The Chinese Are Coming - #49

EV STARTUPS: WHO WILL SAVE THEM?


This edition of the ZoZo Go newsletter is sponsored by:


Page 1 -- EV Startups: Who Will Save Them?
Page 2 -- Electrics - Autonomous - Connected & Shared - New Deals



"From East to West, North to South,
the Party Leads Everything."

- President Xi Jinping
National Party Congress 2017


Once euphoric Chinese EV startups like NIO, Byton and Faraday are crashing down to earth.

– NIO lost $478 million in the past quarter. Its stock price tanked 35% to $1.75 last week, an all-time low. Sales of the ES8 and ES6 will fall far short of the (modest) 40,000 unit target for 2019.

Photo: Sales of the NIO ES6 are rising while the ES8 is skidding to a near halt.

Photo: Sales of the NIO ES6 are rising while the ES8 is skidding to a near halt.


– BYTON is taking longer than expected to bring its first product, the M-Byte, to market. Funding remains a chronic worry. Last week, the company announced plans to build its vehicles at a former GM plant in...South Korea. South Korea? If the goal is to avoid US tariffs, why not build the cars in America?

– Faraday Future is still breathing - but barely. New CEO Carsten Breitfeld says production of the FF91 at the former Pirelli plant in Hanford, California could start in 2020. That is, if everything goes right. The company needs another $850 million in fresh capital to launch.

Keep in mind that NIO and Byton are among the strongest of China's scores of EV startups. Many others can already be found flipped over in a roadside ditch, given up for dead.

What went wrong?

1. Costs. If you have had a chance to test drive a Byton or NIO, you know these products are technologically quite impressive. They offer all the quickness of a Tesla and are on the front end of innovation, in terms of connectivity and autonomous technologies. But in a quest to design and build genuinely world-class vehicles, costs ran out of control.

2. Brand. In my conversation on 60 Minutes with host Holly Williams earlier this year, I noted that a key challenge for the likes of NIO and Byton will be convincing consumers that these new brands "are legit". That is still true. NIO's disappointing sales reflect not a failure of product, but an inability to persuade consumers that a NIO should be considered alongside an Audi or a Tesla.

Can they be saved?

Ironically, China's top EV startups - founded by zealous private entrepreneurs - may end up in the hands of the Chinese State.

- BYTON's leading shareholders are the City of Nanjing and First Auto Works, a massive state-enterprise owned by the central government.

- NIO is listed on the NYSE, of course. But in its most recent funding round, the company turned to Beijing-based E-Town Capital, a state-owned investment company, for $1.45 billion.

Last week, the Trump Administration hinted at plans to curtail US portfolio investments into China. As channels to private funding dwindle, startups have little choice but to turn to Chinese state enterprises for cash.

Which reminds us that in China's auto industry, the State is never far away. It plays the role of the dealer - issuing chips, making the rules - but with the option to become a player at any time.



-------------------------------------



About Us: ZoZo Go advises companies on the future of autonomous, electric and connected vehicle in the U.S and China. Our clients: Automakers, suppliers, tech companies and investors.

ZoZo Go's core offerings: The ACES Genius Briefing and The China Genius Briefing. We operate from offices in Hong Kong, San Diego and Shanghai.

For more, visit zozogo.com.



----------------------------------------


Electrics • Autonomous - Connected & Shared • New Deals


Electrics

Photo: The all-electric Bordrin iV6 will start at $38,000, with a declared range of 379 miles.

Photo: The all-electric Bordrin iV6 will start at $38,000, with a declared range of 379 miles.

Bordrin Motor is forming a joint venture with FAW subsidiary Tianjing Automotive. The company will be initially capitalized at $358 million, with Bordrin holding 80% of the equity. Bordrin was founded in 2016 by former Ford executive Huang Ximing.

NIO is reducing its global headcount to 7,800 people by the end of the year, down from 9,900 in January. Expensive design and tech professionals in San Jose, Munich and London are prime targets.

Toyota will supply hydrogen fuel cells to models sold with its Chinese joint venture partners Guangzhou Automotive Corp (GAC) and First Auto Works (FAW). China will sell approximately 1,600 fuel cell vehicles this year, the majority of which are buses and special purpose vehicles.

CATL will supply batteries to Daimler electric trucks starting in 2021.


Autonomous


Didi secured its 4th autonomous testing license, this time from the City of Suzhou. China's ride-hailing giant has 200 software engineers developing autonomous technologies in California and Shanghai.



Connected & Shared



Toyota and Didi officially launched their first ride-sharing joint venture in Beijing this month. The JV company, Fengju Mobility, has a registered capital of $157 million, 5% of which is owned by Toyota.



New Deals & Data Points


Geely Chairman Li Shufu says the company invested almost $3 billion in R&D last year and $15 billion since 2010. Globally, carmakers invest a combined $125 billion annually in research and development.

China bought 154,000 robots last year, more than Europe and the United States combined. Guiyang-based Pix Moving aims to use robotics and AI to sell cars in the United States. "In the future, international trading will no longer run on cargo but on the cloud," says Pix Moving CEO Angelo Yu.

Chery Automobile will build 100,000 light EV commercial vehicles with StreetScooter, a subsidiary of Deutsche Post. China production is expected to start in 2021.

China imported 620,000 cars though the first 7 months of 2019, about flat with the same period in 2018. Imports account for less than 5% of total sales in China due to exceptionally high tariff rates.