The Chinese Are Coming - #24


Page 1: Tesla's (Private) Dream Maker
Page 2: Electrics • Autonomous • Ride-Sharing • New Deals

What would Elon Musk wish for  - beyond the big bucks already promised by the Saudis -  to make his Tesla-go-private dreams come true? 

1. A massive luxury car market.
2. A government hell-bent on leading the world in electric vehicle production.
3. Customers who happily pay a premium for an exclusive brand. 

China delivers all three - and more. 

China is home to the world's largest luxury market - and it is not even close. Mercedes, BMW, Audi and Porsche will sell nearly 2 million vehicles in China this year -  twice the number as in the U.S. 

The People's Republic is also the global center of electric vehicle production. This year, China will build 1 million EVs -  half of the world's total. That number is expected to climb to 5 million by 2025. Driving future growth is an air-tight EV quota system that will kick in starting next year.  Electrics must account for no less than 10% of sales in 2019 -- increasing to a minimum of 20% by 2025. 

What about luxury brands, you ask? Chinese consumers are utterly transfixed, intoxicated, riveted by them. The Middle Kingdom now accounts for 32% of the global luxury market. Gucci, Louis Vuitton, Chanel, Hermes, Rolls Royce - they all thrive in China. Tesla is a member of that exclusive group, according to my network of Chinese acquaintances. 

China is already Tesla's second-biggest market. Yet up until now, sales in China have been held back by high tariffs.  A $75,000 Model S in America runs $130,000 in China, after all taxes and fees are paid. Even at those lofty prices, Chinese consumers bought 17,000 Teslas last year. 

But once Tesla starts its China production in 2020 or 2021, look for Tesla prices to come down. Sales could easily rise above 100,000 a year. Elon Musk and his China team (photo below) inside the Forbidden City earlier this summer.

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There's two more important factors working in Tesla's favor. 

• Tesla won the rights earlier this summer to own 100% of its China production operations. No other global automaker enjoys that status. 

• Tech powerhouse Tencent, China's most valuable company, is Tesla second largest shareholder. So, Tesla has money and friends in high places - always crucial to success in the ever-mercurial Chinese arena. 

Is this really happening? Yes - Tesla is now hiring for its coming factory in Shanghai, with some 14 positions ready to be filled.  

So, maybe the future is not so hard to imagine after all: A privately-owned Tesla with China as its largest and most profitable market. 


- PAGE 2 -



>> Smart. Daimler is in talks with Beijing EV to produce electric Smart models for the China market. Earlier this summer, Daimler took a 4% position in Beijing EV, the electric-vehicle subsidiary of the  Beijing Automotive Industry Corp. 

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Takeaway:  By 2020, Daimler will have three EV brands on sale in China: Mercedes, Smart and Denza, its joint venture EV brand with BYD. Beijing EV and BYD are currently the top-two selling EV brands in China. The Smart announcement comes just months after BMW revealed plans to build the all-electric Mini with Great Wall Motors. 

>> Nissan/Envision.  China renewable energy group Envision will buy Nissan's battery business, which operates in Tennessee and the UK. The deal should be complete by Q1 2019 though terms were not disclosed.    

Takeaway: Old school automaker finds a new school energy company to buys its assets. Envision is a private firm founded in 2007 that specializes in wind turbines and energy technology services. The scope of its global operations is remarkable: Shanghai, Hamburg, London, Osaka, Silicon Valley, Houston, Denmark and Chile. 


>> Daimler/Baidu.  Daimler is deepening cooperation with Baidu to integrate connectivity services with MBUX, the Mercedes-Benz infotainment system. Pictured: Daimler Boss Dieter Zetsche and Baidu CEO, Robin Li. 

Takeaway:  In China, connectivity is arguably more important than autonomy and Daimler sees benefits in tying up with Baidu to strengthen the info aspect of infotainment. Daimler was one of the first global companies to join the Baidu Apollo project shortly after its launch in 2017. 

>> Roadstar. The objects in Baidu's rear view mirror are closer than they appear. Roadstar plans to build its own autonomous electric vehicles within 24 months. 

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Takeaway: Roadstar's leadership team consists of a strong team of engineers who previously worked at Tesla, Apple, Google and Baidu. Look for Roadstar to first focus on local delivery and chauffeur services, teaming up with giants Meituan and potentially Didi.  


>> Didi Xiaoju.  Didi is injecting a fresh $1 billion into its car solutions platform that it is branding Xiaoju Automobile Solutions.  

akeaway:  Didi is diving deeper into its ride-hailing services, leveraging its massive scale (now 30 million rides per day) to secure preferential financing, insurance and repair terms for its drivers that work in 257 different Chinese cities.  


>> Xpeng.  Venture capitalists keep pouring money into Xpeng Motors. Last week, the EV start-up raised a fresh $587 million in a round led by the Primavera Capital Group. Founder He Xiaopeng (picture below) resigned from Alibaba in 2017 to become Chairman of Xpeng. 

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Takeaway: Xpeng has now raised $1.5 billion dollars. Investors include Alibaba, Foxconn, Morningside Venture Capital, Hillhouse Capital and K11. Guangzhou-based Xpeng says it plans to introduce 4-5 models within the next 5 years targeting the "middle of the market." Note: Mr He is the first Chinese auto entrepreneur daring enough to reference his own name - Xiaopeng - as the company name. 

>> Buick Envision. GM might have to stop exporting Buick Envisions from China because of higher tariffs on imports from China. Americans imported 42,000 Buick Envisions from China in 2017. 

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Takeaway:  GM is applying for an exemption from Trump tariffs on imports from China. GM's case will be tougher to make, though, because GM's China partner Shanghai Automotive takes half the revenues on every Envision exported from China.  



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