Episode #179 - VW Hits Panic Button, August Sales, Tariffs - Tougher for Some

Tu and Lei kick off this podcast with the news that Volkswagen would like to close factories in Germany for the first time in decades. They spent a long moment to discuss this because this news sent shockwaves across the industry and is the realization to the world, if not clear yet, China EV Inc is putting the world on notice - that's its here and here to stay.

The discussion moves over to Mercedes, who while not in the same dire situation as VW, are also looking at what they can do to stop the bleeding in China. 

Volvo is the next OEM discussed and Tu updates everyone on what EVs he's looking at for purchase since there are so many great deals out there. 

Lei then updates everyone on August sales, which annually is the calm before the final turn into year end where all bets are off. They also discuss some of the levers being used by Tesla and others to try and keep demand for their products consistent. 

To end the podcast, Tu and Lei discuss the ways that BYD continue to have their feet on the gas and have not slowed their aggressive entry and shipment of products into international markets. 

They also analyze some of the tariffs and how they affect some more than others and who have the advantage in Europe for now. 

Transcript

CEM #179 Transcript
Recorded 9/6/24 

Tu Le:
Hi, everyone and welcome to China EVs & More where my co-host Lei Xing and I will go over the week's most important and interesting news coming out of the global EV, AV and mobility sectors. This week seemed to be a very important week for the German automakers. So we will get into that later. What Lei and I discuss today is based on our opinions and should not be taken as investment advice. For those that are new to the show, welcome. And to our loyal listeners, welcome back. We ask that you please help us get the word out about this podcast to other enthusiasts and tune in again next week. 
 
My name is Tu Le. I'm the managing director and Sino Auto Insights, a global management consultancy that helps organizations bring innovative and tech-focused products and services to the transportation and mobility sectors. I write a free weekly newsletter that we pull many of our discussion topics from. You can sign up for it at sinoautoinsights.substack.com, which I encourage you all to do. Lei, a flexible Lei. Can you please introduce yourself?

Lei Xing:
Good morning to a northern, northwestern to be exact, Tu. This is your co-host Lei Xing, former chief editor of China Auto Review, and this is episode 3179, a good day for NIO, a great day for NIO. A massive bet from Mercedes, a rollback from Volvo. A jarring scene out of Wolfsburg, a shocking prediction from William Li and fresh new records from August NEV sales and a sub- $10,000 Volkswagen bora, just to add to the fun.

Tu Le:
Everybody has been talking about the Volkswagen announcement that has put plant closures in Germany on the table from a restructuring standpoint, and there have been protests now in Germany from the unions. There are headlines that says Volkswagen’s in crisis, and this is a bankruptcy proceeding. So maybe we start with that.

Lei Xing:
Boy, I mean, you and I we were chatting with a good friend, and so all of those and then you had Arno Antilitz the CFO posting on LinkedIn. You had Daniella Cavallo posting her thoughts on LinkedIn. It's, they couldn't be more extreme at the extreme ends.

Tu Le:
So who is Daniella Cavallo, Lei?

Lei Xing:
She is the Works Council, I guess, chair or head of the Works Council.

Tu Le:
Effectively she's on the opposite side of the table.

Lei Xing:
Yeah, and, my goodness, it's, in the history of Volkswagen Group, no plant has been closed if I get the facts right.

Tu Le:
In Germany.

Lei Xing:
In Germany. And now that's on the table, is why the protests, because these workers are scared for the first time ever that they, I think the board is trying to remove that clause or something that saying that not considering the closing of plants will no longer be something that's in ingrained, right? And you have Cavallo saying that's not going to happen. We're not going to shut plants. And the board saying we have to do it or at least hinting that they have to do it.

Tu Le:
And they're talking 500,000 units of capacity, effectively.

Lei Xing:
Scary, right? Scary stuff. And then you add Volkswagen Group of any automaker in the world has the most complicated structure when you talk about the board, the supervisory board, the Lower Saxony, State of Lower Saxony, the prime minister is on the Supervisory Board. The board does not make the decisions if they wanted to close plants. That's the thing that kind of drags them down as a company, the kind of moves that you need to make. You can't do it.

