Episode #181 - China Stimulus, Congrats to BYD, Biden Admin Restrictions

Tu and Lei spend the first few minutes of the podcast updating about the policy changes coming out of a major Chinese govt meeting that are meant to stimulate the Chinese economy and some of the reactions from the external non-Chinese financial institutions reactions to those new stimulus policies. 

Tu asks Lei to go over some of the vehicle launches that happened that week continuing the barrage of introductions from Chinese EV makers which, in large part, is why the legacies are struggling to keep up. Tu compares and contrasts that with the still very few clearn energy vehicles that are entering the US market. 

Tu changes gears to congratulate BYD on producing their 9 milionth vehicle. He then talks about how meaningful that is and how it was accomplished in such a short period of time relative to earlier milestones. 

Tu and Lei move to unpacking the new Biden administration proposed restrictions on Chinese connected vehicle software and hardware. Tu talks about how this closes the Mexico backdoor and effectively keeps China EV Inc out of the US market for the foreseeable future. 

They close out the podcast with a brief review of the situation in Europe for China EV Inc and a preview of what they look forward to at the Paris Motor Show. 

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• 21:55 (Cont.) Episode #181 - China Stimulus, Congrats to BYD, Biden Admin Restrictions

Transcript

CEM #181 Transcript
Recorded 9/27/24

Tu Le: 
Hi everyone and welcome to China EVs & More where my co-host Lei Xing and I will go over the week's most important and interesting news coming out of the global EV, AV and mobility sectors. What Lei and I discuss today is based on our opinions and should not be taken as investment advice. To those that are new to the show, welcome. To our loyal listeners, viewers, welcome back. Please help us get the word out about this live stream to other enthusiasts and 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 sinoautoinsights.substack.com, which I encourage you all to do. Lay, an earlier than usual Lei. Can you please introduce yourself?

Lei Xing:
Yeah, good morning. This is Lei Xing, your co-host, former chief editor of China Auto Review. This is episode #181. My dreams of owning a Chinese EV here in the U.S. just went down the drains. But before we get into the software connected vehicle ban, we should talk about the last couple of days in China. Just today, big news out of that politburo meeting of the CPC Central Committee. The two things that came out of that was the reduction of the RRR the reverse repo ratio for financial institutions. And then that drove the stock up so much that the Shanghai Stock Exchange had some bug for like a couple of hours and people can’t trade. And then the day before nine vehicles launched on the same day, September 26 must be an auspicious day. And this as we come to the end of this golden September and entering the Silver October and home stretch as you would call it. And a gift, I think it's a gift as China goes into this National Day 7-day holiday vacation, feeling better maybe about the economy. We should talk about…

Tu Le:
More hopeful.

Lei Xing:
More hopeful. Yep.

Tu Le:
And a couple of different things as well. David Tepper, who's one of the best traders on the street. After all this stimulus was announced by the Chinese government. He went on CNBC and he said he bought everything China. So it seems like the Chinese government is creating this stimulus for this home stretch. And in addition to that, this is non-government, but Tesla has extended 0% financing for 5 years. They're also really trying to goose the last quarter as we get out of. So October 1 for those new listeners is Chinese 4th of July or National Day. And so they celebrate that…

Lei Xing:
Big year too. 75. 

Tu Le:
Yeah, exactly, they get a week off and it's pretty dead during that week, but there's always blitzes of incentives, promotions, price reductions. Now, the Germans aren't going to participate largely in those price reductions for the rest of the year. 

Lei Xing:
The Americans did. 

Tu Le:
Yeah and you can talk about that a little bit more. But this points to probably the Germans still losing sales year over year from 23 to 24.

Lei Xing:
Oh yeah without a doubt.

Tu Le:
And so they are, I'm sure they're bracing for it. Our friends at BMW in Beijing, Mercedes, and Volkswagen Group, but still haven't, in my opinion, they still haven't found a bottom. And then you look at Mercedes and BMW over the last couple of weeks, they've announced profit reduction in their forecasts largely because of the Chinese market. So please continue Lei.

