Episode #156 - EU leans PROTECT, Outcomes from the Two Sessions, Global Auto Heads to Brazil

Tu and Lei start this podcast out with going over the latest news on the tariff situation on Chinese EVs in the US and EU with the EU now also seeming to lean towards increasing protectionism. 

Lei then moves the discussion over to the R2 launch from Rivian, the follow up to their R1 and emphasizes the affordability factor with the R2. This turns into a broader discusision about Rivian and what it will take for them to ultimately be a successful automaker. 

Their attention turns to the Two Sessions, the Chinese government's largest conference that sets the economic priorities for the year and has most automotive CEO's attending. Lei dives into some of the details of the policies that are being considered at the conference. 

The podcast closes with Tu discussing the recent investments by legacy OEMs as well as BYD & Great Wall into Brazil and South America and how their powertrains differ from the battery electric vehicle. He believes that this is one of the next big potential growth opportunities and the investment into the sector illustrates that.

Transcript

CEM #156 Transcript
Recorded 03/08/24

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 global 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 lower listeners, welcome back. We ask that you please help us get the word out about this podcast 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. A just returned from the north Lei. Can you please introduce yourself.

Lei Xing:
North of the border? I guess? This is Lei Xing, former chief editor of China Auto Review, and this is episode #156. Well, happy International Women's Day.

Tu Le:
Oh it’s women's day. Ok. 

Lei Xing:
I'm not sure if the U.S. celebrates it, but it seems like when, it's a big holiday, when we were in China, you, right? It's “Nu Shen Jie,” it's a pretty big holiday.

Tu Le:
Yes. But then it's like for the 364 other days, it's men's. 

Lei Xing:
Anyways. And where do we begin? We have the ax fallen a little bit on the EU side of the EV, China EV probe. And while the U.S. we just had the Biden State of the Union Address and obviously China was big topic.

Tu Le:
Front and center.

Lei Xing:
Front and center, yeah. 

Tu Le:
TikTok is poking the bear again.

Lei Xing:
Yeah, and I guess we start off there, with this registration announcement from the EU Commission.

Tu Le:
So hold on. Let's sort out the timeline. So late last year. Ursula von der Leyen.

Lei Xing:
October.

Tu Le:
Who's the head of the, yeah, who's the head of the EU, they made an announcement about an investigation that they were launching into anti-subsidies for Chinese electric vehicles and the combination of the challenging economy in China with sales kind of plateauing on the EV side or NEV side, increased exports into Europe has really pushed the topic into the forefront. So this week, it sounds like they're leaning towards tariffs. So go ahead, Lei.

Lei Xing:
Yeah, so that was her own kind of state of the union address where she announced that probe, and the war being used is “injury:” injury to the European auto industry, right? And then on, I guess, the timeline a little bit, on February 20. This Alliance of American Manufacturing came out with a document, basically saying that the existential threat from China EVs and then nine days later, Biden came out with a statement on the national security risk of, for the U.S. auto industry. We talked about it last episode a little bit, but I guess the way to describe it was.

Tu Le:
Let me say this Lei, obviously with Biden, there's certain amount of self-interest because he has attached himself to pro-labor, pro-labor. So.

Lei Xing:
With the Michigan, Ohio being these swing states, I mean that statement was obviously for, really, made for the voters, basically. It's kind of like on the EU side, it's cutting off the tails, whereas on the U.S. side, it's cutting off the head. So to describe it, because in the U.S. China EV has not come in yet, at least not the indigenous brands. Whereas in the EU, they're already there. Now you're seeing this action taken.

Tu Le:
The faucet seems to be turning bigger.

Lei Xing:
Yeah. And on the U.S. side, I guess the next action step is for the Commerce Department kind of conduct their own investigation and the eventual outcome. And several senators already put out statements that they wanted to basically add tariffs, 100%, 125% tariffs, according to some.

Tu Le:
I think was it Marco Rubio that said 125%. Was it that?

Lei Xing:
Yeah it was either him or Hawley? There was another senator. So I think it's probably a foregone conclusion that we're going to have increased tariffs. But I guess on the U.S. side, the fact of the matter is that they're not here yet. So.

