Episode #115 - More Cariad Drama, Li Auto spotlight and Geely & Changan talk collaboration

Tu starts this podcast off with his thoughts on the latest reorg of Volkwagen Group's Cariad software group wondering why they installed another 'car' guy to run Cariad when Blume had a real opportunity to catalyze real change at the division.

He then compares and contrasts that with the recent hire of Mike Abbot by GM to run their software team. After Tu's take, Lei spends a few minutes giving his counterpoint on Tu's thoughts.

Lei transitions the conversation over to two product launches, one by BYD and the other by Wuling that caught his attention due to the price reductions both launched with. 

Lei briefly talks about Li Auto's product portfolio over the next few years and how its different then their competitors. 

The podcast closes out the podcast with Lei giving a brief history lesson on the Geely & Changan relationship and a bit of speculation on how they've moved past their differences and may work more closely together to help each other. 

Transcript

CEM #115 Transcript
Recorded 5/11/23

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. If you enjoy this room, please help us get the word out to other enthusiasts and tune in again next week. 

My name is Tu Le. I'm the managing director at Sino Auto Insights, a global management consultancy that helps organizations bring innovative and tech-focused products and services to the transportation and mobility sectors. I write a free weekly newsletter that we pull many of our discussion topics from. You can sign up for it at sinoautoinsights.com, which I encourage you all to do. Good afternoon, Lei and finally thawed-out Lei and Tu. Can you please introduce yourself?

Lei Xing:
Good afternoon. This is Lei Xing, your co-host and former chief editor of China Auto Review and this is episode #115. We just recently earlier this week published the Auto Shanghai 2023 Special, so make sure to tune into that episode. I just checked, close to 900 people tuned in to the Twitter Spaces. So pretty good number. 

Tu Le:
Is that right?
 
 Lei Xing:
Yeah.

Tu Le:
Nice!

Lei Xing:
So I should do a screen shot, but anyways, lots going on the past week. Software. You had another rant in your newsletter on software because of what happened to Volkswagen’s CARIAD and…

Tu Le:
No rant, man, just kicking knowledge.

Lei Xing:
Yeah. So, earlier this week, Volkswagen Groups’ software arm CARIAD continued the internal merry go round, hiring Bentley manufacturing chief Peter Bosch to run the software arm versus GM’s high-risk, high-reward hire of former Apple exec Mike Abbott to run its new software unit. So…

Tu Le:
Advantage GM.

Lei Xing:
So a huge, sharp contrast of the tactics or the strategy of these two major automakers. So let me ask you, what worked? What, do you think, I mean on paper, yes, I think GM’s hire was, I mean they timed it perfectly, right after Volkswagen Group’s. So it's a silent dunking, and…

Tu Le:
It's just a huge contrast in styles, but strategies.

Lei Xing:
I want you to be a little bit gentle on Volkswagen Group, because they almost got smacked in the face by some cakes. 

Tu Le:
I saw, right? 

Lei Xing:
A the annual general meeting. So be gentle.

Tu Le:
You and I are in some chat groups with some friends that are aligned with some of these companies. And so I think it's important that you and I are joking around a lot, but hopefully I come from a place of love specifically for the U.S. companies, because they've done so much for us over the last 40 years. 

Lei Xing:
You're exactly right. The Chinese term is “da shi teng, ma shi ai,” which is, beating is actually showing love, so that's what you're doing.

Tu Le:
You know, we are Asian and so I don't know about your mom and dad, but generally speaking if they're not complaining about something, then we're not doing something right as children of Asian parents. I've actually tried to dial that down a bit myself because I'm tough sometimes on my boys, but again, it comes from a place of love. Anyways. So with Volkswagen and we have to look at this as part of a whole. This is not the first reorganization. If we're looking at CES and we're looking at Shanghai Auto, they had Hilgenberg out there, talking about this and talking about that about how they're going to launch (100%)TechCo next year, and they're going to bring it all together. And Hilgenberg, the CFL and I forget his name, Lynn Longo, the CTO, they were all either traditional automotive or tier-one supplier. That's their background. Now they could have technical backgrounds within the automotive sector, but you know that having spoken with me and being on this podcast for the last couple of years that to me that doesn't go far enough. I thought if you're going to make wholesale changes to the CARIAD management team, Blume had this one opportunity to get it right. And I looked at his move with Bosch, and I don't know Peter Bosch personally. So I don't want anyone to think this is a personal thing, but he's a manufacturing guy that worked at Bentley, builds a couple of thousand cars a year.

Lei Xing:
Let's say he's a processes guy.

