beijingwalker
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You need to know what's going on for China's auto industry and how crazy it is
Oct. 04, 2022 9:07 PM ET
I asked a couple days ago in a thread if anyone would like to hear a brief analysis of what’s happening with the competition in the Chinese market right now, and I got mostly positive responses, so here it is. Buckle up.
First, I need to establish what this post isn’t: I am not an investor in any company listed here. I am not taking a bull or bear position within the context of this post. I run r/chinacars for fun, and read up on what’s happening in the auto industry there every day — usually with my morning coffee — to understand how the market is changing over there, and I’m only sharing what I’ve learned for those interested in this part of the equation.
I am sure you’ve also seen the kind of “chicken little” dynamic that goes on every time Chinese cars are mentioned on Reddit. A lot of eager Nio/Xpeng speculators going around saying things like “The Chinese companies are going to cream the west any minute now!”, and a lot of equally dismissive replies. I’m not attempting to further either narrative here (the truth is more complex, imo) or make a statement the potential of these companies in the European or North American markets.
In China, however, there is something special happening. We’re at a definite inflection point, and there’s been a shift.
What’s happening that is different?
You may have heard that China sells a lot of EV's, and that's true, but until now, the number of local models which could credibly be called direct “Tesla competitors” (particularly in counterpart to the 3/Y) was a very short list, effectively countable on one hand. Most of the larger state-owned players (Changan, SAIC) have been focusing on smaller cars like the BenBen EV and Wuling Mini, and most of the smaller startups have been focused on higher-end low-volume cars more akin to the Model S and Model X (Li One, Nio ES8, Nio ET7).
Beep Beep
However... this quarter has been the craziest flood of product launches aimed right at the heart of the 3/Y demographic that I’ve ever seen in the industry. Other China watchers have been saying the same thing, too. It has been a remarkable change, and for those of us watching, jaw-dropping in the force and ferocity of the announcements.
How crazy is it?
About a year ago, the number of launched products that could credibly be called direct 3/Y competitors looked roughly like this:
In the past year, these additions have started production:
Okay, but are they really any good? This is just a bunch of milquetoast copycat shit, right?
Not only are we seeing more products launched than ever before, the maturity and product fit of these products — particularly the group that has launched in the last three months — is consistently and remarkably better than anything we've seen before. On the powertrain side, most of these vehicles are on new platforms with modern packs, like CATL’s Qilin, BYD’s e-platform 3.0, or Leapmotor’s CTC 3.0. They’re delivering significant increases in power delivery, charging speeds, and range. Battery giant and Tesla supplier CATL has even gotten directly into the game themselves, co-developing two models — the Shenlan 03 and Avatr 011 with partner Changan.
It’s not just the powertrain, but also the interior work that is notable, particularly with respect to tech features. All of these cars are connected vehicles with phone apps, cellular connectivity, and some level of capability to receive over-the-air updates. Huawei’s taken a particularly big leap into the industry, with their HarmonyOS infotainment system showing up on a number of vehicles, including their own Aito M5 EV. This Unix-based system is a step-change in sophistication for most automakers, offering a fluidic experience, app support, and much more intuitive design than before — all similar to what Tesla offers.
Huawei HarmonyOS IVI on the Avatr 011
Hardware has seen a massive upgrade with almost across the board implementation of Qualcomm’s 8155P IVI chip, a much more powerful SoC than anyone used previously. Meanwhile, Nvidia Orin chips are powering ADAS, and a number of vehicles have OLED screens, full-colour heads up displays, and Dolby Atmos audio.
Quality of life features include glass roofs, leather interiors, electronically-adjustable seat bolsters, soft-closing doors, programmable interior and exterior LED lightning, pop-up spoilers, key-card and phone entry, and a bunch more. Check this review of the Avatr 011 to see just how far this goes.
Finally, the design has taken a definite step up. These cars look good, with animated lighting features, flush door handles, diamond-stitched interiors, and an obvious step-up in design language consistency.
Rising R7
What’s the pricing like?
Incredibly competitive.
Most of the TM3-fighters we’re talking about here start in the ¥200K ($30K) range for their basic models. The Changan Shenlan 03, for instance, will come in at ¥183,900 (~$27,000) for a 515 km (CLTC) range model with a 5.9s 0-60, and many of the features I listed above, including Huawei’s infotainment running on a Qualcomm 8155.
One of the most expensive of the bunch — the Li L9 — is an EREV offering six seats, a 5.5s 0-60 time, five OLED screens powered by dual Qualcomm 8155 chips, dual-sim 5G cellular connectivity, ADAS powered by dual Nvidia Orin chips, integrated LIDAR, air suspension, front-row massaging seats, a panoramic glass roof with an electric closing shade, and a fridge in the centre console for RMB 459,800… or roughly $65K USD. Phew.
