Episode #174 - July Sales, BYD Keeping Busy, Tesla FSD's China Competition

The podcast begins with a review of July sales by Lei and then they both transition into a discussion about the upcoming important product launches and why they are important to those Chinese brands. 

They both transition the discussion over to the BYD partnership with Uber that was announced this week. They piggyback off this BYD discussion to also talk about the rumor that BYD will be entering the Canadian market which moves into a broader discussion on BYD and why they are the likeliest EV company to succeed long-term. 

Lei then moves into a discussion on how companies have begun to lay off staff at the tier 1s. 

The podcast ends with a deep dive on how the Rivian VW Group tie-up could lead to VW Group abandoning Cariad and a deeper discussion on how Stellantis and VW may have too many brands to manage. 

Tu also discusses the WSJ post about Tesla FSD in the US and how there's a lack of transparency in the US on whether or not it's causing the accidents that Tesla vehicles are involved in. They both compare FSD to some of the Chinese intelligent driving systems currently on offer by China EV Inc. 

Transcript

CEM #174 Transcript
Recorded 8/2/24

Tu Le:
Hi everyone and welcome to China EVs & More where my co-host Lei Xing and I will go over the week's most important and interesting news coming out of the global EV, AV and mobility sectors. What Lei and I discuss today is based on our opinions and should not be taken as investment advice. For those that are new to the show, welcome. And to those loyal listeners, welcome back. We ask you to help us please get the word out about this podcast to other enthusiasts and of course tune in again next week.

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

Lei Xing:
Yes, sir, good morning. This is Lei Xing, your co-host, former chief editor of China Auto Review. And this is episode #174. So we're into August. We just saw the July numbers, some headlines on BYD, Tesla, autopilot, FSD, the legacy OEMs especially the European ones, feeling the pain in Q2, and first half, for that matter, where do you want to begin?

Tu Le:
Let's start with the July sales.

Lei Xing:
July sales, so alright, some observations from my side.

Tu Le:
Let me qualify this by saying that July is still middle of summer. So it's not going to be as action packed as the September, October, November time frame, but it's an indicator of general strength and weakness of the automotive market in China.

Lei Xing:
Well first of all, we had that beef, from several, let's say frenemies of Li Auto.

Tu Le:
Frenemies. Yes. You and I said at the same time, right?

Lei Xing:
Frenemies of Li Auto not happy about them pushing that weekly sales data, that went viral for a few days, I think. And then now, as you know, every first of the month is a mad scramble itself for pushing out these monthly sales numbers.

Tu Le:
12:01 am local time.

Lei Xing:
Yeah, so I mean it starts about noon, if you're in China, right? It continues all the way into the night when these numbers are pushed out.

Tu Le:
And the foreign legacies do not participate in this.

Lei Xing:
Except Volkswagen and GM I guess.

Tu Le:
Begrudgingly, I think, be grudgingly.

Lei Xing:
Some observations. First, I think it's getting increasingly difficult to have, let's say, meaningful and step changes if we're talking about records. And we did have some records in July of all months. But those records, let's say, for a BYD is a matter of selling 340,001 unit in July versus 340,000 unit in June. Right? So it wasn't significant, but nevertheless records. Li Auto was still able to get a record, despite all the brouhaha and three…

Tu Le:
And I want to say this Lei, let me say. And you tell me if there are any exceptions to this statement that I'm about to make. Any, let's say, month to month, flat sales or growth, month to month, there's likely an underlying price discount or some other form of non-price discount incentive that is allowing them to maintain sales. So for instance, a BYD, they reduced the price of the Fang Cheng Bao Bao 5, by 17%.

Lei Xing:
Which, yeah I mean…

Tu Le:
The Fang Cheng Bao is not a big runner for them, but it does automatically put the Bao 5 in the consideration of Chinese consumers that are looking at X3s, X5s and Mercedes SUVs. And so this really, really is one of the biggest reasons why the foreign automakers are struggling.