Tu Le:
Yeah he's a process guy. Nowhere up and down his CV does it say technology ninja. And I think Blume had actually said that we are happy because he's a team player, he's a technical or a process guy or whatever, but it didn't say anything about software and high tech. So I think this is a missed opportunity for Blume to really, really make a huge decision for the entire company, because CARIAD is going to be a decisive player in VW Group’s strategy and fortunes over the next 15 years. Either because they're not going to be able to do it, or because they're going to be a difference maker, and they've had fits and starts over the last 3 or 4 years since it got started, since CARIAD was launched by Diess 4 years ago, 5 years ago?

Lei Xing:
No this was in early, started in 2020. I think.

Tu Le:
So just 3 years old, but they've had like three significant management shakeups or management moves. To me, and I kind of say this, and all the traditional auto guys that are listening will know that re-orgs happen all the time in the automotive space. They happened to Ford, they happened to GM, they happened to Toyota. Less so in some of the Japanese companies and Korean companies, I believe, but they happen all the time. And what that normally means is that they don't know what they're doing or the “market changes.” So again, I don't know if this really moves the needle for CARIAD, so that was very disappointing. And then number two, again, we're looking at the totality and the track record. So GM has been a little bit lumpy. They were initially first to, and let's actually go back to the 80s. GM launched OnStar, launched EV1. So they had, their north star was pointing in the right direction, or they were pointing in the right direction. They just didn't have the guts to go follow through with it or the timing in the market wasn't right for those two products, whatever. So they had this need to move towards a more high tech and clean energy business model. And we can point to Cruise as them really getting themselves out in front of everyone else. In, what, 7 years ago when they acquired Cruise or 6 years ago for $1 billion or something like that.

Lei Xing:
’16.

Tu Le:
Yeah. So that was bold. And then just recently they kicked Apple out of, now they're still using Android as kind of the operating system, the baseline in the back end. But they knew that CarPplay was going to be much more difficult to boot out of their vehicles 5 years from now when there are many more EVs on the road than today. So that was a shrewd move by Mary. And so again, track record of really being strategic about some of these EV decisions or these digital decisions as well. And then the third is hiring Mike Abbott. And you think about it, they kicked Apple out a week or two ago of their vehicles, starting in 2023 or 2024.

Lei Xing:
That's the irony of it.

Tu Le:
It is the irony of it, because now they have an insider who likely had some idea of how the architecture works and how everything works together. Now, I'm not clear, and I've spoken to a few of my insider moles. They're also not clear, but he's the executive, and he's an executive vice president. So it's not some vice president role and not some senior. It's an executive vice president. And he reports directly to Mary. And anyone, and you know this, anyone who's read my newsletter or listened to this podcast for any stretch of time, knows that it's not just hiring technical people, it's putting them in positions of leadership like Doug Field with Ford. And so do I believe that they're automatically going to be successful? Absolutely not. Does hiring, does Ford hiring Doug Field and GM hiring Mike Abbott put them closer to success than Volkswagen with this re-org with CARIAD? I do believe so. So let me ask you Lei, your thoughts on this stuff, because I think you're much more objective about some of this stuff, because I do, I feel that with my background in Silicon Valley and with e-commerce startups in China, I think I just see these angles that I'm not sure. I think the automotive management teams also see the angles, but they don't have the balls or the stones to really make these bold decisions, maybe.

Lei Xing:
Yeah, I wanted to get some of my thoughts across your last comment that nothing is guaranteed, right? Success, whether you hire a Mike Abbott, or whether you hire a Peter Bosch. On paper. 

Tu Le:
Completely agree.

Lei Xing:
Right. So the reason why we say these automakers are legacy, part of it is because their ICE success is a burden. But the other huge part, I think, is culture. So comparing Volkswagen culture versus a GM or Ford culture is completely different, because German automakers are much more conservative. Whereas Jim Foley and Mary Barra in their tenure have been more bolder in some of the decision making. That's a sharp contrast. And the Oracle of Omaha said, in the weekend, said, he said the “auto industry is just too tough.” And I want to rephrase that. It should be: automotive software is just too tough. We've seen again, just today, right? Polestar delayed their Polestar 3 production. Guess what? Because of software.

Tu Le:
Because they had an insect problem, too many bugs in their software.

Lei Xing:
Yeah. So when you combine these things, I think at the end of the day, even for a company, let's say, a GM which is less legacy than Volkswagen, there's still going to be that culture clash. So how that will play out, I think we put a question mark on that. But on paper, yes, on paper, I think the recent hires, I think, is more proper on the GM side than the Volkswagen side. That's my take. Nothing is guaranteed, right? Because these companies, right? What we heard all this week, Lucid, Rivian, Fisker, FF, Polestar, even GM right? GM and Ford, they have production snags of their latest EVs, the LYRIQ, the F-150 Lightning, whether it's due to software or not or something else, these growing pains are still playing out, and software is contributing a big part of it.