Lei Xing:
I think if you look at this point in time that nine product launched on the same day, it's also kind of to beat the holiday season a bit that mini mad dash and two of the models that were launched were exactly Tesla killers, the AVATR 07 and the IM LS6. Those were in the RMB200,000 range, $30,000. And so it's not surprising to see Tesla continue with that promotion. It could continue on until the end of the year. 

Tu Le:
Well give them an ideal Lei of some of the other products that have launched because you tweeted there was like four vehicles that launched all in the same day.

Lei Xing:
There were nine vehicles, various vehicles launched or went on pre-sale on September 26, and this past week, I think it was close to a dozen starting from Monday, two dozen, actually. So I lost count.

Tu Le:
So for you non-Americans, I don't think we have a dozen products in the market that are, that we can buy. 

Lei Xing: 
Well neither do we have dozen models launching in the same year, right? And that just shows you the kind of the competition currently and you know, it’s…

Tu Le:
And they're not junk models, they're significant models.

Lei Xing:
Yeah, many of them, many of which were revealed at the Beijing Auto Show and now they're being launched. Going back to the stimulus measures put out by China, an important number to remind is the 5% GDP growth target. And the thinking is that Q3 GDP growth could be lower, slower than Q2. And hence, this meeting came out earlier than usual, the politbureau meeting and what they discussed and the kind of the headlines that were put out was exactly putting in these measures to ensure that 5% target for the year. That's very important, I think, for Xi…

Tu Le:
And this is on the heels of foreign direct investment down, domestic consumption down. And the fact that foreign companies are struggling, the premium brand companies, the consumer premium brand companies. They're all struggling. Starbucks is, it is also kind of sort of struggling. So you're seeing Chinese consumers on the sidelines a bit. Hence, the price war still ongoing.

Lei Xing:
And that's the kind of weird thing to see at the same time these latest and the greatest you're seeing these order numbers, they look pretty good. ONVO I think they're getting tons of orders. MONA without exception. So it's a bit to kind of see is the economy good or bad? But from the EV market, it looks like all of these new models, they're getting tons of traction.

Tu Le:
But you and I know, because we pretty much talk almost daily to friends in China. It's not as hopeful as it was. Let's just say that.

Lei Xing:
Yeah well, I mean, we have this break coming up. And then after that soon, it will be that final mad dash to end the year. I think this week, NDRC also posted some numbers. The one number I remember very clearly was that roughly 2 million of these old clunkers are being taken off the road and likely the owners of these vehicles are trading in NEVs, trading for NEVs. And that's 2 million that's in additional sales, one of the ways to drive consumption. 

Tu Le:
So let's change gears. Congratulations to BYD who got to 9 million total production units since and we're talking since they've established themselves as a company. So the number isn't that amazing because obviously, Toyota, GM, Volkswagen Group, they sell 8, 9 million units per year, 10 million units per year. It's the fact that they went from 8 million to 9 million in less than 90 days. So congratulations, we have friends at BYD so that's a very proud moment during a challenging time outside of China for the Chinese EV makers, but they also, BYD just keeps on breaking records. It doesn't cease to amaze me that they are continuing their ascendancy towards trying to dethrone a Volkswagen Group, a Toyota Motor Company to be the largest automaker in the world. I think it's possible. And within the next few years, it's within grasp. But when you start manufacturing Lei, in nine countries or eight countries, ship kits or manufacture, the complexity of your supply chain increases significantly. Your balance sheet gets a little more complicated, just because of the different currencies that you're dealing with, operations get more complex, because now you're dealing with employees in Europe, employees in Latin America. And so will they run into challenges? How they react to those challenges is going to be very telling to see how close they can get to the 9, 10 million units in the next several years annually.

Lei Xing:
Annually. That's hard to fathom.

Tu Le:
Well, more context, because you bring up a good point. This year, they're probably going to be around 4 million units, this year alone.