Lei Xing:
We'll get back to BYD on that point a little bit later on. But number three, I was going to say Xiaomi is climbing up the ladder pretty fast, and surpassing quite a few, including Xpeng, our good, you know, we love Xpeng, right? We love the G9, but Xpeng is coming up on its 10-year anniversary. And its monthly sales have only gotten to this point, at least they maintained that 10,000-unit level. But I feel like it's almost like putting salt on the wound that you have this 3-year-old, 3.5-year-old new kid on the block just, right, they said it was over 10,000 units, but based on that weekly data that Li Auto shared, it’s about 14,000 units for the first four weeks of July. So it's painful if you are Xpeng. I've been around for 10 years, and this new kid, just all of a sudden with one model is beating us. I ain’t okay with that, right?

Tu Le:
And we can also maybe put NIO a little bit in that same bucket where they've been around for a long time, have a lot of products. And you and I have driven a number of NIOs, have driven a number of Xpengs. We like them. They're not bad. They just can't get over the hump.

Lei Xing:
And getting over that hump is exactly why I tweeted that the two most anticipated model launches this month and next month is, in fact, key models for both of these companies, the MONA M03 and ONVO L60, which the anticipation and expectation is, they will add significant volumes because of the price segment they are playing in, and lofty expectations.

Tu Le:
But the notable thing to me, Lei, is that they couldn't do it with vehicles with the Xpeng brand and the NIO brand.

Lei Xing:
Yeah I mean Xpeng, on the one hand, the P5 flopped, the G9 kind of flopped. 

Tu Le:
Big time. Big time. The P5 flopped big time. 

Lei Xing:
The G6 kind of, wasn't as. Let’s just say it also flopped. What the heck. And now…

Tu Le:
Everything has been lukewarm for a few weeks, and then you don't hear about it.

Lei Xing:
Yeah. And then all, NIO on the other hand, I think they've done a good job of tweaking that BaaS model and launching this next generation of models into the market as that battery swapping proliferates. I think, actually, 20,000 a month, if they can maintain that. I think that's my expectation also, at least 20,000 a month, it's a win, right? But for Xpeng relatively 10,000 a month is an F, I would grade it an F. Flunked. 

Tu Le:
On a, reminder to listeners on a base of likely 26 million units total this year in China being sold and likely about 10, let's say, 11 million units, 12 million units maybe, on the NEV side. 10,000 a month, so 120,000 on a base of 13 million, 11 million, 12 million NEVs.

Lei Xing:
I think we saw the Xpeng’s AI Smart Tech press conference that we are, they're trying to continue to lead in that NOA game. But part of the reason why I think their sales haven't gotten the momentum is because others are catching up right? Li Auto, they're catching up right? On the NOA game. NIO's pushing out the NOP+ or Huawei AITO, I mean…

Tu Le:
Totally sucking all the air out of the room.

Lei Xing:
I mean they are selling about 15,000 units of the M9 a month, I think, based on what I saw, that's a RMB500,000 vehicle. That's a lot. And two other names, I think LeapMotor and NETA. You're seeing that export now starting increasingly play an important role in their sales. LeapMotor just exported the C10 and the T03 to, as part of the Stellantis.

Tu Le:
There's a nice picture on the Chinese internet that showed the vehicles in the big boat

Lei Xing:
And NETA now, a significant portion of their sales, I think will be geared toward export markets.

Tu Le:
I think they're going to end up being an AIWAYS.

Lei Xing:
AIWAYS. Yeah, exactly.

Tu Le:
Where it's almost export only.

Lei Xing:
And back to BYD, about that Fang Cheng Bao, it wasn't well received, at least from the previous owners, right? Because that's a huge price cut RMB50,000 and there's no, I don't think there's any retroactive compensation. I think it's one of maybe the weaker spots that we talk about BYD because of this multi-brand strategy that now it could be biting themselves back.

Tu Le:
But we pointed to this, right? Lei? We pointed to, number one, it's multi-brand, number two, it's a premium brand. So the characteristics of the Chinese consumer on the premium side is a lot different than the mass market, where the mass market side just brutally competitive, while on the premium side. So mass market, they're looking for value. On the premium side, they are looking for differentiation. They're looking for something that is tech forward. And so when you cut price by 20%, you're not going to make a lot of people very happy. So.

Lei Xing:
And because of their core brand BYD, I think that's the exact reason, that pricing, of the vertical integration, competitiveness that they got the 100,000-unit deal with Uber. We can talk a little bit about that, which the others don't have the benefit of. Think about NIO getting 100,000-unit, whoever gets 100,000 units, it's significant.

