The Chinese Are Coming - #42


A PIVOT TO GERMANY

Page 1: A Pivot to Germany
Page 2:
Electrics • Autonomous • Ride-Sharing • New Deals

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Chinese companies continue to scour the globe for advanced EV and AV technologies. Initially their focus was California. Now, a fresh round of energy and money is being channeled into Germany. 

Some background: Between 2015 and 2017, Chinese auto and auto-tech firms poured billions of dollars into R&D centers in Silicon Valley,  Los Angeles and San Diego. Chinese EV, AV and ride-sharing leaders like NIO, Byton, Pony.ai, WeRide, Didi, AutoX, TuSimple and others hired thousands of software engineers and designers to develop world-class technologies. 

But Chinese money flows into California have nose-dived, down 90% from their peak in 2016.  

Chinese Total Direct Investments into the US 
2015: $17B
2016: $46B
2017: $29B
2018: $4.8B (lowest figure since 2011)
Source: Rhodium Group

Why the reversal? Chinese companies are finding it harder to win investment approvals from the much more vigilant Committee for Foreign Investment into the United States (CFIUS).

But China's appetite for technology hasn’t dissipated. Instead, firms are shifting their investments to Germany.  

Earlier this month, Geely announced plans to hire 300 engineers to lead a new research and development center in Raunheim, Germany to develop future mobility technologies. (Geely separately runs R&D centers in Gothenburg, Sweden and Coventry, England). 

Geely is not alone. Several other Chinese OEMs are making Germany their home away from home. 

>  Aiways: Plans to debut its U5 electric SUV in Germany, Switzerland, Norway and other EU markets in 2020 via a leasing partnership with Vehiculum, a German on-line leasing company.   

> BYD: The world's largest maker of electric buses runs its expanding European operations from headquarters in Stuttgart, Germany. BYD now supplies electric city buses to Budapest, Amsterdam and London. 

> Chery: Partner to JLR, Chery has opened a design center near Frankfurt, headed by Kevin Rice, former head of design at Mazda Europe. Central focus is to prepare for launch of the Chery Exceed line of vehicles in 2020. 

> Great Wall/Ora: China's leading SUV maker operates a European technical center in Dietzenbach, Germany. Plans are to launch the all-electric brand, Ora, into the Europe market in 2020. 

> NIO:  This NYSE-listed premium electric SUV maker operates an impressive global design center on the outskirts of Munich, employing more than 100 designers from around the world. 

Why are the Germans so welcoming of Chinese investment? No one is saying so out loud, but the "Chinese Investments Welcome Here" sign might have something to do with the 5.1 million car sales (and billions in profits) made in China last year. 

German Carmakers Sales in China (2018) 
Volkswagen 3.1 million
Audi: 663,000
Mercedes: 652,000
BMW: 640,000
Porsche: 81,000

One other thing to keep in mind: Geely's founder Li Shufu is the number one shareholder in Daimler, having acquired a $9.9 billion stake in 2017. 

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- PAGE 2 -

ELECTRICS • AUTONOMOUS • RIDE-SHARING• NEW DEALS 


ELECTRICS



>> GAC-NIO. Guangzhou Auto, a state enterprise owned by the city of Guangzhou, joined hands with NIO to form yet another new company with a new brand: Hycan.   

Photo: Launching in 2020, the all-electric Hycan SUV will run 370 miles on a single charge.

Photo: Launching in 2020, the all-electric Hycan SUV will run 370 miles on a single charge.


>> What For?  NIO gains scale (and probably new bank relationships) through the tie-up. GAC gets access to advanced electric and connected technologies. But what about the enormous enterprise culture gaps in state vs. private culture? 

>> EV Fires. Two Teslas and three NIO ES8s have caught fire during the past 12 months, igniting renewed concerns about electric vehicle safety. 


Photo: A Tesla Model S at a parking lot in Shanghai erupted in to flames in late April. Tesla has since updated software to prevent future incidents.

Photo: A Tesla Model S at a parking lot in Shanghai erupted in to flames in late April. Tesla has since updated software to prevent future incidents.


>> Takeaway: Images of burning electric vehicles run very hot in Chinese social media. The general public is concerned that China's dash for leadership in EV batteries and range is compromising quality. Perception is reality. 


AUTONOMOUS

>> TuSimple/US Postal Service. The US postal service awarded autonomous truck specialist TuSimple with a two-week assignment to run mail between Phoenix and Dallas

Photo: An AI camera, sensor and lidar-based system with a 300 meter range is the key to TuSimple's differentiation.

Photo: An AI camera, sensor and lidar-based system with a 300 meter range is the key to TuSimple's differentiation.


Takeaway:  Remarkable at this juncture that a Chinese-funded autonomous tech firm can win this level of cooperation from the US government agency.  Will it last? Also - note that there is little to no mention of the truck brand itself (Peterbilt? Fruehauf?) 



RIDE-HAILING



>> Didi. Ranked #2 in CNBC's global disruptor list, China's ride-hailing powerhouse is now valued at $57 billion by Pitchbook. That number is higher than Uber or Lyft. 

>> Takeaway: Three factors working in Didi's favor:
1. Softbank is the central backer, alongside Tencent and Alibaba.
2. Chinese cities could become major customers in Didi's AI services, which are designed to improve city traffic flows.  
3. Scale: Didi will deliver more than 10 billion rides in 2019. 



NEW DEALS 


Renault/JMEV. Renault is investing $144 million into Jiangling Motors Electric Vehicle Company (LMEV) to produce fully electric vehicles starting in 2020. 

Photo: After years of ho-hum growth, Renault is getting traction via Chinese partnerships and acquisitions.

Photo: After years of ho-hum growth, Renault is getting traction via Chinese partnerships and acquisitions.


Takeaway: Up until now, Nissan has been carrying most of the weight in the alliance's China operations, accounting for more than 80% of the alliance's 1.5 million units of production and sales. See this as an effort by Renault to develop new growth channels with new partners. JMC is also partners with Ford. 


>> Lynk to Europe then US. Calling itself the "mobility company with a car", Lynk & Co will enter the European market in 2019 and the US market in 2020. 

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Takeaway:  Lynk sold 120,000 cars in China in 2018, the fastest ramp-up of any new brand in any market. For Europe and the US, the goal is to offer mobility and convenience. Look for Lynk to experiment with direct sales and subscription models in Europe whereas in China, Lynk 01, 02 and 03 are sold through dealers. 

>> Chinese Government Subsidies. Chinese companies received a record $22 billion in subsidies from the central and local government coffers. Shanghai Automotive (SAIC), Chinese No. 1 automaker, won more than $600 million in direct support. 

Takeaway:  US Trade Representative Robert Lighthizer points to such subsidies as one of several ways in which the Chinese government distorts a level playing field. 


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