Episode #166 - China EVs & More Celebrates 3 Years, Chinese IP in Euro Brands, Carlos Speaks

This podcast starts with a discussion on the NEV take rate hitting 52% and Tu points out that it's a massive number that is also getting help from the steep dropoff of ICE sales. 

They also both take a few moments to discuss the softness in demand that Tesla is feeling and how its likely adding pressure for them to continue to cut prices in order to keep the factory running and keep factory utilization high.

They then also scrutinize Li Auto's original aggressive 2024 sales forecast and how that's been dialed back as well. 

Tu again reiterates that within the next couple years, Chinese IP will be in European branded vehicles both sold in China and Europe. The conversation then shifts to the potential additional EU tariffs on Chinese imported EVs and which brands and products will likely be affected and retaliated on. 

Tu closes out the podcast with a summary of a Reuters interview of Carlos Tavares, Stellantis Global CEO. 

Transcript

CEM #166 Transcript
Recorded 5/24/24

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 globally 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. And to our loyal listeners, welcome back. We ask that you please help us get the word out to other enthusiasts about this podcast 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 on Substack at sinoautoinsights.substack.com, which I encourage you all to do. Lei, a hurried Lei. Can you please introduce yourself? 

Lei Xing:
A still jetlagged Lei. Usually it takes about a week, but I woke up at 3 am this morning. So good morning from my side. This is your co-host Lei Xing, former chief editor of China Auto Review, and this is episode #166. The two of us are finally back in the same EDT time zone. Before we begin, a couple of milestones, you have mentioned the YouTube edition of #163, but this past Monday marked the 3-year anniversary of our posting, officially posting our first episode of China EVs & More. So we pat ourselves on the back. It's been three years already. Time flies. The other milestone is I tweeted yesterday that the third week of May, China new energy passenger vehicle registrations accounted for over 50% of all passenger vehicles registered that week. So keep that in mind as we talk further in this episode.

Tu Le:
If we're peeling layers of the onion back a little bit, it's interesting or it will be interesting to see how much ICE sales have continued to fall to get to that 52% as opposed to absolute growth of the NEV sector. Now, there's likely growth in the NEV sector, but I’m sure the shrinking ICE market also plays a huge part in getting to that 52%.

Lei Xing:
Yeah, so speaking about that 50%, it felt like I mean the cities that we've been to, right? Whether it was Beijing, Shanghai, Zhengzhou, Changsha, Shenzhen, I mean it felt like every other vehicle on the road had a green license plate, so it perfectly matches the numbers, right? At least from the real-life perspective. That's how I felt like, to me, so.

Tu Le:
There was a conversation I had this Lei, about with a skeptic. And he pointed to the fact that these numbers are fake, there's all these graveyards. So I invite anyone who thinks that these sales aren't real or the numbers are exaggerated. First of all, foreign automakers do business, publicly traded foreign automakers. So they, I don't think they're cooking their books. And in booking sales volume that is not actually there, number one. Number two, I just invite you to go and visit these places, to your point Lei, especially in the tier-one cities, there is more green plates than not.

Lei Xing:
And that needs to trickle down to the tier 3, 4, 5 cities, right? It might not be as high, but one example that you brought up, of the possible graveyard, we saw one in Shenzhen. Do you remember? There was a supposedly a graveyard of BYDs. And we were there, we saw it, but a couple of days later, I sent you a picture. Those cars were gone. I wonder where they went.

Tu Le:
Probably on a boat, on a row-row.

Lei Xing:
Or BYD Explorer or something. But speaking of I think I just saw your tweet about the Model Y production reduction the 20%. I think this is pretty, the latest news while Tesla invested in that groundbreaking of the Megapack in Shanghai. What's your take?

Tu Le:
I think that they can't hide anymore. I think that there's a real, severe fall-off in demand for their product. I think that the Model Y did everything it could, but there are just so many other products out there that are much more competitive, and the Chinese consumers have moved on. Again, this goes back to what I said last week Lei, about no sacred cows from a branding standpoint. Xiaomi, I think, has some brand cachet. But outside of that, you get the impression that NIO is kind of on the cusp, but everything else is about features and value currently in the China EV market. So.