Tu Le:
But do you understand why I feel that there needs to be leadership that has that experience, that deep experience? Because car guys they're not going to get it, not at the level where millions of vehicles can use this software.

Lei Xing:
So I tweeted that Mike Abbott’s comment. He basically said “software is at the center of the consumer and enterprise experience like never before.” It's a simple statement, but I think a lot of these higher ups, they don't understand how important that statement is. I think that's, you can't drive that home more enough, right?

Tu Le:
Here's another point that I’d like to make real quick, Lei. Tesla. People love Tesla vehicles. And if you look at the vehicle build quality, it's not great, but why they love it? Because the software just works, and it's not buggy, it's integrated. So everything kind of feels like it belongs together. Again, this is where, cause you and I know that Tesla is probably and I’m pulling out my broad brush, quality levels of some of these Tesla vehicles are not good, but they have a loyal following. And that's because largely due to their ability and their control of all of the software.

Lei Xing:
Yeah, and we've been discussing something that doesn't feel like it's related to China at all, but it's everything related to China because these board members visiting China for CARIAD that might be the last straw in what has been playing out maybe the last year or more that something was about to change at CARIAD. And I think what they saw in Shanghai is kind of the last straw in pushing that change. Do you agree?

Tu Le:
I think that Blume had no choice but to listen to the Volkswagen Group China folks.

Lei Xing:
Yeah. But then again, the only thing tech or software about that hire is Peter Bosch’s named itself: Bosch.

Tu Le:
But I would argue that Bosch is an automotive supplier. They want to reinvent themselves as a technology company, but they're not.

Lei Xing:
Look at Bosch, even Bosch they have now, they're doing their own re-org, the Bosch Mobility Solutions. I think they did a re-org. They announced that during the annual report. I mean, right?

Tu Le:
They're trying to move upstream, brother. Nobody believes me, they're trying to move upstream.

Lei Xing:
Also upstream, case in point is the investment in TSI semiconductor in California, right? So in terms of transformation, the pace of change and the boldness of change, I think Volkswagen hasn't shown that commitment whereas GM and Ford, they have. So that's the comparison.

Tu Le:
And I agree that it will not be smooth sailing. It will continue to be, Polestar delaying software launches, but they have to do it sooner rather than later in my humble opinion. So the GM move to kick Apple out was such a bold and shrewd move by Mary. I think it was the right one because and you've heard this as well, I've heard Volkswagen is looking at Huawei as their software partner, because CARIAD was such a mess, in China only.

Lei Xing:
They have worked with Huawei for years. I think Audi has, at least.

Tu Le:
But I've heard it’s a broader partnership, not just Audi. And since we're ranting, Lei, I want to say that I still have in the back of my mind, diesel gate, so that reputation that Germany legacy Inc. earned throughout the years was erased by selling millions of cars with the cheat code. And so they still have that in the back of their minds. People should not forget about that because I’m not sure why people didn't go to jail, because millions and millions of cars were sold due to a lie.

Lei Xing:
And I think Blume, he still continues to talk about the speed, but they're putting on reverse gear, it almost feels like.

Tu Le:
If we're trying to give them the benefit of the doubt, I’m okay to say, take these small steps back in order to accelerate your speed going forward. I get that, but again, the opportunity he had, this is the crazy thing Lei. You cannot have GM, Ford, Volkswagen Group, Mercedes the culture, the atmosphere in these companies be ho hum, kumbaya, everything is normal because it's not. So it has to be disrupted. You talk about how embedded this culture is, right?

Lei Xing:
Yeah. And Volkswagen is unique also, or they face their own specific issues. So at the Annual General Meeting, one of the issues is Xinjiang, right? Nobody else has that issue. And the protesters that was one of the things that I mean…

Tu Le:
And you know that the Chinese government is going to lean on Volkswagen Group to be a defender of that stuff. So.

Lei Xing:
So Ralf (Brandstatter), he was at the Annual General Meeting. He said based on his personal, I mean, through his own eyes, he didn't believe there's anything as using child labor, right? That type of stuff.

Tu Le:
They're going to be kind of put out there by powers that be as kind of a shield to what's happening. And it's going to be increasingly difficult and pressure packed, because you don't think the United States government and their diplomats are also trying to pressure the German government and these companies? Because it is just a really difficult position for Volkswagen Group to be in, because they also want to grow the U.S. market by 50% or 100%. They want to go from 5 to 10% by I think, 2030. Okay? A big catalyst for that, they believe is going to be Scout Motors, the old U.S. brand. That is a heritage SUV brand or a truck brand that they are re-launching as an electric vehicle SUV brand. And it's just Volkswagen Group. And I, the crazy thing is, Lei, you and I have spoken with some of these executives, I've spoken with some of these executives in just closed door, private conversations. And some of them really still don't see it, but most of them do. But the reasons that they don't make these more decisive decisions is kind of perplexing to me.

