Episode #161 - No Model 2 (for you!), Overcapacity - but in what?, Looking forward to Auto Beijing 2024

This podcast begins by dissecting the Reuters article about the Tesla Model 2 being cancelled as a passenger vehicle.

The conversation moves over to Tesla sales in China, predictions about total sales for 2024 and what Tesla could do to boost sales in 2024. They pivot over to a quick discussion about Porsche's struggles in China and what it'll take to turn its sales around in the China market. They also spend a few minutes discussing Xiaomi's continued sales and XPeng's struggles. 

Tu then talks briefly about Janet Yellen's visit to China and her emphasis on overcapacity in China. Tu then specifies that the overcapacity is much more prevalent on the ICE side, not so much the EV side but that there would nonetheless be pressure to export due to the price war and the inability for many Chinese EV brands to gain any sustained sales traction. 

The episode closes out with what Lei and Tu are looking forward to when they both travel to China for Auto Beijing 2024. 

Transcript

CEM #161 Transcript
Recorded 4/12/24

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 loyal listeners, welcome back. We ask that you please help us get the word out about this podcast to other enthusiasts and of course tune in again next week. We are the definitive voice for China EV Inc. 

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

Lei Xing:
And good morning to a one-week before returning to the Middle Kingdom Tu. This is your co-host Lei Xing, former chief editor of China Auto Review, and this is episode #161. So the last week or so on this side of the world, we had a snowstorm, we had an earthquake, and we had the solar eclipse.

Tu Le:
That was such a cool thing, man every 20 years, right?

Lei Xing:
Yeah, it was also, you could see on your side of the woods as well or no?

Tu Le:
It's, the whole world could see it.

Lei Xing:
Well in this part of the world. This is the last episode, speaking of this side of the world, where we will be recording on this side of the world, before we head to China, you next week and me the following week. And speaking of earthquake, one of the bigger earthquakes that happened in the industry was the supposedly cancellation, no mas, of the Model 2 or Q.

Tu Le:
How would you say that in Chinese appropriately, no mas, “mei you,” just say “mei you?”

Lei Xing:
Xie Cai. Which means forget about it.

Tu Le:
Cause I was wondering if there's like a slang, and I guess it's Xie Cai. Got it.

Lei Xing:
We start off there. 

Tu Le:
I still think. I'm not the native Chinese speaker Lei, but I still think “mei you” is still pretty good.

Lei Xing:
“Mei You” is the normal, is the “I don't have it, it's not happening,” but Xie Cai is more colloquial. So you had mentioned your newsletter. You talked about some of the points on this. It's not definitive, what's happening, but at least we've seen some tweets from Elon. It's adding more mystery to it. So maybe you can start off. First of all, give us a little bit background of that Reuters article and what ensued.

Tu Le:
SO, if I'm. I'll just be frank and honest. Nori who's a senior journalist, very well respected. You know Nori.

Lei Xing:
Yes. 

Tu Le:
And he's been everywhere, he's lived in Detroit, he's lived in…

Lei Xing:
Beijing. 

Tu Le:
He's lived in Beijing, covered automotive for his whole career. He's one of and the Reuters team is a pretty well-respected automotive journalist team, Joe White, Paul Leinert just left, but he was there. So a lot of people. Brenda from Shanghai, Brenda Goh. And the minute after I read it, I texted Nori because he's now living in Austin. I think that a lot of journalists, because other journalists, non-Reuters journalists were kind of jealous that Reuters got this scoop. And so they were scrutinizing it to the level of that's not cancelled, blah, blah, blah. And to me, it's a little bit about semantics. And so I think cancel was a word that their sources used. It's not a word that they just pulled out of thin air. So I wanted kind of articulate that small little detail that makes a lot of difference, because it's a bunch of shades of grey. And we know that there's a bit of inconsistency with what Elon says and what actually happens. Now, and I know, cause we've been in the automotive space for so long. And if you just listen to Mary, you just listen to Tavares. They can change their minds within a 6-9 month period. So it's definitely not ever forever. But to get down to the substance of what I'd written in the newsletter about the whys. We kind of talked about this last week I think. But effectively, there are plenty of $25,000-$30,000 great vehicles in the China market. Clean energy, whether it's a hybrid, whether it's a BEV, because I think they are competing against each other for Chinese consumers. And so for Tesla to come out in 2026, I think it would have a chance if it came out late this year or early next to get hundreds of thousands of units of sales over a couple-year period. But 2026, holy cow, all the brands that survived this price war are going to be super strong. Their product portfolio is going to be whittled down to the products that are going to sell. Now, their future roadmap might be different and evolve, but you and I know, or at least, yeah, I don't want to make assumptions Lei, but the players that survive, that come out of this price war are going to be super super tough. What do you think? Do you agree with everything I wrote. What would you add to it?

