Tu Le:
In theory.
Lei Xing:
Even the computing, autonomous driving, I’ll put into the Super Board, it came out with Space 01, 02, 03, 04 and 05. What they said was that they're not trying to make cars. They came out with these five concepts to show sort of what
Tu Le:
The possibilities.
Lei Xing:
In terms of design that could be possible. I guess their positioning will be, somebody said there's a “Tier 0.9.” So they're not a Tier-1, they're not OEM, but they want to help any of these new brands that want to come to the market. And they’ll say we will shorten the development cycle by 6 or 12 months.
Tu Le:
Lei, they're talking to us because you and I we're going to start an EV company,
Lei Xing:
CEM.
Tu Le:
CEM Motors. Stop, because it's not even a motor, I guess it's still a motor. It's not a powertrain, I guess it's a motor. So I guess we could still use motor.
Lei Xing:
I guess going back to the beginning of the show when that German supplier friend made that comment, who's going to take up to it, you wonder?
Tu Le:
Abe is in the room. He knows working at a German company that some German auto executives tend to be a bit skeptical of any new ideas, new companies, new concepts. I wouldn't have expected anything less.
Lei Xing:
I guess one of the other things he pointed out was standardization is customization. It might be a bit difficult to understand, but by standardizing the Super Board, he means that you can actually customize more. So he put up a lot of these cheesy things.
Tu Le:
I took that as mass customization. An iPhone is different to each individual through the apps that you download and the things that you do with it. But manufacturing and physically it's the same thing. Again, a little bit cheesy, but I just looked at that as more of a mass customization reference than anything else.
Lei Xing:
And he had the CEO of Bosh China and CEO of Momenta as guests in the videos. So you can pretty much be certain that they are their partners.
Tu Le:
What’s funny is that Bosh, I believe, partners with REE.
Lei Xing:
I think they and Bentler came out with a chassis that Evergrande tried to use. The other thing is this CEO and founder has 20 years industry experience, the company was founded in April 2021 less than a year old. 60% have 10 years of experience. 50% of tech company experience and 50% are masters or doctors.
Tu Le:
Based on Shanghai.
Lei Xing:
Headquartered in Shanghai, R&D in Chongqing and Silicon Valley R&D office as well. So very interesting, new brand, but not technically a new brand.
Tu Le:
So REE, Magna, MIH or Foxconn, and then companies like Canoo, they are competitors or let’s place them into the same bucket. This probably cuts not only the time, but saves you at least half a billion to one billion dollars in development costs. So the people that were constrained by capital, maybe this is their way of entering a market. And they have a niche that they can exploit. Guys like REE and UPower are hoping that there will be these new entrepreneurs that are inspired by what's out there, but want to do it differently.