UNDER PRESSURE: CHINESE AND AMERICAN BRANDS
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Page 1: Under Pressure: Chinese and American Brands
Page 2: Electrics - Autonomous - Connected - New Deals
No one ever said that life was fair.
China's automotive market downturn proves the point. Some brands are reeling. Others are doing quite okay, thank you.
Demand for passenger vehicles in China dropped 15%, or a stunning 1.2 million vehicles in the first four months of the year. Chinese and American automakers find themselves in a deep hole. German luxury brands, Toyota and Honda continue to prosper.
Here are the numbers:
Total Market: 7.04 million (2019) vs 8.26 million (2018) - Down 15%
American Brands: 682K (2019) vs 917K (2018) - Down 26%
Chinese Brands: 2.62 million (2019) vs, 3.43 million (2018) - Down 24%
Japanese Brands: 1.52M (2019) vs 1.46M (2018) - Up 4%
(Source: LMC Automotive)
How to make sense of the different results?
• Chinese brands are suffering because car demand in 3rd, 4th and 5th tier cities has fallen off sharply. Consumers in those "almost emerging middle class" cities can no longer secure easy peer-to-peer loans and consumer confidence has waned.
• For American brands, it would be tempting to attribute the falloff to US-China trade tensions. But there is scant evidence of anti-American sentiment shaping car purchase decisions - at least so far.
So what is the problem? Middle market US brands like Ford and Jeep and Chevy are no longer capturing the imagination of Chinese buyers. "We buy Ford or Chevrolet when there is a price discount," Chinese friends tell me, "those brands just don't connect with us, get our emotions going."
• Japanese automakers are finding a way to grow in a down market because they offer good value for money, strong resale value and solid service. Toyota and Honda are seen as safe bets in a shaky economic environment.
And the Germans? Mercedes, Audi and BMW are selling more $50,000-$80,000 cars and SUVs in China than ever. A new twist on the old adage: "The rich, we will always have them."
So there it is, confirmed: Life is not fair. Mr. Market is beginning to separate the winners from the losers.
Electrics - Autonomous - Connected - New Deals
NIO recalls 4,800 vehicles due to battery pack issues leading to short circuits and fires.
>> Investigation into the fires is still on-going. Uncertain reliability of Chinese battery makers is one more reason why China is opening up for foreign battery suppliers like LG Chem, Panasonic and Samsung SDI.
China is scrapping a battery maker exclusion list that gave preferential treatment to Chinese firms.
>> Chinese policymakers have a knack for taking something that is standard and natural and packaging it as a gift. Allowing foreign battery makers to compete for business in China, on a level playing field, is one more example: "The list was likely to become obsolete in any case because China is phasing-out subsidies," writes Jacky Wong of the Wall Street Journal.
China's #1 EV battery company (by size) will invest $2 billion in Thuringia, Germany.
>> CATL already operates R&D bases in Germany, the U.S., Japan and Canada. The goal: to improve quality to match the company's massive quantity (capacity).
Human Horizons, a Chinese EV startup, plans to produce vehicles at Kia's China joint venture (Dongfeng-Yueda-Kia) plant in Jiangsu Province.
>> Call it a marriage of convenience. Certain foreign joint ventures like D-Y-K (and PSA and Ford) are sitting on too much idle capacity. EV startups need production facilities to qualify for business licenses.
BYD opens a new assembly plant in Toronto, Canada to produce electric buses.
>> China's #1 EV maker looks to build on the kind of public-private partnerships that have allowed the Chinese company to thrive in California, Hungary, Chile, Morocco and France. BYD invests in a plant, creates jobs and contributes to local tax revenues, while importing key materials from China, for final assembly in the respective markets.
Toyota plans to join Baidu's Apollo autonomous tech open platform.
>> Up until now, Japanese automakers have not been part of Baidu's Apollo program. But Toyota might be hedging bets in the event that China becomes a selectively closed-off market, with access given only to those companies perceived to be "friends of China."
Baidu will host Baidu Create, its annual AI Developer Conference, in Beijing on July 3-4. The event focuses on autonomous driving and is expected to draw 5,000 people.
>> China is home to several high-quality auto tech events like Baidu Create. Others include CES Asia and the increasingly tech-oriented, annual auto shows in Shanghai and Beijing (alternating years in April) and Guangzhou in November.
An in-depth profile of Momenta, China's first autonomous tech startup unicorn, valued at $1 billion, aims to operate as a second-tier supplier of critical software.
>> Founder Xu Caodong says fully autonomous driving is probably 20 years away. The former Microsoft researcher is taking a more practical, incremental approach to development.
Connected & Ride-Sharing
At CES Asia earlier this month, Xiamoi announced a tie-up with Daimler to build the XiaoAI voice recognitiontechnology in Mercedes vehicles.
>> Chinese AI companies enjoy a decisive advantage when it comes to voice recognition technologies in the PRC because they have amassed enormous quantities of Chinese language voice data.
Didi and Dongfeng Nissan will work together on several aspects of the ride-sharing business, including custom design of electric vehicles for the Didi fleet.
>> Dongfeng Nissan already has ambitious targets for EV production, so channeling "extra" units to Didi is a way to make their numbers more easily. What to watch: Will the vehicles be branded Nissan or Didi?
Tencent and Guangzhou Auto Corporation (GAC) launched OnTime, a new ride-hailing service that will target customers in the Greater Bay Area (Hong Kong-Shenzhen-Guangzhou).
>> The trend is for the creation of higher quality, safer and more convenient ("OnTime") ride-hailing services that are customized to local market tastes. Didi is increasingly losing share to these local rivals.
Honda is suing Great Wall for patent infringement on its rear door design. Honda is asking a Beijing court to order Great Wall to stop delivery of the best-selling H6 vehicle, as well as $3 million in compensation.
>> Xi Jinping told his peers at the G-20 Summit in Osaka this week that victims of intellectual property theft will be compensated. Time will tell. Keep in mind that there are no independent courts in China.
About Us: ZoZo Go advises company leaders 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.
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