Lei Xing:
Yeah well, so same here are mostly, I think, I also texted Nori and I told him your article blew up the internet and he's like, ha ha. But here's what Elon said, right? To tweets: one, .he said Reuters lying again. And pretty soon after he said robotaxi reveal August 8 and he chose quite an auspicious date in Chinese culture. It's almost like Elon is denying it, but at the same time confirming the article, which the other half of the article was talking about the cancellation of the 2 or Q but rather focusing on the robottaxi part of it, right? And we’ve seen the recent rollout of the FSD (Supervised) trial, right, on the existing vehicle. And I saw not a tweet but moments from our good friend who we interviewed, Wu Gansha, and he said from his experience, he's the AV startup founder of AVstartup UISEE. He said the 2 and the robotaxi looks to be the same thing. I think that's a lot of people are thinking that as well, because we've seen that picture, right, in the biography of Elon Musk by Walter Issacson of that kind of the wing-door, two-door kind of shaped 2 or Q, which could also be the robotaxi. So that's the interesting part of what this, upcoming robotaxi that they will reveal. What is the relationship of that to the existing fleet of Tesla vehicles? That I think that's the interesting part. And I still think the 2 and the Q is coming. Because recently, Franz, I think he said just wait, right? He said publicly. I wouldn't say it's no mas no mas, but clearly, I think with lack of communication on the 2 or Q, the play is, in fact, going toward the robotaxi side of things. So that's my take.

Tu Le:
Another distinction. The robotaxi could be the Model 2, but the robotaxi is not likely going to have a steering wheel, accelerator pedal. So or at least it won't be part of the foundation of design. I think those are kind of some of the major differences potentially with what you might see on 8/8 versus what we're thinking about now. But this is the craziness. Again, the Model 2 could be extremely successful in Europe and the United States at a 2026 launch, I don't know how successful it's going to be for a 2026 launch in China. That's where because remember ONVO is going to be out, Firefly is going to be out. So there are more mass market, so more mass market vehicles that are coming out. So.

Lei Xing:
Yeah, so also the robotaxi itself. I mean whenever Elon says something you take it with a grain of salt, right? So the reveal is something, but actually utilizing their fleet or putting this into mass operation or application. Now, that's years out given the track record of Cybertruck, given the track record of the end of this year, we're going to have, right? He keeps saying that for many years that this is happening by the end of the year. And then next year he says…

Tu Le:
The one thing that's super interesting also, Lei, is kind of these threads that shoot off of these immediate big news cycles, or these news drops, and in order to collect the data that it needs in order to, the data centers and all these other capital investments in order to have a successful point to point Level 4 robotaxi. We're talking billions and billions of dollars investment each year. I think I saw a tweet where somebody estimated $10 billion this year of investment. And Elon kind of said yeah. So it's not this I’m going to collect a bunch of data, and I win. It's a lot more complicated than that.

Lei Xing:
And that tweet yesterday by the guy who used FSD to take himself to the hospital. And then the official Tesla twitter account retweeted that, just opened up a huge can of worms. Like it's driving people crazy because yeah, that it saved that guy's life, but should that be encouraged when you should be calling the ambulance, right? This is like.