Lei Xing:
Yeah, I guess speaking from a momentum perspective is definitely what Tesla is confronting is definitely different than, let's say what Xiaomi is confronting, right? It's exactly the opposite. The volumes are still pretty good. I think 20,000, 30,000 units a month that will be the envy of anyone, right, in the market. But…

Tu Le:
Lei, but I don't know how much. And this is where we can't know precisely because how much of a pull versus a push, because they have to build something every month. And at 1.2 million units, if they're building, if they're delivering 50, their capacity utilizations, if they were delivering 50,000 units, their capacity realization is 50%, which is unsustainable.

Lei Xing:
There's so much you can do on the what, the incentive side, right? Is the zero percent that they just announced a week ago. What more can you do? And the other tweet I saw was Eunice. She tweeted that 2030 20-million target is no longer in the, right? That answers your earlier question that we talked about many episodes ago.

Tu Le:
We knew that 20 million target was never realistic, but it was a stretch, obviously. Yeah. But now it's official. It's dead.

Lei Xing:
I mean that the realities are setting in. In particular, we heard two earnings calls from two of the three U.S.-listed: Li Auto and Xpeng, right? I think Li Auto delayed the launch of the BEVs. They were supposed to launch three BEVs following the MEGA, but that's delayed until next year. 

Tu Le:
And what's your, have you heard about the validity Lei, of the Li Auto rumored layoffs?

Lei Xing:
Well, I think Li Auto is currently going through that restructuring phase like what Xpeng did, maybe a few months ago, and Xpeng itself, right, they just hired a new sales chief from, was it a smartphone? 

Tu Le:
Yeah, I forget.

Lei Xing:
Was it Oppo? Or I’m not sure, but it was outside the auto industry, right?

Tu Le:
So they're taking a page out of NIO’s playbook and Xiaomi’s playbook a little bit.

Lei Xing:
I mean for Li Auto, it's been consecutive. So first, dialing back their guidance, right? That was something announced earlier this year. And then this latest earnings call delaying the BEVs. Now, the latest supposedly round of layoffs.

Tu Le:
Really quickly for those that are not familiar with what you're talking about. Li Auto started the year with an 800,000-unit forecast or a goal. And they've since dialed that back significantly, I want to save 500,000 or 600,000, something like that.

Lei Xing:
I think it'd be lucky if they get to 450,000 based on the current outlook and competitive environment. So that's a huge…

Tu Le:
And this with the L6 being their high runner, the L6 being the smallest five-seat EREV that they've just launched. I think it's going to be pretty popular and let's say it's going to be 30, 40 upwards of 40% of their sales in 2024, I would think. And that's how they're going to get close to that 450,000 unit sales volume.

Lei Xing:
It's that I think the numbers they put out was about 41,000 orders in about a month for that model. And then the 7, 8, 9 which had their prices cut a month or two ago. They kind of on earnings call they said they don't expect to make any more price movements. But who knows? Depending on the market conditions of that could still be a card to be played.

Tu Le:
So Lei, as Li Auto gets more conservative, Xiaomi doubles down and said, we're raising our forecast from 100,000 to 120,000 units.

Lei Xing:
The way they put it was to ensure we deliver 100,000 units, but to strive for possibly 120,000 units. That’s their official…

Tu Le:
But you know that’s their nali nali buhao yisi kind of stuff. So I meaning that I'm being modest is effectively what I’m saying.

Lei Xing:
I just think Xiaomi has just beaten I mean every expectation imaginable.

Tu Le:
And what's important to note Lei is that this is a sedan, this is not an SUV. China is like the United States. It's a crossover, SUV country.