Tu Le:
But what's important to note Lei is, that we just point right back to the Tesla and Hertz partnership that unraveled fabulously.

Lei Xing:
I was going to the same point. I don't know whatever happened to the 100,000-unit between BYD and Sixt. I don't think that was a big success. I don't think anybody talks about it anymore, but…

Tu Le:
For our American listeners, Sixt is effectively Germany's Hertz or Europe's Hertz.

Lei Xing:
But I think what's different this time is rather to have these ride-hail people on the platform or drivers get incentivized on getting into these financing, leasing to be able to have these BYDs and operate them and make a living, make money, right? That was the point, I think, at the same time for the users kind of to see these experience, the BYDs.

Tu Le:
And what's another point to make about the Uber BYD partnership is that we'd been contacted in the past about helping Uber recruit some Chinese EV brands, because Uber has pledged that there will be carbon neutral, I think, as a company by 2030, I want to say, or, I think it's 2030, I'll check that. In order for that to happen, they'll need a lot of clean energy vehicles. Now this was 3 or 4 years ago. So they've been kicking around. Just they've been kicking around this discussion for quite some time. It didn't happen overnight. For whatever reason it was the right timing. BYD and these other Chinese EV makers 3 or 4 years ago didn't have the channels that they do now into Europe and into Lat Am. So maybe that's also partially why this was the right time to make this announcement.

Lei Xing:
And also the fine print. It's interesting to point out as comparing to the Chinese press release and the Uber press release. There are some discrepancies I tell you. I don't know why that is. In the Uber press release…

Tu Le:
Lost in translation.

Lei Xing:
There's Canada. But in the Chinese press release, there's no mention of Canada and Canada, because for another reason, we'll talk about Canada. And then about the autonomous capable vehicles to be deployed that wasn't mentioned in the Chinese press release. So.

Tu Le:
To me that's a throw-away statement. I don’t know if it matters now.

Lei Xing:
Yeah what is that. Is it the Tesla robotaxi or is it something else, right? We don't know.

Tu Le:
Honestly, the last thing I want is my Uber driver to be testing his Level 2+ system when I when me and my family are in their car, that's the last thing I want.

Lei Xing:
Yeah. And then Canada for the reason because there are reports that BYD’s going to launch in Canada, our neighbor.

Tu Le:
With the dark cloud of Canada already rumored to be evaluating tariffs. Now, we always have to remember United States, off limits for the time being for China EV Inc. So the pressure increases to ship volume somewhere else into North America, because now that Europe has established this tariff, the UK is evaluating whether or not to put some tariffs up, but North America, the largest passenger vehicle market outside of China. It's an important distribution channel for all the automakers. I joked around that BYD is continuing to move aggressively despite X, Y and Z happening, so when we look at the rumor about Canada, it just points to the fact that eventually they're going to make it to the United States, regardless of what happens with the tariffs. 

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Lei Xing:
Exactly, matter of time. When they, when BYD is in fact, all over America, as I say, I mean you can buy a BYD in Canada and drive it to the U.S. no problem, right? That shouldn't be a problem. Should it?

Tu Le:
Well, and I'd summarized in the LinkedIn post. So over 80 countries, currently they're going to manufacture in seven, they are going to get to close to 4 million units. They are the clean energy version of Toyota. And if Toyota gets to 10.5 million, we can talk about Toyota in a second, but they are what Tesla wants to be. BYD is what Tesla wants to be. And biggest asset that they have is that they can play in the PHEV and the BEV spaces, seamlessly. It's not going to take them 18 months to roll out of a PHEV, it's not going to take them 18 months to roll out a BEV. They got them.

Lei Xing:
And going back to the sales a little bit. If you look at the breakdown of July sales for BYD, PHEVs accounted for significantly more apportion of the sales of that 340,000. So I mean that's proving that some of the recent model launches and price movements on the DM-i models really is taking market share away from the ICEs, pure ICEVss and the PHEVs have a lot to do with it instead of the BEVs. 

Tu Le:
This also makes you wonder Lei for the EU do they have an advocate in the government that explicitly excluded PHEVs from the tariffs? Because.