First-class seating on the Li L9.
Are there some more specific examples of models to watch?
Nio ET5
Nio’s ET5 is an interesting one in that at roughly $50K, it is positioned vaguely higher (not lower) than the Tesla Model 3, but what it offers is a compelling package for that price.. Standard features include 23-speaker Dolby Atmos audio, an AMOLED centre display, soft-close doors, pop-out handles, and customizable interior lighting. Nio’s autonomous driving package includes 4x NVIDIA Orin chips, LIDAR, RADAR, and a full suite of 360º cameras, and is expected to receive continual OTA updates as it improves, just like Tesla’s system. This is expected to be Nio's most consequential model of all time, And it will likely become the volume seller for the brand.
Deliveries started this week.
I like this yellow colour.
Xpeng G9
The Xpeng G9 offers 800V charging, a 550HP AWD powertrain that does 0-60 in under 4s, and a chassis packed with technology including dual 15” screens, air suspension, and Xpeng’s NGP Autopilot competitor, which was rated highest among all competing systems by 42HOW. Xpeng’s previous release, the P5, was a bit of a flop despite good reviews, and the G9 will be make-or-break for them. However, the offering is solid — this is the closest thing the Model Y has to a direct competitor at the same direct price.
Deliveries start this month.
Xpeng calls the styling on the G9 a "Robot Face"
BYD Seal
You know BYD already. They’re a big deal, and the Seal is their big gun. Based on their new e-platform 3.0, it’s starting delivery now, a direct TM3 competitor that dips down to around 210K (~$30K). For a trim level approaching the $40K TM3 base price, you can get one with 700 km (435mi) of CLTC range and a 300hp powertrain. You won’t get many self-driving features or quality-of-life offerings like camp mode, but the interior is excellent, and the powertrain is solid. It’s believed BYD could be producing as many as 15K per month in the short term, and they could approach an annual run-rate as much as 300K in the long-term.
Deliveries started last month.
The BYD Seal is waterproof enough to serve briefly as a boat, clearly.
Zeekr 001
Geely is already approaching a 100K annual run-rate on the Zeekr 001, a car priced in line with the Tesla Model 3 but nearly the size of a Tesla Model S. It comes equipped with Qualcomm 8155P IVI, Mobileye Supervision ADAS, and the usual luxury touches mentioned on the other vehicles, but the build quality is the star of the show here, with many reviewers noting that it far exceeds expectations, and comes off as a true global car.
If only it came in a manual.
Will they be made in quantity? Will they sell?
Indisputably. Ramp up is already happening. Li just launched the L9 last month and has already delivered 10K units. Nio’s ET5 is being delivered from their brand-new Neopark, a factory with a planned annual production capacity of up to 300K in the first stage, with more capacity already planned. Aion is already selling 30K units per month of their models, and growing every month. Hozon Neta isn’t far behind.
Aion is already selling close to 400K BEVs per year.
Customers have started lining up and placing preorders by the tens of thousands on these brands in a way that they never had previously. Nio’s ET5 launch attracted crowds to their stores the moment demo models arrived, and it’s estimated they’re at 200,000 preorders for the model so far.
Crowds at Nio for the launch of the ET5
What about the financials of these companies?
Largely irrelevant at the moment. Changan (Shenlan, Avatr), SAIC (Rising, iM), and GAC (Aion) are all state-owned, and structured for long-term success. Zeekr’s parent Geely is, of course, the same company that owns Volvo, Polestar, and Lotus, already very profitable, and still growing strong.
Right now, BYD is built for absurd levels of growth, and just passed a 2.2M run rate.
You can approximately halve these numbers to get the BEV figures.
Nio nearly bankrupted themselves a couple years back trying for extreme growth (much like Tesla in 2017) so they have some dodgy history, but they’ve mostly crawled out of that at this point. Unless the ET5 is a bust (it’s a foregone conclusion that it will not be at this point) they’re solid.
As long as these companies can keep doing what they’re doing, they will mostly grow.
What should I watch for in the future?
Synergistic relationships are happening faster and more often, and are the trend to watch. I already mentioned how Huawei is making inroads to infotainment, providing the foundation for automakers to deliver better experiences. The next frontier is autonomy, with Huawei aiming to provide an out-of-the-box offering to the entire field of automakers in the same fashion, and Baidu, Xiaomi, and DJI making similar moves.