Lei Xing:
Yeah, that's the 100,000 units of SU7s alone, right? Not, the second model is for next year, it'll probably come out later this year, but sales would commence next year. You think that given the current momentum and the fervor, they could easily double whatever they sell this year in 2025, right?

Tu Le:
And they have a lever. I think that I don't know if they really want to ramp anymore, because they want to keep production, quality manageable.

Lei Xing:
So right now, they definitely have a capacity constraint, and it looks like they're going to have that second, what they call the Giga, their own Giga, running probably in about, I don't know, 12-18 months time. So by about this time or maybe a little bit later in 2025, right next to their current plant, to, they have the SUV coming up, and then the third model, yeah, I mean it's definitely not demand, it’s capacity constraint.

Tu Le:
And not to take anything away from their sales. They're also doubling down on intelligent driving and have talked about 1,000 people dedicated to building that out in order to compete with NIO, Xpeng, Huawei, Li Auto.

Lei Xing:
That number will double to 2,000 by next year. They're rolling out the city, kind of the city NOA in 10 cities in May, by the end of this month. And then nationally, I think by…

Tu Le:
Do they have an official name for it?

Lei Xing:
It's just NOA, city, urban NOA. 

Tu Le:
So we got to think about this in the terms of generative AI and think of Xiaomi is more of a technology company than a true car company, at least from a mindset standpoint. And I would see how Apple is using AI and project that out a little bit to how Xiaomi might use generative AI or AI to kind of create more stickiness and demand, because again, remember that they have the Mi platform that connects all of their commercial consumers and now transportation products together. And right now, it's like they're firing all cylinders. They can't do anything wrong. I was actually quoted in an article this past week, Wall Street Journal that talks about how Xiaomi learn how to gather all this data. And they already have this huge foundation of database of information from hundreds of millions of consumers, not just Chinese, by the way, hundreds of millions of consumers that they can use to experiment with small little products because I'm talking hardware and physical products because they knew that some consumers would be turned off by that, the touch screen. So they sell this super cheap add-on that uses physical buttons to do the same thing to a touch screen.

Lei Xing:
And then one of the things that's happening next for Xiaomi, I heard from one of the owners I talked to is they're going to have this thing, a feature where if you leave or let's say you drive your car and you're within the vicinity of your home, then you have a preset once you enter that geofenced zone. All your other Xiaomi appliances that have been preset can be turned on and off, right? Without you having to press…

Tu Le:
So it's just like turning on the air conditioner, turning on the lights, doing things like that.

Lei Xing:
Yeah, because the system knows that your car is near you all your other devices and trying to make that car, home, “ren che jia” so human car home work, right?

Tu Le:
And we're only scratching the surface of how incorporated into our lives the transportation part of our daily lives is going to be because again, I think we take for granted how much time we spend in vehicles, especially in China if you have your own vehicle in a tier-one city, you're sitting in traffic probably moving 20 km, in Beijing traffic that might take an hour and a half. So think about that. There's a lot of opportunity to pop up something on your touch screen. Hey, I know you're 20 minutes away from home, what if we use Meituan to order some food for you? So that by the time you get home, two minutes later, the guy’s there delivering your food, right? So that's just a simple thing. Meituan guys is like Uber eats or like Door Dash, by the way.

Lei Xing:
And then another company also named starting with an X, it's also pushing ahead. I'm talking about Xpeng with the launch of the MONA. And He Xiaopeng basically said this MONA, the first A-class model, will be the best-looking A-class electric sedan below RMB200,000. And one of our friends, I won't name who, has different opinions about that.

Tu Le:
I think China Driven should trade in his ET7 before it loses any more value and get maybe one and a half MONAs.

Lei Xing:
And then another B-class sedan from the Xpeng brand, is yet to be launched by the end of the year, and recently pushed out this AI Tianji 5.1, which we experienced on, during our road trip, right, on the G9.

Tu Le:
So, let's switch topics over to your thoughts, on Tavares’ comments in Munich for the Reuters conference.

Lei Xing:
It's about the tariffs, right?

