Episode #160 - March sales, Snapshot of the Price War, BJ auto show expectations

Tu and Lei kick this podcast off by going over March sales numbers and move into discussing some of the recent incentives that have been offered by EV brands in order to keep sales momentum going. 

The detail some of the challenges that contibute to the ongoing price war and how Tesla has fated during a price war they initiated. They then contrast that with Xiaomi's sales momentum since launch and how that stands out and hasn't lost any steam.

The last big topic the two tackle in this podcast is the upcoming Beijing Auto show and what their expectations are and what they hope to see there.

Tu quickly discusses some of the challenges that Ford and Stellantis brand Ram are starting to see in the US market with truck sales and the pod closes out with their thoughts based on current conditions of Tesla being able to find any growth in sales this year compared with 2023. 

Transcript

CEM #160 Transcript
Recorded 4/5/24

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. To those that are new to the show, welcome. To our loyal 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. Lei, a volleyball dad Lei. Can you please introduce yourself? 

Lei Xing:
Good morning. Yeah this your co-host, volleyball dad Lei Xing, former chief editor of China Auto Review, and this is episode #160. Where do we begin? Tesla’s disastrous quarter, March EV sales. First, Xiaomi SU7s are now into customers’ hands. Those are the kind of the pertinent headlines in this Tomb Sweeping Day-shortened week. Still, nevertheless some fireworks.

Tu Le:
Seeing a lot of vacation pictures on Weixin. So let's start with March sales and let me qualify this Lei, by saying that I would not look at month over month, quarter over quarter statistics very closely, especially in Q4 and Q1 of any year in China. As you know Lei, Chinese New Year, Lunar New Year, jumps and is a different day each year, it could be early February or late February, early March, late January. So the inconsistency of the day and knowing that there's a two-week shutdown entirely of China. It makes for alarming numbers, especially when you compare them to Q4, which is always notoriously the gangbusters quarter to always the notoriously slow quarter. So with that being said, Lei, let's talk March numbers.

Lei Xing:
Yeah. I think it's okay to compare Q on Q, M on M, but I think in the context of the China EV market seasonality, it wouldn't be that fair to draw any conclusions based on comparing Q1 to the previous Q4. But having said that, if we look at the March numbers, it wasn't rosy to be honest, particularly if we talk about the ones that have dialed back their guidance: so Li Auto and NIO. And NIO, as a matter of fact, I think it was a great quarter to be honest, because 30,000 versus a 31,000-33,000 guidance I mean right? It's all relative. I think the thing that we were talking about was how much recovery March compared with the first two months. So I had said a few episodes ago that if you do in March, pretty much the entire January and February, then I think you're on the right track. So from that metric, I don't know, maybe BYD was the closest, because they were back in the 300,000-rate, run rate. Obviously, the “Dian Bi You Di” movement worked, but not the same can be said on the other ones. So you look at this from an absolute and relative perspective.

Tu Le:
I also think Lei, that, this price war has, if we count it as starting in January of 2023, it's been going on for 15 months now. And so my thought is that slow and steady wins the race. So if you point back to NIO’s numbers, not great at any point over that 15 months, but pretty steady. And so a lot of credit goes to the slow and steady folks: BYD, slow and steady, 300,000 units. Now we know that their target is 4 million, so they need to get to 400,000 or 500,000 units later towards the end of this year per quarter, but they're consistently at around 300,000 units and Tesla, they missed their global forecast but peeling the layers of the onion bag, 57% of their sales or production or whatever came from China. So it's the United States and Europe that hasn't been keeping up with their bargain.

Lei Xing:
So correction, the analysts missed their forecast, not Tesla.

Tu Le:
Yeah, fair enough.

Lei Xing:
But, yeah with respect to that 4 million, I think the latest target I’ve heard is a little bit dialed down, maybe 3.6. I read somewhere that Wang Chuanfu…

Tu Le:
So 10%. 

Lei Xing:
Yeah, mentioned that maybe 4 million is not the official communicated target. They did say according to that report that the Dynasty and the Ocean network combined wanted to do 3.3 million, and then you add the rest of the other three brands and export, right? You can kind of do the math.