Lei Xing:
Yeah. So maybe switching gears a little bit. We talked about GM and Ford what's happening. Whereas a Jim Farley last episode, we said his decisions are much more realistic, prudent with respect to China. So it played out, right, yesterday with the JMC Ford announcement of exporting. And then we're also hearing some rumors of headcount reduction for Ford in China, because Jim had mentioned in the earnings call that they want to be leaner. So not surprising. And then maybe some shift at the GM’s joint venture, executive shift. So these are playing out. And everybody's got their own problems and solutions. And it seems that the Volkswagen Group is really counting on, I mean they keep announcing we have a strong position in China, which…

Tu Le:
For what segment? Help me define strong.

Lei Xing:
So that's, the thing is, I'm like, forget about that strong position. You have a clean sheet of paper to begin with. And you go from there.

Tu Le:
My take on that really quickly Lei, because I don't want to beat a dead horse. I think we talked long enough about it, but it's they're trying to evolve from where they were to where they want to be. And I don't think that can work. I think they need to tear it all down and restart. So I'd look at it like is CARIAD even the right decision to even separate all that stuff out.

Lei Xing:
I don't know. So what I'm hearing is that the CARIAD team is all moving to Hefei with the 100%TechCo, which is a billion-euro investment, huge. So now I think the pendulum for Ford is moving toward JMC and the pendulum for Volkswagen is moving toward Hefei. They have the Volkswagen Anhui, which is an important pillar. They have the investment into Gotion. Gotion by the way, will be supplying the LFP cells for Volkswagen Group outside of China. I'm assuming it's for Europe for now.

Tu Le:
I thought it was both chemistries for Gotion, not just LFP.

Lei Xing:
In China. In China, Volkswagen Group’s EVs will be both. But for outside of China, it's LFP and they have a 20 GWh plant in Hefei coming online later this year, which I assume will be supplying the possibly the Cupra.

Tu Le:
Let me remind folks about Gotion, because Gotion is rumored to be the partner for the PowerCo battery giga factory for Volkswagen in Canada. They have also announced a $2.5 billion battery component factory that they will be launching or breaking ground on in Michigan. And Gotion is being extremely aggressive. I'm wondering if there's any concern from the European Union about Gotion building factories, or is it going to be an IP thing in Europe as well?

Lei Xing:
So this is a huge play by Volkswagen Group. I think we don't see any other major foreign automakers investing, they are a huge shareholder of Gotion, by the way. So they got to capitalize or utilize that resource as much as they can.

Tu Le:
And they are a huge investor in QuantumScape, the solid-state battery startup in Silicon Valley that has not, we've not heard a peep about, so.

Lei Xing:
And the play with Horizon Robotics and ThunderSoft. These are two in the connectivity and autonomous driving side of it.

Tu Le:
Let's be clear about this, Lei. Horizon is nowhere close to being able to throw out silicon that can compete within the NVIDIAs. Right now, they're nowhere close. So they've invested $2.5 billion in a Horizon with the promise that Horizon will be able to build and design or design a chip that can ultimately compete with NVIDIA’s AI chips, which remains to be seen. So there's going to be a lot of pressure on Horizon and Black Sesame. And there's two or three others that that we can talk about, but that are leading the Chinese market and the ai chip space.

Lei Xing:
Speaking of, so Porsche working with Mobileye on the Supervision. I think China had a huge influence because of the success of the ZEEKR 001 that's been using. And I think ZEEKR in some way, it's not a competitor to Porsche, but I mean the feeling, the positioning of this shooting brake, sports kind of model.

Tu Le:
It's the closest thing to a competitor.

Lei Xing:
I think, for Porsche, it's also a prudent play. Minimum, let's not think about LiDAR, but adding some premium, what they call the premium ADAS, and they feel the Supervision is the best way to do it. So.

Tu Le:
So everyone's clear Supervision does not use LiDAR, its camera only.

Lei Xing:
So I believe it's like 11 cameras, 5 radars, some kind of setup.

Tu Le: 
And Mobileye has until recently been largely associated with Geely. And so that's kind of changed. That's kind of, but Mobileye is struggling a little bit relative to Qualcomm and NVIDIA. NVIDIA is the 800 pound gorilla in the space. They have their own software that they use to, when you purchase and source from NVIDIA, you can use an entirely different language to code. They are an ecosystem that's been created, which kind of creates this huge moat for NVIDIA customers.

