Episode #168 - Unpacking EU Tariffs, Tu's Cali EV Adventure, For VW - It's Complicated

Tu and Lei begin this podcast with a quick download of the EU tariffs, who was slapped with what and who the winners are. They also take a step back to discuss who currently exports the most to the EU and how the tariffs may affect their quantities. 

They then move over to the rumored retaliation from the Chinese govt and who would feel free brunt of those retaliatory measures. 

Lei then moves the conversation over to Tu's EV car rental for his trip to California and Tu talks in details about the good, the bad and the ugly about his few days driving a Kia Niro EV. 

They close the podcast with a discussion on how the tariffs, both exporting to AND from, could affect VW Group's diverse set of brands, manufacturing bases and ultimately their long-term competitiveness. 

Transcript

CEM #168 Transcript
 Recorded 6/14/24

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. And to our loyal listeners, thanks for listening and 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.

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 sector. I write a free weekly newsletter on substack. You can find it at sinoautoinsights.substack.com and you can sign up for it there, which I encourage you all to do. Lei, a Beijing Lei. Can you please introduce yourself?

Lei Xing:
Yes sir, good evening from Beijing. This is your co-host Lei Xing, former chief editor of China Auto Review, and this is episode #168. Apologize last week we totally missed our regular episode because I was traveling and the time didn't work out, but nice to be back, Happy Father's Day to you and all the fathers out there. 

Tu Le:
Thank you sir. Happy Father's Day.

Lei Xing:
And BYD is ready in Europe. I'm not talking about the tariff, not yet. Ready for the UEFA Euro 2024, which begins…

Tu Le:
Big sponsor, right?

Lei Xing:
Which begins 3 am my time tomorrow morning. I'm talking about BYD because they are a sponsor, they are sponsor of the UEFA Euro 2024. They have their booth set up outside the stadium in Munich where Germany is playing Scotland. Now we get into the tariffs. You said it's a, BYD got a slap on the wrist. I'd even go as far as saying it's almost like a bump saying, excuse me…

Tu Le:
So I was, talked to a few people in Europe. The EU would need a separate investigation on PHEVs only in order to justify putting tariffs on hybrids. And so that's a get out of jail free card for BYD.

Lei Xing:
That is the interesting, because all of the communications so far have specifically said battery electric vehicles, which I think you and I take it to mean the BEV type only. When I visited the BYD showroom in Stuttgart I think last September, I remember that the people there saying they were going to import a lot of the PHEVs. That's one thing. And then I think generally, the, if we count the 10%, so added together, it's roughly from 30-50%, right? After this round of…

Tu Le:
For SAIC, it’s 48.1%

Lei Xing:
For SAIC. But let's just round to simple numbers. So 30%, less than 30% for BYD, 50% for SAIC which I think was within expectations. What wasn't expected was kind of the slap on the wrist that you talked about on BYD which I thought was they got a free pass, basically.

Tu Le:
I wrote in the newsletter. I was like, this is when you call a non-win a win.

Lei Xing:
A non-win a win. Let's talk about some of the reasons behind these discrepant, these different rates that the EU Commission pre-disclosed, right? There's a process. SAIC, I mean, if we look at the correlation, it's pretty much correlated with the sales.

Tu Le:
Hey Lei, let's do this. Let's take one step back. The largest exporter to Europe for electric vehicles was Tesla. And then next was the MG brand I believe. So, SAIC owns MG and MG is effectively an export only vehicle for SAIC but the 48.1% is actually very significant for SAIC from a damage standpoint. But please go ahead.

Lei Xing:
So some more context, I have this bar chart of the top 3 Chinese car maker. This is everything ICE+NEV, SAIC last year was close to 240, over 242,000 units. Next was Geely, only 22,000 units. Then next BYD actually less than 16,000 units, and then a bunch of others in the thousands. So, there is one kind of the context. And then another context was what was posted…

Tu Le:
But growing. So another dimension is but growing. So the 240,000 units was less than ‘22, less than ‘21. So a growing portion of their business.

Lei Xing:
Yeah and then what the ACEA, the European Automobile Manufacturers Association posted. They kind of posted a statement which I thought was rather in the middle ground. They just posted numbers of. So the BEVs imported from China last year to EU was 438,000. So we can pretty much guess, those are made in China BEVs, so a lot of that are Teslas.

Tu Le:
Including Tesla. 