Tu Le:
A couple of things that I like to mention. I look at what's going on with Volkswagen and their labor union. There's a bit of a microcosm and representative of the entire EU. And this has never happened in the history of the automotive space. I'm going to take 10 seconds to pat myself on the back. I have long arms because I've been talking about this for years. This doesn't surprise me at all. And the next thing I'll talk about is how even with diesel gate, there was no plant closures in Germany. You would argue just alone on that fact that this is a worse situation than diesel gate. And 10 years ago, you couldn't have fathomed anything or 7 years ago, 8 years ago, you couldn't have fathomed anything like that. And so I hope Ford, GM, Stellantis, Toyota, I hope they're taking notes. Now their situations are a lot different than Volkswagen Group’s, because Volkswagen has a great deal of exposure to China. And so this is why…

Lei Xing:
As do the Germans overall. And we'll talk about it.

Tu Le:
They do. Yes. This goes back to your point Lei, that Mercedes and BMW aren't as complicated. So it's a tangled web that needs to be untangled. And then the cherry on top Lei is that within the next 24 months, there's likely going to be more Volkswagen branded vehicles shipped to Europe from China. So they're not only going to be shutting down factories in Germany, but if they get their way, they're shipping more Chinese-made vehicles to Europe.

Lei Xing:
And they've already got a concession from the EU Commission. As we talked about, kind of a concession, I mean the costs, I think there were a few articles from Wall Street Journal of German auto making is the highest of, I guess, anywhere in the world. Because of this corporate kind of the organizational, this labor union structure, that it's difficult. I mean when you want to reduce costs, what kind of levers can you pull?

Tu Le:
You can stop buying back your own shares and giving money to investors.

Lei Xing:
I think if I remember the numbers correctly, Volkswagen brand, I think their margin was at 2.3%, the most recent half or quarter, and they want to get to 6%. And one of things, ways to do it is those two plants with the 500,000 capacity that need to be shut is one way to do it. It's unlikely to happen because of the various interests involved, right? And that's the thing you're kind of stuck in the middle. You can't move ahead, you can't move backwards. You're kind of on neutral, right?

Tu Le:
And this is where they're both making these announcements as their initial bids. Their initial, their kind of offers to each other. Cavallo can't look weak in the public sphere, but I don't know enough about the European Union's, German union’s particular to know, cause I know intimately the UAW because my father was a member. I'll have a lot of friends whose fathers and mothers were members. And so I’ve experienced the UAW the good and the bad. With the German unions, it seems a bit more extreme, and then they have what seems to be law on their side and government on their side. In the United States, they do, too. But this is unprecedented.

Lei Xing:
There's got to be a reckoning moment, a step that needs to be taken. A courageous step. I think.

Tu Le:
This is it. Because you and I have been talking about how much overcapacity Volkswagen have because they've lost so much volume in China. And I've written about this number of times in the newsletter: tough decisions need to be made sooner rather than later. And it looked this feels to me. Yeah, this feels to me like they kicked the can down the road as far as they can. And cause a decision like this, if you are looking at and I know a ton of people on their comms team. You and I know that this has been analyzed for months, if not, at least a year. So it's not like oh my god these numbers are so bad. All of a sudden this happened. This has been calculated, and don't get me wrong. I think their forecast numbers from China were probably a little bit too rosy to begin with. Then when reality came in and the numbers were worse than what they had been forecasting as sales losses and margin losses, revenue losses. That's when they had to pull this: we need plant closures, we need cost savings. Because I bring that point I made earlier up is because I think a couple years ago within the last couple years, they spent 4 or 5 billion Euro to buy back shares. That's like 40% of the 10 billion (Euros) that they need to save or something like that.

Lei Xing:
And now looking back, Diess is kind of scapegoated in a way. I mean he was driving this cultural change. He was driving, he was being real, but execution wise, it didn't go well. And now I think they're facing, Volkswagen is facing the same problem that it's been lurking behind them for years. You're correct. When do you make that move, that hurtful move? It's going to hurt, but taking a step back to go forward.

