The Chinese Are Coming - #37

BEYOND 60 MINUTES

Page 1: Beyond 60 Minutes
Page 2: Electrics • Autonomous • Ride-Sharing • New Deals

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Ten days ago, I was featured in a 60 Minutes segment on China's ambitions to lead the world in electric vehicles. In case you missed it, China's EV sales have been on an absolute tear, accounting for 57% of global EV sales in 2018. Through the first month of 2019, China’s EV sales are up 120 percent from their January 2018 level.


EV Sales in China
2015: 336,000
2016: 522,000
2017: 798,000
2018: 1.2 million
2020: 2 million (f)
2025: 5 million (f) 
Source: EV Volumes/CAAM

Ever since the 60 Minutes segment, follow-up questions from investors, industry executives and media have been pouring in. 

5 Things People Want to Know:

Q: How can a young start-up like NIO develop such an advanced vehicle so fast? 
A: Think of NIO not as a Chinese auto company but a global tech company funded by smart Chinese money. (Tencent, China's most valuable company, is a key backer).  

NIO was formed in 2014, a partnership between William Li, a Chinese internet billionaire and the late Martin Leach, the highly respected former head of Ford of Europe. They immediately went to work building what Leach called the "world's first global automotive start-up”, attracting top auto and tech talent.

When I visit NIO's global design center in Munich, I'm struck by the quality and calibre of the people working there - experts from Germany, London, Japan, South Korea, China and the US.  And at NIO's San Jose center for AI, autonomy and connectivity, you meet world-class software engineers, many of whom used to work at Tesla, Apple and Google. This is not a company aiming for second-best. 

Q: Is it a good idea to invest in NIO, now listed on the NYSE?  
A: The vehicle is technically very impressive. Speed, design, materials, the AI assistant named Nomi. This car is approaching world-class standards. At the end of 2018, I got behind the wheel of the NIO ES8 with the CEO of a fast-growing U.S. software company, who drives a Mercedes S Class.  He was immediately impressed by the quality of the vehicle: "The fit and finish, the materials, are way better than Tesla" he said, "I want to buy one of these right now!"

But, like Tesla, the company burns through cash like there is no tomorrow.  NIO lost more than $500 million in Q4 2018 alone.  Investing in NIO today is a bet that the company will be able to secure funding for long enough to build consumer awareness and trust. If we look at Tesla, this can take years - and several billion more dollars. 

Q. How many other EV startups does China have in the pipeline?  
A: Incredibly there are more than 20 other new EV makers in China. Most will fall away within the next 3-4 years as cash runs out. This is essentially what happened to Faraday Future. 

One name to keep an eye on is BYTON, a premium electric startup led by two respected former BMW executives. BYTON is another example of a global tech company (Munich, Santa Clara, Shanghai) also backed by Chinese money.  WM Motors (led by a former Volvo China chief) and Xpeng (funded by Alibaba) are also contenders.

Photo: Byton’s M-Byte, on sale in Q4 of this year.

Photo: Byton’s M-Byte, on sale in Q4 of this year.


Q. Beyond these start-ups, who are the other major EV players in China? 
A: Warren Buffett-invested BYD, Beijing EV and Shanghai Auto were the top three EV sellers in China last year. They produce commuter cars for under $30,000 that filter into quietly massive city taxi and ride-hailing company fleets. Didi, China's number one ride-hailing firms, say it now has 400,000 EVs on the road.  

Q. How soon will we see Chinese electrics on US and European roads? 
A: Technically, the Chinese are already here. BYD - China's leading EV maker - assembles premium electric buses in Lancaster, California and distributes them to cities and airports in Colorado, Georgia and California. BYD buses are already running on the streets of London, Budapest and Amsterdam, too. Did I say premium? Yes, BYD electric buses range from $550,000-$1 million. 

What about cars? Look for NIO to enter Europe later this year and come to the US in 2021. Also in 2020/2021, SF Motors plans to start assembling two all-electric SUV models at the Mishawaka, Indiana plant it acquired two years ago from AM General. Zotye has ambitions to come to America as well, by late 2020, but company executives told me they will start with gas-powered vehicles, not electrics.

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- PAGE 2 -

ELECTRICS • AUTONOMOUS • RIDE-SHARING• NEW DEALS 

ELECTRICS


>> Polestar 2.  Chinese-owned, Swedish-designed and American-connected (Android Auto) all-electric Polestar 2. Priced between $45-60,000 it debuts this week in Geneva.  

Photo: The Polestar 2 fastback comes with 275 miles of range and 400 horsepower.

Photo: The Polestar 2 fastback comes with 275 miles of range and 400 horsepower.

Polestar Purpose?  Another brand in Geely's fast expanding global portfolio: Lotus, Polestar, Volvo, Lynk, Geely and Proton.  Like the Tesla Model 3, the Polestar 2 is taking aim at the German products - BMW 3, Audi A4 and the Mercedes C - now dominating China's massive small car luxury segment. 

>> CATL: Revenues at China's leading battery company climbed 48% in 2018 to $4.4 billion, but profits dipped.  

Photo: CATL is expanding on its global footprint by adding operation in Europe and the US.

Photo: CATL is expanding on its global footprint by adding operation in Europe and the US.

>> Why the Profit Dip? CATL is spending heavily on new operational hubs in Germany and the US (Michigan & California) to develop a commanding global position. At home, CATL is investing in new partnerships with automakers, including BMW and Geely. 

AUTONOMOUS


>> HERE/Navinfo. HERE, the European mapping company owned by Mercedes, BMW and Audi, is partnering with Navinfo for location services in China. 

Need For A Partner? 
 Foreign companies must partner with Chinese firms to conduct mapping and related location services in China. It's the law. Most foreign firms get with one of China's Big Three mappers: Navinfo, Baidu or AutoNavi (owned by Alibaba). 

Didi >> China's No. 1 ride-hailing company, Didi Chuxing, established an autonomous technology company in Shanghai on March 1st.  

Take: Didi is accelerating plans to transition to autonomous cars to reduce costs and to improve security of passengers (both by removing the driver). Didi has been operating a self-driving lab in Mountain View, CA since 2017 where it tests cars on California roads.  
  


RIDE-HAILING


>> Didi/VW Partner. VW, the leading carmaker in China and Didi, the leading ride-hailing outfit, have formed a  60-40 ride-hailing joint venture, with Didi holding the majority share.  

Mobility Winning: VW does not want to miss out on the quickening shift to mobility.  Last year, Didi arranged 10 billion rides for 550 million Chinese customers. VW has capacity to build nearly 5 million cars a year and wants access to those massive ride-hailing miles.


NEW DEALS 

>> Geely-Qualcomm. Geely announces a new alliance with Qualcomm to deliver 5G and C-V2X enabled vehicles in 2021. 

Photo: Geely's next generation cars will feature connectivity powered by Snapdragon from Qualcomm.

Photo: Geely's next generation cars will feature connectivity powered by Snapdragon from Qualcomm.


Where is Huawei? Fascinating to see this development between Geely and Qualcomm at a time when Huawei, Qualcomms's rival in 5G, is being rebuffed in the US and other Western nations. 

>> Social Credit Score.  By 2020, most Chinese citizens will carry an official social credit score. It could determine whether they qualify to buy a car.

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What is Social Credit? China is now home to more than 300 million public cameras. The data collection system is designed to capture and penalize poor social behavior, including unpaid debts, overdue taxes, shouting in a restaurant and even jaywalking.  In 2018, 17 million Chinese people were barred from taking planes or trains due to low social credit scores. 

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