Tu Le:
It put so many other people's lives at risk.

Lei Xing:
So it's just driving more debate. I think it's going to drive more debate and

Tu Le:
I don't know how they get away with it in the U.S. market. Because, so there was another article, a follow up article about how this is from Nori again about how robotaxis is still a bit away and Tesla is not out of the woods. And one of the biggest advocates for safety and regulation with regards to what FSD, Tesla is doing with FSD in the United States, at least, is that one of the professors at Carnegie Mellon. And he's like in order for robotaxi company to be really, truly completely validated, or for the most part, we're talking no accidents for a year or two. So think about that. Because good enough is not good enough if you're a robotaxi company.

Lei Xing:
And look at what happened to Cruise, right? They restarted operations with manual drivers, with the human drivers collecting data that just seemed like a huge step backward before you can move ahead for someone who's already had the experience, who we’ve experienced 2 years ago.

Tu Le:
It’s, it is just everybody plays by a different set of rules. And I don't know, I just there was the comment just now. But I don't think we are saying that Tesla solved autonomy. I think that's clear that that we're saying that they have not.

Lei Xing:
Yeah. So basically, my assessment back to the Model 2 topic is that it's not 100% no mas, it’s not dead. It's not officially communicated. So my belief is that it’s still happening in China as well. And you have mentioned about that 20 million target. And I kind of said on LinkedIn, I said maybe that's off the table. Maybe I don't know if that's still a good, he target that they have on their boiler plate. Then what do you do, right? So.

Tu Le:
I don't know either. I just look at it like this is what he says. So I'm going to unless I can definitively point to something that disputes what he says, then that's all I have to go off of to be quite frank.

Lei Xing:
I mean my expectation is flat. So if they do a 1.8 million, that's awesome. I don't expect growth to be honest. Given the current environment.

Tu Le:
I think they've sold as many 3s and Ys as they can in the California market. And so the U.S. market is there largest market. China is the second largest market and Europe with the slowdown and the increased adoption of hybrids. Now they actually have competitors, but, I think in Europe, at least the price cutting lever is still something that can work in Europe for a little bit. But also you're just really upsetting current owners if you continue to cut prices, because it just they don't care about residuals. I get that, but yeah. And you can't just keep on cutting price. Can you? I guess you can, but.

Lei Xing:
They had a low number for the first week of April, but let's see whether that 0%, what, zero percent financing or whatever that they launched. See if it's effective once the April numbers are out. And then how low can you go, right?

Tu Le:
I would also say Lei that at least that last week of sales, it was a 1 to 1, almost, the people that might have bought a Tesla have put deposits down on.

Lei Xing:
It's only one week's number, but it’s a holiday week. So, but some of the numbers we've seen and I’ve tweeted are these premium brands. Big drops Q1. Part of it is due to the seasonality. Part of it is due to their own specific issues. Competition, Porsche, right? Mercedes, BMW, they're all down in Q1.

Tu Le:
Let me stop you there. Porsche sales overall grew because of Europe and the United States last year. You said 12, I read it as 15, but let's say between 12 and 15% sales loss in the China market.

Lei Xing:
Double digits.

Tu Le:
So despite the sales losses in China, Europe and the United States made up for it, what we're seeing in Q1 is that they're continuing to lose sales in China and it's affecting global sales. So the overall sales in Q1 went down globally and it was because China is still losing share. I tweeted and you saw that the value over volume is what the CFO had mentioned. This is not by their choice. This is just an ultra-competitive market that's starting to creep into the premium space. 

Lei Xing:
And obviously there's some logistics disruptions are part of the reasons. I heard that like from Mercedes, their China PR people, they were saying that there were some parts shortage issues aside from the change over some of the models. But demand is a big factor. There's no question about it. And that's partially due to competitive environment and partially due to the economy.

Tu Le:
Yeah for sure, I’ll get a better handle on this. I think you and I will both get a better handle on how much we should weigh the economy's part versus are there some other great cars that people are considering outside of the Porsche vehicles.

Lei Xing:
Yah like a SU7?

