The Chinese Are Coming - #26

ONE YEAR LATER, THE SCOREBOARD

A year ago, Chinese automakers, suppliers and tech firms seemed poised to leave the comforts of home and go global. There are three powerful forces driving China to compete overseas:

• Slowing growth in China's car market and an industry with increasing overcapacity: 41 million capacity/year versus 29 million production. After a long, lucrative run at home, Chinese companies need new markets. 

• Much improved quality and profitability, with some Chinese brands placing higher than Ford, Chevy and VW in JD Power's annual quality studies. 

• The Made-in-China 2025 policy that calls for global tech leadership in EVs , AVs, robotics and even 5G.

A year after launching this very newsletter, it is time to take stock of China's global push. Here are the most remarkable developments: 

China's Top 8 Global Moves
(September 2017-September 2018) 

1. Geely acquired a 9.9% share in Daimler, becoming the largest shareholder of the iconic German firm. Geely also bought Terrafugia the American flying car company and UK-based Lotus. 

2. Guangzhou Automotive (GAC) confirmed plans to enter the North American market by the 4th quarter of 2019 and has opened multi-million dollar R&D offices in San Jose, L.A. and Detroit. 

3. Baidu rapidly expanded its Apollo open source project for autonomous vehicles, attracting more than 100 partners including powerhouses Nvidia, NXP, Daimler, BMW and Microsoft. 

4. NIO, the 4 year-old premium electric carmaker, backed by Tencent and Sequoia Capital, started production of its ES8 all-electric SUV and announced plans to list on the NYSE before the end of 2018. 

5. Warren Buffett-invested BYD clinched new premium electric bus contracts to supply the cities of London, Amsterdam, Santiago, Atlanta and Denver. 

6. Chinese companies are also tapping into global talent via expansion of overseas operations. One example: NIO now employs 600 engineers in Silicon Valley and another 190 product design experts in Munich. 

7. Didi, China's leading ride-hailing company, is investing hundreds of millions into neighboring Asian markets. Didi is also entering Mexico directly, right on Uber's doorstep.  

8. China autonomous tech start-ups like TuSimple, AutoX, Pony.ai, Jingchi and Roadstar now operate from two home bases - one in China and one in California. 

Wow - when you add it all up, it is hard not to feel a mixture of surprise and amazement. 

In the coming months, there are bound to be bumps in the road, spinouts, dead-ends, backslides and temporary reversals. Trade frictions with the United States have certainly slowed the pace in 2018. But there is little sign that Chinese companies will halt their global mission. 

As the CEO of one Chinese automaker put it to me last month: "We know things will be tougher (with tariffs) but no obstacle will stop our journey."

My colleagues and I at ZoZo Go are fired up in anticipation of how China auto-techs's global advance plays out over the next 12 months. Thank you, each and every, for reading The Chinese Are Coming. 

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- PAGE 2 -

ELECTRICS • AUTONOMOUS • RIDE-SHARING• NEW DEALS

ELECTRICS

>> BYTON. Chinese-funded, German-led BYTON vehicles appeared at the prestigious Concours D'Elegance, Pebble Beach last week. Production of the M-Byte prototype will start (with L3 capability) in 2019. 
 

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Takeaway:  In BYTON (and rival NIO), we are witnessing the emergence of a new kind of player: Globally-managed companies backed by Chinese money. BYTON operates in Nanjing, Munich and Santa Clara. And, the company combines Chinese capital (both private and government), ex-BMW leadership (Dr Breitfeld and Dr Kirtchert) and an intense focus on building premium electric vehicles into advanced mobility platforms. 

>>ArcFox. China does move fast. Beijing EV is now on track to surpass BYD as China's top EV seller this year. Helping drive momentum is the ArcFox mini EV, a new brand under the Beijing EV banner. 
 

