Episode 127 - Behind the Wheel: XPeng G6, Pony & Toyota Get More Serious, Jetta to use LeapMotor's Tech

Lei starts this pod out with a brief history lesson about Vitesco which was spun off from Continental’s powertrain business that had some roots at Siemens.

Lei pivots to talking in detail about his time behind the wheel of the new-ish XPeng G6 including letting the City NGP function take over for parts of his journey. 

Tu then points out that as the price war has heated up, more and more complaints have arisen from customers who are purchasing these EVs. Tu takes a moment to differentiate between fails vs. (too) complicated design and how the latter can still be categorized as a fail. 

Lei moves on to a discussion about Xinzhou Wu, XPeng’s head of Autonomous, leaving XPeng to join Nvidia in the US. Lei outlined the numerous reasons this could be and they all could’ve contributed to his leaving XPeng. 

The pod then shifts over to a discussion of Pony and Toyota co-investing $140M in autonomous vehicles. Toyota had already made an investment in Pony and this just deepens their partnership with Toyota hoping that Pony can be their ADAS / AV solution for China. 

Tu and Lei close out the podcast with a discussion of the rumor that Jetta was looking at LeapMotor to advance its EV situation by licensing their EV platform, similar to Audi’s partnership with SAIC. If we are keeping score, that’s three major deals for the VW Group with a Chinese partner if we include the VW + XPeng investment as well. 

Transcript

CEM #127 Transcript
Recorded 8/4/23

Tu Le:
Hi everyone and welcome to China EVs & More where my co-host Lei Xing and I will go over the week's most important and interesting news coming out of the China EV, AV and mobility sectors. What Lei and I discuss today is based on our opinions and should not be taken as investment advice. For those that are new to the show, welcome, and to our loyal listeners, welcome back. We ask that you help us please 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 read 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, TGIF. Can you please introduce yourself?

Lei Xing:
TGIF indeed! This is your co-host Lei Xing, former chief editor of China Auto Review, and this is episode #127. I'll give you an update of my whereabouts this week quickly, kind of a busy week. So you know Beijing had that rainstorm on Monday until like Tuesday, started during the weekend, but…

Tu Le:
I did see some videos of flooding.

Lei Xing:
Yeah it dumped, I read that it dumped 740 some millimeter of rain in a city that gets on average 640 millimeter of rain a year. So that gives you an idea of how much rain poured.

Tu Le:
So hold on. Let's convert this for our American listeners, 700 mills is…

Lei Xing:
So 70 centimeters, and 1 inch is 2.54 centimeters. And you can do the math.

Tu Le:
I just want to make sure that we always convert.

Lei Xing:
That’s the total over several days. So, yeah. So, anyways.

Tu Le:
I heard today was super hot.

Lei Xing:
No, after the rainstorm, it's been muggy. So the temperatures are not as high, in the 40s when I just arrived in June, but it's been muggy. On Monday, I had a chance to go up to Changchun. Now this is an event that a PR contact from Continental, but he's now at VITESCO Technologies and they have this R&D opening. He invited me to go and I was like, okay, I'll go. So I kind of escaped the rain and went up to Changchun which is the cradle of China's auto industry because First Automotive Works is there.

Tu Le:
Dong Bei (northeast China).

Lei Xing:
Yeah. You know, for anybody that's not familiar in the auto industry. VITESCO Technologies may be a new name, but it's been in the industry for a pretty long time. So basically the history is Siemens, and then Siemens VDO, and then Siemens VDO got acquired by Continental and Continental fully integrated it, and then spun off the powertrain business into this new VITESCO. And the reason I want to mention this is because VITESCO developed the 800V hair pin oil cooled stator and rotor for the Xpeng G6 electric drive system. And worth mentioning is they developed this thing in 12 months in what otherwise would take 2-3 years. So because this past week, I just, I was test driving the G6. So I thought that was interesting to kind of understand inner workings of this 800V platform or architecture.

Tu Le:
I'm going to say something about that in a little bit, but I’ll let you finish your thought. Go ahead.

Lei Xing:
So again, the reason why I'm mentioning this is because four words that I will say will be crucial for any of these foreign companies, be it OEM or suppliers, the tier-1 suppliers to be successful in China: number one, speed; number two, partnership; number three, flexibility and number four, experience.

Tu Le:
I think there needs to be five man, capital.

Lei Xing:
Yeah, I mean obviously you got to have money. So that was interesting. And then I finished off test driving the G6 and gave it back yesterday. It turns out I had asked Li Auto to kind of give me one of the three vehicles they have now in the market. And these things are in hot demand for the media test drive. So out of the blue, they said, hey, there's an L8 Max available only this weekend. And I said, yeah, hell, I’ll get it. Let's get it. So I just picked it up today. And we'll drive it over the weekend. And boy, I kind of understand now why sales are off the charts, and why the ABBs are having headaches.

