After much procrastinating and a bit of jetlag, we are finally posting for the second time on Substack.
First off, welcome to all the new subscribers. And thank you for those who’ve been around for a while. As I learn to be more efficient on Substack, I’ll be able to interact with you all a bit more so please do send them my way.
There is so much going on in the global transportation space that’s its VERY difficult to stay on top of it so hopefully I can help by covering what I think are important news and include my take on why it’s a difference maker.
For those wondeirng, we are making this move to Substack because the platform we were using was a bit limiting and they were planning to limit it even more. We had outgrown it but I was just too lazy and hesitant to make the switch till now. I hope we can reach a wider audience now and get much more interaction from subscribers and followers.
I am going to break this update into a few different posts with this one being the longest. I’ll add a rant or two in there so that you know it’s still me even though we’ve moved platforms.
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Elephant in the room: US Tariff Increases
Let’s get up to speed on the tariff situation.
The background:
Chinese brands ship very few EVs to the US markets currently, examples being Lotus (who will be), Polestar and Volvo (all brands controlled by Geely). There are companies that ship China manufactured ICE vehicles to the US markets for sale: GM & Ford, that’s two of the US Three.
Every imported passenger vehicle gets a 2.5% tariff slapped on it when it enters the US. The Trump administration in 2018 added a 25% tariff to automobiles shipped from China. The Biden administration just this week said it was adding to that current tariff, increasing it to 100%!
There were 1.2M EVs sold in the US in 2023 of which 2% came from China. I’d argue that the current tariff was already deterring China EV Inc from entering the US (along with the current condition of diplomatic relations). Going to 100% is a statement, but likely more of a political statement. Besides, the minute Trump said that he’d increase it to 200% if he was re-elected, that’s exactly what it became.
My take
It’s not surprising and China EV Inc isn’t surprised either re: tariff rate hikes. It was either going to be 40% or 100% is what I’d heard and I know the USTR was evaluating what the likely outcomes / repercussions / retaliation in general and for US companies in China would be if they dialed up the tariff.
But with the Chinese economy still fairly fragile, the Chinese govt isn’t likely to do anything significant in response to this. Not yet. The tariff rate increase is a gift for them – it makes the US look aggressive and they’ll play the victim in this situation.
What’s important to note is that China EV Inc know it’s an uphill battle and will continue to be for the foreseeable future when it comes to entering North America. But it’s not going to stop them.
The US market is the 2nd largest market in the world and that’s not going to change. The US had sales of 15.5M units in 2023 compared to almost 26M for China. It’s the only other market that has the ‘bang for the buck’ factor.
Folks tend to lump together all the countries that make up Southeast Asia and the EU, but both regions have sets of unique countries that together may create significant volume but market entry is still a country by country exercise.
What I wonder is how much buy-in did the Biden administration get from the EU & MX before dropping this bombshell? They both need to cooperate in order for this to be effective, specifically MX.
Also, this makes the US Three automakers look weak and need help to compete – not only are we as US taxpayers writing a $350B check that’ll likely creep up to over $1T before it’s all said and done, but we are also now isolating our market.
I am a bit torn about this. Remember that I have driven many of these cars – China EV Inc products can and would not only be able to compete, they’d win most head to head sales battles with EVs, including Tesla, that are currently being offered by automakers in the US - if given the chance to enter the US market right now.
On the other hand, I want the coolest cars with the longest range and latest technology and I don’t want to have to pay an extreme premium for them. And I don’t want to pay a ‘Made in America' tax for cars that aren’t globally competitive.
You should look at this as the Biden administration also believing that the US Three aren’t currently competitive. If I were Biden, I’d send for Jim, Mary and Tavares and implore them to make something of the 2.5-3 years of cushion (that’s likely all they’re going to get) the US govt and the American people are giving them.
Are the US Three seriously ready to make the tough but necessary decisions in order to get their teams pointed in the right direction and designing, engineering, manufacturing affordable AND desirable products for the US market?
Or will this provide a false sense of security? The rest of the world is moving towards clean energy vehicles – if the US Three don’t continue to move in that direction, it may make them uncompetitive to the rest of the world.
Lastly, what concerns me the most is whether the US Three can change their cultures, right size their businesses and move much, much faster and decisively – My instinct today is that they are not.