Lei Xing:
A lot of that will be the MGs, right? And then the BEVs exported from EU to China last year was less than 12,000 units. And obviously, the values…

Tu Le:
It’s a rounding error.

Lei Xing:
The values are pretty stark, right? Like 10 billion (Euros) imported into EU versus less than 900 million Euros exported into China. These are some of the context.

Tu Le:
An important distinction as well Lei is that the numbers aren't significant if you take a picture in time, but they're growing. The thought of or the idea that there is an invasion, it hasn't happened yet, but it's starting to, you're seeing the green shoots of that increase in exports, but it's not there yet. And so the EU, I think they actually got in front of it, which is important as opposed to exports are such a huge part of the European Union clean energy initiative for 2035 that without the Chinese brands there, they have no chance, but now they can at least, it just gives the local or European brands, some breathing room. But again, for BYD they're the clear leader. And I don't think this tariff does anything to deter them from being aggressive.

Lei Xing:
And if we talk about the European brands, let's say, just at the automaker level, most everybody's have openly said they're against it, the Germans, pretty much. The ABBs, Volkswagens, they've gone on record saying we do not be need more protectionism, right? Doesn't help. The VDA has put out a statement, China’s Ministry of Commerce, Ministry of Foreign Affairs, the CAAM they've all put out statements denouncing.

Tu Le:
But it's a bit rich for those organizations Lei, in China to say that they don't, they don't protect their market, ok, so there's a bit of irony there, because why isn’t Facebook in China? Why isn’t Google in China? Why isn’t Twitter in China? So again, a bit rich and there is a ton of self interest. So maybe there are true believers in a capitalist market. But for the German leadership, especially for Blume, with Porsche, these guys, BMW, Audi, Mercedes, most of their top end, high margin vehicles are exported from Germany. So it's in their self-interest to say we don't adhere or agree with these tariffs because there is already a warning from the Chinese government that they're going to slap a tariff on high displacement engine vehicles or ICE vehicles. And so that hits at the heart of the 7 Series, the S-Class.

Lei Xing:
The Porsches. 

Tu Le:
Yeah, and every single Porsche, basically.

Lei Xing:
And which is likely to happen. Because I think it was Ministry of Foreign Affairs that said, we will do something, we're not going to stand around and just let this happen. But back to the different rates, it looks like we just said SAIC, Geely, BYD are the top three in the rankings and hence, you can kind of infer the higher the export volume into Europe, the higher tariffs they got. That was basically the relationship. But you also have to look at what each of these three companies are doing in terms of localizing production, which is kind of a reason maybe, or was.

Tu Le:
That they gave BYD a “pass.”

Lei Xing:
That BYD got the slap on the wrist. Because they are building or they have plans to build in Hungary.

Tu Le:
They're already building buses in Europe. So they already have manufacturing set up. Now for passenger vehicles to your point they are building in Hungary or they're building a factory in Hungary.

Lei Xing:
Whereas the MGs are pretty much all exported.

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Tu Le:
I don't believe SAIC has made any announcements about opening a factory in Europe.

Lei Xing:
No, not yet, at least, and then Geely’s kind of somewhere in the middle, but I mean they are, their LYNK & CO right, on the same day that the tariffs were announced, the LYNK & CO revealed their first BEV the Z10 in Gothenburg. So that was a coincidence but…

Tu Le:
And Geely, so let's deep dive on Geely a little bit because…

Lei Xing:
Polestar. When we talk about Geely and Europe we really talk about Polestar, which are all exported from China. So.

Tu Le:
Yeah. But the reason I want to bring up Geely and get your thoughts Lei is because they're the most western of the Chinese brands because of Volvo, Polestar, Lotus, smart joint venture with Mercedes. So the potential for them to quickly gain sales in Europe was quite high because the Europeans already know all of these different brands. Volvo has never sold more vehicles in its existence. Polestar is struggling, but not in Europe. So this 20% tariff which effectively means it's a 30% tariff, especially for these restarted and brand new EV brands. So Lotus is an old heritage brand, but it's been restarted. It needs injections of capital because it was never super profitable before Geely ownership and Polestar, they are struggling as well. Now the 3 and the 4, the Polestar 3 and 4 are about to launch. So any company that has just a single product for several years is going to struggle with capital, but Geely is going to have to recalculate and make some adjustments to its European strategy, because I know they wanted to be very aggressive with it.