Tu Le:
I'm telling you when I saw and drove the L9 right before it launched. And this was one of the first off the line. So the manufacturing kind of experience on that vehicle hadn't been achieved yet. The fit and finish was awesome. I’m talking, the Germans that would walk around the car,  they wouldn't have a complaint about panel gaps or anything like that. The seats feel great. The color was like the orange color that they have of the interior. I thought that was okay. One thing I would have liked is kind of better integration of the middle screen. And then the screen on the right side in front of the front passenger. But there is no screen, there's no instrument panel, it's a head up display, and I think that's pretty cool. But I think design wise integration of the front console, a little more needs work, but outside of that is, I mean the doors sound great when they close, and it's quick, and it's a good looking car. Now it looks like every single Li Auto car on the road, but you know.

Lei Xing:
That’s the only thing. So my first impression after driving the G6, now G6 is the most Tesla like, let's say, either 3 or Y vehicle, but the L8, which is the replacement of the ONE, is entirely something else. And my initial impression is it drives smooth like butter, comfort, comfortable like the best sofa that you will sit on and a lot of information dump on the screens, including the huge head up display.

Tu Le:
Let me ask you Lei, did you ever drive the Li ONE?

Lei Xing:
No, I've never gotten a chance of driving the Li ONE.

Tu Le:
The improvement, let me just say this. The improvement between the Li ONE and the L9 was massive because the Li ONE obviously was their first vehicle. It seemed heavy, it seemed bulky. Then you get into the L9 and they kind of learned about all of the improvements that probably were communicated via their customers and kind of and understanding, a better understanding of driving dynamics and stuff. So the great improvement between the Li ONE and the L9.

Lei Xing:
So I'll try out the NOA features over the weekend, but I haven’t that much, just still trying to learn the vehicle itself like playing with the screens and some of the features, including there's one button, what do you call it, meditation, feature were the seat reclines in the second row, seat behind you automatically moves back and reclines itself. Like these type of things, but super comfortable, premium, very premium, competing against the X5 and the GLE. So.

Tu Le:
When I tried NOA, it’s a little bit clunky, so hopefully it's been improved, and for, really quickly for our listeners, Li Auto only builds EREVs right now. So it’s extended range electric vehicle.

Lei Xing:
Yeah, I don't notice the big difference between a BEV and a EREV, I mean it drives, accelerates just as good, but I'm telling you, man, I'm having a blast, just trying all these different EVs and understanding the smart features, and oh my god, it's mind blowing.

Tu Le:
That's the thing, how the smart features will translate to the foreign markets, that's still up in the air. I just don't know if American and European consumers are really going to take advantage of a lot of the connected features, but at least Li Auto should be able to stand alone on the fit and finish and the quality of the vehicle. So.

Lei Xing:
Yeah, like we said a few episodes ago, if Li Autos were in the U.S. right now, besides the infotainment, connectivity to smart features, the vehicle itself would do really well. I think it's perfect for Americans, but, it's not.

Tu Le:
It would outsell Merc, the GLC, it would outsell the X5, probably I would think.

Lei Xing:
It drives home the message, I can understand, Li Auto’s model of a mobile family, a happy family. Everything is built around this being in a living room, the way you can recline the seats, configure the seats, the rear screen, the second-row screen, things like that.

Tu Le:
And remember, that the use case that's very unique to China. And this is probably less so for Li Auto buyers, but there's normally a driver and the owner of the vehicle in a lot of cases, in the premium side in China is going to be sitting in the back, in the second row, and for Li Auto in particular and for Chinese consumers, the recent camping and glamping craze has caught on. That was kind of dictated by COVID because they still wanted to be out and about because they couldn't go to stores and they couldn't go on vacation. They decided to go camping outdoors. And so that's why you'll see Xpeng have that movie feature. That's why you can recline seats and watch on the big screen in Li Auto and the back seats. And so that's also pretty unique to the Chinese market. Because you're not going to see too many Europeans that want to sit in their car and watch a movie, I don't think.

Lei Xing:
And the second row, the hand gesture control for the screen, stuff like that. A little bit clunky when I tried it a little bit. But anyway, so Li Auto, this will segway into the July sales. Li Auto launched the L9 Pro today, which is RMB30,000 cheaper than the L9 Max. And the only difference being the hardware, sensor, everything else is standard. The difference between the Pro and the Max is Max has two Orin-X chips, and the Pro has the one Horizon Robotics chip. And the sensor set up a little bit different. And this is, again, a company's, they're tweaking their products, launching additional variants to address even, let's say, a RMB459,000 versus a RMB429,000. Now is that a big difference? Maybe it is, but these companies continue to launch additional trims, variants to address possibly the different segments. And this is a never stopping process, something the foreign legacies are not doing as frequently as the smart EV startups.

Tu Le:
And that's where I want to circle back to the VITESCO, where you said, what took 12 months normally takes 2 to 3 years to develop the rotors. Now there's an article in friend of the show, Carnewschina that said that the complaints about new cars, specifically EVs has increased significantly over the last 12 to 14 months. So.