Tu Le:
Yes, which is ironic. Because it's a $30,000 car where the Porsche is probably, the Taycan is over RMB1,000,000, right? It's over a million RMB, right?

Lei Xing:
Yeah, RMB2 million, the new Taycan Turbo GT is like RMB2 million.

Tu Le:
So we'd heard this. We as in Lei and I had heard that Porsche’s moving up market, but even then, they're going to start bleeding into the luxury, like true luxury, the Bentleys and the Rolls Royces. And so it's not going to be easy for them to appeal to customers from those brands either. And I think it's important, my last point about the Porsche stuff is that there is no brand loyalty when it comes to that with Porsche. In Europe and the United States, Porsche is a very entrenched heritage brand. It's not like that in China.

Lei Xing:
On the other side of the fence. I mean one example of this, how low can you go is Xpeng G6. I think it's happening all over again, what happened to maybe the G9 and the P5, the G6 is already. I don't know. I think it's selling thousands of units a month, which is a failure. And they launched last June. It's less than a year. They've cut prices 3 times already.

Tu Le:
What's important to remember here Lei is that if you see and we start to continue to see these products from the brands that we talk about on a consistent basis, we see in the thousands per month, the pressure to export and be successful becomes increasing or increases as more and more of these single thousand sales months build up.

Lei Xing:
And you are seeing Xpeng push out to what, Hong Kong, Macao, Spain, Portugal, additional markets, right? They just shipped what, 1,000 G9s recently.

Tu Le:
There's that article about a lot of vehicles stuck at the ports.

Lei Xing:
So that's the thing, one thing we hear these export numbers. By the way, according to the CAAM’s latest numbers, auto export, including everything in the first quarter, was one-fifth of total sales, 20%. So there's one kind of a reference. And then it’s another thing to see these registration numbers in Europe, which are still infinitesimal.

Tu Le:
There’s a lag. There seems to be a lag.

Lei Xing:
So I know that article talked about like, what do they do when this process of exporting, delivering, logistics? Yeah. So I mean it's all how you perceive and what perspective you have right, on this threat.

Tu Le:
The clear volume exporters or Tesla and BYD. And Yellen was in China last week. And she talked about overcapacity. I happened to be on a show with Bill Russo earlier this week Lei. So and we had talked about the overcapacity issue is not on the EV side. It's on the battery side, and it's on the ICE side, because SAIC is looking to reduce headcount in, remember, SAIC GM is still struggling. Volkswagen is still struggling on the ICE side. So you look at Russia. They're being force fed. A lot of, well there's a void. Let me pull back I won't say force fed, but the void left by the foreign automakers that stopped selling in Russia is now being filled by Chinese brands.

Lei Xing:
Yeah, filling the hole. 

Tu Le:
And so that's one of the areas or one of the regions, one of the countries where the ICE exports are going. There's likely a number of ICE exports going to MEA, Latin America. We saw that big thing in we suck or I suck. We got to get our first video MAX episode out, hopefully next week where we talk about Mexico. So Mexico is a million unit market. There's no subsidies or incentives to buy clean energy vehicles. So in the near term, there's no risk of EV sales growing significantly in the Mexican market, but establishing a footprint in Latin America and South America is very important because Latin America is the per capita income, is growing clean energy via ethanol. Is the way to go in Brazil. And so we've seen Volkswagen, BYD, Great Wall all announced investments in Brazil. So Latin America is going to be a major area of opportunity and growth for China EV Inc., or China Auto Inc. But so keep an eye on Latin America as well. 

Lei Xing:
What else? Yeah, so speaking of right, this is a good friend, Afonso reported that NIO is cutting headcount again and then there's, I just tweeted that we're getting close to the Beijing Auto Show and from now on until the Beijing Auto Show itself. Every single day, there will be brand nights, there will be brand days. There will be new launches, there will be reveals. And today is the 12th, right? So we are a little bit less than two weeks out. It’s going to be difficult to follow.