Tu Le:
I would think that 10% of their production probably is going to be going to export.

Lei Xing:
So the other thing that happened on April Fool’s, aside from these EV sales number that came out was simultaneously over a dozen brands, announced some sort of incentive packages on the same day.

Tu Le:
Some were straight price cuts, some were non price cut price cuts.

Lei Xing:
And I had tweeted, especially for the Denza N7 that less than 9 months after they launched the model, this refreshed one came out with a price range that were almost RMB100,000 cheaper. I tweeted that I couldn't wrap my head around it.

Tu Le:
To make that clear, a car that launched in January of ‘23, no, less, later than January ‘23.

Lei Xing:
So it was launched in July, I believe, July or August last year. 

Tu Le:
Yeah it had less than 12 months in the market. It came out with a refreshed version, more features, less price from BYD.

Lei Xing:
Yeah and even the ICE, so the Lavida, one of the bestselling VWs in China, you can get it for RMB80,000.

Tu Le:
It's $12,000 guys.

Lei Xing:
Like a RMB20,000 drop. While Tesla, I wouldn't say they rose, they increased prices, the prices went back to where it was because they had that RMB5,000 discount that was valid for the first quarter and then they immediately launched that zero-interest financing.

Tu Le:
Yeah I tweeted free money for 5 years. And on top of the China, free money, they are discounting demos in the United States or vehicles that are still considered new, but have 1,000 miles, 2,000 miles on them.  So Lei, I am getting really, really close to pulling that trigger.

Lei Xing:
Just couple of days ago that new announcement of the you can do a 0% down payment for either ICEs or EVs. That was the new People's Bank of China policy on car finance, lending. Before the requirement was, I think like 15% for NEVs, down payment. Now you can basically get a car and without any down payment. And it's at the discretion of the automakers and the lending companies. That's another concrete measure to push consumption.

Tu Le:
And let's point back to Lei, maybe you and I can talk about some of the companies, the EV startups here in China or in China that have like 450,000, 600,000 units of capacity, because the pressure, the additional pressures on them, NIO has probably half a million units at least of capacity. Xpeng, they have multiple factories. Li Auto is two factories now. So the all hands on deck, let's keep the factories going because there's a couple of things going on. It's cheaper to sell cars that are lost than to have factories be idle, because some of these workers, if you shut a plant down for 2, 3, 4, 5 months just to kind of reconfigure inventory levels and get your demand supply, right? Some of these factory workers they'll leave. They'll never come back and you might not get them working for you again. If you shut like some of these real estate developments, when they shut down these “nong cun” right? These workers that come from the countryside, they'll go find another city that has a real estate development or automotive manufacturing, and then they'll try working there. So they'll never come back. So I think it's important to remember that too.

Lei Xing:
So I'll give you an example of the current economic. This is close to me because I own an apartment in Beijing that was bought because of when my daughter…

Tu Le:
“You Qian De Ren” (you are rich).

Lei Xing:
Yeah like, no well. No, I mean, just an example that is apartment complex. I heard there's 18 one-bed room apartments within that complex on the market, but no one's buying at discount. So it's just one example of kind of the situation. And now, right, vehicle, auto consumption is such a key part of the economy. And hence you're seeing. Yeah.

Tu Le:
That's the underlying factor with the EV sector. Why it's so important to the Chinese economy. The Chinese government sees manufacturing as one of the pillars for its economic development. Hence, the importance of the EV sector, because that's the growing part of the automotive sector. The ICE part is by 2030, I would say that's pretty much gone except for fleet and some tier, lower-tier cities still buying petrol engine vehicles.

Lei Xing:
Another example is it's not these incentives are clearly targeting the current owners, some of whom may be owning a vehicle, for example, long period of time, not just the first time buyers. I have, my dad had an old vehicle that's now close to 15 years old. I'm looking at these all of these incentives. I mean this car, it would be worth nothing on that secondhand market, but, if you trade it in, you might get more for it. So these are all enticing consumption, right? Me putting a consumer hat. If I was in China, I would be very enticed.