Lei Xing:
Yeah. And then just this afternoon, NIO's president Qin Lihong, he kind of responded at a forum, industry forum basically saying their strategy in Europe will not change, but their timetable and some of the tactics may need to be tweaked. I think that was his response, but they just launched the EL8, which is the ES8, in Europe today, I think. So all of these things going on at the same time. And then the other backdrop basically May, the NEV, the CAAM numbers were roughly 40% of the sales, take rate, right, penetration, whatever, and huge drop in ICE sales in China, the passenger vehicles, right, in May. So there's that trend and then going back to Porsche.

Tu Le:
Let me stop you there. Because this is why the foreign automakers are pressing the panic button in China. It's not just that their EV products either aren’t in the market yet or don't, aren’t able to gain any traction on the sales or demand side. It's the fact that the ICE demand has significantly, almost, I won't say gone to zero, but it is just not very attractive to buy ICEs anymore. In the lower-tier cities, but man, the volumes that have gone away just over the last 20 months, 30 months are amazingly significant for the foreign automakers.

Lei Xing:
And then the other backdrop is the share of Chinese brand passenger vehicle sales. It's approaching 70%. This was just around 50:50 not too long ago.

Tu Le:
Before COVID.

Lei Xing:
Well even, I would say just a couple of years ago, maybe it was still 50:50, right? And all of these happening plus that supposedly the 25% Chinese retaliatory tariff on the imported high displacement vehicles is like putting salt on the wound for Porsche, right? So that's why we hear this. The CEOs are coming out saying we don't support this. We don't want protectionism because their interest is too high for this to happen.

Tu Le:
And you remember that Porsche is the crown jewel for Volkswagen Group, but it's also the canary in the coal mine because if Porsche and the heritage that is associated with that brand doesn't resonate with consumers in China. Do you think Merc or BMW or Audi is going to stand a chance? There's no freaking way. It's not just Porsche, it’s just an indicator if Porsche is losing sales and Ferrari is losing sales on a consistent basis, this freaks out Merc, Audi, and Beamer just as much. Because now they can't rely on that logo anymore to sell product, to move product. And the Europeans in Europe and the United States, they rely heavily on heritage and that logo. So for the largest market to reject it, is significant.

Lei Xing:
And you know, so Huawei, so their, the AITO M9, I think, is like the top selling vehicle of anything of any kind above the RMB500,000. I was talking to someone yesterday and he said one feature that this car has, the driver cannot hear people talking in the back when they turn this feature on.

Tu Le:
So there's like ambient noise that blocks it out.

Lei Xing:
Yeah. There's yeah. So actually there's a lot of business purchase this type of vehicle for that kind of feature that others don't have. I mean right? It's just one of many Huawei features that.

Tu Le:
So it's the it's the next generation glass. Remember those old limos, they used to have a glass. Because a reminder to everyone in China, if you're an executive, chances are you're sitting in the backseat of an Audi A8, Mercedes S-Class, or BMW 7 Series. But now you might be in the Chinese branded vehicle.

Lei Xing:
And then another backdrop. So last week I'm sure you've seen this chart, Li Auto cracked into the top three luxury kind of the brand sales ahead of BMW for that one week. First time ever that happened.

Tu Le:
You know that’s their, because so I had spoken with a couple folks from Li Auto and the L6 definitely targeting BMW, they didn't really look at a lot of the Chinese brands as the real competition or the real consumers that they wanted to steal from. So good job for Li Auto, they seem to be consistently doing pretty well. There's a couple hiccups with the MEGA launch, but man, I think they're going to come out much stronger after the price war is over, which seems like it's been going on for years now.

Lei Xing:
Not to say that Li Auto’s home free, but.

Tu Le:
No, not at all.

Lei Xing:
But just these different things that are happening, what are the likely retaliatory measures besides the 25%? I don't see anything specific. Maybe not on the automotive industry, maybe on other industries, wine, brandy.

Tu Le:
Yeah I highlighted that.

Lei Xing:
There's some talk on that but.

Tu Le:
The other thing too, Lei, is that China still needs foreign direct investment from international companies, and so…

Lei Xing:
China would like to maintain that relationship with the EU definitely. But…

Tu Le:
So there are levers that can be pushed and pulled that social media could really create a frenzy towards nationalism or anti-European brands without even formally putting a policy in place or a tariff in place. There are other levers that like a non-governmental levers that could be used to pressure and create a worse situation for these foreign brands without the Chinese government being directly involved. So.