Tu Le:
But for the next, let's say starting on Monday, the next two weeks, spotlight on China for auto because Shanghai will host the F1 next, not two days. But the next Sunday in like 9 days.

Lei Xing:
I just saw some videos of the safety cars being shipped into Shanghai, so.

Tu Le:
Nice. So Shanghai F1 and then starting Wednesday or Thursday, Thursday is media day. For Beijing Auto, right?

Lei Xing:
So for a company like Mercedes, I bet that their higher ups are going to be in China probably right now. They're probably heading over there and then stay until the end of the Beijing Auto Show. Well start of the Beijing show. 

Tu Le:
What normally happens, they come in, they meet with all the local management and kind of give the everybody gives an update. And then they start talking about the lead up to their brand night. Yeah, so the cool thing Lei is that you and I hear about so many rumors on these types of events. And so getting there talking to people, having a beer, having a pint with old friends, man, I'm smiling right now. I'm pretty excited to se…

Lei Xing:
Because you haven't gone back to Beijing since.

Tu Le:
Last April.

Lei Xing:
Wait, right? You have, but right, so it's been a year. Okay.

Tu Le:
What's that distance or time or makes the heart grow fonder. So all the warts that Beijing had when I lived there, I don't think about them anymore. But one thing that I was going to ping you about is now that I can use foreign credit cards. I want to learn how to figure all that stuff out. So I'm hoping that my Weixin, Zhifubao (Alipay).

Lei Xing:
You're a pro by now come on.

Tu Le:
I know no, I am, but like I haven't used these things in a year, so like getting them back. Working if they're not working is kind of going to be totally ma fan, right? Yeah. But anyways, what's next?

Lei Xing:
We've covered the two topics on your, the title. I mean we can talk about the auto show some of 
the new…

Tu Le:
You had tweeted, can, let's just kind of summarize some of the things that we're going to see. We are going to see the Macan EV.

Lei Xing:
They'll announce the pricing, China pricing of the e-Macan and the China debut anyways.

Tu Le:
Yeah, so it's not a global debut, but it is a China debut.

Lei Xing:
China debut, right. And then for NIO, so we've heard that the, the refresh or facelift of the ET7. I can't believe it's already happening again. I think that's one thing they'll do in Beijing. The other thing. I don't think they will have a big presence as far as new launches because they are launching that ONVO in May, a separate event, which is a smart thing to do. I think they'll probably show the 4th-gen battery swapping. They'll probably have a demo, at the auto show, because that's part of their next iteration of products. Anyways. Xpeng is unveiling the MONA definitely before the auto show, on one of those brand nights. Li Auto is launching or revealing the L6 next week.

Tu Le:
For those wondering, Li Auto has the L7, L8, L9 EREVs. The L6 is a five-seat version.

Lei Xing:
The small baby version of.

Tu Le:
That is supposed to start at under $41,000. The EREVs, these 789 have been really successful and has gotten Li Auto to the consistent 25,000, 30,000 units a month volume sales. Now MEGA has been a bit controversial and disappointing in the first month and a half being launched into the market. I don't know you and I haven't figured out yet if that was a little sabotage, if there's some really fundamental flaws with that vehicle.

Lei Xing:
The MEGA wave or chatter has kind of died down already. So.

Tu Le:
One thing that I also want to mention is, I think you and I are looking forward to seeing our KOL friends, our car review guys. Last year in Shanghai, we had the opportunity to sit down and break bread with the CNEVpost, Jiawei. We didn't see Car News China. He didn't come to dinner, but we saw him in Munich. His name is Jiri. And Wheels Boy. We saw Ethan and had dinner with him. Will from China Driven. Mark wasn't at dinner right, for Inside China Auto. So Mark was not there, but we did see him or I saw him in Shanghai. So we're all friends. I'll probably catch up, have a pint with Bill Russo. Yeah, there's a certain amount of respect that each of us has, especially because you and I don't really do the car review thing Lei. So there's not like these sharp elbows, but that's going to be really cool because talking to those guys giving the real opinions on some of the cars that they've driven, some of the experiences that they've had while traveling to review these cars. Some of those throwback stories are pretty funny, right?