Tu Le:
One of the things that I think Cavallo is pointing to is you know what, it's not the labor, it's not the blue-collar people, it's the white-collar people that need to get laid off.

Lei Xing:
Yeah she’s talking about processes, about the board not doing their job. He said, she said. This is a great soap. He said, she said. What comes out of it. It's going to take some further time, I think. But there has to come one day that something needs to happen sooner than the later. And maybe we compare and contrast we talk about Mercedes which is making that you can call it a brave move or going deeper down the rabbit hole by investing that $2 billion with partners.

Tu Le:
I don't think they have a choice, Lei.

Lei Xing:
Exactly, they are too much engrained into the fabric, into the Chinese auto industry, market.

Tu Le:
And they don't want to be caught in no man's land where they're not making investments in China, but they're not gaining anywhere else. And so then the politics involved with all these moves, all of these investments get scrutinized to the Nth level because they are losing share in China. So they're doubling down on what a lot of people think are a losing bad. Because you and I know there are people that are out there that are, every headline or every post that is, the sky is falling, blah, blah, blah. And so that doesn't help. Yeah, honestly like if people were to just listen to China EVs & More about 2.5 years ago when we started, 3 years ago when we started this podcast, could have avoided a lot of this heartbreak. So anyways.

Lei Xing:
The interest in China, this is reflected through. So the CEOs of Mercedes and Volkswagen Group, they've been to China so far this year multiple times. That's only one indication of the importance of the market. And second, out of that announcement, the fact that the China team would lead the way into developing the next generation of the GLE SUV not only shows how much important R&D wise China is, but also that segment is to Mercedes.

Tu Le:
And you hit the nail on the head, Lei. They go to China because it's an important market, but they also see the future. The crazy thing about this is that they're getting twisted into a pretzel because Europe is slowing down on EV adoption and increasing hybrid uptake. United states is the same way, and they can't make the change fast enough. And with the politics involve of sourcing, Chinese batteries that complicates things at least for the European and U.S. markets. If you were only looking at western headlines, you would see that Volvo is dialing down EV, transition, GM, Ford, but then you look over at China the largest market in the world. Let me remind you. They're at a 50% take rate, which is almost 12 million cars run rate, 10 million cars run rate. That run rate is larger than 90% of the markets, 99% of the vehicle markets in the world. Only the United States and Europe as a region is larger.

Lei Xing:
From a strategic point of view, from a decisive point of view. I think this puts Mercedes in sharp contrast with Volkswagen Group. Both are, in fact trying very hard. I always, I'm the one that's usually a bit nicer on them and making the decision and just make the bet whatever you want to call it, rather than being indecisive and hesitant, the outcome nobody knows what will happen, whether it'll work. But at least…

Tu Le:
It's become clearer and clearer Lei that there's going to be a hardware software stack for China. And I'm including cloud. I'm including intelligent driving hardware, LiDAR, silicon. You name it. And then one for the rest of the world.

Lei Xing:
The local China R&D team is working on that feverishly as we speak. It was also, again, interesting to see the mentioning of mapless, end to end, all scenario smart driving, usually that come with these smart EV startups. Now you're seeing Mercedes talk about these. It's one is that they're trying to catch up and to catch up, you have to do what the Chinese are doing. It's a simple game.

Tu Le:
And I had sent you that Porsche article where they had that event of the Macan in Macao. And the Porsche owner beaming about his 911. And…

Lei Xing:
I love the 911.

Tu Le:
No interest in buying a Macan EV because this points back to what you just said about Mercedes. They don't have a differentiator when they go electric. No one cares that it's a Mercedes if it's electric, because every other car can go as fast. Every other interior. So there's this loss of perceived features that the German automakers, they lose because there's no engine, V8 engine or V10 or V12 engine that has been engineered and invested half $1 billion in. And so this is why I believe Mercedes is doubling down on this intelligent driving. They need a differentiator in the China market.