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HIGHLIGHTS FROM THE TRIP - PART 1
I got into Shanghai on April 16th and as I hit my hotel room, I had to jump on two calls. Let’s just say no sleep for maybe 30 hours, not restful anyway.
I have had an opportunity to sit down now and gather some of my thoughts. Even after the trip concluded in Shenzhen, there was still plenty to do and see. I’d never really spent any extended time in Shenzhen and was staying in the Luohu District where it’s more of old Shenzhen vibe as opposed to the newer areas where high rises dominate.
First off – the food in Shenzhen is amazing. If you like Cantonese and Dim sum, you’re going to be in heaven.
Also remember though that it’s sub-tropical so for the day it gets hot and muggy. I walked around feeling like my socks were perpetually damp. Not sure I could get used to that.
The energy and vibe hits different in Shenzhen vs. Beijing and Shanghai nowadays. Definitely more energy there than I felt in BJ / SH.
Another thing I got to do while in Shenzhen was give the DeepRoute robotaxi another go. We had a safety driver and it wasn’t using the most updated SW / HW but again, very competent generally.
To give you a sense of my travels over that +3 weeks:
Shanghai > Beijing > Zhengzhou > Changsha > Shenzhen > Beijing > Hefei > Shanghai
I’ve taken notes and some great pictures that I’ll share in upcoming posts. I likely won’t wait till next week to post again but once I’ve exhausted everything I want to say about the trip, we’ll get back to one major post / week.
What I’ll talk about in this post is the last couple days where I visited Li Auto and drove the MEGA and an L9. I also got the chance to use Li Auto’s NOA or Navigation On Autopilot, their version of L2+ ADAS or their intelligent driving semi-autonomous system.
For reference:
Tesla has FSD or Full Self Driving (it is NOT full self-driving)
XPeng is called X-NGP Navigation Guided Pilot
Li Auto is above
NIO has NOP or Navigation on Pilot
Huawei has a consortium of SOEs or state owned enterprises that utilize its full stack including: Arcfox (BAIC EV brand), AVATR (Changan EV brand), AITO (jointly developed with Seres), Voyah (Dongeng EV brand), Luxeed (Chery EV brand), Stelato (BAIC premium EV brand)
That’s quite a mouthful but you’ll notice that they are ALL SOEs at this point. I’ve been told they are always holding convos with foreign legacy automakers to try to get one to turn. This, they feel, would validate their system. Now, I’ve spoken with a number of people that have Huawei’s solution at the top of the class, or at least top 3. I’ve not driven / ridden / used it yet myself so I’ll hold off on judgement.
If you’re wondering what my qualifications are for evaluating these intelligent driving systems? Here are the systems I’ve tried just in the last three weeks:
Baidu Apollo
DeepRoute
XPeng X-NGP
Li Auto NOA
Jiyue (Baidu proxy)
And just to be technically clear. The only real Apples to Apples comparison we can make with Tesla’s FSD here in China is with Jiyue’s system which is also Vision ONLY also. The rest of these systems use LiDAR.
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TESLA FSD HEADING TO CHINA
First, let’s talk about Tesla and FSD’s imminent arrival in the Middle Kingdom. The top level approvals have been sorted but the devil is in the details. My take on FSD getting a passport stamp to China was captured in the below CNBC interview:
Finally, congratulations to the great team at Reuters USA, particularly my good friend Nori Shirouzu. They won Pullitzer this week for their reporting on Tesla in the US.
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NIO 500K Celebration
NIO last week had the 500K production vehicle roll off the line. Who’s bingo card had an ES8? On top of that, it was delivered to the Founder of iFlyTek, an AI company that specializes in voice recognition and which NIO subsequently is a customer of.
I was literally the only laowai at the event – no foreign media were present so I felt pretty special. As Lei said, I witnessed history and was glad to be there to support. Unfortunately, I will not be here next week to attend their launch event for Onvo, their new brand that is positioned directly at the mass market and which initial product will target the Tesla MY, although pricing will be lower and feature set will be well appointed. Here’s a spy shot.
I also had the pleasure of touring the NEO Park factory yesterday afternoon and as someone who earlier in his career spent significant time at assembly plants including Orion, Fairfax, Ok City and DHam (Factory Zero) to name a few I was floored by the number of robots and lack of people working.