Lei Xing:
I think it's going to be adventurous last third of April for me, if not for you and everyone else that's going to the auto show.

Tu Le:
And you and I are going to be meeting first week in May in Shenzhen, right? Like we might go together, right? Hit, wink, wink.

Lei Xing:
Hopefully we will talk to the Snowbull Capital guys.

Tu Le:
Hopefully we'll get to catch up, have some dinner. We'll talk to DeepRoute, I'm sure we'll talk to DeepRoute. We will get a chance to ride in a Pony.ai robotaxi that has a pilot down in Shenzhen. So and hopefully will get a review and not review but drive ourselves some of these cars that we've been talking about. So I want to check, I want to drive the MEGA, I want to drive the MEGA man.

Lei Xing:
Probably SU7 and MEGA are at the top of the list of wanting, cars of wanting to drive.

Tu Le:
So I know the carwow guys are going to be in Beijing as well. I've been pinging Kevin Williams from InsideEVs, because he was asking about visa and all this stuff. So I think he's finally gotten his visa.

Lei Xing:
I think I really am glad that you have these kind of people, foreign press that are able to go and just say, I told him be prepared to be shocked. Just you write about it, you hear about it. But unless you're there, you can't really, it's hard to describe.

Tu Le:
What's also good Lei is that these guys and they're mostly guys. So that's why I'm saying guys, they are super knowledgeable and super curious. Either they're coming with an open mind because a lot of journalists think they know, but to your point, right? They come and they're like, whoa, this is crazy. It's not just because the cars in the green plates, but also just the level of advancement in Beijing, Shanghai, these tier one cities.

Lei Xing:
Speaking of that, one thing I'm looking forward to is re-experiencing the NOA which is I’ve driven right, the G6 last year, the L8, with some of the NOA features I mean within a year, I want to see how much more advanced they've gotten, urban scenarios, highway scenarios. That's something that you have to experience to really understand. It's a bit overkill, but that's where the competition is.

Tu Le:
And the one thing that I will also mention is that there was an article, I think Polestar sales fell off a cliff last month or last quarter.

Lei Xing:
Yeah Q1 jitters, right? So

Tu Le:
Which emphasizes the importance of a successful 3 and 4 launch for them.

Lei Xing:
I don't know about that, but.

Tu Le:
But remember that the 3 is starting at $80,000.

Lei Xing:
$73ish, I think.

Tu Le:
So that's not going to be a high runner for them. Obviously. They will definitely need a refresh on that 2 in order to stay competitive, they're already not competitive in the US and China with the 2. I don't know what their strategy is going to be moving forward. I think the not having a window on the 3 is a bit controversial. So, but I did want to emphasize that now, is there anything else.

Lei Xing:
Well, have a good trip.

Tu Le:
I'll catch you on DMs. Man. I'll catch you on DMs. I don't leave until Tuesday.

Lei Xing:
So I mean that's literally the next day. And right, time flies, man.

Tu Le:
So I'm going to spend all weekend packing, figure out what I actually want to bring and cause like I'm going to be in Beijing, Shanghai, and then Shenzhen. So almost three different climates.

Lei Xing:
So the day I leave, I still have to first get to a volleyball tournament. I have to head to the airport, and it's going to be, remember, I did the, I got a free ticket, basically, with my mileage. It's a 34-hour trip.

Tu Le:
Dude god bless you, dude, god bless you.

Lei Xing:
So I leave on the 20th and I get on the 22nd. 

Tu Le:
Goodness. How many stops? 

Lei Xing:
Two. Chicago, San Francisco.

Tu Le:
I only have Seoul, so I'm good.

Lei Xing:
Detroit. It's relatively easier.

Tu Le:
So everyone, thanks for joining us. We plan to have the podcast next week, the live show next week. So technology permitting, but thanks for joining us again. Good morning, good afternoon, good evening.

Lei Xing:
All right, 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.