Lei Xing:
It is interesting, right? I mentioned about BYD being a sponsor of the Euro 2024 while this tariff just announced is kind of interesting. I mean there's no doubt that BYD is pushing its brand into Europe heavily.

Tu Le:
It's quite clear that BYD isn't that concerned about a month to month, but they're looking at the long game. They plan to be around for quite some time in a lot of different markets. Whereas some of these other brands, they look at it almost existentially that if they can't grow in another market because of the intensity of the competition in China, they might not be around for another 10 years. I think that's a huge difference between how they look at expansion outside of China. So.

Lei Xing:
To be clear, these tariff rates are not finalized finalized. There's still a process to be gone through, right? They have to talk, that I think there's like a month that discussions can be had. And then there's the final voting to put this in effect. I think after July 4, was it?

Tu Le:
Yes, July 4.

Lei Xing:
And then there's a few more months to go before it's voted into law or something. 

Tu Le:
Well the other thing too is, so there seems to be like an audit that they'll determine how much of the tariffs.

Lei Xing:
I don't think there's going to be that much change into these tariff rates. I think it's probably pretty much finalized.

Tu Le:
Let me ask you Lei, if you saw anything on the Chinese media side about cars like the Dacia Spring and stuff like that, because, and even Tesla.

Lei Xing:
Tesla gets an individual treatment, so it could be below 20%. We don't know yet, right?

Tu Le:
But there's no announcement yet on these other vehicles yet, right? 

Lei Xing:
But I figure they would probably get a slap on the wrist as well.

Tu Le:
Because they're already building in Berlin.

Lei Xing:
Yeah, you were talking about the Dacia Spring.

Tu Le:
Yeah does the foreign automakers, the European automakers that are importing EVs from China. Are they going to get slapped with the 20% too? I'm assuming so I wasn't clear on that.

Lei Xing:
Well there was that list that I tweeted about, that those who cooperated but were not sampled, they get the 21% across. I think that included the subsidiaries of, there's like JAC, Dongfeng, but in that table there were quite a few like, my goodness, putting Chang’an Mazda into FAW Group. Like, come on, there was a list. I can send you that the list of all the companies and subsidiaries, and there's quite a few mistakes in there. So…

Tu Le:
And, so I'm glad you brought up Chang'an because Shenlan or Deepal, and AVATR, the Chang'an guys are super long those two brands and think they'll make an impact outside of China. It's not good for Chang’an.

Lei Xing:
I think all in all it was expected, a little bit of surprising that BYD got lower. But other than that, it was within, I think our expectations of 30 to 50% finalized.

Tu Le:
This tells you Lei, BYD has some strong lobbyists in Europe.

Lei Xing:
Sure. It's almost like, look at what we're doing in Europe, right? What we have done and their volumes, to be honest, is not that significant compared to the Teslas and MGs. Not yet at least.

Tu Le:
On the high end, the Han and the Tang, you and I agree way back when that the pricing in Euros wasn't super competitive. It was probably overpriced, but now they can play with that margin and they can reduce price or they can keep price and just lower some of that margin. But this probably gives, but let's assume that Europe is not China, obviously. Instead of taking 11.5 months, it takes 2-3 years to build a factory in Europe. Now, that's the window that the European automakers, and I can't help but think that Tavares is just smiling in his corner office in Paris and saying, man, this is great for me. This is terrific LeapMotor’s going to come in. I'm going to help them. We're going to use their technology injected into maybe a Peugeot, maybe a Citroen. We're going to push EREVs because there are no tariffs on EREVs.

Lei Xing:
Cause in Europe, there's not none of that IP restriction stuff, right? Not yet at least hopefully that Tavares can keep smiling, because he kind of, you said last episode that he cheated. Now he can smile more.

Tu Le:
So we forget that Stellantis is the 4th largest automaker in the world, and there, I think Tavares’ strategic or strategy is kind of crystallized as in front of our eyes over the last 20 months. And he definitely made a U-turn on the China strategy. Now he's fully embracing it. And I think it'll pay off in the long-term for Stellantis. Now, in the U.S., Jeep is, Jeep’s demand has fallen off significantly, but he said that there's going to be a $25,000 EV in the U.S. market very soon, quote unquote, whatever very soon means, let's say it's 18 months. Will that have Chinese IP in it? I don't know, maybe.