Lei Xing:
That's what it is right now.

Tu Le:
They're just going to shove, they're just going to shove PHEVs into Europe, man.

Lei Xing:
So, yeah, and then having said that, I think if you look the 100,000-unit Uber, if you look at exporting into Canada, these recent, price cut on the Fang Cheng Bao, I mean all of these are tactics, solutions really to, because at the back of your mind, we have this huge capacity, whatever the sales target this year is 3.6 million, 4 million units, produce produce produce, export. And thankfully, Uber will help alleviate some of that pressure. Hopefully, if it materializes to the full extent.

Tu Le:
But 100,000, I would imagine is over a few years.

Lei Xing:
Yeah, it's not in one shot. Exactly.

Tu Le:
So I don't really see it moving the needle that much. The other thing Lei about the Fang Cheng Bao price cut, specifically is that just last week, we talked about the ABB waving the white flag, saying no mas. So Fang Cheng Bao saw that, and was like we're going to take more share from them. And that's one of the reasons, I'm certain, that's one of the reasons they reduced price by 17 %.

Lei Xing:
Well, also part of it is Fang Cheng Bao, I mean you’ve seen their sales numbers, right? It's in the thousands, low thousands a month.

Tu Le:
And we always have to remember Lei that when Fang Cheng Bao is manufacturing, they need to give likely at least 90, maybe 180-days worth of a forecast to their suppliers. If they're not hitting the manufacturing targets, they're either forced to take on inventory from a component standpoint, or they're pushing it out, putting even more pressure on suppliers to hold the inventory, which when we know this Lei, suppliers don't have a ton of margin, not at the OEM level. So anytime there's a delay or the master production schedule gets slowed down, the tier-one suppliers are under a lot of stress, because their cash flow is turned off. We're going to see not only the OEMs, but it's going to reverberate throughout the supply chain. We'll see it more towards the end of this year.

Lei Xing:
And speaking of suppliers, right? Part of the reasons because of that investment into the electrification, but that process that progress has slowed down. So one prime example is ZF is letting 11,000 to 14,000 employees go in Germany alone over the next how many years, that was one of the news that came out and then of all the German automakers announced their results yesterday and the day before, right? We saw Volkswagen, I think you to tweeted about that 25% reduction in capacity, was it Germany or in Europe? In Germany, probably. So all ABBs, right? They announced their results and all their sales, EBIT, net profit all down in Q2. Their sales in China were down year on year. I think BMW was flat. It was like 0.2% growth, but at the expense of these deep discounting, not adding sales, they said no mas.

Tu Le:
It's just hurting their brand.

Lei Xing:
Yeah, at least 30%, right? If not a third of their sales come out of China, right?

Tu Le:
And I can tell you exactly what's happening in management meetings in Germany, at ABB they're looking at the product roadmap for a lot of these companies. They're looking at the current features for some of these EVs out on the road in China. And they're like holy cow. How can we catch up to this? Because they are at least 18 months ahead from a technology roadmap standpoint within the vehicle, and they are flummoxed. I just don't know, because again, they lead and again, I should say they're better now than they were 3 or 4 years ago, but they're still leading with hardware. And in China, I don't know anyone Lei, and you talk to your friends. And when you were there, last month, nobody talks about range, nobody talks about the traditional stuff that Europeans and Americans worry about. Everybody talks about the connectivity, everybody talks about how innovative everything is in the Chinese vehicles. And so the things that are concerning to Europeans and Americans, that's not the case in China. And so the product planners are looking at this huge difference between what's demanded from a feature standpoint in China versus the rest of the world. It's got to make them pull their hair out.

Lei Xing:
At least Volkswagen Group has a plan, a roadmap. Whether that’ll be a success is another question.

Tu Le:
But come on, man, see, this is where you are so nice. You're too nice because…

Lei Xing:
I'm just saying, I'm just saying relatively to other ones who are still in the dark, Volkswagen at least is trying.

Tu Le:
The other thing too now, Lei is, so what's going on with CARIAD? Are they just going to completely blow it up? Because they are leaning into Rivian from an architecture standpoint, they are leaning into Xpeng from an architecture standpoint. So that Rivian team, even the China team, loses a ton of significance, loses a ton of leverage from an internal politics standpoint.