Tu Le:
If I was a young person and I can get access to a license plate, or I had access to a license plate in one of the tier one cities, you could get an amazing vehicle for RMB200,000, for $30,000, amazing vehicles.

Lei Xing:
And 0% down payment. That's I mean that's unheard of, even for Tesla offering that zero interest financing. That's their first time doing it, right? So these are the concrete measures that we've been looking for and starting to come out. And I also tweeted that forget about Q1. Q2, do you improve or do you stagnate, or do you do worse? I think that's what we, Q2, Q3, Q4. That's what we're looking at.

Tu Le:
You make a terrific point Lei, because there's desperation already in some of these incentives. When we get to Q2, Q3, Q4, when we get to later in Q2, Q3, especially when we get out of summer, how desperate are they going to be? How deep are these going to, discounts going to be? It's going to be an amazing, because somebody has got to say no mas.

Lei Xing:
Yeah. And the fact of the matter I think going back to Tesla a bit is their kind of the disastrous performance, part of that was, it's all over the world. It's not only in China, I think in China, the incentives had not worked as good as expected. I think their China shipments and domestic sales were down year on year comparing Q1 to Q1 2023, down slightly. I think it was like 220,000 shipped out of Shanghai and 130,000 domestically. Both were down year on year. That's one metric. Whatever the reasons that Tesla gave, the Red Sea, the arson, the refreshed Model 3 ramp up, I don't know, the demand problem is a serious issue.

Tu Le:
That's, let's like finance people, CFO, double speak for we have weak demand for our products.

Lei Xing:
And then on the flip side, the Xiaomi SU7, they've been making headlines I mean this past week every day. They delivered their first vehicles, Lei Jun personally handing over the cars. And 100,000 firm orders, 40,000 locked-in orders that shows that there's still demand. And for a brand like, a newbee like Xiaomi, right? These are all happening at the same time.

Tu Le:
It also means that the strength of the brand is overpowering some of the FUD that's happening on Chinese social media. So I think it has a lot to do with Lei Jun actually leading the way as opposed to some random Xiaomi person.

Lei Xing:
We're probably going to see in the coming weeks and months are more chatter on the quality of these vehicles. After these customers drive them for a period of time. But I'll say this that what Xiaomi has done, right? I think, is transparency. One example, I don't know if whether you've been watching is that since they launched this car, their official platforms have long released eight FAQ-styled releases, like over 110 questions answered. They put these out there to, like this is transparency. And I think transparency is marketing. I think that's what they've done well compared to the other ones. Forget about the quality of the car. We don't know, right? We can't say for sure, but it's Xiaomi. I think they've done some things right. Aside from the brand itself, right?

Tu Le:
Yeah in a sea of discounts. There's a little bit of excitement and positive press. And I think that shouldn't be understated right on the verge of the Beijing Auto Show, we know that they're going to be, you had tweeted, there are going to be a number of unveils. Can you revisit that tweet, Lei, and kind of tell everybody what we should be seeing come April 25.

Lei Xing:
Well I mean there's basically different buckets, right? We talk about the foreign brands, we talk about the existing brands, we talk about the new brands, MONA, ONVO, STELATO, maybe some other ones. And then we talk about in terms of powertrain, PHEVs versus EVs. I think there will still be a lot of PHEVs. One example is the GL8, the OG, the MPV OG in the China market is finally coming out with a PHEV.

Tu Le:
Good old GL8, the good old GL8. My American friends that follow GM that's the old U-Van that still exists in China. 

Lei Xing:
Yeah. I think actually the Beijing Auto Show is a good, all the people in the companies, the PR, marketing right now, their full attention is on the Beijing Auto Show. I think it gives them a chance to sort of leave this kind of a bloodbath for a few weeks, because the attentions are on preparing for Beijing Auto Show and all the pageantry and all the launches, all the activities. So I think there will be a probably a lull after the March high. And then hopefully that will return, the market will return, depending on the effectiveness of all of these intense incentives, both by these companies and also by the China, regulatory wise, policy wise. So people can party basically for maybe a couple of weeks and then...