Lei Xing:
Yeah, who knows? So I guess this tariff thing, basically, I think people should have expected this was coming, and they probably have expected that this is coming since 7 months ago when the investigation was started. It's just a matter of how much and how long. Now we know kind of, little bit of sigh of relief, but little bit too harsh maybe on SAIC but I don't think it's going to shut off China EV, the march, right, into Europe.

Tu Le:
No. But it's going to make companies like Xpeng who are a mass market a little bit more careful, even now with pricing and figuring out what products to export. Does it make sense still that the G6 is going to be exported? So it does create kind of a revisiting of the international strategy for the European markets and for everyone else, I haven't looked at the numbers specifically, but if you think that Africa, Middle East, Southeast Asia, Latin America is going to make up for any significant lost volume in Europe, you're wrong. Europe is the…

Lei Xing:
Second largest NEV market after China.

Tu Le:
As a region. And again, I'm only talking clean energy vehicles, so not ICE vehicle. This hurts a significant number of brands that have ambitions to go international that likely we don't talk about very often Lei. It might have closed the door for a significant portion of Chinese EV Inc. Because, and the small volumes that either they already export or were planning to export this makes it very unattractive. The one thing that I wanted to bring up is CNEVpost had put up battery share for May, CATL has jumped to 44%, and BYD is down, but it looks like ONVO and MONA are sourcing their cells from BYD, so that's interesting. You have any thoughts on that?

Lei Xing:
Well, CATL is going to be the King, but you do see both on the battery side as well as on the ADAS side, these companies diversifying a little bit. So just today QCraft got their C-round financing, several hundreds of millions of RMB and QCraft is supplying the Li Auto AD Pro with the highway NOA, that's significant volume for an ADAS/AV startup, ok? So yeah, not surprising.

Tu Le:
Then we are also looking at our friends DeepRoute because they have an announcement pending soon, I think, but nothing yet. So did you want to talk about anything else or.

Lei Xing:
No I saw your EV adventure in the U.S. I’d rather so, whenever I rent, I rented a few Teslas before, right, as you know, as we've been on a couple of trips together with the Tesla, I'd rather either do Tesla or an ICE. I don't trust any other brands. I’m spoiled. 

Tu Le:
Tesla’s too easy man. It’s too easy. Well, so I’ve never driven an EV in Bay Area, Norther. California.

Lei Xing:
But I applaud you for being adventurous.

Tu Le:
Luckily, this time I, so the reason I rented an EV is because I knew I was going to primarily stay in South Bay, and so for those that don't know California, Silicon Valley is primarily in an area called South Bay where San Jose, Milpitas, Sunnyvale, Mountain View, Palo Alto, and is about 40-50 miles away from San Francisco proper. Now, a lot of tech companies have moved up to San Francisco, but traditionally Silicon Valley was South Bay and part of the peninsula. So I knew I was going to be in like Sunnyvale, San Jose, Mountain View, pretty much the entire time I was there. So I was like, but then I got two meetings, all of a sudden pop up in San Francisco. And so I drove up there and had to download EVGo and Charge Point. And Charge Point, I just get really frustrated if it takes me more than 30 seconds to figure out how an app works. So I was like.

Lei Xing:
And if you remember, on our trip, all of those fast chargers, they didn't have any screens. We just looked at our phone, right? They did have screens, but right, it's just a matter of making it easy on the user, right, Which is, well, we have the phone all the time, and then they'll show what's happening. As well as in the car. So. I mean. 

Tu Le:
For those wondering, like, what are Tu and Lei talking about? I was in California. Just got back yesterday for some meetings. I got to visit NIO in San Jose. Thanks, Jeffrey, and then spent a couple of days at the Silicon Valley summit for Plug and Play. We went there last year I think Lei. So I rented a Kia Niro EV, 65-kWh battery, so not very big. I got in the car. It had about 238 miles of range on it. I was like oh my goodness. It's nice. It only had 2,000 miles. So for a rental car, that's nothing, no squeaks, no rattle. So build quality was great. Very simple. I think it stickers at around $38, $40,000 or tops out around 40 grand, but 250 miles, my range anxiety was acting up a little bit. I think 300 or 350 needs to be kind of the bare minimum, even for the mass market vehicles to really take hold in the U.S. market. What do you think, like, it needs to be over 3, right?

Lei Xing:
Yeah I think 300 miles would be a sweet spot.