Lei Xing:
Yeah, it sounds as if the Rivian joint venture on the architecture is seems to be overtaking kind of overshadowing CARIAD for sure. And their future I mean the MEB+, the SSP, I mean their all the globally that are going to come out of the Rivian partnership.

Tu Le:
And think of it this way, Lei, Volkswagen Group has on paper committed $5 billion over several years with initial $1 billion into Rivian in a joint venture from a technology, a licensing standpoint. Rivian, I haven't seen the latest valuation, but it can't be worth more than $15, $20 billion dollars, right? So if you're already committing $5, does this mean in the future if things go really well in the next 18, 24 months, there's a potential acquisition? Because when you think about it, and this is where I give Tavares a lot of credit. This week or late last week, he said we're going to reconcile our brand strategy. There's too many. So poor performing brands are going to get left out. Stellantis is going to do what GM did several years ago with Oldsmobile, Hummer, Pontiac. There's just way too many brands,

Lei Xing:
So either axe them or sell them. I don't know. I think there's news that Maserati was being considered to be sold or something. I don't know.

Tu Le:
And remember what I said a long time ago, Lei, where I said an Apple and Google have $150 billion, Amazon have $100 billion in the bank. And a brand that's super weak but has manufacturing in several regions, there could be a technology company that wants to get into the automotive space. And that would be a way to do that. They could buy a brand for less than. So they could gut the management team, keep the manufacturing, keep the assets, and then go with that. So I don't think that scenario is very far-fetched to be quite frank.

Lei Xing:
And I know you talked about the recent Wall Street Journal that video on the Tesla findings. Autopilot, I just want to say at the end of that video, what Missy Cummings said was very jarring. So she said, “having the car do most of the driving and requiring you to pay attention. I don't think this is going to be the long-term tech that we will keep in the cars.” I hear that, I'm saying that's exactly what Xpeng is trying to do, point to point autonomy, but with you paying attention. So what the heck? 

Tu Le:
I almost feel that, so for those that are wondering what Lei is referring to is in my newsletter this week, I dedicated about 80% of the newsletter to my thoughts. And I did a very, very oversimplified autonomous vehicle 101. That's because Wall Street Journal this week had an expose, a video investigation about Tesla’s. And this is where it's not clear whether it's autopilot or FSD, there's not a lot of transparency in the United States on the accidents caused by Tesla vehicles, whether or not autopilot is activated, FSD is activated, but there have been hundreds, maybe thousands of accidents with dozens of fatalities. Now, NHTSA, which is the transportation safety administration, they're investigating, but it's disconcerting. I don't know how you feel Lei. But watching that video, I just don't like that we are beta testers for an electric vehicle company. And then, this is where you and I have the wherewithal, right? Because we know that would never happen in China. Ever.

Lei Xing:
I mean the difference to me, I know you kind of mentioned about the autopilot and FSD, the difference to me, a good analogy would be autopilot, to me, would be the highway XNGP, whereas the FSD is the point to point everywhere XNGP, that's my kind of understanding. And then these accidents, well the Tesla stans will say, well, the driver is responsible. If autopilot or FSD is on. If they are not paying attention, then it's L2+ system and the driver's at falt, right? And you and I, when we drove that Xpeng, we made it a point that we have to pay attention at all times, but it's still alleviated that driving tension and fatigue, right? It helps significantly, I think. But…

Tu Le:
On the highway.

Lei Xing:
No no, I mean on some of the urban elevated transit ways as well, but definitely not in the local, at least not yet, at least not as what they're painted to be, right? That it's point to point that you don't have to worry about anything. You're still, you're still nervous, right? We're still not past that point.

Tu Le:
You know what’s weird too Lei, as more and more Level 2+, robotaxis enter the road. The habits of these cars aren't going to be the same as people. The algorithm is going to have to get updated and retrained again as more and more intelligent driving systems enter the road or hit the roads.