Lei Xing:
Closer to 4 million. And all while they're still launching products at a breakneck speed. Earlier this week, the Sea Lion 05 and the Song Pro DM-i models. And the way they've approached this is regularly launching these, what do you call them, these dual models that are priced exactly the same. I mean you can't really tell the difference between these models. They are both SUVs right? 

Tu Le:
I think that's the entire point. 

Lei Xing:
And this happens next week. They're launching something else while this production records are being broken, and they'll get to 10 million in December, basically, you can chalk it up, right? 400,000 units a month, roughly, is likely the pace for the remainder of the year, just crazy to think about.

Tu Le:
So Lei let's move on to the elephant in the room. The Biden Administration this week followed up with what we thought was going to be happening. They will be, they proposed to restrict software from Chinese vehicles, connected and intelligent driving for cars, buses, trucks, anything that hits roads, the roads in the U.S., and so which is obviously a preemptive strike, because there aren't any Chinese EVs now in concert with the 100% tariffs, it looks like any doors, any back doors, side doors, front doors into the U.S. market have now been closed. So that's why you're so disappointed in not being able to purchase…

Lei Xing:
And 100 % EV tariffs go into effect today, September 27. So that's why the last couple of days are important on many fronts, right? That's, the 100% EV tariffs are out of the way, right? It's been a wall, and this software connected vehicle ban is kind of like, how would you call it…

Tu Le:
Let me finish my thought Lei. On the software side, the restriction starts for Model Year 2027.

Lei Xing:
Yep so you still get a couple of years.

Tu Le:
Now you and I know that Model Year 27 means 2026. For, so here's a couple things that I'm thinking about. If I'm a foreign legacy automaker that builds or manufactures or ships to the United States Lei, I'm looking at my bill of materials just to make sure up and down the supply chain, it might not be the tier-one supplier that's supplying you the component or the module. It might be their supplier or their supplier’s supplier that has some sort of software that helps the control unit or something like that. I'm getting a little bit wonky, but the risk management teams at the legacy automakers, they're all looking at their BOMs on their current products. And then if we look at legacy automakers, we're looking at a 5-year product development cycle. If we're looking at 2027, these guys are ready 3 years into development of the vehicles. Model Year 2027 is actually right around the corner. And then Model Year 2030 is when the hardware restrictions kick in. And so you had alluded to it last week Lei, Hesai working with one or two western OEMs.

Lei Xing:
So I was saying if the 100% EV tariffs were this wall, then this ban on connected vehicles and software is like a kind of like a nail on the coffin, right, of the China. And this is an interesting thing. It's not only the Chinese companies that are trying to explore or eventually if they do it. Because that statement included production in the U.S., so it covers so much. And then going back to that Hesai comment, not only does Chinese companies, automakers have to find workaround, if they can, but it's also the U.S. automakers that are shipping the Buick Envisions the Lincoln Nautiluses, the Polestar 2s and 3s, but Polestar 3s and 4s are being locally produced in the U.S. Both sides, there will be companies that need to find workarounds. The evaluations of the Chinese AV, China AV Inc. looking to IPO that'll be affected. Companies like Hesai, which is U.S.-listed. And they supply these components to AV companies in the U.S. they're actually one of the biggest suppliers of LiDARs for robotaxis in the world. So this covers so much that it's pretty destructive, I think, for many of the Chinese companies. It just feels like everything is moving just so much more advanced, faster all of this realm, where in the U.S., we are in this little bubble, a protectionistic bubble that trying to, you know what I'm saying.

Tu Le:
Yeah, I do. So let me pick up where you're leaving off. So it's a gift to the D-3. It's a huge gift. What are they going to do with it, number one. And I wouldn't call the revised strategy a workaround. They're going to have to find new sources for these components, the software. I had talked about in newsletters way back when about this bifurcation, one set of bill of materials for China market, one for the rest of the world. And so if I'm a Chinese EV maker and I want to build locally, now I'm going to have to source locally, because and this is what Tesla did in China, 90% of their suppliers are Chinese in China for the Shanghai Gigafactory models that are built there. But this creates opportunity for startups in the United States if we're looking at this. But what's a little bit schizophrenic and I mentioned this in an interview on CNBC two nights ago or last night is, Trump might come in if he gets elected and blow everything up. And I think where because this is probably the last thing that the Biden Administration is going to be able to do to roll out before he leaves office, because there will be a new president, because he's not running. It's either going to be Kamala or Rrump. Let's say Kamala continues to enforce the Biden Administration's policies, but she might also look at things a bit more practically, because if they built in the United States that does mean jobs for Americans. So that's significant. And trump has effectively said, you can build locally.