Lei Xing:
Yeah, and down on the ground, nobody is trying harder than the Volkswagens, the Mercedeses in China, case in point Volkswagen is trying very hard to work with Horizon Robotics to add features into their upcoming models, autonomous driving features. Mercedes is, I think the first brand, foreign premium brand to get the Level 4 testing approval. And so, I applaud them for trying hard to catch up.

Tu Le:
This is where you're kind again, because I don’t believe they have a choice. I don't believe they have a choice.

Lei Xing:
Exactly. And Tesla is trying to catch up with the FSD purportedly in Q1 2025. They're all playing catch up when they're in the dust.

Tu Le:
This epitomizes the whole building the plane when you're flying it. Because everything is new to them. From a process standpoint, from a type of product that they're building to the importance of a market. It was, Germany was always the center of the world, traditionally for the European automakers. That's not the case anymore. So cause you look at Toyota, Toyota does really well in the United States. I would argue that Japan is an important market, but the United States is even more important. Everything is led in Germany with the German automakers, and they're losing a lot of control, and they don't know what to do. This inability to move faster is going to hurt them a lot where I want to kind of differentiate. And I think you'd agree with this Lei, is that Mercedes and BMW are a little bit different, just because they have fewer brands. And then I would put Stellantis and Volkswagen Group in the same similar buckets, because they have 8, 9, 10 brands. But they've also invested heavily into Chinese companies that they both seem to be leaning into. They want to do more with them, not less.

Lei Xing:
If we talk about a type of VW Xpeng, Stellantis LeapMotor, that makes Mercedes and BMW really the only remaining German automakers out there or European automakers out there, that yet to have gone into one of these blockbuster partnerships. And that remains a possibility, I think, again, that the overarching point that we're making is that this double down, this commitment is not wavering. That's it. Among all the foreign brand automakers. 

Tu Le:
So we talked about VW, we talked about Mercedes, you had talked about like 6 or 7 things.

Lei Xing:
Volvo, I mean Volvo, not surprising also, right? Because it's what has happened with other European automakers rolling back plans with the U.S. automakers rolling back those actually unrealistic plans in the first place, as you pointed out often. Just being more flexible is the politically correct way of saying it.

Tu Le:
Yeah it's, wow, every foreign automaker has just. Is it the appropriate time Lei for me to pull out the panic button?

Lei Xing:
No, not yet.

Tu Le:
Not for Volvo, but maybe for Volkswagen. So personally Lei, I’ve been looking at upgrading my car for the last 18, 20 months. And I’m currently looking at a Polestar 2, a Model Y and a Lucid Air. I will let you all know what I decide, because the deals on these cars are absolutely bananas right now. For 24 Model year. There's 1.99 in Michigan for Model HY purchase. So the lease price doesn't really make a ton of sense, but I'm afraid of buying because residuals are falling off a cliff. Lucid has really put a lot of money on the hood for their ‘24 Air. The listeners last couple of weeks know that I had got a loner Air, it was really impressed. I'll be writing about that specifically. I'm not a car reviewer, but I'll give you my thoughts. If you want to hear about those, we'll talk about them next week, but I'll also write it in the newsletter. The Polestar, you can get it for under $500 lease zero down 12,000 miles. And right now the tough thing Lei is getting a 24, finding a 24. 

Lei Xing:
I think the Tesla over here in Massachusetts, I just looked up yesterday, it's under $300 lease with like $3,000, $4,000 down.

Tu Le:
Yeah, that's bananas. 

Lei Xing:
I’m paying $550 for a loan with the Santa Fe Hybrid.

Tu Le:
But that tells me you were smart because hybrids now are really harder to find than battery electric vehicles in certain parts of the U.S.

Lei Xing:
And the residual value is better, right? So worked out great.

Tu Le:
Let's talk about August sales, anything?

Lei Xing:
August sales. So I said fresh new records from August NEV sales. And BYD, we've, I mean. We don't have to talk about BYD. A new record. LeapMotor, interestingly, got to the 30K rate in August. 1 million ,I think it was retail sales of NEVs reported by CPCA for the first time ever while over 50%. So those were the records. And they're bound to be more records in September. Because guess what? It's golden September.