Lei Xing:
So I was reading about this article in Chinese, which is about an interview with the head of autonomous driving at LI Auto, Lang Xianpeng. I think their team went to the U.S. several times to sell the FSD and their comment was that version 12 was really really close, at least in the U.S. environment and on the west coast. Really close to a human kind of what a human would do driving the vehicle. That was the comment. And also they noticed notable difference, testing it out on the east coast versus the west coast, where I think west coast there are probably more data. They talk a little bit about that. So I mean in the U.S. if we talk about that point to point that the Xpeng is trying to achieve, Tesla is definitely right, outright in the lead. But in China, it's up in the air. It's, Xpeng says they have the lead, but it's probably razor thin at this point.

Tu Le:
There's a lot of bravado on the Chinese side because if you look at some of the media reports, Huawei says they're better than everybody. And so unless you're in these vehicles, testing them out, but regularly testing them out. Once they have updates, then it's really, really tough to pinpoint who's in the lead. Because I think it changes. Because the Chinese autonomous intelligent driving space is so dynamic.

Lei Xing:
And then next, some of the OTAs being pushed out by Xpeng later this year is the ability to go through the ETC lanes, right? I talked about that going through the robotaxi. I'm like that's essentially a robotaxi but a Level 2 robotaxi because the car is driving with you paying attention, going through the ETC lanes by itself, going through the parking turnstiles, can do it by itself. I mean you still have to scan and pay. But once that thing lifts up, it'll go, right? This is not possible now, but I mean it's really getting blurred, ever more blurred of a Level 2 versus a Level 4.

Tu Le:
Level 2 intelligent driving on an OEM vehicle versus a robotaxi in the United States. There's still a huge chasm, a huge gap between Level 2, because let's think about this, Lei, GM has SuperCruise. I don't even know what the other ones are called. Man.

Lei Xing:
Ford has Blue Cruise.

Tu Le:
Blue Cruise. Yes. Tesla obviously has autopilot and FSD. Lucid is not great, so let's not even count that for now. Mercedes has their own, which I think in Nevada and certain parts of California, they can go Level 3. 

Lei Xing:
Very limited conditions only. 

Tu Le:
I don't really know, does Hyundai, what's Hyundai’s called? Do you know?

Lei Xing:
Level 2. They don't even have a kind of a name like an XNGP or FSD they just, yeah.

Tu Le:
Just tells you we're only talking about Level 2+ intelligent driving. We can name five off the top of our head in China, but I can't tell you more than three. And like it, they're not super mature. They're not being marketed very aggressively. I think GM probably markets if we're not talking about Tesla, GM probably markets SuperCruise because you see it in commercials now. But there's not this huge competition between all these different competitors that you're seeing in China.

Lei Xing:
Yeah, I mean the five, basically the three, “Wei Xiao Li” (NIO, Xpeng & Li Auto), each of them have their own. They are trying to compete. JIYUE has…

Tu Le:
And they're all very mature.

Lei Xing:
JIYUE has the vision only. The only revision only I think so far in China. Huawei has the NCA, right? There's five right there.

Tu Le:
And then DeepRoute is also looking to get into the OEM space. Qcraft is looking to get into the OEM space. And so to your point about being blurred, the lines being blurred.

Lei Xing:
And here's the point I'm thinking. So by the end of this year, by the early next year, Xpeng achieves point to point XNGP anywhere anytime. What's after that? Where do you go from there? Do you stop, right? What's the next step?

Tu Le:
Then you dial in the business model, the revenue model, the profit model.

Lei Xing:
Then its next step is the robotaxis, which I think He Xiaopeng kind of mentioned that they're planning to launch that G9 robotaxi, right? Maybe within a matter of months.

Tu Le:
And the other thing and I think you would agree with me is that as the Chinese OEMs try to pull in Level 2, Level 3 intelligent driving, robot axi, WeRide Pony IPO, the Chinese government is in the background saying, okay, within the next 5 to 7 years, if things go well with these companies, there could be hundreds of thousands of drivers being displaced. What do we do?

Lei Xing:
And this is where I think Li Bin was rather, what's the word I was looking for? Politically correct? When he answered a question at the NIO In event that that it doesn't make sense to do robotaxis, because one of the reason he said was I’m not going to replace the drivers. I think he was being a little bit politically correct. It's just, I mean I don't think he was a fan of it in the, to begin with. He's always prided on this technology, the lifestyle right, of making their users lifestyle better so many years ago when I talked to him, he's like when you buy a car, it's like the autonomous driving is providing you with a chauffeur rather than, he was not into that mobility thing, ride hail. So everything's centered around the user, around the driver. So I think it's not surprising, say, hear him say it, but for someone like an Xpeng, He Xiaopeng, he probably will be taking an entire different approach. So I think it's normal.