Commoditization is happening at a rapid pace. Companies like Midea are throwing money into developing off-the-shelf parts like heat pumps, silicon carbide inverters, electronic door handles, and air filtration systems. For small automakers, this means quicker options to help get to market without spending time doing component development — grow now, iterate later.
What does this mean for Tesla?
It’s unknown with absolute certainty at this point. As I said before, I’m not trying to suggest the sky is falling. We haven’t seen long-term reviews of many of these models yet, nor what kind of long-term support these OEMs are going to put into iterating their designs. We’ve seen some false starts before. Tesla retains an advantage in existing scale, brand awareness, maturity, and consistency.
Indisputably, Tesla has the wiggle room to maintain sales leadership in a way that some of these brands do not. However, it can be said there’s a definite tsunami wave of credible competition, and what’s very clear right now is that the Chinese OEMs are moving faster to adopt new features and bring down cost than their western counterparts.
It’s likely Tesla will decide to adjust pricing or incentives to compensate, as well as implement feature improvements to the lineup. I’d expect that CDM 3/Y models will see some improvements on touchpoints and interior items at the least — revised seats, better interior lighting, improved displays, and electronic pop-out door handles are all strong possibilities.
Nio's ET5 has some absolutely gorgeous cabin lighting and OLED displays.
Tesla is now rumoured to be heading towards a price cut in China, and has been offering extended incentives for Tesla Insurance. I would consider these firm defensive moves, and they certainly have more room to continue adjusting their offerings, but things definitely just got interesting.
Conclusion
Chinese OEMs are responding to the market, better and faster than anyone expected. The new generation of cars from Changan, SAIC, GAC, Nio, Xpeng, Neta, and Li have better powertrains, serious technology improvements, and are packed with features that appeal to value-seeking Chinese consumers.
Since I asked my original question in response to Piper Sandler’s market share concerns statement a week ago, Tesla reported a delivery miss. For those of you ruminating on that news, this is one datapoint to consider. Chinese consumers’ attentions are now divided among many competing brands in a way that they weren’t before, and Tesla may have to start thinking about how to win that attention back.
TLDR:
Oct. 04, 2022 9:07 PM ET
I asked a couple days ago in a thread if anyone would like to hear a brief analysis of what’s happening with the competition in the Chinese market right now, and I got mostly positive responses, so here it is. Buckle up.
First, I need to establish what this post isn’t: I am not an investor in any company listed here. I am not taking a bull or bear position within the context of this post. I run r/chinacars for fun, and read up on what’s happening in the auto industry there every day — usually with my morning coffee — to understand how the market is changing over there, and I’m only sharing what I’ve learned for those interested in this part of the equation.
I am sure you’ve also seen the kind of “chicken little” dynamic that goes on every time Chinese cars are mentioned on Reddit. A lot of eager Nio/Xpeng speculators going around saying things like “The Chinese companies are going to cream the west any minute now!”, and a lot of equally dismissive replies. I’m not attempting to further either narrative here (the truth is more complex, imo) or make a statement the potential of these companies in the European or North American markets.
In China, however, there is something special happening. We’re at a definite inflection point, and there’s been a shift.
What’s happening that is different?
You may have heard that China sells a lot of EV's, and that's true, but until now, the number of local models which could credibly be called direct “Tesla competitors” (particularly in counterpart to the 3/Y) was a very short list, effectively countable on one hand. Most of the larger state-owned players (Changan, SAIC) have been focusing on smaller cars like the BenBen EV and Wuling Mini, and most of the smaller startups have been focused on higher-end low-volume cars more akin to the Model S and Model X (Li One, Nio ES8, Nio ET7).
Beep Beep
However... this quarter has been the craziest flood of product launches aimed right at the heart of the 3/Y demographic that I’ve ever seen in the industry. Other China watchers have been saying the same thing, too. It has been a remarkable change, and for those of us watching, jaw-dropping in the force and ferocity of the announcements.
How crazy is it?
About a year ago, the number of launched products that could credibly be called direct 3/Y competitors looked roughly like this:
- Nio ES6/EC6
- BYD Han
- BYD Tang
In the past year, these additions have started production:
- Xpeng P5
- Zeekr 001
- Roewe Marvel R
- GAC Aion S Plus
- GAC Aion LX Plus
- BYD Yuan Plus
- BYD Song Plus
- BYD Seal
- Nio ET5
- Nio ES7
- Xpeng G9
- Li L9
- Li L8
- Changan Shenlan 03
- Changan Avatr 011
- SAIC Rising R7
- SAIC IM L7
- Leap Motor C01
- Hozon Neta S
- Aito M5 EV
Okay, but are they really any good? This is just a bunch of milquetoast copycat shit, right?