Tu Le:
Well, here's what's happening Lei. The USTR is looking at scenarios at different tariff rates. So if we assume that 25 is the floor, there is a decent likelihood that they will increase. They're probably looking at 40, 50, 60, 80, and are looking at how that's going to affect the U.S. economy, how that's going to probably trigger some form of retaliation, and they are gaming everything out, playing, trying to play 3D chess. But I've also been told by actually multiple sources now that that Mexico back door is going to be closed both by either administration. They're trying to also cover up any potential leaks or opportunities. Now, in the U.S. where that leaves the U.S. 3 with regards to batteries, is a head scratcher because they can't build affordable EVs. And I had discussion, you konow this Lei, I had a discussion earlier this week for Reuters, with Henry Sanderson and Steve Levine and Ilaria Mazzocco. And we talked about this stuff. And you and I know, and I think the close watchers of the EV sector over the last several years knows that this is not even a race. I mean China is so far ahead of Europe and the United States from a battery cell capacity standpoint, but also the rare earths. We're hearing about that more and more now. And we know that there's a ton of investment in the United States that's going into mining lithium and other minerals and then also refining. But we know that the likelihood of mines and refineries outputting enough minerals lithium and specifically to supply hundreds of thousands of units of EVs is years away. We're talking probably through 2030. So.

Lei Xing:
Yeah that lead time is pretty long.

Tu Le:
We know that the Inflation Reduction Act restricts, as the years go on, restricts even further.

Lei Xing:
The percentages.

Tu Le:
Non-ally or free trade, non free-trade countries supplies. The only way I see this working for the U.S. 3 in order to build in the next 5 years affordable at, and when I say affordable, I'm saying under $45,000, because if you add the $7,500, then it makes it much more affordable. But that's kind of where I'm looking at. I don't know what your opinion is, but I'd love to hear it.

Lei Xing:
Yeah I mean, the R2, Rivian R2 just came out with great fanfare. I think RJ just posted that they got 68,000 orders for the R2 and at $45,000 starting price, I think as, let's, if I put on an average consumer hat, it's still not at the price expectation that I have. That R3, yeah, it's a cool little EV, $30,000, $25,000, can it get there? It’s still not there yet, right? In terms of affordability, right? That's I think, as a consumer, any country, any market.

Tu Le:
The one thing that is important, Lei, the one thing that is important is that there was so much hype for this R2 and R3. That was only one product over the last several months that has launched. This happens in China every week.

Lei Xing:
Every day.

Tu Le:
So. Exactly, every day. And so, if we had a handful more of startups that brought excitement to the sector, I think we would see a ton more demand growth, because again, I think the determining factor is the price point and the R2 at $45. That means that R3 needs to come in at around $35 I would think, in order to not steal customers from the R2, but the R3 is much smaller than the R2 as well.

Lei Xing:
So considering Rivian is still a kind of a premium off-road brand. So it's not a Volkswagen, it’s not a Toyota.

Tu Le:
Now one thing I wasn't clear on Lei, are they not building that Georgia factory or they're delaying it?

Lei Xing:
I think it's the delay. I think it's a delay that putting the R2 in Illinois first most likely the R3 in the Georgia plant to kind of move up production delivery, I guess.

Tu Le:
Because we know that they're still having challenges of manufacturing. And we're talking 10,000 units a month problem. So if the R2 doubles, let's say it's a 2:1 ratio from R3 to R2 sales or R2 to R3 sales. 

Lei Xing:
R1.

Tu Le:
There's going to be another. Yeah R1 sorry. There's going to be a step function. So if they are selling 10,000 a month, they're probably going to be selling a total of 30,000, maybe. And I'm making all these numbers up, right, Lei. But there's going to be another learning curve for manufacturing because it's not incremental increase. But the line, the speed of the lines in Illinois need to increase significantly if they're building times three of what their current volume and capacity is. So there's a lot of challenges. And the one thing that we should also know, GM, Ford Stellantis, NIO or Kia Hyundai. They will not be sitting around. They're going to have revised versions of their crossovers and midsize SUVs, at least in hybrid form, if not full BEV form, hopefully they have to compete at that $45,000 price point, not to mention Scout, the Volkswagen brand that's being relaunched is going to have a vehicle by mid-‘26 as well.