Tu Le:
And so I used a 350 Level 3 charger kW charger. And it was still very slow, and then it throttles you at 80%. And I had to look up the policy on what do I return it with? I actually texted Yilun, our friend Yilun, because I was, because Hertz and Dollar, or Hertz owns Dollar. And so I was like, what's the policy on this?

Lei Xing:
Yeah, I think you can just pay a fee that you can leave it at any SoC, but.

Tu Le:
That's what he said. You could pay a $25 fee or something like that.

Lei Xing:
I think it was $25 for Hertz as well. So.

Tu Le:
But like I kind of want to just experience it, right? And so I charged it. Luckily, this is me and my eyes. I'm sitting in the car, because I went and got coffee and I was like blah, blah, blah, and trying to stay busy while it's getting charged. And so I'm sitting in the driver's seat like doing my emails on my iPhone just to keep the time to go. But so even California, it's for newbees like me, it was a little bit strange. That EVGo app was actually pretty user friendly, but the situation that you had kind of brought up, I went to a charging station, 8 super chargers, not super chargers, but eight Level 3 chargers. No, the two of them were used. One was being used by Polestar. Another was a Kia. The sun, it was like 85°, super sunny and the screen was scratched up. So I couldn't see anything because of the sun, but then the screen was scratched up too. So, on top of that, add insult to injury. And so I literally can't see anything I just hear when I plug it in the noise, the boop, right? And I had to go into the car to make sure it's charging. And it is, I spent 45 minutes sitting there, but that's my experience, but let's do this. I'm going to take a look at some of the comments.

Lei Xing:
If you ask me a question of pick any EV, drive the distance that we did from Beijing to Shenzhen, in China or in the U.S., I’d pick China every time. I can't do in the U.S., not yet, except for Tesla maybe.

Tu Le:
Because the G9 is well over 300 miles of range. And we were, we could have left probably within 30 minutes, no problem.

Lei Xing:
Yeah I mean we didn't have to.

Tu Le:
With over 90% charge. So lots of opportunities in the United States for you startups.

Lei Xing:
Speaking of the U.S. so at that conference today, YT Jia made an appearance on video. You saw that, right? He basically talked about using FF’s assets to bring a mass brand over to the U.S., $20,000 to $30,000, and $30 to $40,000. So he was like pushing that message. I mean.

Tu Le:
He’s trying to get money. He's trying to get money. That's the bottom line. Really quickly. Matt, if anyone has any questions, please feel free to raise your hand. But let me read these two comments. Matt Brightdard says, seems EU missed a turn in just requiring 50% JVs in order to sell EVs into EU member states matching prior Chinese rules could have been more win-win, especially given rebuilding dealership and service networks is kind of nuts. Yeah I think so, Matt.

Lei Xing:
Well I take a different view. I think the 50:50 the JV rule was a I think, was a China specific, historical, meaningful way at that time in the 90s, but I don't think it would work. I mean who, you got to find a partner and right, set about all this joint ventures. I don't think anybody will go through that hassle anyways.

Tu Le:
So in different time, different place to your point Lei, when China required it was Blue Ocean, you were promised access to a market, just starting to embrace passenger vehicles and you see the potential. Now, looking back how much Volkswagen Group grew, how much GM was able to take advantage of that Chinese market. Now Volkswagen Group for sure would not be who they are today without the China market, because if they would have diesel gate without the China market, I don't know if they survive to be quite frank. But and then the one thing that I also brought up in the newsletter Lei is there's this narrative that says it's going to push Chinese EV makers to build locally in Europe sooner or it's going to pull in their planning and that could be true, but they're also investing heavily in the domestic Chinese industry. And so we're going to have, if we don't have over capacity yet, globally we will because the Chinese makers are still building, because they all believe or they think they believe that they have a chance in the China market. And then if they're going to build factories in Europe, there's going to be potential for a lot of overcapacity and not just on the finished or passenger vehicle side, but on the battery side too.

Lei Xing:
And then going back to the Dacia Spring. So Volkswagen is ready to I think you may have mentioned the newsletter as well. Volkswagen is building the Cupra in Anhui and exporting back to Europe, what’s going to happen there, right? That's a headache.

Tu Le:
Cause now for and to your point Lei, now it becomes very controversial if Volkswagen shuts down factories in Europe.

Lei Xing:
And Shanghai, and if I'm not mistaken, Shanghai Volkswagen would be actually, no, that's aside from the SAIC, so never mind, but Volkswagen Anhui, you wonder, right? What type of tariff they'll get? I mean it's probably 38.1% for everybody else.