Tu Le:
We have to remember that these are just individual, very influential, but individual opinions. The market's going to dictate where the technology moves and how it's adopted in China, at least the governments can have a lot of influence on that. In the United States, it's just different.

Lei Xing:
The NIO robotaxis from that partnership with Mobileye, weren’t they going to go into Detroit and we've never seen them, right?

Tu Le:
Well, yeah, Motional has an office here too, I believe, and I've not seen any of those here. It's. Yeah.

Lei Xing:
And ZEEKR kind of doubling down, I think, recently with Mobileye on their SuperVision. Was it called? That's another approach, right?

Tu Le:
And supervision is vision only as well.

Lei Xing:
Yeah for now.

Tu Le:
The, the last thing I'll say about this Lei is that you and I have been to dozens of cities in China. There are tens, hundreds of thousands of drivers in the United States outside of New York, maybe Los Angeles, a couple of cities. There's not a ton of taxi drivers, a lot of Uber drivers, but not ton of taxi drivers. And so in China, the economics from an employment standpoint are completely different than the U.S. and so this is a huge, I won't say concern. It's a huge challenge future challenge for the Chinese government. Because let's not only look at taxi drivers. Let's look at how automation might affect manufacturing, how AI might affect manufacturing. And so you and I went to the NIO Hefei factory, in the parts that I was allowed to go to, I think you went to a few more areas than I did, but..

Lei Xing:
And some of our friends recently, I think they went as well.

Tu Le:
That's right. Where I went. Now final assembly, there's probably some decent manual labor that needs to be done. But most of the areas that I visited there were not a ton of workers.

Lei Xing:
I mean in a body shop, in the e-motor factory is very high automated. And then given the fact I think this new middle-class I talked about of people that are now doing Wai Mai, right, doing food delivery, package delivery. So these are things that need to be considered whenever these new tech or have the possibility of replacing the human.

Tu Le:
And I saw this statistic Lei, that maybe can help qualify the differences in wage still between a China, which has wage rates have increased significantly over the last several years. But I think a Shanghai average Shanghai worker now makes about RMB12,000 month. So RMB12,000 is less than $2,000.

Lei Xing:
And it's not that high to be honest, even by China standards.

Tu Le:
Not for Shanghai, not for Shanghai.

Lei Xing:
Not for Shanghai, I mean not for China is as well

Tu Le:
Yeah for China, but that's, Shanghai is a tier-one city globally. Not just in China, it's global tier-one city. And so, if we look at the equivalent of Topeka, Kansas, or a Lincoln, Nebraska, tier-two, tier-three city in China, I would think the wage rate is 3/4, maybe half of that. So if people are wondering how Chinese EVs can be cheaper, that's a huge lever right there, just because wage rates aren't as high.

Lei Xing:
Yeah, the only couple of things I want to mention is so just last couple of days, and there's still some price cuts going on. So Volkswagen launched, I think, cheaper versions of the ID.3 and 4 variants. I think the Tiguan, there is also this newer Tiguan, I think it's quite, in the 100, low RMB100,000 range. So that's still going on. And second, a number I wanted to share was State Council had a press conference today where an official from the MOFCOM indicated that as of today, there have been applications for 450,000 scraps, vehicle scraps toward the purchase of new, either NEVs or ICEVs from that incentive put in place back in April. So imagine 450,000 that could be net added new vehicle sales. Let's say everything went to NEVs. That's pretty significant. Because in the first half, I think, let's say roughly 5 million NEVs were sold. That's 10 %, right? Almost 10%. And that'll probably increase because of this recent doubling of the scrap incentive. 

Tu Le:
We're just getting out of summer. So I think things to look at, China's general economy. One of the things that I track, I don't know it's on my feet. I don't know why, I kind of do, but I don't. Rolex prices are going down and that's largely due to the China market. Luxury goods.

Lei Xing:
Starbucks sales were down, I believe.