Lei Xing:
Well, yeah, Trump is pretty clear of not allowing the Mexico route. Everything the John Deere, right, was recently a hot topic. 200% tariffs, everything coming in from Mexico. So that rule is, that's why BYD is on hold. That's why Tesla’s Giga Mexico is on hold. And even if you do produce, then this ban says applies to vehicles produced in the U.S., then you have to work with the suppliers. Can you do that?

Tu Le:
But that's why it's so schizophrenic Lei because what if Trump says I want to keep this Biden policy, the 100% tariff, he'll probably keep those. He might even ratchet it up. To me, that's more symbolic because 100% is probably enough to scare most EV makers, Chinese EV makers off, most of those EV makers probably can't afford to build in Mexico anyway, right? There's probably only 10 or 12 Chinese EV companies that have the ambition or the capital, won't say or, ambition and capital, to actually build in Mexico or Europe.

Lei Xing:
And speaking of Europe. So right now, China is fighting two battles right, in this tariff dispute, one in the U.S., one in EU, and China has just launched the anti-discrimination dispute with Canada. Because for Canada, it's pretty much purely, there's no reason, plausible reason other than we're just going to follow the U.S. right, and do the same thing. Then the EU, right? Intense discussions over the past weeks, and something that could come out was a voluntary minimum pricing that are being put on the table. Whether that's going to happen, we don't know. And at the same time, they just recently put out two news releases. LeapMotor is launching starting from Italy, they put the launch event in Italy, launching into 350 sales points in Europe, or globally by the end of this year I guess. And then the Paris Motor Show, right, LeapMotor is front and center of Stellantis. While this EU tariff is going to go into voting in a matter of days.

Tu Le:
And just to be clear, Germany and Spain on one side that want free trade, and France, Italy on the other side. So let me piggy back off of that. Let's say they find a compromise on the EU tariffs. If the EU decides and the UK decides that they want to follow suit with the United States and restrict software. One thing that was, for sure, when I was in London over the summer was what are we going to do when these cars are gathering our data. So that's an issue amongst the UK government as well. And you had made a great point about the Chinese EV makers battling multiple fronts. They could get a win on the tariff side in the EU or at least dial down some of, the tariffs are going to stay. How much, from a percentage standpoint, is still up for debate, but I don't really see that dialing down that much.

Lei Xing:
I agree.

Tu Le:
Except for maybe SAIC, maybe some of the ones that got the 40% tariff, maybe they'll get thrown a bone that'll get reduced a little bit. Generally speaking, I think the tariffs are going to stay in place. And then on top of that, if the EU looks at the issue the same way the united States does, that's another headache for the Chinese EV maker.

Lei Xing:
Yeah. So I mean, I think the EV tariffs, they're just a matter of increasing prices of your cars. And whether you want to sell at all? Whereas the ban on connective vehicles is just so much more destructive because of the way it's stated. I mean it's not only vehicles, but components that's the…

Tu Le:
Well, and it's a slippery slope. Because right now it's passenger vehicles and commercial vehicles that drive on roads in the United States, but scooters, the mopeds, they all ride on roads in the United States. So it's unclear. And then charging infrastructure, most of the chargers that are built or most of the chargers that are sold, I won't say most, a good percentage of the chargers that are being installed in the United States. They're Chinese, manufactured in China. One of the ones that you and I have spoken with or you spoke with more than I have is Autel, a Chinese Xcharge. They're using Chinese technology. So where's the off ramp? I don't know where the off ramp is. And so the D-3 with the exception of Stellantis with LeapMotor now, they aren’t doing that well in China. So if they want to try to build back up their business in China, this is probably not going to help them do it. The most vulnerable to me is Tesla, because FSD is still out there, and this probably downgrades the FSD is launched in any full form. It might be limited in the features, might not be the same as the rest of the world. But this is probably and is probably one of the reasons Elon wants Trump in.