Tu Le:
Just tariffs and competition, stuff like that.

Lei Xing:
Now he has the LeapMotor, it’s his Chinese offensive.

Tu Le:
Well, you saw like there's pictures of them on the internet with smile, ear to ear, grinning with all his teeth showing. So he feels he's in the driver's seat, I think.

Lei Xing:
While he, in fact was in the driver's seat of one of the what, LeapMotor C11 or something. So, so obviously, right, he has interest in bringing LeapMotor into, let's say, initially, not the U.S. but obviously Europe and other markets that Stellantis is in. So not surprising at all that he would kind of using this Chinese offensive to go against the Chinese offensive.

Tu Le:
So I said a while ago, there's going to be Chinese IP in European cars in the next 20, 30 months. Chinese IP in U.S. cars probably within the next 4 years. And again, the same conference, the same meeting, I made that statement. There were people in that room that were incredulous that were like, are you kidding me? How could that ever happen? And so they don't really know who I am, because I wear a different hat, depending on certain meetings, because I'm also and you know this Lei, I’m also a mentor for entrepreneurs in the mobility space in Detroit. Sometimes I wear that hat. And they only know me as that as opposed to the Sino Auto Insights guy. So they're like, who's this guy, right? Like, why is he saying this? And so I don't do it for shock value, but the shock value it does create is kind of eye opening. And unfortunately, this tells me that you and I need to probably focus a little bit more on the West, less on Europe, and more on the United States, and try to educate these folks a little bit more thoroughly, Lei.

Lei Xing:
And similarly, for anybody that has a great, even for someone like a Stellantis who no longer may have the kind of production footprint as they used to have in China, but who has enough interest through these type of new partnerships, similar with Elon saying yesterday in the VivaTech conference, right? He is not in favor of the tariffs for EVs nor for the gasoline vehicles. And the German Big 3, the CEOs, they've already made their opinions known publicly, right?

Tu Le:
Well, not to mention that they knew that the Chinese government was going to target them, ABB and that's what they're doing preliminarily, right?

Lei Xing:
I mean 25% would hurt someone like a BMW, because they export a significant number of BMWs made at the Spartanburg plant in South Carolina to China.

Tu Le:
I think we can say, Lei, pretty confidently, like generally speaking, the high-end vehicles, the M, the for Audi the A8s, the 7 Series, the S-Class, they're all exported to China. Going from 10 to 30% is a significant increase in tariff. It scares the heck out of ABB and they knew it was coming. Now, I also said that China was probably going to wait until at least January 2025 before they really did significant retaliation or on the U.S. So.

Lei Xing:
I mean China says specifically that 25% increase was within WTO rules. It's like they're saying that's not a retaliation but who knows.

Tu Le:
The other thing, too. And you probably have more history on this than I do is that these guys, ABB is what analysts in China call Audi, Beamer, Benz, or Audi Benz Beamer or BBA interchangeably. These guys would just book profits off of these high-end S-Class, Maybach, 7 Series, M, G500. And so this is a cash cow that they could lose out on, especially not only due to an increased tariff and pricing pressure, but because of the local competition, the Yang Wang, Fang Cheng Bao, some of the Lotus, Polestar, Volvo. So they're already feeling the demand squeeze from domestic players, and then the tariff is going to squeeze them on the other end. So.

Lei Xing:
And Porsche would be one example with their sales falling.

Tu Le:
I don't think these are willy nilly, oh we're going to keep it in place, but only for a few, once these things are in place, they're going to be locked in for a while. But revisiting, go ahead.

Lei Xing:
No, it will be interesting pretty soon. I think June 5 is the date that was mentioned about the EU voting that they could make some kind of announcement of these tariffs on the Chinese, which I believe are coming, these tariffs. The only suspense would be how much? 10%, 30%, 40%, 50%, but I think they're coming as a matter of a level and when that will be announced, but probably not as high as the 100% from the U.S.

Tu Le:
There's no way. There’s no way.