 Stay with us. We'll be right back.
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Tu Le:
So there can be 50%, more than 50% of annual sales happening in the last couple of, in the last 3, 4 months of the year traditionally in China. And we're seeing the MONA, we're seeing the ONVO really ignite. So this time last year, I think the Xiaomi brought excitement to the space. We're seeing the MONA M03 and the ONVO really inject some excitement into the space and all three of these cars, what they have in common. They're fairly affordable relative to a NIO or relative to some of these other. Like BYD has the Denza, which is more affordable. But the Yang Wang and Fang Cheng Bao is a little more expensive. And so I’m super long on the M03, I think that's going to do pretty well. I think the ONVO has some promise. But again, my fear this time around Lei is that the Chinese economy is still not completely back on its feet. So pulling in 2025 sales into late 2024. There could be a huge funk in sales at the beginning of 25.

Lei Xing:
So a recent newly updated policy out of quite a few cities including Beijing and Shanghai is when you trade in your vehicle for an NEV you get the RMB15,000 versus when you scrap your vehicle and get an NEV you get the RMB20,000. So there's been an update of that rule to drive consumption. And the other lever is just continuous push of these new models, right? The LYNK & CO Z10 is a Xiaomi SU7 fighter just launched yesterday in the same somewhat price range. ZEEKR still has the 7X, JIYUE 07, all this month, right? Launching this month to add to the onslaught. And also Tesla, we dunk on Tesla but made it pretty well, right? 86,000 in August,  total shipment out of shanghai. I think it was over 60,000 in China. So, you know.

Tu Le:
The one thing that's very clear about the Tesla brand is that it's resilient. Now they're giving out free money.

Lei Xing:
Great, worked great. No interest.

Tu Le:
People are pointing to the consistency of Tesla sales, but nobody mentions some of the incentives or the non-price cutting incentives that are in place. I think what's important is giving a complete picture. I don't believe and you know I'm not following the individual brands as closely as you do, because my Chinese is not near as good as yours, obviously, but are there any other brands that are offering 0%?

Lei Xing:
I think it's become an industry standard. The “double zero.” You could either go with a zero down or a with a zero percent, zero interest financing. It's pretty common across the board.

Tu Le:
Let me ask you a quick question. How is Tesla going to do for us this year? What's your kind of thoughts on that?

Lei Xing:
Like I said, they if they maintain at this level with no growth, it's a win. And we said this many times on the show. We don't expect any major upshot in sales, 80,000, 70,000, 80,000, 90,000. I think I would take that as normal. And it's still, for anybody that's selling, that’s playing this game, it’s the envy. I mean who does this many in the month, not many, besides BYD. So that shows you the kind of resilience.

Tu Le:
Yeah, the one good thing that is happening is that a lot of media coverage is starting to discover some of the really, really complicated issues that are emerging from China being center of the earth. I don't look at it as EVs. I look at it as automotive. And again, automotive or legacy OEMs are notorious for being conservative. I know that they're going to wring out every single ounce, Euro RMB dollar of profit they can before they have to disrupt what they're doing. They are professionals at the cash cow and milking that cow. Whereas compare and contrast that to Apple, every year new iPhone comes out. If that was an automaker, they would sell that iPhone until they saw clear customers moving away.

Lei Xing:
And the other point I should mention with respect to Mercedes and BMW specifically. The other thing that's driving their investment is how important to the local economy. BBA in Shenyang and BBAC in Beijing are some of the biggest taxpayers for the local economy. If not the biggest.

Tu Le:
And Lei, I got to stop you there, I got to stop you there. That's why it's an asinine statement for somebody to say the foreign automakers are not welcome. They want to get kicked out or the Chinese government wants to kick them out. It's complete BS.

Lei Xing:
Well. They will only kick themselves out.