Lei Xing:
And speaking of Tesla, we are inclined to kind of think the type of retaliatory measures China could put out. And the first company you think of is Tesla, because there's so much success in China. And but at the same time, it's not easy saying we are just going to retaliate using Tesla as some sort of a, because of the local economy, because the local. 

Tu Le:
That's the last thing the Shanghai government wants. 

Lei Xing:
Exactly, that it's delicate matter and it's not simply as saying we're going to do something to Tesla. It could be on the dairy products coming out of Europe, right?

Tu Le:
That's the thing. So it might not be automotive for automotive.

Lei Xing:
And China is pretty, I think in their, Ministry of Commerce, Ministry of Foreign Affairs, they put out statements saying we're going to look at this and we have to, certain action that we're ready to take. So…

Tu Le:
This puts so much pressure on a certain number of Chinese EV brands that are struggling to sell in China that were hopeful to sell elsewhere outside of China. And now anytime you, let me finish this thought Lei, anytime you take out the second largest region, market, I’m talking European Union. And then the third it's or the second is the United States, sorry, and the third is the EU. All this volume that you had forecasted going to, at least to Europe. Because I think they had a much better idea that the United States was going to be much more difficult to enter. Now, what do you do with it? Because now a half a dozen countries need to make up for that volume, potentially. So and we've seen from January to August, exports have increased by 25%. Of that, I think there were 4 million units. 1.3 million of them were NEVs. The biggest exporter was, I forget now, anyways…

Lei Xing:
It’s either Chery or SAIC, everything not only NEVs. I was going to say that going back to the EU, U.S., I think the China EV Inc., the expectation is that they will be content with the current wall or this, I said death sentence, if you will, that the U.S. has put up or thrown out, I think they will be content. In Europe, the expectations will also be that they know that the tariff, current tariff rates will not change much, but at the same time, they can find ways to enter Europe. They will find ways.

Tu Le:
There’s dialogue. I think that's the most important thing. There's dialogue.

Lei Xing:
There's dialogue.

Tu Le:
But and we can't put BYD in the same bucket as the rest of the Chinese EV makers, because they're much farther along on their globalization strategy, manufacturing footprint. And I think Mexico is just a huge part of that strategy, whether effectively any capacity they add in Mexico eventually ends up in North America or the rest of Latin America is something that they have the flexibility to do. I, we know that they say that they're not looking at the U.S. market, but of course they are.

Lei Xing:
Yeah. So I think the Paris Motor Show will be an interesting point in time. I think that comes right before that vote takes place and the action is pretty significant. Xpeng, BYD, LeapMotor, GAC Group. AITO, I think AITO they are showing there full series of products in Paris. You know, and Stellantis..

Tu Le:
VOYAH I think is going to be there. Our friend Daniel Kirchert is going to be there. So, you and I are going. So for your listeners, I don't know, maybe you and I need to have one of those  happy hours again. I don't know Paris that well, so if you have, or if the viewers or listeners have a suggestion of where we should host a happy hour, please put it in the chat or send us direct messages, because we'd love to see anyone who's been following us. Man, let me look here. I don't really have.

Lei Xing:
Then the other thing is the Tesla dropped the robotaxi event poster, We, Robot and they've been showing some latest and the greatest of their FSD, actually smart summon, these type of things, interesting what they are going to show.

Tu Le:
Elon is doing everything in his power to keep that Tesla valuation high. This as Uber announces a partnership with WeRide with last week or two weeks ago with Waymo. 

Lei Xing:
BYD.

Tu Le:
Then they already had a partnership with Cruise. So I think Uber is trying to be the picks and shovel people, regardless of who the robotaxi company is, you can use the Uber app.

