The Chinese Are Coming - #35

TESLA’S REAL CHINA TARGET

Page 1: Tesla Ramps Up in China
Page 2:  Electrics • Autonomous • Ride-Sharing • New Deals


Welcome to the Year of the Pig. One-fifth of humanity celebrates the Lunar New Year this week.  In the Chinese zodiac world, pigs are good, really good -  abundant wealth is coming this year.  

Tesla, for one, hopes so.

When Tesla announced plans to start selling its Model 3s in China this month, I got a call from a US-based producer at CNBC. Our conversation (re-created here from memory) gives a picture of how Tesla will attack a market crowded with EVs. 
 
CNBC: We heard that China has more than 40 EV makers, including many well-funded start-ups. How can there be any room left for Tesla? 

Me: When you think of China, think two electric vehicle markets. On one end of the spectrum you find practical commuter cars. Chinese firms are really good at producing these so called "Three Lows" vehicles.

CNBC:  Three Lows? 

Me: Right, most of the 1.2 million EVs China built last year were low-cost, low-range and lower speed. We are talking about functional commuter cars and taxis with around 150 miles of range and top speeds of 70-75 mph. Prices after subsidies ranged from $8-25,000. 

CNBC: And that's not where Tesla plans to go? 

Me: No, Tesla is taking aim at the other end of the market, targeting China's luxury car buyers, people now driving BMWs, Audis, Mercedes, Lexus and Cadillacs. China's luxury market is huge - twice the size of the US. 

CNBC: But isn't Tesla coming in with the Model 3? 

Me: Check the prices. Tesla this week announced it is taking pre-orders for the "cheaper" (rear wheel drive) version starting at $64,000. That offer is aimed squarely at the Mercedes C, BMW 3 and Audi A4 buyers. Remember: Tesla has already sold tens of thousands of Model S and Model X models in China. Those are priced well over $100,000. 

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CNBC: Will Tesla have any competition at the high end? 

Me: For sure. Mercedes (EQ) and Audi (e-tron) will start China production in 2020. And then there are premium start-ups like NIO and BYTON. NIO sold 11,000 ES8 SUVs last year, priced at $60,000. And they're listed on the NYSE. 

CNBC: If premium electrics is new territory, who is making the 1.2 million "three low" type electrics sold in 2018? 

Me: They are all Chinese companies.  I just happen to have a list of the top 5 with their sales numbers: 

1. BYD: 247,137
2. Beijing EV: 158,012
3. Shanghai Automotive: 96,311
4. Chery: 90,537
5. Jianghuai Auto (JAC): 63,671


CNBC (long pause): Um, none of these names look too familiar. 

Me: There's a Chinese saying:  "When you see something rarely, it looks very strange.  When you see something often, it does not look strange at all." 

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- PAGE 2 -

ELECTRICS • AUTONOMOUS • RIDE-SHARING• NEW DEALS 


ELECTRICS


>> CATL. China's leading battery maker is building an enormous production center in Erfurt, Germany, and the scope keeps getting larger.  The company is now planning for a 100 GwH plant capacity by 2025. 

Takeaway: CATL will supply Daimler, BMW, Volvo and Jaguar Land Rover in Europe. Note: CATL has already won supply contracts with these OEMs in China. If demand projections hold, CATL's plant capacity could exceed that of Tesla's giga-factory in Nevada. 


AUTONOMOUS


>> PSA.  Secured a license to test its 4008 crossover model autonomous vehicles in Chongqing, a city of 30 million in Southwest China. Other global automakers with licenses to test in China include Mercedes, BMW and Audi. 

Takeaway:  Peugeot is trying very hard to survive in China. Sales in 2018 dropped like a stone to 139,000, down 44% from the 2017 level.  Ouch! The autonomous testing indicates that Peugeot may be pursuing a mobility as a service business model in China. Like Hyundai and Ford, this middling global automotive brand has seen its market share melt away to much-improved Chinese brands like Geely, GAC and Great Wall. 

>> Funding. At CES last month, my ZoZo Go colleagues and I listened to several Chinese autonomous tech firms proudly introduce their capabilities. We also noted that several are hoping to raise fresh funds.

Takeaway:  After a glorious run of easy funding (2016-2018), firms today are finding money harder to come by these days. There are too many companies chasing the same (yet to be sharply defined) market. Look at the number of competitors doing R&D in California alone: Pony.ai, WeRide, AutoX, Roadstar, TuSimple, Innovusion -- and the list goes on.



RIDE-HAILING


>> Didi.  Didi is preparing to lay off up to 3,000 employees, almost a quarter of its workforce. Employees’ 2018 bonuses were cut in half due to company underperformance (lost almost $600 million in 1H 2018), said CEO Cheng Wei. 

Takeaway: Chinese consumers blamed Didi's inadequate safety checks for the deaths of two female passengers in 2018. Didi has had to spend heavily to improve safety. As the same time, consumers are moving away from Didi to local firms that deliver better service and security. This should put a dent in Didi's overseas expansion push.  (Ah, the dangers of complacency when running a near monopoly). 


>> Tencent/Google/GoJek. Indonesian ride-hailing powerhouse Go-Jek raised a fresh $1.35 billion from three mighty investors: Google, Tencent and JD.com

Takeaway: What's attracting so much capital? Indonesia is home to the world's third largest motorcycle market after China and India. Go-Jek offers many creative services beyond rides (GoSalon, GoEats, GoMassage)  - and is now expanding into other key SE Asia markets like Vietnam, Singapore and Thailand.  Indonesia is also the world's 4th most populous country (after China, India and the US). 



NEW DEALS 



>> Geely.  China's largest and fastest growing private automaker hired design director Wayne Burgess from Jaguar Land Rover. He will build up a team of 100 designers at a Coventry design center. 

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The Geely Europe design team, inspecting a concept car, is about to expand in the UK.

Takeaway: Geely designs (and quality) improved dramatically after acquiring Volvo in 2010. Specifically, the company inherited/absorbed the talents of Volvo veteran Peter Horbury. Now the company is doubling down on the good-design-leads-to-great-vehicles bet. 

>> Zotye. Zotye has signed up its first 19 dealers in the United States and could be the first Chinese automaker to put its products on American roads in 2020. 

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The Zotye T700 SUV sells in the China market with prices starting at $21,000.



Takeaway:  Zotye is a small player in China. The company sold just 232,000 vehicles in 2018 and that was down 24% YoY. But dealers I met with at NADA's annual event in San Francisco last month seemed genuinely excited about Zotye's future products. 

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