Lei Xing:
They (Mobileye) have this REM or road experience management thing plus their EyeQ chips. That's their kind of the cream of the crop product, right? Switching gears again, to, going back with sales a little bit, I think two important launches caught my attention, if not yours. So the BYD Seal Champion edition launched below RMB200,000, effective price cut. The Wuling Hongguang MINIEV is offering a battery leasing program, RMB198 a month for 16 months and you pay RMB20,000, less than RMB20,000 to get it.

Tu Le:
Let's be FX people for a second. RMB200 is about $30. RMB20,000 is about $3,000.

Lei Xing:
You and I were joking, we should grab a few, bring them over and then have one for each day of the week with different colors, right?

Tu Le:
That is the irony, though, right, Lei? Because in Europe and the United States, prices keep put vehicle, prices keep pushing up, so it's more and more expensive. Less people can afford to buy a car now in the United States than they could 20 years ago, I believe.

Lei Xing:
So to explain a little bit of why this is happening is because one feature of the Chinese market, you can be the star for a day, the next day, you fall very hard that has happened to the Wuling Hongguang MINIEV. So the entire, for April, actually the first quarter this year, the entire A00-segment which is pretty much 100% BEVs, actually sales were down. So one of the few segments seeing actually big drop in sales. So this is one interesting phenomenon happening at the moment. And April sales actually overall was down month on month over March. And right, you had Tesla increase prices, which is a signal, why they do that is there's a signal: yo, for all of you guys out there holding your pocket tight, don't. It's time to buy.

Tu Le:
Honestly, I also looked at it like a no mas, like no more, we can't do it anymore. It's like waving the white flag a little bit.

Lei Xing:
The general sentiment is that there is this kind of holding the pocket going on. So April, it wasn't through the roof or it wasn't a blockbuster month, but in terms of penetration it’s close to 30%.

Tu Le:
It should be April should have been pretty concerning for the Chinese government a from a sales volume standpoint.

Lei Xing:
Forget about the growth because we all know what happened last April, so don't look at it as a year on year growth because that's superficial.

Tu Le:
Those growth rates are, just throw them out the door, throw out the window.

Lei Xing:
And going back to Volkswagen a little bit, right? So I tweeted that one number or a few numbers is that BYD accounts for a third of all NEV sales. So 34% in April and the NEV penetration within Chinese brands is over 50%. For the joint venture, the foreign brands…

Tu Le:
Let me stop you there for a second there, Lei. That means that there's a good chance that BYD outsells Volkswagen Group, not just the brand, but the Group in China in 2023.

Lei Xing:
The way it’s going now, it'll be very difficult for Volkswagen Group to get over 3 million units. Whereas BYD has the 3-million-unit target.

Tu Le:
They have about, with overtime, likely about 4 million units of capacity in China. And let's say they export a couple hundred thousand or 250,000 units of that capacity overseas.

Lei Xing:
So how there's, in China there's a BAT, so Baidu, Alibaba and Tencent. In the NEV sales chart, it also happens to be BAT, so BYD, AION and Tesla. I saw a chart with the BAT, I was like, okay.

Tu Le:
I got to give AION a lot of credit, I was on Bill Bishop’s podcast this week. And I kind of talked about how efficient BYD and Tesla has been since the beginning of 2022 when COVID supply chain issues happened. They are machines, they're able to not only create enough demand, but fill that demand because of their ability to manage manufacturing. And I should add that AION has really been a star on the demand and the supply side now as well. So kudos.

Lei Xing:
And so one number that should scare the bejesus out of the foreign, at least the foreign volume brands, is Chinese brands in the passenger vehicle segment is 55.2% in April, the rest are 45% are foreign plants.

Tu Le:
We're looking at ID. series vehicles really getting down to the like 2,000 a month, 3,000 a month number kind of thing. It is that bad because they're either going to have to sharpen their pencil at least once or twice again this year in order to keep that sales volume to a respectable level, monthly sales volume to a respectable level, or it could effectively fall off a cliff, the sales, that curve could fall off a cliff.

Lei Xing:
Yeah, I mean, you say giving the benefit of the doubt, we're giving NIO and these foreign, some of these smart EV startups are also facing challenge. So we're giving NIO the benefit of doubt, because they are in that switch mode. And we're all expecting, let's see what happens in the second half, right?

Tu Le:
But we know that the ET7 is not going to be a high running sales volume leader. So we have to look at the ES6 and we have to look at the ET5. So let's say April is a wash. When we get into May and June, we need to look at the ET5 and the new ET…, well let's look at the ES6 numbers in May. I mean in June because the ES6 is just launching right now. It's not going to be able to rescue NIO’s sales numbers until probably July, August time frame

Lei Xing:
Second half. Q3.