Tu Le:
So LVMH, all the luxury brands are effectively down and so it's not just an EV thing anymore. So that's why you're seeing this stimulus, because manufacturing, EV manufacturing, ICE manufacturing is such a huge and important part of the Chinese economy that any sustained downturn could be really, really detrimental. And we are already hearing rumors of foreign brands reconciling some of their capacity in China, just because they don't feel very confident that they'll get that some of those sales back in the long term. And so they have to, again, reconcile their manufacturing footprint, because a point to the Volkswagen Group thing that we talked about earlier Lei, how they're looking at reducing by 25%. Now, their, internally I guarantee you Lei they're looking at, we can keep this Chinese factory open, ship from China and lose a lot of cost and maintain quality levels of vehicle X and Y and Z. And let me assure you all that these conversations are being had across the board whether in Detroit, Dearborn, Wolfsburg, Ingolstadt, Stuttgart, in Toyota City. They're all being had just because there's so much capacity in China that the foreign automakers control. But the sales losses on a consistent level is forcing them to think through what their global manufacturing footprint should look like in 5, 7, 10 years.

Lei Xing:
Yeah.

Tu Le:
One thing, two things. You put your Carlos Tavares hat on Lei. Which brands are you shuttering?

Lei Xing:
Man, that's hard, right?

Tu Le:
No, it's kind of easy, I think, right? 

Lei Xing:
We’ll just rank them by sales. Just the lowest volume gets cut.

Tu Le:
Yeah. Cause it's very political, cause Stellantis has French brands. They have American brands, they have…

Lei Xing:
Italian brands.

Tu Le:
Italian brands, so…

Lei Xing:
German brands, Opel. 

Tu Le:
We're talking entire countries that will go against them, right? It's to your point, right? If it feels that simple, and I’m sure Tavares wants to make it that simple, but because a lot of their, so they're headquartered in France. You look at Citroen, you look at Peugeot there. They don't perform very well outside of Europe, particularly France. So you would think that's on the table. And then you look at Fiat, not doing super well in the United States, but then you look at Brazil. Fiat is the number one brand in Brazil. So you peel certain layers of the onion back, and then add in LeapMotor, right? They are our partner. But, they've effectively could replace one or two brands in the portfolio. It's just super interesting from a strategy standpoint. The other thing that I wanted to get your comments and thoughts on are it looks like and ask you if you have read anything on on Chinese internet, is Evergrande Auto finally done? Are they going to get pushed into bankruptcy?

Lei Xing:
It's I mean a few of their entities I think filed. Was it bankruptcy or did they get the notice?

Tu Le:
Yeah.

Lei Xing:
Few of their subsidiaries. I think they're done. Nobody talks about them. One of those…

Tu Le:
By the end of this year, they should be kind of done. And then the other thing was the Faraday Future how they made zero revenue last quarter. 

Lei Xing:
$2,000. $2,000. 

Tu Le:
$2,000. God bless them. You and I have friends that still work there. So.

Lei Xing:
They're resilient, man. They're just like. They're still planning to launch this China U.S. bridge strategy, bringing a brand, lower positioned brand. Really they're asking for a really Chinese China EV Inc. to help them. China supply Inc., China whatever Inc.

Tu Le:
Really quickly before we leave, Jeffrey friend of China EVs & More, he wrote BYD is making USA a big sandwich. Canada and Mexico being the bread and meat with USA being the hot mustard, get ready for a big bite BYD. And then here's another comment is Chinese customers demand high quality innovative products with karaoke and ability to park their car from their brand specific phone while live streaming. Jeffrey should know because I'm sure he's drinking through a fire hose over the last couple of weeks, because he's moved there. So yeah Jeffrey, I think you're seeing firsthand what Lei and I saw over several years. You're seeing kind of the maturity of everything, and the price war just adds a lot of noise, because we really don't know outside of maybe Xiaomi, who are building products that people really demand if it wasn't for a price cut, I think that's really hard to tell right now. But I don't have anything else Lei, so, maybe we can end it here.

Lei Xing:
Sure. I don't have anything else.

Tu Le:
Thanks for joining. And we will talk with you all next week. Good morning, good afternoon, good evening.

Lei Xing:
 Same here. 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.