HOW BIG IS THE MARKET?
Page 1: How Big Is The Market?
Page 2: Electrics • Autonomous • Ride-Sharing • New Deals
The Chinese Are Coming is sponsored by:
Last week I gathered over coffee with a senior executive from a Tier-One supplier in Detroit.
"How big is the China market for the kinds of systems we make?" he asked me.
Good question. I bet if we polled one hundred automotive CEOs in North America, one hundred of them would not be able to answer that question easily. Why?
1. Out of Sight, Out of Mind. For most of the past 30 years, CEOs in the US have over-relied on their executives on the ground in Shanghai and Beijing to figure out the China market. It was enough to read the quarterly profit and loss statements to calculate earnings from the China profit machine.
2. What's Winnable. There is an expanding difference between the total market size and the accessible or winnable market. More and more, Chinese OEMs, suppliers and tech firms are muscling in, taking share from global automakers and parts suppliers players. Simply showing up is no longer enough.
3. New Realities. Leadership at many US auto companies is still thinking of China in Auto Industry 1.0 terms - the traditional vehicle sales and service business. The reality is that China is shifting to Industry 2.0 - electric, autonomous, connected and shared - faster than any market in the world.
Check out these numbers:
Electric Vehicles: China produced 60% of all electric vehicles globally in 2018. By 2025, China expects to make 5 million electric vehicles per year.
Ride-Sharing: Didi, China's dominant ride-hailing player delivered 10 billion rides last year. That number is twice as many as Uber did globally.
Autonomy. America, led by Waymo, still enjoys a commanding lead in autonomous tech. But Baidu, Pony and TuSimple are catching up. The key point here is that China will deploy legislation favorable to autonomous applications faster than America. That's one reason why we see Waymo setting up shop in Shanghai.
Connectivity: Chinese consumers have an insatiable appetite for screen time. There are now more than 1 billion users on WeChat, the master messaging app. Top Chinese tech firms like Baidu, Tencent and Alibaba are invading the car, offering Chinese consumers a wide range of services, conveniences and entertainment. But there is plenty of room for American suppliers and tech firms to play here, too.
American suppliers might, of course, still find opportunity in the traditional industry. But a better play is to pursue massive growth in EVs, ride-sharing and connected car services.
One way to learn more about the new opportunities quickly is via our China Genius Briefing presentations. Contact Bill Endemann, Senior Advisor at ZoZo Go, at firstname.lastname@example.org.
- PAGE 2 -
ELECTRICS • AUTONOMOUS • RIDE-SHARING• NEW DEALS
>> Bordrin. How about a breakthrough 341 miles of range? That's the promise from This Chinese EV start-up founded by an ex-Ford engineer. First product, the Bordrin B31, will debut at the Shanghai Auto Show next week.
Takeaway: Like rival Chinese EV start-ups, Bordrin will need to scrape and scramble for funding for many years to come. The company employs 90 engineers at its Oak Park, Michigan office for R&D.
>> Korea/China EV Production. Chinese EV start-up BYTON and several other Chinese electric vehicle makers will soon have their cars produced at a former GM plant in Korea, ostensibly for global export.
Potential new role for Korea: Korean labor unions make car production on the peninsula very expensive by global standards. But maybe the simpler EV architecture will allow workers to deliver high quality products at lower costs. Another possible reason for the move: Two of the world's four largest battery makers are Korean.
>> NIO/Class Action. China's leading premium EV start-up, NIO, is the target of several class-action lawsuits that allege NIO did not portray the company's plan accurately prior to the NYSE listing in September 2018.
But NIO not too worried: According to officials at NIO, there is much ado about nothing. Here is what the lead NIO spokesperson in the US sent me: “The Company has been named as a defendant in a number of putative securities class actions in various U.S. courts. Plaintiffs in the lawsuits allege, in sum and substance, that the Company’s statements in certain of its public filings were false or misleading and in violation of the U.S. federal securities laws. These actions are at their preliminary stages. The Company believes these allegations are without merit and will defend itself vigorously.”
>> China-California. Baidu, Pony, WeRide, TuSimple and other Chinese AV start-ups conduct extensive testing on California roads.
Better Pony: Initial data on miles tested and number of disengagements indicate that Pony.ai is not far behind Baidu - and may even be sneaking ahead in certain technical aspects.
>> GAC/Tencent. China's highest quality automaker (GAC) is joining hands with China's most valuable company (Tencent) to form a $149 million ride-hailing services joint venture.
Tech-State Buddies: Electric and shared fleets is the trend. Chinese leaders in Beijing smile upon marriages between capacity-laden state-owned automakers and fleet-of-foot tech innovators like Tencent.
>> Tencent/Alibaba/Changan. China's top two tech companies are partnering with three of China's largest automakers to deliver ride-sharing services. Initial investment is $1.5 billion. The investors are a rich mix of money, tech and production power:
First Auto Works: 15%
Alibaba, Tencent, and Other Investors: 36%
Takeaway: This partnership poses a credible challenge to Didi which now controls about 90% of China's ride-sharing market and delivered a reported (who can count them all) 10 billion rides in 2018. Unusual to see Aliaba and Tencent - rivals - co-investing in this space.
>> VW/JAC. VW is looking to buy into its joint-venture partner JAC.
Takeaway: Electric vehicles will no longer be a China brand only show. Tesla, VW, Mercedes, Audi and Infiniti will all be making EVs in China in the coming years.
>> Made in China 2025. China has established 1,940 government guidance funds that direct capital to develop or acquire advanced technologies. Look for the interactive, in the story linked above, that shows China's top advanced tech 10 goals by industry for 2025.
State Capitalism Looks Like This: Targeted investments now total a stunning $1.4 trillion. Investments in California EV and AV tech start-ups have drawn intense scrutiny from the US government during the Trump Administration.
>> US-China Trade Negotiations China refuses to be defined as a developed economy by the WTO because it would change the generous trade and market access rights it now enjoys.
Two Tigers, One Mountain: The US has very different ideas. On so many fronts, there is more divergence than consensus between negotiators representing the world's two largest economies. Look for chronic US-China trade and investment tensions for the next ten years.