Lei Xing:
So we keep an eye on that and then see what happens from on China's side.

Tu Le:
My guess is 25.

Lei Xing:
Yeah I mean it's probably not as drastic.

Tu Le:
But for those that didn't know that Tavares was interviewed by Reuters, I could summarize his, I summarized it in this week's newsletter. Tariffs will cause inflation. It's only pushing out the inevitable fight between China EV Inc. and Foreign Legacy Inc. And we're talking in Europe and the United States. Restructuring is needed for all of these legacy automakers, full stop. We're talking about engineering, manufacturing, R&D, sales & marketing, aftersales service, every part of the business process needs to be restructured from a legacy automaker standpoint. Unions, and this is the surprising thing he had mentioned that he's gotten good initial feedback from unions being flexible to try to accommodate their needs. Now, this doesn't mean anything. It's just kind of an initial statement he made. I think this is important Lei, because you and I have been for three years now kind of talking about this. Effectively. He said the time is now. It's not a year from now, two years from now, the time is now to make these significant changes. And lastly, he said that there's going to be, so overcapacity, if we believe there's already overcapacity globally, it's going to be exacerbated by these tariffs. And when you look at overcapacity, we're not just looking at the end product, we're looking at battery manufacturing, we are looking at mining, refining, all of the above. If there are walls, now again, I'm not a politician. I empathize with both sides. I mean if anything, I lean more towards the legacy automakers being a bit lazy and not able to make those tough decisions. Tavares, he cheated, and I say that in jest a little bit, but he kind of bought his way into a competitive position, because 15 months ago Lei.

Lei Xing:
Which is smart.

Tu Le:
Yeah, no, but 15 months ago he was the laggard. Now he's the leader or at least he feels he's a leader. So I think that's important to know. The other thing, have you seen Polestar’s share price Lei?

Lei Xing:
No, I haven't. I know NVIDIA has been going up so like crazy. But.

Tu Le:
One of the other post in my newsletter, the title was going low, then in parentheses (lower) right? So there's two things, Polestar’s trading at 84 cents. It's struggling. I think the tariffs really. So it was already kind of struggling and then the tariffs were announced. And I think that just kind of pushed down even further, 84 cents. So the other thing is our friend and a friend of the show, Steve LeVine, former guest, he had written this week, his newsletter, a very, very good newsletter that's a little bit expensive to subscribe to. Steve knows, we tell him this consistently. He said that LFP is $47 a kWh, right? For those that don't follow batteries closely. A largely held belief, generally speaking, among the battery community is that below $100/kWh, companies start making profits on EVs. CATL is at $47. There is and you and I know Steve to be very thorough. So I don't think this is speculative and you can believe him, because he referenced research. So it's not something that he had researched himself, but some that means somebody's making money on the battery side and somebody's making money on the EV side. The price war creates this cloud of uncertainty. But once that cloud is lifted, it will clear up all of the doubt about can car companies make money at the mass market level, at least they can in China. There's likely no way Europe or the United States gets to $47 a kWh ever.

Lei Xing:
And which is that MONA, I mean the RMB100,000-200,000, but luckily for Xpeng, they've got a hand from Volkswagen which contributed several hundreds of millions of RMB in the recurring revenues in Q1 already. And that's why their margins went up, I think. So this is something that others don't have. There's different tactics that you see.

Tu Le:
On one thing that Lei. And I don't know if you know this. But I didn't read the MONA presser or information that closely, but I was told that MONA is all also going to be a vision-only. It's not going to use LiDAR.

Lei Xing:
I haven't heard that, but what I believe is that that LiDAR will be used, because it's going to be force used in a kind of RMB100,000, well LeapMotor already has that. But I believe it'll still have LiDAR.

Tu Le:
Ok, Ok, got it.

Lei Xing:
Most likely from RoboSense. They just recently signed a deal. I could be wrong, but I believe that it's going to have LiDAR.