Tu Le:
And the fallout from this and the analysis of this is still ongoing. This is hot off the presses effectively. And so I need to noodle on this a little bit more at the brand level, more at the product level. And then you and I I'm sure we'll have more to say about this in the next few weeks.

Lei Xing:
But that's exactly how it hurts Volkswagen Group, right? Somebody like a Volkswagen Group because they also have this export back to Europe, not only of Porsche importing to China from Europe, right? These are double whammy, kind of right?

Tu Le:
The level of complexity on the business side for Volkswagen Group, just between Europe and China, is orders of magnitude more complicated than a BMW or Mercedes. Because of the SAIC relationship they have, so like the joint venture, right? What if they were planning on exporting SAIC branded ID. series vehicles? Now, that's probably blown up. So Blume is probably like in spreadsheet hell looking at all the different scenarios possible. Peter Liu says Morocco is a good place for exporting cars to EU. It shows that Renault has a significant presence in Monaco or Morocco, which is great. If an automaker already has significant presence in a country or a region, that means the suppliers are likely already there. But we need to be careful about more OEMs heading to Morocco, because how many train lines do they have? Cause let's assume that they can't transport finished goods all over the road with trucks and trailers. The next logical thing would be ships or railroads, and so creating logistics necessary for multiple factories in Morocco could be a challenge as well. But, it makes it promising for another OEM to head down to Morocco. So one thing I did not know, I actually don't know that much about Renault to be quite frank. And so I’ll admit that. But no, good catch, Peter. Daniel Zmood, I'm telling you, 1.1 million in oz right hand drive is the way to go. Man, I hope Daniel is getting paid by the Australian government, because he is one of the biggest freaking cheerleaders. ME has no suppliers, SE would struggle, Oz could, but too costly. Come on guys, check the per capita sales for 1,000, China 231, USA… Still huge upside in China. Here's another one since the tariffs will give the U.S. brands some breathing room, will they use that time to catch up to China EV or will they milk ICE, I hope they use their time wisely. How long do you think that window will last? Lei, why don't you start?

Lei Xing:
No. No. No. That's my sample answer.

Tu Le:
Shen Me Yi Si (what do you mean?)

Lei Xing:
I don't see any clear signs of American brands doing any better than or worse, maybe worse, whether this tariff happened or not. In fact, probably will hear about some certain brand calling it quits, who knows?

Tu Le:
Cut the nozzle. He was talking about U.S brands in the U.S., so let me take that on, cut the nozzle. Farley has been adding to his skunk works team in southern California. I actually tweeted something that there was an article or around that and I said it kind of points back to Ford's dysfunctional culture that you would need a skunk works team to design and develop a clean energy small car. And I asked rhetorically, once Jim validates that you can design, develop and engineer up a vehicle with 30 people or 20 people. What are they going to do with those thousands of engineers in Dearborn? So to me, it's again, I’d mentioned this in the past. And again, I speak to these guys. I speak to the tier ones almost, I do speak to them pretty much weekly. GM at least has an Equinox, has a Blazer, they have several high-end, low-end. Their part is getting them into the market and producing enough of them. The Bolt was selling pretty well. They decided to cut that which I don't understand. It's well documented that they had Ultium manufacturing issues. So I'm seeing more and more Equinoxs, I saw a Sierra EV, look great from the back, on the side. The front looks like a Lordstown Motors vehicle. I don't know about that. But to answer your questions, simply cut the nozzle. If they can speed up and design some vehicles that seem to be attractive to U.S. consumers. The demand for clean energy vehicles will be there in the U.S. for sure. My fear is that culture wise, they're not able to make that pivot as quickly as they'll need to.

Lei Xing:
I'm just really interested to see next year when all of these NACS announcements that have been made over the last couple of years, whether they can go into fruition that let's say you renting a Kia Niro, hypothetically, you can charge it a supercharger, Tesla supercharger. I mean it would definitely help me, entice me as a consumer to buy a non-Tesla EV.

Tu Le:
I’ve already signed up for the R2.

Lei Xing:
That's two years away.

Tu Le:
I'm a huge fan. Man, don't, yeah but that's perfect. So it's a bridge. So.

Lei Xing:
Yeah, that's. I said, I think I said this few episodes ago of when I was in New York, right? It's a perfect vehicle, EV, perfect sized and designed.