Tu Le:
And remember that they talked about 250,000 units this year, which is going to be tough.

Lei Xing:
I do not think they'll get there. It's, let's say 200,000 units, I'll say it's a win or for NIO.

Lei Xing:
And they were at 120 something last year, correct?

Tu Le:
So that's why they said they want to double, roughly 240 ~ 250.

Tu Le:
But this is what we need to start really paying more attention to Lei, and I've mentioned this probably 6 months ago, 7 months ago: are these companies growing faster than the market? And so the market is supposed to grow by 30ish% this year too. Let's say, you said it's not going to hit 9 million, so let's say it gets to 8.5.

Lei Xing:
So January to April, NEVs, CAAM’s numbers, growth was at 42.8%, 2.2 million in the first 4 months of the year. So that can give you an idea of the roughly what may happen full year.

Tu Le:
But so that's a pretty decent number for the first quarter of 2023. But it was goosed by price war. And so that number could have been a lot less if Tesla wouldn't have cut prices in January, and everyone else followed them down that hole. But we also know that Q1 is historically the slowest quarter for Chinese vehicle sales. And so we expect that the Chinese government will intervene, put their thumb on the scale a little bit to re-up some incentives. They've pushed out the 6B regulations.

Lei Xing:
You were going there, right? So as we expected, right, many times, earlier this year, at least one of the, what do you call it? Is that a carrot or a stick?

Tu Le:
Well if it's something nice, it's a carrot. It's something mean, it's a stick.

Lei Xing:
So I think we have three sticks, no three carrots. One carrot has been given out. The other two are the extension of the purchase tax exemption and the purchase tax savings for ICEs still possible, but we’ll see. And Li Auto, right? So they're at the pinnacle. They had their earnings yesterday. So basically, 30,000, Li Xiang said again, they expect 30,000 deliveries in June. So we'll watch out on that. And by 2025, one flagship BEV, 5 BEVs, 5 PHEVs. And their goal is just, so they said 20% gross margins. That's their full-year target. And they just want to grow their market share in the RMB200,000 and above segment by 2025.

Tu Le:
I think that's smart.

Lei Xing;
I think it was 20%. So 1.6 million in sales in 2025. And they probably will do, let's say 300,000 this year. So what's the CAGR? I mean you can do the math, right?

Tu Le:
That is a massive number, CAGR, but Li Auto, I think it's doing the best out of the triplets. We call them triplets. NIO, Xpeng from a share price standpoint.

Lei Xing:
And I just helped a friend of mine buy a L7.

Tu Le:
Yeah I saw you take credit for that, I saw you take credit for their sales.

Lei Xing:
She's like, I didn't want a MAX, because I don't want my daughter to see that big screen in the back. So these are the, and she's like I have quite a few of my friends looking at, it’s like they want to buy it too because it feels so luxury, so premium.

Tu Le:
So we're seeing now that EREVs are becoming major considerations for at least Li Auto.

Lei Xing:
Well and pretty much everyone else, because if you look at the sales numbers, PHEV growth are actually going much faster than BEVs. You have these, for example, Li Xiang he dunked without naming the model which is basically the Great Wall WEY Lanshan, which is right below RMB300,000 for the same size of an L8. So trying to undercut, he was like, oh, they are nowhere near the top of the rankings. They're like number 20 or something.

Tu Le:
But remember, I want you to tell the listeners. The first time you saw the L8, L7, L9 were you impressed? Like interior and stuff?

Lei Xing:
I went to the Solana Mall to check out the, they had the 789 all on display and..yeah.

Tu Le:
It is. I mean the fit and finish. It just feels like high quality. And you can be a fan of the two big screens on the front console or not. But the doors closed really tight, really firmly and the quality of the materials very high. I was like wow, and I was, the first time I saw the L9, I was, I drove it. I was like this is going to break German hearts, this vehicle for sure.

Lei Xing:
The thing is. So L7, if I put on my consumer hat and if I was living in China, is something that I would seriously consider buying.

Tu Le:
Right. Because that's the $45-50,000 car.

Lei Xing:
So it's a RMB350,000. They had the Air coming out which is just slightly above RMB300,000. So, the irony is, they're trying to take away shares of ABB right? But Li Xiang said, interestingly, they're copying the distribution roadmap of ABB in terms of expanding into the second-tier, third-tier or 4th-tier cities. So that I thought that was interesting.

Tu Le:
And this is some of the challenges for those companies. You had mentioned it last week on the show, perhaps, or was it in a separate conversation? Because NIO, didn't you say 70% of all NIO sold are in Shanghai.