Tu Le:
The other thing Lei, but I wanted to really bring up very quickly. This is more of an update unless you have comments, is that BYD is launching 5th-gen, latest gen of the dual mode or DM-i system, elaborate system next week.

Lei Xing:
That's like their 5th generation or something, already.

Tu Le:
Here's the thing guys, I think it's only guys. So actually accurate. They're looking at 2,000 km on a full tank and a full charge for those that think because in the west, especially here in Detroit, everybody still thinks Toyota's hybrid system is number one.

Lei Xing:
So I just tweeted that Dongfeng Aeolus is just launched the L7, what it calls the plug-in hybrid range extended EV with combined range of over 2,000 km. So that's already becoming a new kind of the next battleground, right, who's going to have the 2,000-km car and more are coming, including BYD, including others. I just happened to, yesterday, my Santa Fe Hybrid during the summer, spring, the mileage is really good and I did over 650 miles on a tank. It's like over 41 mpg since I haven't been here, my wife has been driving the vehicle, but she drives a bit slower and more ease.

Tu Le:
But she doesn't have a lead foot like you.

Lei Xing:
It's over 1,000 km, right? Which is already good. Now you have something that's double that.

Tu Le:
So this is important to note Lei, because you bring up a good point, we talk about this 5th-gen DM-i. Technology is still moving forward and it's being led by these Chinese companies. If we take a picture in time, if we're German legacy or U.S. legacy, take a picture in time and try to catch up to that picture, we're still going to be behind. So they need to leapfrog in order to lead, which is the root, the really challenging part, in my opinion.

Lei Xing:
And it's through years and decades of iteration, right? We always kind of think that this is over the last couple of years or 3 years, 4 years, and there's more than that, right?

Tu Le:
You and I know this, BYD sucked for a very, very long time.

Lei Xing:
I think I shouldn't say this. But I mean there's still improvements to be made.

Tu Le:
No, without question.

Lei Xing:
But I know what you're saying.

Tu Le:
I can't stress to you. And we've said this in previous episodes, but I can't stress to you how impressed I am in a, not from a design standpoint, because that's an individual thing, but from a quality reliability standpoint, I get into these Chinese vehicles by NIO, by Xpeng, by Li Auto. I can't help but project out to my old colleagues at GM, old colleagues at Ford, who are in Dearborn, in Detroit, and they would be shocked at the level of quality of these vehicles. I kid you not.

Lei Xing:
Also, now I remember a photo that was tweeted by someone of the Chevrolet, was it the Silverado EV, the cockpit? I think.

Tu Le:
I retweeted it and I was like, are you serious? This is a $75,000 interior.

Lei Xing:
I think part of the reason is that we've been spoiled. I think that's part of the reason, but also.

Tu Le:
Well it did, it looked straight out of the 80s, and it looked like it was pieced together. It didn't look cohesive at all. And honestly, if I was one of the designers for that interior, I'd be a little bit embarrassed. So other than that, was there anything else you wanted to chat about?

Lei Xing:
No, I mean just most recently, I think the 009 Grand or there's some other term for it was delivered to Zhou Hongyi, the CEO of one of the lates KOLs, was delivered to him. The CEO of 360, also investor in NETA. I think he traded in his Maybach or something for the 009 Grand.

Tu Le:
I used to get NETA and LeapMotor confused because they kind of play in the same low price, but NETA is also called Hozon, or Hozon is the company that owns, I guess.

Lei Xing:
Parent company or something. And then NIO opening that massive, massive, 7-story NIO House in Amsterdam.

Tu Le:
Did you want to comment on Li Bin’s thoughts on the tariffs and everything?

Lei Xing:
I mean it's the same as what everyone else said, right?

Tu Le:
And it's unfortunate because guys like Li Bin and He Xiaopeng and Li Xiang, they've only been in this base for 10 years, so they're kind of collateral damage a little bit, which is unfortunate. But hey, everyone, thanks for joining us. Good morning, good afternoon, good evening. We will talk with you all next week.

Lei Xing:
Yep. 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.