Tu Le:
I'm looking very, well in, so the attention will quickly move from Shanghai to Beijing because F1 is going to be the week before the Beijing Auto Show. The other thing too is that executives will be flying in. I think a lot of western, from the U.S., might be coming in, especially from the general, because they're doing some important launches. So there's always, whenever global executives fly into China, they always have the management meetings too. So there's always rumors coming out of those management meetings. It'll be the second chance for the world to see what's going on in a concentrated format, in the China EV space.

Lei Xing:
And also there will be more western press and I just would love to have more of these western press and report, and because in Shanghai last year, right, a lot of media couldn't go, international media. Hopefully this year we will have more of them comment and report from the front lines rather than looking from behind like what I have been doing before. I went back to China last year. So it's important to feel that environment.

Tu Le:
I'm hopeful too Lei. I'm still hearing about certain delays with visa requests, but I think there was some hesitancy more in Shanghai last year. Now it just seems more a like a backlog than actual no issues. And really quickly about your point on hybrids, there is a great article in Bloomberg. I spoke with Linda Lu from Bloomberg. She was talking about how BYD overtook Geely to be one of the largest automaker, or the largest automaker in China, and they detail a little bit about the DM-i and Geely's competitive hybrid system for those that are wondering how it differentiates from Toyota and stuff like that. That's a good article to read.

Lei Xing:
One thing to watch is the 5th generation of the DM-i will be a good topic to follow, because they're doing this 2,000-km range, and not only BYD. That's something to watch. It's crazy.

Tu Le:
And that's the important thing, right? Like it's not that China is beating the world on electric vehicles. The hybrid technology is first class as well. The only other company that I can think of that's really pushing the envelope on hybrid is Toyota. I’m not as familiar with hybrid technology to be quite frank, but I do know that BYD has been at it since day one. Geely has improved significantly over the last 24-36 months with their hybrid technology. So it's going to be a viable powertrain for the foreseeable future globally. And so we might as well get used to it and with LeapMotor partnering with Stellantis now, EREV is probably going to becoming a normal thing in Europe very soon. Get used to it folks.

Lei Xing:
And then just a bunch of things happening right before the auto show. I think a lot of announcements will be made even before the show begins, it’s always that way.

Tu Le:
Always. Always.

Lei Xing:
Especially considering, for some of the companies, like Volkswagen Group, especially, 40 years in China. I expect huge announcements. Possibly we could be seeing a concept of that Xiaopeng collab, who knows, right?

Tu Le:
We saw that Geely is now officially going to be using NIO’s chargers and vice versa. So. 

Lei Xing:
JIYUE. Yeah.

Tu Le:
JIYUE, yeah. But Geely chargers are going to start showing up on NIO apps as well in the near future and vice versa, I guess. Again, wondering about charging because the United States and Europe is still woefully behind, when you see more of those collaborations, again, these are wins for NIO, right? Because it creeps up their utilization rates. This is only on charging. It's not swapping, but they also have those partnerships on the swapping side. So look for in the next 24, 36 months to see non-NIO vehicles really begin to take advantage of the swapping stations in China as well.

Lei Xing:
Yeah, probably more partnerships will be announced over the next few weeks. leading up to and around the auto show. So I think last year was kind of the shock for me, and many of the foreign companies visiting China for the first time. And this year, I think there’ll be some surprises. Also, just that brand movement hasn't stopped yet, right?

Tu Le:
What else do you want to talk about it?

Lei Xing:
I think pretty much it. I mean Tesla we talk about Tesla, we talked about Xiaomi, the sales, the auto show. Ford’s delay of the next-gen EV, part of that presser talked about that Blue Oval facility in Marshall, Michigan. It said that it was progressing and then that skunk works of the volume, affordable EVs. I mean those are the China factors right there. Aside from that, they're also going toward the hybrids.

Tu Le:
I think that's a prudent decision by Ford. I think it needs to happen and people are going to be disappointed, but long term it's to Ford’s benefits. This coincides with really quickly Lei, Q1, Ford, Stellantis, RAM, and F-150 sales…

Lei Xing:
Were down, right?