Lei Xing:
A third of NIO are in Shanghai.

Tu Le:
A third. Sorry.

Lei Xing:
Yeah, this is somebody from NIO that told me this, so I didn't make this up.

Tu Le:
Now, despite Shanghai being the largest vehicle market in China, that's a problem for NIO that they need to get resolved quickly. That's just like…

Lei Xing:
Same for the AVATR 11, we haven't been to Chongqing but I'm hearing that in Chongqing, there's tons of them in Chongqing because they are made there.

Tu Le:
So just so everyone knows Chongqing is the headquarters of Chang’an, Chang’an is the owner of AVATR, the EV brand or the PHEV brand. Let, one thing that I wanted to ask you before we open up the room.

Lei Xing:
The Geely Chang’an I wanted to.

Tu Le:
Yeah, so we can talk about Chang’an a couple times here. Do you think Ford has given up on Chang’an then?

Lei Xing:
The pendulum is definitely swung over to JMC because what Jim Foley said, utilizing this Ford Pro distribution network, which is making money, where the business unit is making money, and that export agreement of shipping some of these commercial vehicles outside of China. That's a prudent profitability play rather than saying that we have to….

Tu Le:
Because it's basically they're going to be the Asia hub.

Lei Xing:
And Ford owns like, I don't know, 32% in JMC, and that’s been, I mean that's 1995 I believe, investment was made. 

Tu Le:
So for everyone trying to figure this out, China is still one of the lowest cost bases for manufacturing vehicles. You can point to Shanghai Giga as an example of that. It doesn't make a ton of sense for Ford to be shipping from Europe or the United States, because logistics costs on commercial vehicles will crush them, and the vehicle cost would actually be much higher than if they were built in, where is JMC?

Lei Xing:
Nanchang, Jiangxi Province where Jim was actually in April.

Tu Le:
And if we're talking about China, in China, Nanchang is probably I would say half the price of living in Shanghai.

Lei Xing:
Or maybe a third. 

Tu Le:
Even less, right? Even less. The average salary of a Nanchang auto employee is probably a few hundred bucks a month, am I right, few hundred bucks? 

Lei Xing:
I don’t know but it's definitely cheaper.

Tu Le:
Yeah. And then let's do this. You can talk about Geely, but we will open the room up right now to anyone who wants to raise their hand, has a comment, has a question, wants to call BS on anything we've said, please do raise your hand, and we're happy to pull you up.

Lei Xing:
We listed the Geely Chang’an in the topic because they announced a kind of a collab earlier this week, kind of out of blue for some reason. I say that because recently they had a quarrel, these two companies on, I don't know, on products, on the design of the Geely Galaxy, they had a concept. I think there were some fighting going on over this new head of design who moved from Geely over to Chang’an (correction: from Chang’an to Geely). So for this to happen was really interesting because of that, and because Geely and Chang’an they cannot be different, more different than each other. Geely is a private company. Chang’an is a military SOE background. But they also cannot be more same because they both went through, they both are multi branded companies, Chang’an with the AVATR, right, Shenlan (Deepal). They both went through a period of where the NEV strategy did not work out. So I believe this was a match made. There's some push, I think, from whether it's the industry associations or something else. But having said that, you know a company we mentioned a few times, this past few episodes, ECARX, which by the way, had their capital markets day this week in New York City. And they mentioned in the presser that they were going to be collaborating on chips. So I'm thinking that ECARX could be at play here supplying Chang’an outside of the Geely ecosystem. And it's already happened with Hongqi. So ECARX is supplying Hongqi. So that's where I'm thinking that this could be going part of the, yeah.

Tu Le:
And let's be clear that the Chinese government also wants consolidation to happen. They think that there are too many brands that are selling enough vehicles. And so this is probably encouraging to at least folks in the central government. Now the local provinces are a little bit different, right?

Lei Xing:
And also in the past few years, let's say a decade, I remember there were three very important similar type of collabs announced. The end of 2019 was SAIC Motor and GAC group. I don't know if you remember that, but nothing came out of it. In 2012, Chery and GAC Group announced something together, nothing, that ended with nothing happening, and the three centrally administered SOEs – FAW, Chang’an and Dongfeng – they announced something together. This is irrespective to the T3 mobility platform. They announced something like a collab, nothing came out of it. So with Chang’an and Geely, it seems to be more on the surface. It's working together, but…

Tu Le:
They hugged it out, man, they hugged it out.

Lei Xing:
So still question marks really what it's going to transpire out of this agreement.

Tu Le:
It does make sense that ECARX would try to recruit more OEMs to use its platform.