Tu Le:
Yeah, and this is the challenge because the foreign automakers, they're the ones that are paying the tax. So it's a double edged sword now, because they have to be there because they support the local economies better than a lot of the SOEs. And then, even if the central government meaning the Chinese government wanted them out, they've made a deal. That's why Tesla, look at Tesla like Shanghai government is they lost Shanghai Giga. Oh my god dude, like it would be a huge hole in the tax revenues for the Shanghai government, huge hole.

Lei Xing:
Just look at the financial statements of, let's say, a Brilliance, BMW partner, BAIC Motor, Hong Kong-listed Mercedes partner. Where do their profit come from? 

Tu Le:
So we talked August sales, you wanted to talk NIO.

Lei Xing:
And one more point I just tweeted about BYD catching up to Saic Motor of Chinese automaker group sales in China. They are…

Tu Le:
I think you and I can say that SAIC and BYD are probably the top two Chinese automakers.

Lei Xing:
So there's likelihood that BYD will be once and for all become the number one of anything. Any comparison you make in China this year.

Tu Le:
And the fact of the matter is you and I both talked to Ed from Financial Times.

Lei Xing:
Yeah and also perhaps the charts that he showed of that, the flip of the switch, right? Kind of.

Tu Le:
Between Wang Chuanfu and Stella Li, foot is on the gas. I think Wang Chuanfu’s foot is on the gas and Stella’s foot is on his foot pushing harder on the gas. But the thing I mentioned to Ed and I haven't read the article yet, but he was alluding to, hey, man, this is like they're ahead of everybody, but they're, let's remind folks. And it's 7:42 Lei where I am. So let's open the room up for questions. You and I will keep on talking for a few minutes about BYD and a couple of other things. But please raise your hand if you have any questions or any comments. I'll read some of the comments that have been posted in the space, but they are either in or going to be in India, in Brazil, in Turkey, in Poland, in Hungary, and now Pakistan, Mexico, but they held off, or they're holding off, on hold. So that's seven. What am I missing? Thailand. 

Lei Xing:
I’m sure you're missing a few.

Tu Le:
They're in Thailand. So that's eight. But if you look at BYD's current footprint, 90% of the sales, 90%, a huge percent of their sales come from the manufacturing in China. If you think about it. There's one currency that they're dealing with on the supply side, not on the revenue side by the supply side. From a commodity standpoint, from a logistic standpoint. Now, Pakistan, Thailand, Brazil, Mexico, they all have different currencies. And so different types of labor, different types of culture. So I don't see it as getting easier for BYD just because they've opened up all these factories, I actually think that it's going to slow them down a lot. There's going to be fits and starts.

Lei Xing:
When you get to the top, it's harder to stay at the top. That's the simple way to describe it.

Tu Le:
The other thing, too, if let's pull it down a layer, another layer because quality is going to be inconsistent. If you're building an ATTO 3 in Poland, Mexico, and Thailand, there's just going to be different types of quality, good and bad. And you're going to have to deal with that from a global standpoint. And when you deal in a lot of different currencies, you got to have hedge on the FX rates and all these other things. And so are they up to the challenge? I believe they are. But I don't see this this path to 10 million, let's say that they're at 10 million or 11 or 12 million that gets them to number one automaker in the world. Can they do it before 2030? I think that's challenging just because of the number of factories that they still would need to open with BYD it's not just assembly of plants, it's battery factories. And so that's a lot of investment. That's a lot of things going right in a lot of countries that they don't have a lot of control in.

Lei Xing:
Let's talk about the near term first. So this year, they're probably going to get closer to the 4 million than they're going to get to the closer to the 3.6 million as they communicated based on the current momentum.

Tu Le:
Which tracks to what you and I had said at the beginning of the year. This is an important asterisk. So while they're growing by 33%, because they were at 3 million last year, Tesla hopes to be flat, sales.

Lei Xing:
Which is great.

Tu Le:
They hope to be flat. So please continue.

Lei Xing: 
No I mean the last, we saved the best for last, I guess we should talk about NIO, because like I said a great day a couple of days ago.