Lei Xing:
Yeah. And then back to your earlier question is really this protective measure that are now in place in the EU and the U.S., I would say the last frontier for the China EVs. The time that you talked about that, they will buy, one year, two years, three years. How would that help? It's not that clear in terms of getting all these affordable EVs. It doesn't.

Tu Le:
Lei I'm going to be less optimistic and diplomatic than you. I haven't seen any changes living in metro Detroit. So I’m within 7 miles of Stellantis, I haven't seen any real changes in culture or speed at which decision making needs to happen.

Lei Xing:
And we talk about the hurt factor. I mean there's, from the China EV perspective, but we also have to talk about the hurt factor on the, on the GMs, the Fords, Teslas, Stellantises. If they were to bring the LeapMotor into Europe, how does that equation work, right? It's all these different interests.

Tu Le:
This really gets complicated because if I’m NIO, Xpeng, BYD, Chinese branded, Chinese-built, they're talking about potentially having a higher tariff than if I’m a MG, Chinese owned, Chinese built European brand. So the tariff structure in Europe could get really complicated.

Lei Xing:
Well my understanding is MG is included in that registration because it’s made in China. No? Right?

Tu Le:
But this is the important thing, they have until July, until they're going to announce what the actual penalties are going to be. And you had mentioned retroactive. And so they're tracking currently, current vehicles in Europe, and they could slap a retroactive tariff on those. So there could be severe penalties on that stuff. My moles tell me that the Renaults are pretty, what's the right way to say this? They're endorsing these restrictions. Whereas the Stellantises and the Volkswagens, they're not because they have a horse in that race, because Volkswagen said that they're going to be shipping ID.4s, and likely going to be shipping, or helping ship Xpengs, or Xpeng-engineered Volkswagen branded vehicles into Europe. Stellantis already said we're shipping LeapMotors, or thinking about building them in Italy, and you know for a fact that there's likely going to be LeapMotor technology in future Stellantis vehicles that are driving around in Europe as well.

Lei Xing:
And the Cupra Tavascan is going to be produced in the Anhui, Volkswagen Anhui this year and export it.

Tu Le:
The additional wrinkle Lei, is that I think you and I know that the current economic challenges aren't something a short term fix can remedy. It's probably going to be at least a 2-year kind of eventual hopefully moving back to a stable growth for the Chinese economy. But the economy is going to be weaker for at least the next 18-24 months.

Lei Xing:
Speaking of which, maybe we switch gears a little bit and talk about the ongoing Two Sessions.

Tu Le:
Yeah, let's do that. So we always do this, but can you tell people what the Two Sessions are? So in China in Chinese, you say “Liang Hui,” right?

Lei Xing:
Liang Hui which basically means, it’s the annual meetings of the National People's Congress and the Chinese People's Political Consultative Conference. Basically the Premier would give a government work report for the past year, puts out a economic growth target, which was 5%. I think it was a lot higher than expected. And then all these people that are…

Tu Le:
Western analysts don't think they're going to get to 5.

Lei Xing:
It's just a number, right? A lot of the executives in the automotive space, they are either in, they are epresentatives in either of these conferences. So let's say Lei Jun, right? He Xiaopeng for the second year. I think he is a NPC rep, Li Shufu, right? These big names that they always attend and then submit these proposals for their own interest and in the industry's interest. I think automotive was a big key word, again, in the government work report, I think it was mentioned…

Tu Le:
Well Xi Jinping actually talked about the EV sector specifically. 

Lei Xing:
I think it was automotive, “Qi Che,” which is automobile, was mentioned 5 times in the government work report: 3 times in the recap for 2023. So 60% of the global EV, NEV production sales came out of China, 30% export of the three things exported: NEVs, lithium batteries and photovoltaics, the Xin San Yang, which is the new three.

Tu Le:
So the photovoltaic is solar panels.