Lei Xing:
BYD? That's the thing, that's the double-edged sword.

Tu Le:
That's one of the outcomes of iterating so quickly in a hardware world, so we're not talking software, we're talking hardware software integration. Obviously, to a customer, they don't care, they just want things to work. But part of vehicle complaints is not designing it so that it makes sense. So if you can't figure it out, you'll just put that into the bucket of not working. And so that's why we have to really dig down deeper when there's initial quality problems. Because what are the complaints? And if something physically doesn't work, that's one thing. If they don't understand it and they throw their hands up and say, this is just too complicated. That's another different category. But what we're seeing is because these companies are trying to out feature, out iterate, and to your point, these four things, speed, quality and all that stuff. What we're seeing is that a lot of these features are being launched when they're not completely bug free and fully integrated and designed well into the system. And I'll give you an example, part of Apple’s best thing is that as a system, everything works together very well. And so bad systems look like everything works except for this one thing that was added 6 months after the vehicle launched. So you can really tell what are addons or what was designed as part of the system. And I think this is going to be until the price war goes away and the competition and the number of brands kind of settles, we’ll continue to see a lot of complaints on quality and stuff, so.

Tu Le:
So what you're basically saying is shorter development cycles, but at the expense of quality, right? These things may be starting to pop up. And these are what the foreign legacies, actually, they are kind of sitting in the back and watching closely, right? But then again, you have Mercedes recalling their what, EQS, or some of their EVs, they have their own issues, right? Something's going to give. So, but sales, records, records, more records. What can you say?

Tu Le:
So, first, congratulations to NIO. They got over 20,000 for the first time. Psychological, I tweeted, psychological and literal goal achieved.

Lei Xing:
And 10,000 ES6s, first time ever, first time ever that a single model from NIO does a 10K per month. 

Tu Le:
That’s huge, right? And I saw that there was one person that tweeted the ES8 is, lead time is longer now. So it it's not necessarily because demand is higher for the ES8, I need to look at the numbers more closely because I'll give a quick example. If there's 250,000 units of capacity at a factory, and we're seeing a spike in ES6 demand, it's not necessarily that there's also a spike in ES8 demand that's creating the increased lead time. It could be that NIO is prioritizing production of the ES6 and pushing out, because a lot of lines, you can't just build an ES6 and the ES8 one right after the other. What they'll try to do is schedule the same vehicle as many times as they can before they switch the line over to a different product. So is it really ES8 demand has increased or are they prioritizing production of the ES6, which will get into the hands of more consumers?

Lei Xing:
You make a good point.

Tu Le:
So I just wanted to specify, and I don't know if ES8 demand has increased or not, I just want to say there could be another reason why the lead time increased on ES8s.

Lei Xing:
So my mole at NIO is basically saying you know 20,000 a month, I said 180,000 is a win. It looks like if they can get their act together, if this continues, 180K should not be a problem. And 200,000 could be even possible. That's what I’m hearing for the remain remainder of the year.

Tu Le:
I want to see two consecutive months before I really jump on the momentum bandwagon for NIO. I’m hopeful!

Lei Xing:
And I’m hearing that August could be even better because they still have, they're still scaling, they're still ramping. And so we'll see.

Tu Le:
The other thing about July sales is, I believe Tesla sold more cars in June than they did in July. So what are they going to do? We'll segway that into what you've heard about the M3 refresh, Lei?

Lei Xing:
It looks like it's coming in Q3, later in the fall or early in the fall. Let's say.

Tu Le:
I heard early in the fall.

Lei Xing:
Yeah, so we mentioned the sub-RMB200,000. What do you want to call it, it's coming. I think the industry will be bracing for this model. Let's just put it that way.

Tu Le:
This directly places, this places Tesla directly in competition with BYD which is the heavyweight battle that is playing out anyways.

Lei Xing:
They've been direct anyways.

Tu Le:
But indirect direct because I still, I think people in China or Chinese consumers still think Tesla as more premium. But hw can you be premium at RMB200,000?

Lei Xing:
Not premium like Li Auto, but you know..

Tu Le:
Yeah so like so, not premium, but not mass market. I'm anxious to see what they define as refresh. Is it, because I know the front end is a little bit different, the rear end is a little bit different, but at the end of the day, are there newer, better features or more efficient battery pack? Because we also saw that article by our friend about range gate, right? So.

Lei Xing:
There's a new, what is it, 66 kWh NCM battery pack, a small tweak, I think in the battery pack. So.

Tu Le:
But let's close out July sales, any surprises or anything you, any other things that you want to talk about the July sales?

Lei Xing: 
I think BYD, no surprise there, Denza doing still pretty good, because the N7 is starting deliveries, and N8 is launching tomorrow. You don't stop, right? 

Tu Le:
They are, so that's who everyone else is trying to keep pace with, ok?

