The Chinese Are Coming - #30

RESCUED BY A TAX CUT - AGAIN?


Page 1:
Rescued By A Tax Cut - Again? 
Page 2: Electrics • Autonomous • Ride-Sharing • New Deals


Seeking to remedy lackluster sales, China is expected to reduce taxes on small cars from 10% to 5%.   Shares of major American & European automakers jumped in response to the news.

But will a tax cut be enough this time?

Market observers are understandably optimistic because previous cuts led to swift and sharp recoveries. Such was the case in 2015 and 2011 and 2009 and well, just about every instance in the last twenty years when China’s car demand looked shaky.  According to the highly respected analysts at Evercore ISI, this tax break could lead to a 3-4 million increase in incremental auto sales over the next 12 months.

Those predictions may well prove accurate. But after visiting China earlier this month, I came away with a different sense. As one veteran Chinese purchasing director told me as recently as today, this “will not be like previous rounds, because the economy is much different now.”

The Chinese consumer feels nervous -- and for good reason: 

– The Chinese currency is now at its weakest level in almost ten years.   
- The Shanghai stock exchange has declined 28% since January.  
– Access to loans via peer-to-peer channels is drying up following an official clampdown.
– Gas prices at $4.36 a gallon are at their highest level since 2010 when oil was $140 a barrel.   
– A distinct cloud of uncertainty hangs over the PRC as the US-China trade war escalates. 

Don't get me wrong. Chinese consumers love a discount as much as anyone. But uncertainty turns them hesitant in a hurry. "Consumers are getting more and more cautious when it comes to spending," says the veteran vice-president of one Shanghai-based parts maker.

Tax cuts are bound to produce a short term bump. But the Chinese consumers will need bigger enticements to come clean out of their shell.


—————————————————————

- PAGE 2 -

ELECTRICS • AUTONOMOUS • RIDE-SHARING• NEW DEALS 

ELECTRICS

>> VW. Volkswagen and its partner, SAIC, have broken ground on a massive $2.5 billion plant to build EVs off the MEB platform starting in 2020. 

Takeaway:  News about EVs in China comes so fast and furious these days that even big deals get lost in the haze. Don't miss the significance of this one - by far the largest investment in China EV production by a global company so far. VW plans to build both VWs and Audis at the new plant, which will have an annual capacity of 300,000 vehicles. 

>> Tesla. America's leading EV maker will produce two products in China - the Model 3 and the Model Y -  when the factory is ready in 2020. 

Takeaway: Adding the Model Y SUV sharply improves Tesla's prospects for success in China. Consumers in the PRC love SUVs - they will buy nearly 10 million of them this year.

>> WM Motor. The 4 year-old EV start-up led by former Volvo China CEO Freeman Shen expects to raise a fresh $288 million this quarter. 

Screen Shot 2018-10-30 at 10.06.45 PM.png

WM Motor’s “EX5”, a fully electric SUV that integrates the intelligent user experience.


Takeaway:
  WM (short for the German Weltmeister) is in the production ramp-up phase and will require lots of fresh capital. Goal is 10,000 deliveries in 2018, climbing towards a targeted 100,000 in 2019. 

>> NIO. The NYSE-listed premium electric vehicle maker has sold 3,350 vehicles since deliveries started at the end of June. 

Takeaway: NIO is still the most promising among China's multitude of EV start-ups, with BYTON a close second.  Production volumes at NIO's contract assembler, JAC, will remain modest until NIO's Shanghai plant is ready late next year.


>> Changan. Changan is seeking partners for its EV subsidiary, the Changan New Energy Vehicle Technology Company. 

Takeaway: A close look reveals that Changan is offering up to 51% ownership to outside investors. Under the new rules, foreign investors are permitted to own a majority share. As this state enterprise plays catchup and casts its baited line into the water, will the foreign fish bite? 

>> Faraday Future. Nick Sampson has resigned and declared the company "essentially insolvent." 

Takeaway: After a long battle against long odds, it's game over for Faraday Future. 
 

AUTONOMOUS

>> Ford/Baidu. The two will start jointly testing autonomous vehicles under the Baidu Apollo initiative.

Takeaway: By integrating with China’s tech powerhouses, Ford is seeking to gain fresh traction in a market where sales are down 36 percent YTD. New Kuga SUVs feature Banma, the Alibaba connected car system.

>> Momenta. Founded in 2016, Momenta is now valued close to $1 billion after a fresh round of fundraising this month.  

Takeaway:  One measure of a start-up’s credibility is its backers. Momenta counts Tencent, NIO Capital, Zhen Fund, China Merchants Bank and several key government strategic investment funds. 

>> Innovusion. This California-based Lidar tech start-up attracted $30 million in a new round of funding led by NIO Capital and Eight Roads ventures. 

Screen Shot 2018-10-30 at 10.25.48 PM.png

Image: LiDAR — navigation technology that allows autonomous vehicles to detect and measure objects on the road and well-beyond.


Takeaway: 
 The reoccurring mantra among Chinese-financed AV start-ups is: "R&D in California, commercialize in China." Innovusion fits the profile. Investors see a U.S. based company backed by Chinese funds eyeing a payoff in their own backyard. 

>> Great Wall/Autonomoustuff. Great Wall, the Jeep of China, is aligning with Autonomoustuff to enhance autonomous capabilities in a premium line of Wey-brand vehicles. 

Takeaway:  Autonomoustuff started out as a supplier of equipment and vehicles for autonomous vehicle testing. Now under German ownership, they’re taking direct aim at the autonomous technology game. 

RIDE-HAILING

>> Geely-Daimler.  In the first major action since Geely acquired 9 percent of Daimler this year, the two companies have agreed to partner in a ride-sharing venture targeting premium customers.

Takeaway:  Chinese urban professionals and even the wealthy are attracted to the convenience of ride-hailing services. But they don’t quite trust the security of Didi. Solution: A Mercedes-Benz vehicle driven by a highly-vetted driver practically guarantees personal safety.

>> Tencent/City Transportation Systems.  Tencent  is working closely with Chinese cities to make bus, train and even plane flows easier and payments more seamless. The secret weapon: QR codes.  

Takeaway: Chinese tech companies can rightly claim global leadership in fin-tech. Now Chinese consumers are starting to pay for buses, trains, parking lots, toll roads and even to board planes with a flash of the QR code.

NEW DEALS 


>> First Auto Works (FAW).  The massive state enterprise, based in Northeast China, secured a $144 billion line of credit. 

Screen Shot 2018-10-30 at 10.48.16 PM.png

First Auto Works (FAW) “Pentium” concept car


Takeaway: This must be the largest credit line in automotive history. What does a company do with $144,000,000,000? FAW could use it to buy out weaker players in the industry.   Or it may seek to acquire the world's best EV and AV technologies. President Xi Jinping made a visit over the summer leaving instructions for FAW management to dramatically up their game. 


>> VC Money to China. China's auto-tech sector accounted for 5 of the 10 largest VC investments globally in the 3rd quarter of 2018. 

Takeaway: Investors are betting their billions as much on overall policy direction as they are on the individual merits of the companies. 

>> Full Truck Alliance. Investors in China's Uber for commercial trucking could value the company at $9 billion. Backers include powerhouses Tencent, Sequoia, Hillhouse and Softbank. 

Takeaway:  China is home to some 22 million commercial trucks, many driven by private owners of 1-2 vehicles. There is a lot of standing around time. Full Truck Alliance sees an industry ripe with potential for improved efficiencies. 

31kb--ZoZo Go_Dunne Auto (1).png