Lei Xing:
 Yeah solar panels. So, and then really, the key word was stabilizing and expand domestic consumption or boost domestic consumption. It involved electronics, autos, EVs. And then for the other two parts that were mentioned, going forward, which were expansion of the intelligent connected NEV leadership. It was very specifically written that way. The other one was just, “Yi Jiu Huan Xin,” which means promoting trade-ins. One number, I thought was interesting that was mentioned by the Ministry of, Minister of Commerce. He said that on China (roads), there are 16 million China-3 emissions vehicles still running. And out of those 16 million, there are 7 million vehicles that are 15 years old. There's the opportunity right there.

Tu Le:
Let's back up Lei, because I want to make sure that everybody understands that, I think at 15 years, the useful life of vehicle, the vehicle needs to get take taken off the road, it's a requirement. So you never see cars that are older than 15 years old on any road in China generally speaking.

Lei Xing:
Yeah, and you're seeing, I think Shanghai recently was the first to announce a set of trade-in incentives. I think if you trade-in a vehicle for an NEV, you get RMB10,000 in subsidies. I think VOYAH just recently launched a similar promotional event with Jing Dong. We talk about Jing Dong, JD, the Amazon of China or whatever. There's a few of them, on trade-ins and it's pretty steep incentive. While we're there, we saw the latest BYD Seagull at RMB69,800. We saw Volkswagen ID.4, I tweeted last night, RMB139,000 for, starting price for ID.4, $20,000.

Tu Le:
$20,000. It is $45,000 here. It costs $45,000.

Lei Xing:
And then the ID.3, which had that RMB112,980 pricing, in effect last year, is offering a RMB19,000 down pay and you pay RMB70,000 for 3 years to use the vehicle. It's a slightly different tactic, but Volkswagen has made the moves.

Tu Le:
We should also note that before they were giving green license plates because cities like Shanghai and Beijing. For Beijing, there is a lottery. For Shanghai, there is an auction. In the past, if you wanted to buy a car for yourself in Shanghai, a license could be a $15, $20,000 expense from the auction. In Beijing, you just put your name in the auction or the lottery and you might never get picked. Because in Beijing, I think they give 20,000 license plates a month, so but those incentives have gone away, at least for hybrids. Because in the past you could buy a hybrid or above and get a license plate that's gone away. In Beijing and Shanghai, I think BEVs for Shanghai you can still get a license plate, but they've dialed down a lot of those incentives. And so if you're wondering why the price wars are piling on, it's because also these extra incentives are being kind of taken away from the consumer, the manufacturer. So.

Lei Xing:
Yeah, so I think the message is continuing boosting this kind of domestic consumption through these, whether it's a bloodbath, whether it's incentives like Shanghai, which I expect other cities to follow, maintain at least that consumption going. You know, 5%, right? 5% GDP.

Tu Le:
You saw that Polestar cut for like 100 cars. They gave incentives like $6,000.

Lei Xing:
And NIO, I’m still getting messages from NIO fellow that on 2023 certain inventory, you get like RMB60,000 incentives. And we should talk about NIO a little bit, right? The “better than Model Y” I mean on the same day they announced the earnings and Li Bin talked a lot about it. I mean that's certainly coordinated, that spy photo came out, right? Push that message and narrative.

Tu Le:
For those that are wondering the cover photo on my newsletter is what Lei is referring to. And it was a picture of what, if you squint. It kind of looks like a Model Y, but it is a rumored to be…

Lei Xing:
Coupe? SUV Coupe?

Tu Le:
Alps. And this Alps on the rear window, it says “Bi Model Y Geng Bang” which means it means better than a Model Y and the other part of that rumor is that currently a Model Y costs around RMB250,000, 260,000. The Alps is supposed to hit well under RMB260, like closer to RMB200. And if it packs the NIO features or some of them, many of them, then the Model Y is going to be out featured and out priced by this Alps vehicle alone.

Lei Xing:
It’s the first model from, let's say, the NIO Group, not the NIO brand, but the company that is going to be in the RMB200,000 range. And Li Bin talked about it being 10% cheaper. It wasn't very clear whether it was from the cost perspective or pricing perspective, but he mentioned something that they didn't need to get to 1 million units of capacity to get to that, right, type of  cost advantage, which I would take it with a grain of salt, but yes, the pricing I would expect it to be somewhere between starting price between RMB200,000-250,000.