Lei Xing:
And more recently that they're revealing, is it Yang Wang, the U8 interior is being revealed. 

Tu Le:
But let me say this Lei, it's totally unfair because BYD hired 30,000.

Lei Xing:
30,000 people in one shot or something.

Tu Le:
So as Xpeng, they don't have 30,000 employees. Do they? I don’t think they do. NIO I think might have 12,000 employees or something like that like. So it's totally unfair. But BYD is setting the pace for sure, and not just in China. They symbolically, I wrote this in this week's newsletter, they became the number one EV product in a European city, in a European country. It's Sweden, but these are all symbolic like firsts for a Chinese EV company, full stop, Chinese company, Chinese EV company. And so BYD has had so many firsts over the last 18 months, it is mind blowing.

Lei Xing:
And their 5 millionth NEV is rolling off, I think next week. So.

Tu Le:
You don't hear those Tesla people say, but they build hybrids. So if you, they outsell Tesla, but that includes plug-in hybrids. Now they're selling more electric vehicles than Tesla.

Lei Xing:
Yeah, I think the fact of the matter in the Chinese market right now, this wave of plug-in hybrids be it EREVs or the regular plug-in. There's this wave and they sell. You look at the Great Walls, the Lanshans, the Gaoshans. And even some of the, there's also been talked about, even, let's say, a NIO or some other BEV-focused brands moving to the plug-in hybrid model line up. 

Tu Le:
I got to say this, I’m getting a real time fact check, so at the end of 2022, NIO had 27,000 employees, and Li Auto had about 20,000 to Xpeng’s 16,000. So thank you, NIO Nordics. Maybe you would like to have a job at my consultancy because definitely love good research folks that can quickly give me new data, right?

Lei Xing:
Too many numbers to remember. You call it a surprise or not, but a lot of records fell, right, in July. But overall I think what CPCA announced in July was actually I think they were down from June, but if you look at on August 1, I think by my account I put that chart, but down to the brand level, 30 some brands announced NEV sales pretty much on the first day, the first 36 hours of August, including Buick. Buick is doing pretty well.

Tu Le:
Yeah, I saw that. 

Lei Xing:
Volkswagen, 10,000 ID.3s, it's an order number, it's not a sales number, but they put out a poster.

Tu Le:
That's also because an ID.3 costs about $17,000 now, too.

Lei Xing:
So never, I think this is the first time ever that so many automakers and brands announcing sales on the first day, NEV sales on the first day, I've never seen this many just fighting for attention.

Tu Le:
There are haters on Twitter that are saying there, this is a bubble, and there are lots full of EVs that aren't sold blah, blah, blah. And there are parking lots full of EVs, yes, sometimes that's because they're not delivered yet. And yes there's a couple of provinces that probably have an EV manufacturing demand issue. But you have to look at history in China and the automotive sector, Volkswagen, GM, Stellantis, all these foreign companies, they've had these sales. So Volkswagen still 4 million cars in China, just 5 or 6 years ago. So you can have all these conspiracy theories that you want, but they're booking revenues, these foreign companies are booking revenues. So now, is there excess capacity in China? Without question in the OEM, EV and then on the battery side, too, is always going to create pressure to export. But to say that this is a bubble and it's going to collapse, I think that's like a conspiracy theory. So.

Lei Xing:
Yeah, I tend to agree. I mean there's both the good and the bad. So I’ll give you an example. So I posted a picture of me with the G6. And somebody pointed out a taxi parked over that space lock. By the way, that space lock, the material, it's a plasticky material, it’s not metal. So when that taxi driver that taxi left, another one pulled in and the driver is like, oh don't worry about it. You can just drive over it. I mean the abuse this is something like there's nothing Xpeng can do. I mean unless, all they want to do is a quick charge. They have 200 km left on the range. They said I'll charge for 5 minutes, 10 minutes, and I’ll leave. Like these, I mean without being there, I would never know this kind of people's habits, right?

Tu Le:
It's getting better. It’s getting better.

Lei Xing:
It's hard like maintaining these charging stations. I mean they take a lot of abuse.

Tu Le:
They do, and there's still people that, just like in the United States where people that aren't driving EVs park in EV charging spots and things like that. So that happens, and happens in China, too, so. Hey let's move on to the big news about an Xpeng executive leaving. Can you tell us what happened this week with that?

Lei Xing:
So Dr. Xinzhou Wu, the vice president of autonomous driving who joined Xpeng 5 years ago from Qualcomm, I believe, basically, He Xiaopeng confirmed his departure on Weibo. And there has not been any official kind of press release, at least I haven't seen. So. That's kind of interesting on Xpeng.

Tu Le:
But it was widely covered by western media, too.

Lei Xing:
Yeah so, the caveat is that this has been in motion for 10 months as revealed by He Xiaopeng himself. So he's a crucial person behind the XNGP and I guess he's leaving for NVIDIA, which really, I'd say it's not so much leaving, because NVIDIA is a huge player in the smart EV ecosystem in China. You can't live without NVIDIA. You can't, right?