Tu Le:
What did he say about to take rate by…

Lei Xing:
Yeah that's, you know, in 2 or 3 years, China is going to get to 80%. I hesitate to agree because that's phenomenal. It's hard to fathom, but it's been hard to fathom, I think still a lot of the western audience, it's been difficult for them to wrap their head around the fact that it's already at 50% monthly take rate. I think maybe he needed to clear it up. Does he mean annual take rate, get to 80% in 2 or 3 years? Or is he saying it might get to 80% in a certain month, the latter scenario I do think that's possible. But annually, 80%, my goodness, I really can't imagine.

Tu Le:
What's funny is that the foreign legacies are scrambling now to see where they fit into that higher take rate.

Lei Xing:
Exactly with I mean SAIC Motor sold 600,000+ NEVs out of the 2.3 million in the first 8 months of the year, all of the rest are the traditional ICEVs. GM lost a humongous portion.

Tu Le:
So there's two things going on with GM that we should talk about really quickly. Lost a huge portion of sales, almost 2 million units. And then the sales that they're reporting, a huge portion of that is the Wuling Hongguang MINIEV or very inexpensive Baojuns. So it's a double whammy for GM for sure.

Lei Xing:
Now we get to NIO. You know what, let's be a NIO stan for a day. Their stock price performance yesterday, I think was one of the better ones in recent memory. And probably their retail investors were had their one of the happiest days in recent memory. Stock was up 15%. And all comes to think of it. It's pretty a simple business. When you show the kind of the margin improvement, the narrowing of losses, good revenues, good outlooks, you'll be rewarded. And they have. And for the longest time, I had talked about Xpeng taking 10 years to get to a blockbuster model. For NIO, it’s taken them 10 years to get to this consistency that we talked about. September is going to probably be the 5th month in a row they'll get to 20,000 units. So there's, and for the longest time that, all we have to say is positive, because things are looking up. Finally.

Tu Le:
Yes, they're looking up. The one thing that I think is really important, Lei, is the fact that, and this time last year, there was only U.S. tariffs. Now there are European tariffs. So that's the second and third largest markets in the world. Up until these announcements on tariffs, Chinese EV makers, Chinese battery makers were increasing capacity in China. Now the Chinese battery makers, I was told were told to limit investment in more capacity in China, which presses them to build in other parts of the world, ala Ford CATL in Michigan, with NIO in particular I give you a scenario: their premium vehicles, there's just not going to be as much volume just because they're premium vehicles. But the ONVO, let's, a winning strategy might be, we saw a lot of ONVOs in China, because it's less expensive. We can drive volume, and then maybe ship them to Southeast Asia, eventually, ship them to Latin America eventually. But let's primarily worry about our capacity utilization where China takes up most of that. And then the bonus is the NIO stuff, because that's going to be the more margin, higher margin stuff. But some of these other automakers, the only company that has a clear path to building abroad is BYD. Some of these other guys are going to have a lot of challenges, because not only will they have to spend $1 billion per factory likely in any country that they go to, they're going to have to market it, they're going to have to create all these networks that support the manufacturing suppliers and logistics. And so the reality is, I don't see that many Chinese EV makers having the capital or the products good enough to compete against the BYD. There's NETA. NETA is looking at going IPO but that's only going to raise them half a billion dollars, maybe $1 billion. So you know outside of BYD and a couple of other brands, I don't know which Chinese companies have a clear path to being successful manufacturing abroad, at least in the short term.

Lei Xing:
So management hinted in the earnings calls that the F3 is expected to come online by about this time next year. So NIO doesn't have a capacity problem. Li Bin, he said it, right? And ONVO, and the Firefly are specific, they're more of their global brands. You see more of those…

Tu Le:
That creates a crowded market in Southeast Asia, that creates a crowded market in…

Lei Xing:
Europe, right? The Firefly, in fact, is probably specifically destined for Europe and they'll eat up that 21% tariff.

Tu Le:
And this is where NIO via ONVO and Firefly have an advantage over SAIC and MG because of the tariff rate.

Lei Xing:
Yeah. And also, they revealed that their price coverage will go from RMB140,000 to was it RMB700,000 or RMB800,000, RMB700,000. And with BaaS, it goes down to RMB100,000. So you kind of get an idea of where Firefly slots. They're starting deliveries next year. By this time next year, three brands will be selling from NIO.