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Takeaway: Think of the ArcFox Lite as a Chinese version of a Mini, aimed at young urban professionals. It's a micro electric car with quality trim, touch screens and a price point (starts at $23,000) that is 50% higher than most other Chinese small EV makers like Zhidou and Zotye.

>> NIO.  Plans for an NYSE IPO before the end of 2018 are still on track, despite strong media headwinds.  But NIO's handlers (JP Morgan, Morgan Stanley) have re-set ambitions. Plans are to raise $1.3 billion from the offering, down from an original $1.8 billion. 
 

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Takeaway: It is easy to poke holes in a 4 year old EV start-up that just started production of its first vehicle.  Where are the sales? Not doing their own in-house production? Look at that cash burn! But look how far NIO has come compared to Tesla at 48 months.

>> Great Wall/Ora.  Great Wall, China's number one SUV maker, is launching a new mini EV brand called Ora. The first model, the iQ, will debut this month. Designs should improve under the direction of newly-hired Phil Simmons, the former stylist at Land Rover. 
 

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Takeaway: Great Wall signed an agreement with BMW earlier this year to co-produce Mini brand electric vehicles for the China market. Look for Great Wall to take the learnings and apply them to the Ora. Why the Ora, why now? Like all automakers in China, Great Wall must meet the "EVs as 10% of total sales" quota that starts in 2019. 
 

AUTONOMOUS
 

>> Navinfo/Daimler. Beijing-based NavInfo signed a 7-year agreement for delivery of navigation mapping services to Daimler in China. 
 

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Takeaway:  Chinese regulators require that mapping stays in the hands of Chinese companies like Baidu and Navinfo. But foreign companies can still get a piece of the action. Earlier this year, NavInfo signed a deal with Mobileye to develop obstacle detection software to be coupled with NavInfo high definition maps. 

>> Huawei. The controversy-attracting telecommunications powerhouse is now working with the city of Shenzhen to use big data, facial recognition and video sensors to manage better traffic flows. Huawei separately declared that its minimum R&D spend for the coming years will be $15 billion. 
 

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Takeaway: The City of Shenzhen (home to 12.5 million and also headquarters for Huawei, BYD and Tencent) is looking to cement its position as the center of Chinese innovation and future transportation. Nearly all of the city's thousands-strong bus fleet is already electric.  


RIDE-HAILING
 

>> Didi.  Didi is under intense pressure in the wake of the death of a 2nd female Didi rider within the past 6 months. Several Chinese famous actors and sports stars have posted social media selfies of themselves deleting the Didi App which has caused a sharp drop in downloads. 
 

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Takeaway: Is it possible for a company to monitor and police the actions of 21 million drivers? That is Didi's challenge. Smaller, local players like ShenZhou ZhuanChe and ShouQi YueChe in Beijing are gaining market share thanks to their better reputation for service and safety.


NEW DEALS


>> Meituan Dianping.  The mega on-line delivery services platform is seeking a $55 billion valuation as it prepares for an IPO in Hong Kong. Oppenheimer and Tencent are the primary backers. Pictured below: The Meituan Autonomous Delivery (MAD) vehicle.
 

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Takeaway: Meituan Dianping was formed from a $15 billion merger of Meituan (think Groupon) and Dianping (think Yelp) in 2015. The company is positioning itself as a challenger to Didi in the ride-hailing arena. Didi's current reputation woes strengthen the case for Meitiuan Dianping's aggressive IPO price target. 


>> Hyundai. Beijing-Hyundai, a 50-50 joint venture, may soon start exporting Hyundai products to markets in Southeast Asia for the first time in the company's 15-year history.  
 

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Takeaway: Some market brands are struggling in China. What to do with excess capacity? The future could see more global automakers exporting from China, even to their home markets. Ford, Cadillac, Buick and BMW will all be exporting from China in 2019. Now, Hyundai. Others like PSA and Kia are almost certain to follow. Important footnote: Chinese partners receive half of the revenues from these exports. That's a big "ouch" for global automakers. 

 

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