Tu Le:
Which creates potential challenges for companies that are using NVIDIA AI chips in China, but it also creates amazing opportunities for a Black Sesame and Horizon Robotics.

Lei Xing:
Yeah, so I’m not so much worried about him leaving and that the XNGP development post as departure. I am more worried based on my own experience of the G6. I told you yesterday I would describe it in terms of the XNGP feature I've been trying out in Beijing on the ring roads. It's a love hate thing, sometimes really well, sometimes it’s aggressive, sometimes it’s hesitant. And is that what sells? I don't know. I'm not so sure that, but I have no doubt that Xpeng can continue this rollout with the XNGP, I think they are saying like 200 cities by next year and next year or something.

Tu Le:
Not only that, but He Xiaopeng in a Weixin post or Weibo post, said they're going to be, they're going to be entering dozens of foreign markets next year.

Lei Xing:
Foreign markets, right. In one of the interviews, I guess, CGTN interviews.

Tu Le:
And I have to say, Lei, that the first time I rode in a Baidu Apollo L4 robotaxi with the safety driver, it was clunky like that. It was aggressive, it was like abrupt breaking. And then I want to say less than a year later, maybe 8 months, I got in again. And that was all smoothed out. And that is NGP needing to mimic how a human driver drives. And so that's kind of a software thing that can be programmed in. And so to your point, I think NGP has only been rolled out for outside of Guangzhou for several months, right? And Beijing is a unique traffic situation. Guangzhou is a unique traffic situation. And so as more data gets collected and they understand the Beijing traffic patterns a little bit better. I think that'll get smoothed out. So I would bet if you got in 6, 7, 8 months from now and used XNGP in Beijing, it would be a lot better or a lot smoother. Let's just say that.

Lei Xing:
So the evening when I returned from the Changchun trip going from the Beijing Chaoyang Railway Station driving the G6 back, basically the XNGP when you get on the the ring road so 4th  ring, going on to the ramp for the Tonghuihe North road onto the second ring road, everything was done by XNGP and from the second ring road to the Capital Expressway, going on to the third ring road, going on ramp, off ramp it was XNGP. You kind of have to trust it, but it did work. So it's impressive. But I told Xpeng, lots of improvement, it needs to learn, the system need to learn. And maybe another, I guess update to make more feature rich. 

Tu Le:
And one thing that people should keep in the back of their minds is that in China, specifically, there will be V2X hardware that gets implemented in first the tier-one cities and then the lower tier cities. So V2X is a vehicle to vehicle communication or vehicle to traffic information where it's not just inside the vehicle and in the cloud that they're using the data from that, to drive the vehicle, but they're also going to start using external data points to help create the scenarios and make the decision. So it'll get better as more and more smart EVs get on the road, but also as China increases the V2X infrastructure to support smart, connected vehicles. Because remember, when you went to Baidu, they had that room that was all just V2X stuff. So.

Lei Xing:
Yeah, and back to, I think we talked offline about some of the reasons why Xinzhou departing. First of all, I think it's naive to think nowadays that anybody would, especially in a startup environment, a possession like Xinzhou’s, would stay at a company for a long time. So that's number one and the second. It's many things, right? There's talk about citizenship, there's talk about just family. I think there's a lot of reason combining into one. And maybe he felt that his mission was completed. And now it’s time to go back and maybe closer to the family, stuff like that. What do you think?

Tu Le:
So there's a couple of things going on here. In Silicon Valley, you normally get restricted stock or some options when you're at a startup in lieu of salary. So a lot of times executives and it normally vests over 4 years. So 25%, 25%, 25%, so what you'll see is after 4 years executives will leave because their shares are vested or the restricted stock is vested. So that could be the scenario, one of the factors. The other factor is, so a little bit of background. So Xinzhou Wu got his Ph.D. at University of Illinois Urbana Champagne. So he likely became a U.S. citizen around that time. And it is not unusual in Asia for, and it's normally the man or the male in the relationship that goes and lives somewhere else. And then sends the family to Australia, sends the family to the United States, sends the family to Singapore. So he has probably been living away from his family for quite some time. And if you think about COVID, we didn't come to the United States for 2.5 years. So he missed his kids growing up for over 2 years. And if you have small children, that's a huge period for them. And missing that when they develop, it is heartbreaking. And so I agree with you that there's one million different reasons, and we heard a bunch of other stuff, but I think it's just a multitude of reasons. So.

Lei Xing:
And if we were to summarize into one simple reason, it would just be that it’s too “juan”. He's been involuted, what do you call it the involution, right? How people compete in China? He's been doing that over the last 5 years, so it takes a toll on you.

Tu Le:
Because I guarantee you, he works easy, 10 hour days, 6 days a week.

Lei Xing: 
So that's what made me appreciated and respected the time that I got to experience the XNGP and the G6. And I told Xpeng about this as well, that a lot of sweat and efforts went into this development. So.

Tu Le:
Let's do this, Lei, we are at 9:45, you and I can keep talking because there's still a couple of things that I think we should go over. But we will open the room up. I know there is a question about an IPO for the NIO Power, but we'll hold off on answering that question for a second, but I did want to let folks know that Toyota and Pony.ai have decided to co-invest $140 million in autonomous vehicles. So Pony will provide the technology and Toyota will provide the vehicles. So, I can't help but point back to our conversations with DeepRoute in with Maxwell, who had talked about partnering with OEMs to utilize their hardware software stack incorporated into the vehicle so that it's part of the design of the vehicle as opposed to add-ons after the fact. So that's what we're likely going to see from a Pony Toyota joint venture vehicle. So $140 million doesn't sound like a lot, but we have to remind folks that Toyota has invested hundreds of millions of dollars in Pony.ai over several years.

Lei Xing:
$462 million in early 2020, which was a B-round financing round, and Pony uses Lexus, uses the Toyota Sienna, and now they're using this next, I guess one of the latest BEV models produced at Gac Toyota.

Tu Le:
Should we expect an announcement from GM and Momenta?

Lei Xing:
Won't be surprising, I mean.

Tu Le:
It will not be surprising.

Lei Xing:
And then the other cases WeRide has an investment from Nissan, right, and GAC Group.

Tu Le:
For those that are wondering about my comment on Momenta. GM invested $400 million in Momenta in 2019 or 2020 I want to say.

Lei Xing:
I think it was during the pandemic.

Tu Le:
So Momenta, which has been kind of quiet, has significant investment from OEMs as well. So.

Lei Xing:
Yeah, so this is one camp of players having this OEM investment. The WeRides, the Ponys.

Tu Le:
And it's what we're going to see, long-term is this convergence of the Xpengs with their XNGP, Li Auto with their NOA, and NIO with their own proprietary system, clash with Toyota Pony and likely GM and Momenta. So it'll be interesting. I think it's going to be sooner rather than later within the next 5 years, we're going to see Toyota vehicle powered by Pony.ai or something like that similar to the Intel Inside marketing strategy that Intel took with Windows machines. But again, we are in the smartification, to take the words from Brian Gu of Xpeng, we are in the smartification phase of the EV space and mobility space in China. Whereas we're still in the electrification phase in Europe and the United States, ok?

Lei Xing:
Yeah from a kind of a penetration, starting to penetrate perspective.

Tu Le:
Yeah, so anything else that you wanted to talk about?

Lei Xing:
No, just LeapMotor rumors with JETTA, part of Volkswagen again. So basically Volkswagen Xpeng news for the second straight week.

Tu Le:
So I threw out some red meat in my newsletter about that, because Audi and JETTA is kind of a peculiar brand for them to be using LeapMotor. I know price points are similar, so that makes sense. The general brand for those that are familiar is this is where I’m confused a little bit Lei, with Skoda versus JETTA. I don't know what the differentiation is. But JETTA is there low and mass market brand with vehicles less than…

Lei Xing:
Lower than Skoda.

Tu Le:
But how much lower can you get?

Lei Xing:
JETTA for many years, was one of the number, one of the leading, selling nameplates in China. And then it got turned into a brand in 2019.

Tu Le:
It has been struggling.

Lei Xing:
Yeah, well, I mean it's mediocre. Let's just put it that way, and they have no NEVs.

Tu Le:
Yeah, and it's the lower tier-cities that support the JETTA, really, sales anyways.

Lei Xing:
Yeah, so RMB100,000, even lower, models.

Tu Le:
So I had speculated that they've taken care of Audi potentially with the SAIC partnership. And they're working with Xpeng for Volkswagen brand. And they've taken care of JETTA, which, the only real vulnerability I see, assuming that these three potential partnerships really does well, is Porsche. And there's currently no partnership with anyone with Porsche, and Porsche is the only thing. I take that back, is primarily the brand that's keeping the entire company afloat right now, because ICE sales in China is falling off a cliff and we know that Porsche has only done one thing in China, since it entered in 2013, I want to say Lei, or when did it enter? Anyways, a long time ago.

Lei Xing:
20, let's say they just celebrated 20 years two years ago, 2001, I think was officially.

Tu Le:
Ok. The one thing that Porsche has done in China since it entered is grow, they've never had a down quarter.

Lei Xing:
I think record sales every year I believe.

Tu Le:
Yes. So Chinese consumers have a huge appetite for Porsches and it is not unusual to see a bunch of Macans and a bunch of Cayennes driving around in a lot of tier-one and tier-two cities. But their EVs kind of suck. The Taycan is a beautiful car, but it's a terrible EV, range is low, small, but the premium sector in the NEV space was slow to bring on startup brands. That's changing this year, right? Can you, can you expand on some of the brands that are entering the premium space Lei?

Lei Xing:
Well I mean the state-owned startup brands, right?