Not only are we seeing more products launched than ever before, the maturity and product fit of these products — particularly the group that has launched in the last three months — is consistently and remarkably better than anything we've seen before. On the powertrain side, most of these vehicles are on new platforms with modern packs, like CATL’s Qilin, BYD’s e-platform 3.0, or Leapmotor’s CTC 3.0. They’re delivering significant increases in power delivery, charging speeds, and range. Battery giant and Tesla supplier CATL has even gotten directly into the game themselves, co-developing two models — the Shenlan 03 and Avatr 011 with partner Changan.
It’s not just the powertrain, but also the interior work that is notable, particularly with respect to tech features. All of these cars are connected vehicles with phone apps, cellular connectivity, and some level of capability to receive over-the-air updates. Huawei’s taken a particularly big leap into the industry, with their HarmonyOS infotainment system showing up on a number of vehicles, including their own Aito M5 EV. This Unix-based system is a step-change in sophistication for most automakers, offering a fluidic experience, app support, and much more intuitive design than before — all similar to what Tesla offers.
Huawei HarmonyOS IVI on the Avatr 011
Hardware has seen a massive upgrade with almost across the board implementation of Qualcomm’s 8155P IVI chip, a much more powerful SoC than anyone used previously. Meanwhile, Nvidia Orin chips are powering ADAS, and a number of vehicles have OLED screens, full-colour heads up displays, and Dolby Atmos audio.
Quality of life features include glass roofs, leather interiors, electronically-adjustable seat bolsters, soft-closing doors, programmable interior and exterior LED lightning, pop-up spoilers, key-card and phone entry, and a bunch more. Check this review of the Avatr 011 to see just how far this goes.
Finally, the design has taken a definite step up. These cars look good, with animated lighting features, flush door handles, diamond-stitched interiors, and an obvious step-up in design language consistency.
Rising R7
What’s the pricing like?
Incredibly competitive.
Most of the TM3-fighters we’re talking about here start in the ¥200K ($30K) range for their basic models. The Changan Shenlan 03, for instance, will come in at ¥183,900 (~$27,000) for a 515 km (CLTC) range model with a 5.9s 0-60, and many of the features I listed above, including Huawei’s infotainment running on a Qualcomm 8155.
One of the most expensive of the bunch — the Li L9 — is an EREV offering six seats, a 5.5s 0-60 time, five OLED screens powered by dual Qualcomm 8155 chips, dual-sim 5G cellular connectivity, ADAS powered by dual Nvidia Orin chips, integrated LIDAR, air suspension, front-row massaging seats, a panoramic glass roof with an electric closing shade, and a fridge in the centre console for RMB 459,800… or roughly $65K USD. Phew.
First-class seating on the Li L9.
Are there some more specific examples of models to watch?
Nio ET5
Nio’s ET5 is an interesting one in that at roughly $50K, it is positioned vaguely higher (not lower) than the Tesla Model 3, but what it offers is a compelling package for that price.. Standard features include 23-speaker Dolby Atmos audio, an AMOLED centre display, soft-close doors, pop-out handles, and customizable interior lighting. Nio’s autonomous driving package includes 4x NVIDIA Orin chips, LIDAR, RADAR, and a full suite of 360º cameras, and is expected to receive continual OTA updates as it improves, just like Tesla’s system. This is expected to be Nio's most consequential model of all time, And it will likely become the volume seller for the brand.
Deliveries started this week.
I like this yellow colour.
Xpeng G9
The Xpeng G9 offers 800V charging, a 550HP AWD powertrain that does 0-60 in under 4s, and a chassis packed with technology including dual 15” screens, air suspension, and Xpeng’s NGP Autopilot competitor, which was rated highest among all competing systems by 42HOW. Xpeng’s previous release, the P5, was a bit of a flop despite good reviews, and the G9 will be make-or-break for them. However, the offering is solid — this is the closest thing the Model Y has to a direct competitor at the same direct price.
Deliveries start this month.
Xpeng calls the styling on the G9 a "Robot Face"
BYD Seal
You know BYD already. They’re a big deal, and the Seal is their big gun. Based on their new e-platform 3.0, it’s starting delivery now, a direct TM3 competitor that dips down to around 210K (~$30K). For a trim level approaching the $40K TM3 base price, you can get one with 700 km (435mi) of CLTC range and a 300hp powertrain. You won’t get many self-driving features or quality-of-life offerings like camp mode, but the interior is excellent, and the powertrain is solid. It’s believed BYD could be producing as many as 15K per month in the short term, and they could approach an annual run-rate as much as 300K in the long-term.