Tu Le:
Stellantis, RAM sales were down 15% in Q1. F-150 sales were down 10%. So pretty significant numbers, and this contrasts, because Bloomberg article wrote about it, and the interest rates are making these expensive SUVs and pickup trucks less attractive. And you contrast that with Tesla launching 0% financing in China. So that is very, very interesting in and of itself. Now a rumor that GM is working with CATL and we know that Robin Zeng is not going to be taking his foot off the gas with CATL’s expansion plan. So how this all plays out in the U.S. political domain for 2024, we will have to keep an eye on it and see what's going on. Because to your point Lei, Ford CATL was looking at 30 GWh. Now, it's supposed to be closer to 12. Is the latest that I’d heard. So where they're going to get these batteries, still don't know.

Lei Xing:
And it goes back to the IRA that you and I talked about of, how does that help? It's, it doesn't. Now that, and it was trying to drive EV adoption, wasn't it, part of the aim? But like you said, it’ll buy them time, but how is it going to help? Because the market…

Tu Le:
That’s what is so uncertain even when Tesla is a little bit in no man's land. Because and we're only going from there. What they say, right? I can't tell you anything that I've heard insider wise. But the Model 2 by 2026, late 2025, early 2026 in the China market. That's too late in the U.S. and European market. Fine. That's great. But if China is 50% of the importance of the Tesla vehicle sales. Then that's too late because a $25,000 car, we can get that now. It's not special. Just remember that.

Lei Xing:
So from that perspective, I think looking ahead for the full year, I don't know. Some were talking about 20% growth, 10% growth. I'm thinking if they can do 1.8 million again, that's a win. I don't have a, given the current environment globally, it will be very tough to grow, I think for Tesla.

Tu Le:
Very tough, very tough. And let's say it's twice as hard to sell the same car in 2024 in China than it was in 2023 for Tesla. That's 1.2 million units at a minimum, Shanghai Giga is 1.2 million units. If Berlin Giga comes online, starts producing at or close to capacity, the release valve that Tesla used in Europe needs to go somewhere else. Is there additional demand in Japan, Korea, Australia that can take up some of the exports that they used to ship to Europe in 2023. That's only to break even, right, Lei? So the crazy thing is, in my mind, by 2026, if the Model 2 is a hit, especially in China, all this could be forgotten, because slow and steady wins the race. And they're going to be a survivor for sure in the China market. They're going to be a survivor in Europe and the United States, so, a global Model 2, wow, that could be a game changer, especially if they have the capacity around the world to launch the vehicle in different regions. So the only two companies that I'm looking at, that seem more predictable than others is BYD and Tesla. Tesla less confidence in them, BYD I think they have more levers than a Tesla does at their disposal. So I agree, I don't have that much more. There is a great article Lei that I would recommend to you from the Wall Street Journal about Stellantis last week or two weeks ago. They are continuing to be all in. And one of the things and I need to speak to a couple of people this weekend or early next week is still answers is talking that their small cars, the Fiat 500, there's a couple of other cars that they sell in Europe, like Citroen, the 3E? E3C, are profitable clean energy vehicles. So I want to understand is that accounting profitability or is that real dollars in pockets or Euros in pockets. But super interesting article, peculiar, because it's a spotlight on Tavares and Stellantis. Not one mention of China in the article.

Lei Xing:
Well, because besides LeapMotor, they are pretty much inactive. 

Tu Le:
All right, let's yeah, let's end it. Let's have a short one. And administratively, Lei and I have been working behind the scenes, interviewing some people for our MAX episodes, we will try to get the first video China EVs & More MAX episode out by mid-next week. It's going to be a good one. And we had a good time chatting with her. So stay tuned for that. That's on me. We need to get all everything, all set. And then the last MAX interview we did Lei, the audio file is terrible, and I’m trying to get that fixed and resolved, but.

Lei Xing:
Yeah, it's a learning process.

Tu Le:
But I talked to Joe, and he said that he’d be open to redoing it. So god bless him. We owe him a lot. But anyways, since there are no questions, we'll end it here. Thanks everyone for joining. Good morning, good afternoon, good evening.

Lei Xing:
Thank you for your time and we'll talk to you next week.

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.