Lei Xing:
The other news that we missed last week was the Waymo and Hyundai utilizing that Motional asset for robotaxis. And there were some talks of that ZEEKR partnership may be in jeopardy. 

Tu Le:
No announcement has been made between ZEEKR or Waymo. But…

Lei Xing:
And the thing is that partnership is, the vehicles engineered in Sweden. The LiDAR, the sensor and hardware stack will be installed by Waymo in the U.S., once that vehicle reaches U.S. Now, will that type of setup be affected by the connected vehicle ban is not clear.

Tu Le:
So Wayno develop their own LiDAR. So they're not buying from someone else, so I think that helps.

Lei Xing:
Right. Exactly only the vehicle, only the body of that ZEEKR M-Vision that will be shipped. 

Tu Le:
You can see Waymo having more than one form factor on the robotaxi, because a one-size-fits-all robotaxi that's pretty large for the U.S. market might not make sense in other parts of the world. So maybe what they do is, again, bifurcation, have ZEEKR help them build for Europe or Asia, and then Hyundai help them build for the U.S. market or North America. Yeah, so that's all I have. Man. I am looking at my newsletter. You had mentioned that or I've mentioned in my newsletter that one company, BAIC is actually cutting capacity from 320,000 units to 120,000 units. So that's a new one that we don't hear about very often.

Lei Xing:
And Volkswagen SAIC rumored to cut the Nanjing plant and this week, right? I think on Wednesday, Volkswagen was having this meeting at this castle in Germany and they were talking of a 7% raise in salaries, which the board said no no. That's not going to happen. So we will continue to have this battle, internal battle between the IG Metal, the Works Council and the board member.

Tu Le:
And I have to constantly remind folks of how serious this is by telling them that we're reminding them that when there was diesel gate, when they paid out billions of dollars, I think $8, $9, $10 billion, they never closed a factory. So if they go to the union, the worker union and say, we can't guarantee jobs anymore. That should tell you the level of seriousness or dire straits that they're potentially looking at.

Lei Xing:
Yeah, one of those dire straits, and potential thing happening is a strike by the end of the year.

Tu Le:
That’s happening right now in the United States. I think so, or they're talking about it. The UAW is striking some component plants. Tavares is not very popular right now in the U.S.

Lei Xing:
He's on a kind of what do you call it the chopping block or something? 

Tu Le:
Well he’s out anyways. 

Lei Xing:
No no no, I mean they talked about the succession plan with the possibility of him remaining, but I think the U.S., North America business has not been well for Stellantis the last few months or quarters, so.

Tu Le:
With his yeah, no, with the North American market being about 30% of their profits. Anyways, let's open this up for comments or questions if nothing else. So really quickly, if you have any comments or questions, put them in the chat, if not, we can end this early. But did you see my Detroit Tigers Lei? They're about to make the playoffs baby. Detroit is pretty excited. Next week in Michigan, there's Michigan Tech Week. I'm going to be a big part of that. The following week is the battery show. And then the week after that you and I are off to Paris.

Lei Xing:
There's so much more activities in your neck of woods. It's just…

Tu Le:
Yeah so for those of you that are attending the battery show, I'm sitting on a panel for that. And then at the Reuters automotive roundtable

Lei Xing:
Oh yeah they have one

Tu Le:
And then for FICITA which is an advocacy group for the automotive space, they're hosting their Detroit conference at the Tech Center. I'll be a part of that, too. So I'll have a busy last quarter. You will have a busy last quarter. We're going to dial in this video. And I'd like to think that we could still do it even when we're all over the place, maybe we can have one of those live shows. I'll bring a nice camera. We could just do a live show in Paris.

Lei Xing:
That would be great, I think.

Tu Le:
So anyways, I'm good man.

Lei Xing:
I guess we can call it a day.

Tu Le:
No comments, no questions. So. All right. Hey, everyone. Thanks for joining and appreciate your flexibility with being a little bit earlier than normal. Have a good weekend, everyone. Good morning, good afternoon, good evening. We will talk with you all next week.

Lei Xing:
Thank you.

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.