Deliveries started last month.
The BYD Seal is waterproof enough to serve briefly as a boat, clearly.
Zeekr 001
Geely is already approaching a 100K annual run-rate on the Zeekr 001, a car priced in line with the Tesla Model 3 but nearly the size of a Tesla Model S. It comes equipped with Qualcomm 8155P IVI, Mobileye Supervision ADAS, and the usual luxury touches mentioned on the other vehicles, but the build quality is the star of the show here, with many reviewers noting that it far exceeds expectations, and comes off as a true global car.
If only it came in a manual.
Will they be made in quantity? Will they sell?
Indisputably. Ramp up is already happening. Li just launched the L9 last month and has already delivered 10K units. Nio’s ET5 is being delivered from their brand-new Neopark, a factory with a planned annual production capacity of up to 300K in the first stage, with more capacity already planned. Aion is already selling 30K units per month of their models, and growing every month. Hozon Neta isn’t far behind.
Aion is already selling close to 400K BEVs per year.
Customers have started lining up and placing preorders by the tens of thousands on these brands in a way that they never had previously. Nio’s ET5 launch attracted crowds to their stores the moment demo models arrived, and it’s estimated they’re at 200,000 preorders for the model so far.
Crowds at Nio for the launch of the ET5
What about the financials of these companies?
Largely irrelevant at the moment. Changan (Shenlan, Avatr), SAIC (Rising, iM), and GAC (Aion) are all state-owned, and structured for long-term success. Zeekr’s parent Geely is, of course, the same company that owns Volvo, Polestar, and Lotus, already very profitable, and still growing strong.
Right now, BYD is built for absurd levels of growth, and just passed a 2.2M run rate.
You can approximately halve these numbers to get the BEV figures.
Nio nearly bankrupted themselves a couple years back trying for extreme growth (much like Tesla in 2017) so they have some dodgy history, but they’ve mostly crawled out of that at this point. Unless the ET5 is a bust (it’s a foregone conclusion that it will not be at this point) they’re solid.
As long as these companies can keep doing what they’re doing, they will mostly grow.
What should I watch for in the future?
Synergistic relationships are happening faster and more often, and are the trend to watch. I already mentioned how Huawei is making inroads to infotainment, providing the foundation for automakers to deliver better experiences. The next frontier is autonomy, with Huawei aiming to provide an out-of-the-box offering to the entire field of automakers in the same fashion, and Baidu, Xiaomi, and DJI making similar moves.
Commoditization is happening at a rapid pace. Companies like Midea are throwing money into developing off-the-shelf parts like heat pumps, silicon carbide inverters, electronic door handles, and air filtration systems. For small automakers, this means quicker options to help get to market without spending time doing component development — grow now, iterate later.
What does this mean for Tesla?
It’s unknown with absolute certainty at this point. As I said before, I’m not trying to suggest the sky is falling. We haven’t seen long-term reviews of many of these models yet, nor what kind of long-term support these OEMs are going to put into iterating their designs. We’ve seen some false starts before. Tesla retains an advantage in existing scale, brand awareness, maturity, and consistency.
Indisputably, Tesla has the wiggle room to maintain sales leadership in a way that some of these brands do not. However, it can be said there’s a definite tsunami wave of credible competition, and what’s very clear right now is that the Chinese OEMs are moving faster to adopt new features and bring down cost than their western counterparts.
It’s likely Tesla will decide to adjust pricing or incentives to compensate, as well as implement feature improvements to the lineup. I’d expect that CDM 3/Y models will see some improvements on touchpoints and interior items at the least — revised seats, better interior lighting, improved displays, and electronic pop-out door handles are all strong possibilities.
Nio's ET5 has some absolutely gorgeous cabin lighting and OLED displays.
Tesla is now rumoured to be heading towards a price cut in China, and has been offering extended incentives for Tesla Insurance. I would consider these firm defensive moves, and they certainly have more room to continue adjusting their offerings, but things definitely just got interesting.
Conclusion
Chinese OEMs are responding to the market, better and faster than anyone expected. The new generation of cars from Changan, SAIC, GAC, Nio, Xpeng, Neta, and Li have better powertrains, serious technology improvements, and are packed with features that appeal to value-seeking Chinese consumers.
Since I asked my original question in response to Piper Sandler’s market share concerns statement a week ago, Tesla reported a delivery miss. For those of you ruminating on that news, this is one datapoint to consider. Chinese consumers’ attentions are now divided among many competing brands in a way that they weren’t before, and Tesla may have to start thinking about how to win that attention back.
TLDR:
