Tesla's Continuous Losses Does Not Make NIO Its Opponent
COVID-19 and China
A EV is charging. Photo: credit to Unsplash

Tesla said on April 25 that it lost USD 702 million in Q1 2019, a sharp reversal from the profits it made in the second half of last year. The loss, equivalent to USD 4.10 per share, was far greater than the USD 1.81 per share that Wall Street analysts, surveyed by FactSet, had forecast. The quarter’s revenue of USD 4.54 billion fell well short of expectations.

Previously, Tesla usually didn't report Q1 earnings until early May of each year. In the first quarter of 2019, Tesla ended two consecutive quarters of profit, lost USD 702 million.

When Tesla reported its 2018 annual report earlier this year, Wall Street analysts predicted a loss of USD 2.5 million in Q1 2019. " Musk's reliance on 'luck' has made it virtually unprofitable to sell the long-endurance Model 3 in Europe and China and the medium-range Model 3 in the U.S., raising questions about the company's profitability in selling the long-promised USD 35,000 vehicle,"  an analyst said.

Tesla is Trying to Restore Investor Confidence

On the evening of April 22, Tesla held Autonomy Day at its California headquarters. The company unveiled fully autonomous driving 3.0 hardware and its self-developed autonomous driving dedicated chip to investors and global users live. Elon Musk called it ' the best chip in the world, objectively.' Its a 260 square millimetre piece of silicon, with 6 billion transistors, the company claims offers 21 times the performance of the Nvidia chips it was using before.

Musk said that after a software update, which activates a feature called Navigate on Autopilot, all future Tesla vehicles will have self-driving functions. While many tech companies and traditional automakers are researching autonomous driving, Tesla is different in that it relies on radar and cameras around the car, not LIDAR sensors. Musk believes that vendors that rely on LIDAR are 'doomed to fail,' and he predicts others will abandon LIDAR.

The chip is called a 'fully autonomous computer' or FSD (Full Self-Driving) computer chip, is a high-performance, proprietary chip (made at a Samsung plant in Texas) that takes full account of autonomy and security.

According to Tesla, FSD's neural network can process 2,100 frames of images per second, has 144TOPS High Rate, and consumes only 250 watts per mile. However, Musk's ambitions go far beyond fully autonomous driving. On the day of the event, he announced the 'RoboTaxi' initiative and said that one million Tesla vehicles with fully autonomous hardware will be on the road next year.

FSD Chip's Five Features

According to iHoushi, The FSD chip has five remarkable features. 

1) It adapts to the redundancy requirement of automatic driving. In the AV system, the redundancy of the system means that if one of the modules fails or is damaged, the software can detect and mark it in time to isolate the failure module, while the other module has an independent power supply and storage system and can continue to undertake the corresponding work uninfluenced.

2) Higher Performance. A general-purpose CPU can't match the performance of a dedicated GPU, which lags far behind the performance of a computing chip designed for neural networks. Pete Bannon says that when they analyzed a lot of the data and found that a lot of the AV computing was a particular kind of mathematics, they tried to adapt the chip design to that, and the result was a huge improvement in chip performance. Coupled with high-speed RAM and storage, AV computing in any of the most complex scenarios is stress-free.

3) Chip Clock Synchronization Function. FSD chips are designed with an emphasis on clock synchronization to ensure that both modules are processing the same batch of data at the same time point. If the clocks on the two modules are out of sync with each other, or with other external systems, the consequences could be catastrophic, since the primary problem with autonomous driving technology is time accuracy and minimizing delays and response times based on that.

4) Chip Data Encryption and Security. Data security is also a highlight of FSD chip design. The chip encrypts instructions and data and also reviews data to prevent malicious intrusion by external hackers.

For AV system, human life is the most important, and external invasion is absolutely not allowed. FSD chip strictly monitors the input and output data, aiming to find any suspicious data, such as forged video input data (deceiving the car that there is a pedestrian in front of it).

And maliciously tampered output instructions (if the vehicle does detect a pedestrian in front of it, the maliciously tampered output instructions may prevent the vehicle from taking appropriate response measures).

5) The Chip is Compatible With Existing Tesla Models. The biggest benefit for owners of the new custom FSD chip is that it is compatible with existing Tesla models. Tesla said owners who had previously purchased a "fully autonomous driving package" would receive a free hardware update in the coming months.

However, Tesla shares fell after the news (down about 4%), down about 30% from December and about 9% from a year ago. On the second day (April 24, Beijing time), Tesla announced a new version of Model S and Model X, which not only have new transmission system, wheel bearing, tire, suspension and other hardware and components but also have improved range and charging efficiency.

The new Model S and Model X will have an EPA range of 370 miles and 325 miles, respectively, the company said, with production starting this week at the Fremont, calif., plant. The good news announced two days before the earnings report, has led to speculation that Tesla is trying to boost investor confidence further.

China Will Be The Focus of Tesla's Expansion Plan

Tesla is the global leader in electric vehicle manufacturing industry, but it is still suffering from losses.

But in terms of a single Model, the Tesla Model 3 is now the top-selling electric car in the United States. While it leads the second-placed Chevrolet Volt by less than 10,000 units, the Volt has been on the market for nearly years, and the Model 3, which was only delivered in 2017, which is only 3 years.

On January 7, 2019, Tesla Shanghai super factory officially started construction, the company announced that the factory is expected to achieve mass production by the end of 2019. On March 1st Tesla officially unveiled its cheapest Model 3, the standard Model 3, for USD 35,000.

What's more shocking to the old Tesla owners in China is that Tesla has adjusted the selling price of the whole series of its models in China. The price of Model X has dropped by CNY 174,300 to CNY 341,100, the price of Model 3 has dropped by CNY 26,000 to CNY 44,000, and the price of Model S has dropped by CNY 11,400 to CNY 277,500.

The Model 3 will be the focus of production at the Shanghai plant. When production starts at the Shanghai plant, the Model 3 will be exempt from the 15% tariff. With the mass production of the Shanghai plant and the adoption of domestic suppliers, the price of the localized Tesla will be greatly reduced compared with the current price, and it will have fierce competition with the new car manufacturers in China.

Domestic New EV Manufacturers Are No Match for Tesla

It has been 16 years since Tesla was founded in 2003, domestic new car manufacturers only began to appear in large numbers in 2014. And the reason is closely related to the domestic new energy passenger car subsidy policy. So unlike Tesla, which was born into the market, China's new car manufacturers carry the subsidy gene.

In addition, it lags behind Tesla in starting, and the 'hematopoietic capacity' and self-built capacity of domestic new car manufacturers are much worse.

Take NIO, which is listed in the United States as an example, the net loss of Q3 in 2018 was more than USD 2.8 billion, which increased by 56% compared with that of Q2 in 2018. The NIO with the largest shipment volume in China is still not equipped with the 'self-hematopoietic ability', so the situation of other enterprises can be imagined.

As a manufacturing enterprise, technical ability often determines the real strength of the enterprise. We can find the gap between domestic new car manufacturers and Tesla by comparing Tesla and NIO.

In terms of battery, Tesla develops batteries in partnership with Panasonic, and NIO buys them from CATL; In terms of chips: Tesla made the chips itself, and NIO bought EYEQ4 from Mobileye. As we all know, technology research and development is very expensive, and car manufacturers have to face the pressure of mass production. Even so, Tesla chose to make its own chips rather than find a supplier, and the fundamental reason must be to master the core technology.

The research and development of Artificial Intelligence chips have gradually become a hot topic since 2015. However, in China, only a few companies like Cambricon Technologies (寒武纪) and Horizon Robotics (地平线) have launched their own smart chip products adapted to the scene. While Google, Intel, Nvidia and other international giants are developing their own smart chips in different fields of smart chip application, Chinese chip companies are far from their competitors at present.

'Tesla Will Comprehensively Overwhelm Domestic New Car Manufacturers'

Although there are a large number of domestic first-class institutional investment endorsements behind the new car manufacturers, Tesla is bound to comprehensively suppress them. Coupled with the decline of subsidies, it is difficult for the new car manufacturers to exceed the expected performance under domestic and foreign troubles.

In addition, the fundamental reason why domestic investment institutions invest a lot in new automobile manufacturing enterprises is that new energy passenger cars are in the ' tuyere period'.

Actually, they are laying out the track of new energy vehicles, and the way to participate is to put eggs in multiple baskets. For example, the famous VC Sequoia Capital participated in NIO (蔚来), WM Motor (威马汽车) and LEAP Motor (零跑汽车), etc., betting that a domestic giant will be born on this track.

In general, Tesla's eagerness to launch a Chinese offensive is aim to " shoot three birds with one stone".

1) They are eager to change the negative image created by China's market failure in the past 2018 and restore the confidence of the market, investors and potential investors.

2) Its likely to beat China's new carmakers in their infancy -- or at least slow their growth.

3) Cutting prices mean it can help Tesla increase market share.

However, no matter how powerful the would-be rivals are, making good vehicles is now the most important thing for domestic new manufacturers.

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