Tu Le:
I love Li Bin but convincing Europeans and non-Chinese that swapping is a thing. First of all, that's going to be from an investment standpoint really challenging. And then that's introducing a new technology upon a new technology. So, or new technology upon a new brand. So there's two things that Li Bin needs to be able to market to Europeans really, really well, not only that this new ONVO brand, this new Firefly brand are significant brands that are going to be around that build design and engineer great products where it's not just plugging in, you can swap. And so his level of complexity is much higher than BYD’s.

Lei Xing:
The other thing I'll just add is it feels special for what NIO has performed or have done over the recent months, given the bloodiest of the bloodbaths happening at the same time. So it's incredible that they've been able to get to that consistency that we talked about and showing the improvement financially.

Tu Le:
Showing improvement. Consistency, I'll wait until the end of 2024 before I actually declare that they’ve been pretty consistent. 

Lei Xing:
But I mean, next quarter is going to be better than this quarter. So that's the kind of thing that we're seeing. And Lihong said 220,000 units. So shouldn't be a problem, doesn't look like there's any issues.

Tu Le:
And if you think about it, 220,000 units is still pretty tiny relative to a 25 million-unit market in China, and the 70 million unit in the rest of the world. 

Lei Xing:
But add the price point they play, I mean, right, 40% of the BEV market above RMB300,000, which perspective you look at.

Tu Le:
And then the last thing I'll say before we close it out is Tesla have made an announcement that they're going to be launching or that they plan to launch FSD (in China) in Q1 of 2025.

Lei Xing:
We touched upon on that.

Tu Le:
That's not completely up to them, but…

Lei Xing:
Well the fine print pending regulatory approval.

Tu Le:
So, so Peter Liu wrote a change of time legacy industry becoming a high-tech industry. No one can be No. 1 for more than 10, 15 years, someone from nowhere becomes number one. Yeah, I think BYD is going to be number one with a bullet. Tesla is kind of flailing a bit. They were number one for quite some time. And so I'm looking forward to see how if Lucid and Rivian can kind of cross that chasm to see how they end up doing with their more affordable EVs in the coming years. Trouble ahead, our friend Jeffrey NIO San Francisco writes, trouble ahead, trouble behind with China EV and company on my mind. And then he also writes Benz could find themselves in the rearview mirror in China quicker than a fish going into a wok over…. I love his. So then for my Vancouver, Canada folks, I am going to be, I don't speak today, but I'll be on a panel on Sunday for the Everything Electric Conference, the Fully Charged conference here in Vancouver. So, if you're around, DM me on Twitter and maybe we'll find some time to meet up.

Lei Xing:
Yeah you’ll get to check out some of the latest and the greatest, I think Rivian is showing the R3, check that out.

Tu Le:
I hope I probably won't be able to get into it, but anyways. So that's all I have Lei.

Lei Xing:
Same here.

Tu Le:
Hey, everyone. Thanks again as always for your flexibility, because we started an hour later than normal. And we will talk with you all next week, hopefully, on video, on video.

Lei Xing:
Next week, we'll figure out a time, because I'll be in Germany again for a week for an event, I might stay a little bit longer in Munich next weekend. But anyhow, we got to figure out a time because of the time difference.

Tu Le:
Right on.

Lei Xing:
See how that goes and then…

Tu Le:
All right, everyone good morning, good afternoon, good evening. We'll talk with you all later.

Lei Xing:
Yep have fun in Vancouver. Bye bye.

Tu Le:
That brings us to the end of this week show. Lei and I thank you for tuning in. My name is Tu Le and you can find me on twitter @sinoautoinsight. You can find Lei on twitter @leixing77. If you wouldn't mind rating and or reviewing us on Apple Podcast, Spotify or wherever you grab your podcast from, we'd appreciate that as well. Even better if you enjoy this show, please tell your friends about it. Please join this again next week as we track down all the latest news on China EVs & More.