Tu Le:
Here's a question from Kyle Sullivan, who had the tech issues, wondering if you have given thought to eventual industry consolidation in China's auto sector, and which Chinese OEMs will come out on top.

Lei Xing:
The industry consolidation has been a topic ever since I…

Tu Le:
That's a running joke. 

Lei Xing:
Yeah, it's been a running joke. There has been quite a few big deals historically: FAW Tianjin Auto, SAIC Nanjing Auto. But other than that, it's difficult to come by if we talk about these really blockbuster, there's been so last week or earlier this week, GAC and Chang'an, actually last week, they signed this supposedly framework for cooperation, but it's not like a merger. These things happen all the time, every other day in China, but what comes out of it? It's difficult to measure.

Tu Le:
Let me pose this statement, Lei, and you let me know if you agree, I don't think there's any consolidation on the SOE side at all, SOEs acquiring China, Chinese EV independent brands, perhaps. But I think that if we look at Chang'an with Shenlan and AVATR, you look at SAIC with IM, what's the other one, Lei?

Lei Xing:
Rising Auto.

Tu Le:
Rising Auto. I think they feel pretty good for whatever reason, because it's hard to tell who's really differentiating themselves during this price war. But I think for now, the SOEs feel like the EV brands that, and most of them have launched separate EV brands. They haven't converted a traditional ICE brand into an EV brand. They've all just launched new ones. They all feel pretty good about those prospects for those new brands. On the China EV Inc. side, the NIOs, the Xpengs, I don't know how much capital they have and reason for consolidation would be to add capacity or IP or knowhow or a team that would complement your current team or roster. I’ve not heard anything about this company acquiring this company, but since the day I've moved to Beijing in 2009 until up till today, you and I joke around about how consolidations been talked about since forever.

Lei Xing:
So in a way consolidation has been happening, it’s just been happening forever, for so long. There's these tiny bits of let's cooperate today and then see what happens. Let's do this and see what happens, but never, we haven't seen the blockbuster mergers for a while.

Tu Le:
Now, Kyle, I might look at the Stellantis LeapMotor, Volkswagen Group Xpeng, as almost like a pseudo-consolidation. Now it's a partnership, they're sharing IP, Stellantis going to share their sales network in Europe. It looks like with LeapMotor, so I could see some of that going on where we're weak or we’re nonexistent in European region and maybe eventually in the U.S. with foreign brands. Right now, it's still too, it's still too radioactive for a GM to even consider helping a Chinese brand enter the U.S. market, but hopefully in 12, 18 months, we get more practical with that.

Lei Xing:
I think the answer to the consolidation question would be, and from the perspective of the current environment, bloodbath environment, is people are really trying to drive other people to death. That's simply it and see who dies first. I think that's the “juan” and the word “juan” that has been talked about a lot recently.

Tu Le:
Severe competition.

Lei Xing:
And case in point, Dongfeng just launched two models, right? The VOYAH FREE 318, the eπ2000 or eπ008. Those are big EREV SUVs, starting price at just around RMB210, 220,000, where ONVO is positioned, but bigger SUV. Just one case in point, right? So next week this time would be afternoon.

Tu Le:
I'll let you know, likely I can still do 9 am Eastern 9pm China time.

Lei Xing:
I can do afternoon time here as well, which would be your morning.

Tu Le:
Ok. I'm really excited because I want to talk to a bunch of people, because the UK is similar to Australia. Australia is more extreme, obviously, but the UK doesn't manufacture many of its own cars anymore. So they sit uniquely in Europe when it comes to these tariffs. And so the politicians are kind of talking extremes. They already pushed out their climate goals from 2030 to 2035. So how welcoming will they be? I'm happy we happen to be co-sponsoring an event with the former BritCham head in Beijing on June 26. I'll post it for those that are in London or in the UK, near London, who would like to go. It's going to be a really good event. We have Henry Sanderson and Simon Wright, Henry Sanderson from Benchmark.

Lei Xing:
Yeah reuniting with quite a few of our friends. 

Tu Le:
Yes. There's so the Jing A, one of the Jing A co-founders, he lives in London, so old friend, going to catch up. Lao Beijing kind of friend. Everyone, long pod today, but a lot of good questions. Thanks everyone for joining. Good morning, good afternoon, good evening. We will talk with you all next week.

Lei Xing:
Good night from my side. Thank you. 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.