Lei Xing:
So let's just say this: Geely is a lot more vertically integrated than Chang’an and Chang’an is betting with the Huawei play right? With the AVATR.

Tu Le:
And I think most western folks probably hear about SAIC and FAW much more than they do a Chang’an. So there's, it's good that we educate them a little bit on Chang’an, which is headquartered in Chongqing, which is the capital of Sichuan Province.

Lei Xing:
No, it's an independently planned city.

Tu Le:
Sorry. But every time I talk about Chongqing, my friends that are from Chongqing also say I always say it's the biggest city in China, blah, blah, blah. The women are beautiful and super tall. So it's like clock work.

Lei Xing:
That's a bit stereotypical, but.

Tu Le:
That's what they, I don't say it, man, it's just every single time I hear about Chongqing, that's what people say about it.

Lei Xing:
I think that's it. And the only other thing, AV related is the DiDi again in the news working with the GAC AION, speaking of GAC AION, they're setting up a joint venture to produce dedicated Level 4 robotaxis.

Tu Le:
This dovetails into me meeting with DeepRoute and them saying they're working more closely with the OEMs, too.

Lei Xing:
Yeah.

Tu Le:
To try to get their hardware and software onto more vehicles. And again, if we're thinking about the Shanghai auto show, there were 38 vehicles launched with LiDAR. So L2, L3 is in the near future for China EV Inc., closer than most people realize and likely going to bleed into European and U.S. vehicles wthin the next 5 years, we're talking LiDAR and inobtrusive LiDAR that's designed well into either the windshield or the body of the vehicle. 

Lei Xing:
Right. In the case of a JIDU.

Tu Le:
And let me do this. I'm looking through my newsletter.

Lei Xing:
Yeah, so I'm done. I think we covered a lot.

Tu Le:
There's a cool Reuters article that talked about how competitive the market is. Some of the statistics out of it. There were 90 EV SUV models in the China market.

Lei Xing:
I feel like that's understated, maybe add a zero to it.

Tu Le:
20 new products that will launch in April and SUVs, now ICEs and NEVs, SUVs represented 40% of all vehicles sold in the China market. And NIO has applied to use semi solid-state batteries on three of their vehicles. I think that's important.

Lei Xing:
Yeah, that's been like talking the talk forever and not walking the walk, rght? And NIO, by the way, has their own legal or something, the legal account.

Tu Le:
And here's a crazy story because we've seen a few VinFast on U.S. streets now. And there is one friend of ours in particular, who seems to be effusive about VinFast as vehicles and company and chances. But there was an article in Bloomberg I want to say, that said that VinFast has burned through $8.2 billion worth of capital.

Lei Xing:
And it's not like if they need money or their lack of money. 

Tu Le:
That's the thing right? Because Pham Nhat Vuong, who’sVietnamese like me, he is trying to raise or VinFast is trying to raise another $2.5 billion, and he's going to be using $1 billion of his own money to get these vehicles into production. So it looks like the going rate, if you're trying to build these at your own factory and you want to start an EV company, it needs to be around $10.5 billion or $10.5 billion. The chances of that North Carolina facility being built by VinFast are not very high. I remember I was reading this article and I remember about 2.5 years ago getting contacted by Asia Financial, one of the media outlets for Singapore, the financial media outlets. They told me that VinFast was looking for a $40 billion valuation at IPO, this was 2.5 years ago, so they delayed the IPO because they can't build vehicles. One of the non-China EV Inc. that was one to look out for is we can lump them in with Lucid and Rivian having problems, either with production or capital, with Rivian and Lucid, it’s not a capital problem, and for Rivian in particular, it’s a manufacturing problem. For Lucid it’s a demand problem. For VinFast, it looks like all of the above. So anyways, that's all that I had, sir. It was good kind of talking through all this stuff. I think the first 15 minutes was a little bit therapeutic for me because I got a little fired up about all these software problems because I saw this coming miles away anyways. I guess that's it. Thanks for joining everyone. Good morning, good afternoon, and good evening.

Lei Xing:
Yeah, and just to kind of summarize a bit, really, what we talked about today, is using that Warren Buffett quote again, is “automotive industry is just too tough. China automotive industry is too tough. China NEV competition is too tough. Software is just too tough.” I think that's the conclusion that, and all these companies are, the end goal is the same, but the tactics being used are sometimes very contrasting.

Tu Le:
The paths that they take to get there are completely different.

Lei Xing:
This is fascinating to watch and we can dunk, criticize, praise. So it's fun. Yeah.

Tu Le:
Cool. Hey, I'll catch you on WeChat. And Whatsapp then Lei.

Lei Xing:
All right, thank you for all joining. We'll talk to you next time.

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.