It’s a premium brand so line speed isn’t blinding but the factory was eerily efficient and robots were used to move racks, move BIW, weld, assemble and restock. For those out there that still think China is all about manual labor and brute force, think again. The best part, I was told that MANY foreign CEOs have visited and they welcome visitors to the factory. It is attached by a hallway to the NIO House below by a walkway and customers who order NIO’s can also get the tour.
I still can’t pinpoint how their brand, products and customer centric focus still hasn’t translated into consistent (growing) sales for them. For those that think they are close to running out of money, I didn’t get that impression and it’s not because they have partnered with Abu Dhabi, although that certainly doesn’t hurt.
Share price is up A LOT in the last couple weeks too.
Not to rain on anyone’s parade, but I was kindly reminded by my Li Auto contact that they have produced >800K.
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OTHER IMPORTANT NEWS
NIO today launched their new mass market brand ONVO. It’s first product targets the MIC Model Y and undercuts it’s pricing with a ¥220K starting price. It also happens to crush it on features, here are a few quick snaps of the L60 which will go into production later this year. Photos taken from CNEVPOST website.
BYD launches an hybrid truck in the US’s backyard. Unveiled yesterday, The BYD Shark is aimed directly at the small pickup trucks that are popular in Mexico …and eventually the US. Photos taken from CNEVPOST website.
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THIS IS CHINA
Whenever I hear or experience something that could likely never happen anywhere else, I’ll pop it here. And there are two of them that are doosies!
My friend owns an apartment in a high-rise. He’s very successful, super busy and shares a NIO ES8 with his wife. They park it in the underground parking below the building. He signed up for a service where an individual comes each week to his apartment and washes the car.
One time each month, that person also cleans the interior which is easy enough because all he needs to do is wechat my buddy and he opens the door from his apartment above. Once / quarter his ES8 gets a full detail. Spotless each time he tells me.
For this service, he pays ¥150 / month. That’s the equivalent of $20.76. Yep, $20.76.
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This weekly newsletter is a collection of articles we feel best reflect the happenings of the week or important trends that have effects on the global automotive and mobility sectors. We also provide a point of view that we hope educates and sparks debate.
The Sino Auto Insights team
Sino Auto Insights is a Beijing, China-based market research and advisory firm that specializes in assisting companies analyze, strategize, and develop products and services that will shape the future of mobility and transportation.
Members of our team have experience working in Detroit, Silicon Valley as well in China across multiple sectors and functions as entrepreneurs as well as working at larger companies like Apple, Google, Amazon, GM and FCA, and many others.
Always a pleasure reading your posts Tu Le. Perhaps the problem with Nio is that its vehicles are a hodge podge of different sizes, which fit different end user preferences/needs (this strategy works if you're the lowest-cost player like BYD), whereas the other successful small EV startups have a distinctive focus (Li Auto with family SUVs, Xiaomi with the image of being young people's first Porsche) that allows them to stand out. Do you agree with this analysis & what do you think Nio has to do to achieve consistent sales growth?
I think this is a good take on the tariffs and the likely lack of effect it will have on Detroit's competitiveness.
I think US industrial policy should have more of a focus on building globally competitive companies if not global leaders in key industries.
These tariffs are unlikely to help US companies overtake CATL, BYD, Longi, etc in respective industries. Tesla has a hail mary with AVs (though China's EV market size means more data for training better AV models). No battery maker in the US will touch CATL or BYD in lithium ion batteries until they face the Innovator's Dilemma - i.e. via a significant tech paradigm shift that catches them off guard. Similarly for Chinese solar cell / module OEMs like Jinko and Longi.
This export focus is why every leading industrial nation historically has been, well the leader. Britain with textiles, then the US thanks to Hamilton's Report on Manufactures and tech transfers from Britain (some legal/some less so https://www.history.com/news/industrial-revolution-spies-europe). US's later dominance in oil and auto exports, and hence the ability to build the arsenal of democracy in WW2. Japan and Korea caught up in the latter, and now China is surging ahead.
Exporting and global competitiveness is the true marker, not protecting domestic industries that will serve the relatively small (and shrinking) US market vs the growing international market.