Tu Le:
Yang Wang.

Lei Xing:
BYD, Chery, any of these Chinese automakers, they'll have one.

Tu Le:
So the premium space is going to get super crowded. The Polestar 3 is coming out, the EX90 is coming out, the Lotus Eletre is coming out.

Lei Xing:
And that's a reason. Did you see that first half import, vehicle import was down pretty significant? Because that's the exactly reason because they sucked out these, that would otherwise be the premium imports because now China on its own or domestic players are able to offer these even RMB1 million, let's say the Yang Wang versus the RMB1 million Land Rovers or something else, right?

Tu Le:
And what's important and you know this Lei, is that they will market them aggressively in China. So Porsche really needs to reconcile their marketing strategy, because I would argue they didn't have much of one over the last several years because they didn't need to. But as more premium brands as Chinese consumers start to more and more embrace Chinese domestic brands, am I saying that Porsche sales are going to fall off a cliff? Of course not, but any weakness in demand, any significant weakness in the band, and effectively, if Porsche coughs, Volkswagen Group is going to have a bad flu. I think it's worth noting that let's see what ends up happening if they make any moves in Porshce, pay attention to that, everyone, because I think over the next eight, 20, 30 months, especially if we see electric sales increase significantly, Polestar 3 sales increase significantly, how will Macan and Cayenne sales do? Okay? Because the credible Macan EV and the Cayenne EV, they are still a year or two out, I think, right? So.

Lei Xing:
Mid-decade.

Tu Le:
Yeah it could be pretty challenging for Porsche in the China market, where they've had no peer for forever. Let's answer this question, Lei and I’m going to give you the first shot at it. Thinking about scenario which NIO Power will eventually IPO as a separate company, multiple OEMs making strategic investments and accelerate the rollout in China and other regions, wondering if how will existing NIO shareholders benefit from this? Thoughts? Good question.

Lei Xing:
Yeah, good question. And basically, what I said about the fact that standards, swapping standard that NIO may be betting on. I think this is somewhat related or I think at the current, what NIO, a major offensive or a major goal is really to build out the remaining 700 that Li Bin said that they still need to be constructed the remainder of the year. It's a finance question. I wouldn't be able to answer it, but I think at the top of my mind, I still think this is the de facto standard being at play, and then whether they can get that standard and that becomes standard, I think anything is possible. 

Tu Le:
So here's how I look at it. I think that if we assume that all the OEMs, foreign OEMs have had conversations, several conversations, they are courting some of these China EV Inc. And Volkswagen actually asked to marry one. Okay. What I do know and you know, Lei, is that in the automotive sector, there is definitely FOMO, so conversations that NIO had with X foreign OEM, Y foreign OEM, they probably kicked up a notch or two after Volkswagens announcement of a 5% investment into Xpeng. The kicker is this kind of dovetails into your question, NIO Nordics, that if you're going to invest in NIO, you need to buy into the swapping. And what NIO is looking for is one major foreign OEM to say we're into that. Because if one of them signs up, it automatically increases utilization at each of the swapping stations, most likely. When the foreign OEM uses the EV platform of NIO’s, okay? But when you're a foreign OEM, you have to consider that as part of your transaction price, how much you would benefit? Or what's the risk of creating a new vehicle platform off of NIO swapping, okay? And again, I point back to the number of chart or the number of swaps that can happen in most major Chinese cities, and then point to Europe where the number of cities with one million people are much smaller. So in order to make the transactions in the swapping stations profitable or at least less costly, we need to have high utilization of those swapping stations. And so it could be that once the foreign OEM jumps on board, then NIO Power has momentum to go IPO, okay?

Lei Xing:
And maybe this is the way I put it, let's say, from a swallowing a pill point of view, if Volkswagen can swallow that pill by depending on Xpeng, if GM, Ford, Rivian, Volvo, Polestar can swallow a pill by depending on Tesla NACS, why can't a Merc, Audi, BMW swallow a pill and do something in terms of swapping?

Tu Le:
This is important because you make a good point. This is the largest disruption in the global automotive sector ever. I think it's more of a disruption than the assembly line from Ford Motor for the Model T because we're involving non-automotive companies. So the competition in each of the regions ratchet up substantially and where the assembly line could be copied. We're seeing foreign legacies having real challenges with becoming software engineers and real challenges of building affordable cars without Chinese rare earth metals and Chinese batteries. And that's going to happen for the foreseeable future. So the reason I say that is because battery swapping needs people for adoption of battery swapping. People need to change habits. And what is happening right now? Besides this huge habit change of instead of going to a petrol station, I'm plugging in. And so to your point Lei, this is the perfect time for this new use case, this new technology to finally be adopted. It's already working in China. So it's proven out. But again, it's limited by its effectiveness because the size of cities and the number of vehicles, in Europe, the number of new vehicles in Europe, in the United States, or Europe, at least is very small. For now, United States still nonexistent. If a foreign automaker comes on board, adopts the swapping platform, that's huge for NIO. They know that. So.