Tu Le:
Yeah, and two things that I'll mention. There was an article last week in the Wall Street Journal. I think you might have read it Lei, that goes into how fast the Chinese EV companies are moving, how quick they refresh their models. It's a great article for those that have not read it yet. We're talking. So there was a scenario, and they called out NIO and said, I think they put three Orin chips in the ES8, and the third chip was not being used until they finished the software. They flashed the software, gave an over the air update, and then the third Orin chip was being used for its TOPS, for its processing capabilities, so where the traditional automakers aren't likely to put parts or systems in that aren't activated immediately. These guys are out innovating that way, you know what, we're product planning 18, 24 months ahead. We know that the capability currently for the vehicle is there, but the software isn't. So in 6 months we're going to flash via an OTA update. And then we're going to create new features because we already have the hardware in the vehicle to support it. And Tesla does similar things, but this is what EV and tech-focused companies do. And the automakers are kind of, again, fly footed.

Lei Xing:
It looks like NIO is catching up rapidly on that NOA feature, they are rolling out this NOP+. I just saw a tweet that in how many cities, 700 cities in China, I could be wrong, but right, this is area of competition that we often talk about right? This autonomous driving assisted which is quite cutthroat.

Tu Le:
You had mentioned that the whole autonomous vehicle was mentioned in the Liang Hui and not 24 hours later, Baidu or Apollo announces that they have a 24/7 service in Wuhan for robotaxis. So, for the foreign governments, the European government, the U.S. government, you take your eyes off of EVs for one second and put them onto autonomous vehicles, that's also where the Chinese are really, really forcefully and aggressively moving into commercializing or at least widening the pilot programs across the country. And Pony, AutoX to a lesser extent because I haven't heard a lot about them lately. DeepRoute was here in the U.S. presenting at the NVIDIA conference. So if NVIDIA is bringing in DeepRoute, they're legit, NVIDIA is not going to bring some random startup to the developer conference. So for those that don't know about the Chinese autonomous vehicle companies, write down Momenta, DeepRoute, Pony, WeRide, Apollo, these five or six along with what's that “mo,” 

Lei Xing:
Haomo.ai

Tu Le:
Haomo.ai, which is the Great Wall sytsem. And then that's on the robotaxi side. There's commercial trucking, there's within the docks for the shipping. Where TuSimple is a little bit, but it is mind blowing. And I'm looking forward and I'm sure you are too getting back in these robotaxis when we're in China to see what their progress has been.

Lei Xing:
I took my eyes off, and I tweeted that I felt a little bit of FOMO because I took my eyes off of catching up on what's happening in China. It's like, what, man 4 or 5 days, 3 days…

Tu Le:
You basically had an all-nighter because you're like, man, I need to freaking catch up.

Lei Xing:
It's like, man, so much has happened. And there's 365 days a year, and I'm 3 days not paying attention.

Tu Le:
Well and we were kind of rest. We were kind of lulled into restful situation because of the Chinese New Year, but now we're back in full force. And the Liang Hui always kind of puts business on pause for a little bit. But you know what's funny Lei is, I'm on chat and in chat groups, you're in chat groups. How do I know Liang Hui is happening? People start complaining about their VPN. Man, which country are you guys VPNing from, it’s like, oh my god.

Lei Xing:
And there's also the joke that every time during the Liang Hui the sky gets bluer because people “chui” (which means blow or brag), so we don't want to get into it.

Tu Le:
Yesterday it was supposed to be a very windy day in Beijing and I heard it was a beautiful day. So now that mattered more 7 or 8 years ago when the pollution was still really bad in Beijing.

Lei Xing:
There's a, speaking of Liang Hui, there's another I think important news that came out was the director of the State Assets Supervision Administration came out and said the three centrally administered automotive SOEs: FAW, Dong Feng and Chang’an, they are being, so this assessment mechanism, they will get this preferential mechanism, meaning that their performance on NEVs, it'll be a little bit lax because there are centrally-administered companies. I thought that was interesting. They're just basically getting the preferential treatment. All that's what it was. And considering that HiPhi is courting Chang'an, it's all connecting the dots, I think of maybe they're willing to let these state owned companies be a little bit aggressive, but with their NEVs maybe not as established or better than some of the others. They're allowing that to happen. That was a bit of an interesting news I think.

Tu Le:
And we know that this is the obviously right time because Liang Hui there's probably a lot of horse training going on or at least trying to convince, there's probably a lot of sales pitches going on. I think it's important to remember that SOEs, their main role is not necessarily to be profitable, but to keep people employed.

Lei Xing:
The three SOEs, combined, their sales targets, group including joint ventures, this year is 9 million vehicles, close to 9 million vehicles. That’s a third….

Tu Le:
A third of the market.

Lei Xing:
A third of the China auto sales. So it's very significant. And the kind of the healthy livelihood of these companies.

Tu Le:
So, anything else you want to talk about? 

Lei Xing:
There was a little bit of, coming out of that MEGA launch. I'm sure you've seen this, a flipped of the script of these people returning orders for the MEGA. This is a very, and these things social media about this MEGA looking like a coffin, which have really irked not only Li Auto, but their competitors that these type of discussions and the fact that these are being circulated on social is really disgusting. There seems to be some, that MEGA is not so well received after all. I think, I mean, it's interesting like…

Tu Le:
Because the Denza has issued what their sales orders were, but Li Auto still hasn't on the MEGA.

Lei Xing:
Yeah, so this is the thing about China EVs, is that anything that's positive could become negative in like a switch, right?

Tu Le:
Let me qualify this Lei, because most of our audience is western. When we say things go viral in China versus the U.S. and in Europe, we're talking different speeds here. Things get really crazy when it comes to social media and how one person post something and it attaches. And it just goes. And we're talking hundreds of millions of people, not 20 million people, not 10 million. We're talking hundreds of millions of people.

Lei Xing:
Yeah, the other thing that's going viral is this beef between Ding Lei and YT Jia about one suing the other counter, suing about IP infringement. And.

Tu Le:
So, let's back that up. Ding Lei is the HiPhi founder, CEO and founder, and Faraday.

Lei Xing:
And formerly I think Vice Chairman of the LeSEE, which was the China, from the LeTV days. 

Tu Le:
And he was an early Faraday Future exec, so.

Lei Xing:
So the beef is about the HiPhi X stealing FF 91’s design, everything, right? Because they look alike.

Tu Le:
If you look at it Lei, they kinda, they look a little similar. You know this.

Lei Xing:
It is also going viral because there's this guy from HiPhi when they first got in trouble he was live streaming, he cried during the live streaming. Just recently did another live stream and basically discounting all of the whatever FF was charging, right? And it was very animated. I mean these two companies that are, one has probably two breaths and the other one on last breath, which is which, I don’t know, but, they are still…

Tu Le:
The one thing that reminds me. The one thing that reminds me before I forget Lei, is that now that the EU is a bit more, they seem more determined to put similar IRA restrictions on Chinese EVs, look for some of these Chinese EV companies to more aggressively, try to build locally or look for greenfield sites or brownfield sites to take over in Europe, because if the U.S. market or North American market is severely restricted for several years, then that capacity and that growth needs to come from somewhere. And that also means look for Southeast Asia, look for Latin 
America. And even if they can't ship vehicles from Mexico, to North America, without some form of tariff or protectionism, look for them to look into Latin America and South America. One thing I will mention is that Stellantis had announced the $6 billion investment through 2030 into Brazil. So things that I didn't know Lei, because I think we're so focused on Europe. United states and China is that Fiat, Citroen and Peugeot big sellers in South America, didn't know that Fiat is the number one brand in South America, number one brand in Brazil. And their clean energy is not going to be battery electric or straight battery electric. Because they have grid challenges and things like that. What they're looking towards is more and more vehicles are using ethanol as a flex hybrid vehicle, using sugar cane, which obviously is very plentiful.

Lei Xing:
Is it sugar cane or corn? 