Lei Xing:
I mean NIO is already one of the biggest charging operators in China. We got to stress that. And why can it not become one of the biggest swapping operators in China? I think we'll look at it from that point of view. And so I'm not saying Merc is going to do it with NIO, but.

Tu Le:
That’s what everybody is going to take from this podcast Lei, everybody's going to take this podcast, “Lei said that NIO is going to use…

Lei Xing:
No, no, no, I’m not saying that. 

Tu Le:
Or Merc is going to use…

Lei Xing:
I'm not saying that, but I'm just saying that that the floodgates have been opened, right? That the Volkswagen Xpengs are going to come, and they're going to come in multiple deals from now from here on out, so.

Tu Le:
Yeah, I, and we also have to remember, NIO is going to be launching two other brands. And so the swap stations could be used by more vehicles just under NIO’s umbrella. So.

Lei Xing:
Yeah, I guess. And then the last hurdle for the NIO phone, I guess, has been crossed.

Tu Le:
Are you curious to touch and feel that thing?

Lei Xing:
That's also coming in the fall. So pretty soon before we know it's coming. I'm not a big fan of NIO doing the phone, by the way, but…

Tu Le:
Me neither, especially because they just got over 20,000 units of sales, so they should continue that momentum. But I think that's it for me, man, let me check something real quick.

Lei Xing:
Same here. I think Huawei just announced their HarmonyOS 4.0 tonight, we can study on that.

Tu Le:
And then that's all I have. So let me close it out today unless anyone, let me check, make sure anybody has. So again, real time fact checking Lei, Porsche will launch the Macan Boxter EV in 24 and 25. Cayenne and new high-end SUV will fall in 26, 28. Hey Cedric, thanks for the note, but we have some moles. And those dates are probably going to get pushed out. Let me just say that there's a decent likelihood those dates get pushed out, because the software is not going to be ready. We shall see. And that's why I spotlighted Porsche and the pressure they might be under come 25. And these products are still delayed because they have a small window in China. And they're not going to get share that they lose back. Or if they do it’s going to cost them a bunch of money to do that, bunch of marketing dollars to do that. So I think those cars are for sure going to get delayed because of the software. So, but these are their official announcements. And so thank you for letting us know that. But that's all I had, sir.

Lei Xing:
So from now on until the end of the year, we're going to hear continue to hear, more of these rumors of foreign companies utilizing Chinese platform and tech. I think one of the biggest things we're looking forward to is really the refresh, the 3, that's going to get give another jolt to the price war to the market.

Tu Le:
Actually, I take that back. There's a couple of things I want to talk about. The first one is the Chinese economy is really struggling. So it's going to take a lot of effort to get NEV sales to the traditional levels of Q3 and Q4, historically. And so that, to me, means that the price war will continue through 2023, for sure. And so, there's going to be desperation from Chinese brands, right?

Lei Xing:
There's been a price cut from the LeapMotor, right? For the C01 and C11. And then NETA launched a model called Aya, which is basically a disguised, one of the earlier models at a relatively cheaper price. So these are the tactics.

Tu Le:
And I spoke with an ex-automotive executive this week. I mean he's a tech guy, and he was working out at one of the technical centers. He was running one of the technical centers in Palo Alto for the legacy, one of the legacy autos. And he's skeptical about and Cedric, this is why I still believe Volkswagen’s going to have software issues with the Porsche. He still thinks they're miles behind a Tesla, and a Rivian, and a Lucid let alone Chinese EV companies. So they have to swallow their pride and they have to buy, Volkswagen has done it, but the rest of the automakers really need to do it in order to have a chance to catch up. Because, again, let me emphasize the Chinese market is very, very unforgiving and any sales that the foreign legacies lose today, and then the next 18 months, is going to be very, very difficult to wrestle that back from the Chinese EV companies, so just wanted to kind of say that. But hey, thanks, everyone. I actually think that the 9 am is a pretty good time for a lot of people. I appreciate the comments and the real time fact checks.

Lei Xing:
It would work great, because when I go back, it will be 9 am and I like mornings better than evenings.

Tu Le:
The Friday always gives us a chance to kind of we can review kind of thing. I think that's good, too. So.

Lei Xing:
Yeah, yeah, yeha.

Tu Le:
So thank you everyone for your questions and for listening in. Good morning, good afternoon, and good evening. We will talk with you all next week. 

Lei Xing:
Likewise, bye bye!

Tu Le:
That brings us to the end of this week show. Lei and I thank you for tuning in. My name is Tu Le and you can find me on twitter @sinoautoinsight. You can find Lei on twitter @leixing77. If you wouldn't mind rating and or reviewing us on Apple Podcast, Spotify or wherever you grab your podcast from, we'd appreciate that as well. Even better if you enjoy this show, please tell your friends about it. Please join this again next week as we track down all the latest news on China EVs & More.