Tu Le:
Sugar cane in Brazil. And for those that are familiar with Brazil, cachasa, and the Brazilian drink, I forget. Now, anyways, it has the mint in it. I forget what it's called. Now. It's going to bug me, but anyways, I didn't know that. So Brazil was about 1.7 million units, and 80% of their sales is biofuel, ethanol. So if you think about the gas stations in Europe, the United States and you think about Brazil, there's probably an ethanol station or at least a pump or two at almost every gas station. And I peeled the layers of the onion bag, Toyota, Hyundai, GM, they've also announced in the last 12, 14 months, investments into Brazil for South America on ethanol. But so I wrote in my newsletter, I was like, okay, that's where the growth is. Customer acquisition cost is very high in China, European protectionism, United States protectionism, so where is growth happening? South America, that's where they're going. Number two, and this is important. The, Great Wall and BYD announced they are building factories in Brazil. So I think it's also kind of a defensive play for the foreign automakers and the legacy automakers. So we're only in the very early innings of how the automotive, global automotive sector is going to evolve. So it's going to be fun, grab your popcorn. This is going to be a fun time.

Lei Xing:
The last thing I'll mention, speaking of death, we have the return of Zhidou, Geely and AIMA, AIMA which is a scooter kind of the e-scooter in China is bringing this Zhidou, little low speed EV back. Nobody dies for certain.

Tu Le:
One article I will point out and then we'll open it up to the audience for any questions. Is Gartner in a Reuters article written by Joe White for those that are wondering. They have forecasted that ex-battery cost, manufacturing costs for BEVs will be cheaper than manufacturing costs for ICE vehicles by 2027. That's around the corner.

Lei Xing:
Where? Is that globally or?

Tu Le:
Yeah, just like in the west, basically. And the reason they're forecasting that largely is because of the one-piece or single piece Gigacasting that Tesla has pioneered that likely most other OEMs are going to adopt. And I mentioned this and I think…

Lei Xing:
Some of which have, in China.

Tu Le:
Yes. In two previous podcast, I said the rear gig casting, the single piece rear gig casting of the Model Y that's built in Shanghai, it took out over 400 parts and dozens of welds. If we're thinking about this from a supply chain standpoint, the tier-two through tier-four suppliers are going to get devastated, because if they do it to the front and then GM, Ford, Stellantis, Volkswagen Group also moved to the single piece. The supply base over the next 3 or 4 years is going to be, I'm talking globally, devastated.

Lei Xing:
Al the tier-ones, there's a huge head wind. If you look at their right, the recent restructuring, spinning off, right? The Boschs, Magnas, Contis, right? I just want to mention that.

Tu Le:
I think the entrepreneurial CEOs at some of these tier-ones are seeing opportunity to move up the value chain via software, via systems, because they know that the OEMs are going to be drinking through a fire hose to play defense just on a product in a feature level. But the one thing that I would also point out that plays into this a little bit is that Wall Street Journal article also noted that many of the Chinese EV companies are using Chinese suppliers because they move faster. They're able to accommodate the needs of the EV companies more so than the traditional suppliers. And so, if these tier-two, tier-three suppliers can't evolve, move faster and support the EV companies, that's going to be another reason that they could go extinct. So interesting times. And unfortunately, I think there's going to be a lot of a forced layoffs and retirements in the next 48 months from a lot of companies in Europe and the United States. But let's open it up. We have the question from Mike the car geek, Lei, what are your thoughts on the future of vertical takeoff and landing or vertical takeoff landing market in China? I want to get excited, but autonomous robotaxis have taken much longer than expected.

Lei Xing:
I think He Xiaopeng, he just…

Tu Le:
I know what you're going to say.

Lei Xing:
He just submitted a proposal on this low altitude, I think they're just I think they just performed the first low altitude flying in Guangzhou, city of Guangzhou, today or yesterday.

Tu Le:
He wants each executive to put 5,000 km, 500 or 5,000.

Lei Xing:
So I think Geely is doing it, Xpeng. I think Xpeng is probably one of the most aggressive from traditional, let's say, not a traditional, but from an automaker expanding into that space. And hence right for him, the personal interest would be reflected through the proposals that he submits.

Tu Le:
I don't know of any other startup that's actually investing capital in building their own product. In the west, Stellantis. is going to contract manufacture for Archer, I believe. So there's collabs but not, Stellantis isn’t building their own eVTOL. So I think I want to say Xpeng is the only notable EV company that's planning on launching. So but Mike, I think things that we need to think about, these are going to be mostly suburban in China because you can't fly a drone in the city of Beijing. You got to be at least an hour and a half outside of the city limits in order to fly a drone. So the thought that I’m going to fly an eVTOL from Shunyi the suburbs of Beijing into Beijing city center. Yeah, forget about that. That's never going to happen.

Lei Xing:
So they have their own ODD, I guess that's the way to put it.

Tu Le:
Exactly. And so in the West, I think traditionally eVTOL companies, not these car companies are really trying to push forward, but I would pay more attention to Europe because they have a centralized regulatory environment. Whereas in the United States, it's more state by state. So I have a mole in the EU who works at one of these ministries. And he keeps telling me that the EU might be ahead of the game on kind of unifying regulations for eVTOL. But with regards to the practical side, where are they going to land? And how are they going to be serviced? What's the business model? These are all things that also still need to be kind of drawn out, because ultimately, I'm still saying that a GM, a Ford, a Uber, their, in 15 years, their two signature services are going to be eVTOL and robotaxi. And they'll still have other delivery services and in taxi services, but that's to widen their install base, so they can get more people to buy or use their signature services. So I still see the traditional automotive companies evolving into these mobility companies. So.

Lei Xing:
Yeah, so I guess the Europe and Middle East probably are the early, from a regulatory market standpoint, early adopters, and Xpeng AeroHT is taking orders for that modular kind of the combo, right, the vehicle plus the eVTOL later this year with delivery starting next year, that's still their plan. That was announced at CES, right? They brought the other concept to CES. So.

Tu Le:
If you went down to Guangzhou and Xpeng’s like, all right, you sign this waiver, you can try this eVTOL out, would you do it?

Lei Xing:
Yeah Why not? Sure. What the heck.

Tu Le:
Okay, man, so somebody asked me that I was like, man, you didn't have to ask me like that. It's like you have to sign this waiver first. So anyways, but normally, the test flights are, I think, 30, 30, 40 feet in the air. So, if you crash, I don't know if you're like…

Lei Xing:
God forbid.

Tu Le:
Have this fiery, exactly. I don't want to think about it. The last thing I want to talk about Consumer Reports, they did their like best of listing or ranking for the United States. Six of the top 10 vehicles were hybrids, the seventh vehicle was the Model Y, so the thoughts that the United States doesn't want clean energy vehicles, that needs to be put to bed.

Lei Xing:
Energy-saving vehicles, as China would call it right? Hybrids are energy saving, not NEVs.

Tu Le:
The issue is affordable. Not anything else.

Lei Xing:
I’m very happy with my Santa Fe Hybrid, getting 600 miles range. 

Tu Le:
So how many, so is it a plug-in or is it a light?

Lei Xing:
It's just regular HEV.

Tu Le:
Okay, see, I'm totally confused. So does the electric motor power the wheels. 

Lei Xing:
Yes.

Tu Le:
Ok. Got it. How many miles do you get on just the hybrid motor?

Lei Xing:
I haven't counted, I mean, it's like, during certain speeds, it'll go into EV mode.

Tu Le:
Okay, got it.

Lei Xing:
That's how it helps kind of the save fuel…

Tu Le:
Okay, ming bai. Okday, so cool.

Lei Xing:
So next week is 315. If you remember last year, nobody got shamed on 315. The March 15. I don't know. We'll see about this year because China is trying to drive the consumption of NEVs, right? So no bad news, right, is good news.

Tu Le:
315 is “315” which is consumer day in China and infamous, yeah consumer rights, infamous, former targets of Consumer Rights Day: Ford. I think Volkswagen was once.

Lei Xing:
Volkswagen was a big one in 2013. Yeah.

Tu Le:
Yeah. I remember that too, because living in Beijing, you know all the Volkswagen guys, they're like, oh my god, what's going on here? So anyways, hey, everyone, thanks for joining again. Please join us next week. Good morning, good afternoon, good evening. 

Lei Xing:
Thank you all, 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.