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Analysis Jun 25, 2019 12:00 am EqualOcean

Can 4-year-old NIO avoid the pit that Tesla has walked through in the past 16 years?

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Updated 17 hours ago · EO Company

NIO Reaches Strategic Cooperation with Suning

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Jul 31, 2020 01:46 pm ·

Tesla Share Prices Decouple from the Fundamentals [2/2]

This article is part II of our analysis on Tesla – check out part I before you read.  For the Model 3, we can expect a rise in sales as EV penetration increases in Europe. However, we think the sales for this model also hinge on two important factors: 1. The criteria for EV tax deduction and subsidies and 2. The corporate transportation preference. For the first factor, we have seen the EV tax policies in Europe being a crucial factor in demand for Tesla. For instance, as the benefit in kind tax was capped for EV below EUR 50k in the Netherlands, Tesla Model S and X sales dropped to near 0 from 1000 per quarter. In terms of corporate transportation preference, although each corporation’s preference may vary, it might be presumptuous to assume Model 3 will be the ideal substitute for existing corporate fleets solely based on cost. While corporate fleets in Europe are dominated by BMW 5 and Mercedes E class, both the size and the prestige of Model 3 are more in line with BMW 3. So, despite the short term cost benefit, we see that wide adoption of Model 3 in Europe could also be hampered by the demand for class. For Model Y, we currently see it as a growth driver for Tesla because of its unique design and pricing. In terms of design, Model Y is a crossover between sedan and SUV and is targeting a wide range of consumers. In terms of pricing, it is priced a little under USD 50k – it is not subject to competition with more luxury models like Audi e-tron and Jaguar i-pace. A concern for Model Y sales is the potential cannibalization. While Tesla Model 3 and Model Y use 70% of the same gears and are similar in many ways, a surge in demand for Model Y can replace the existing demand for Model 3. China – The arrogant Tesla is not about to beat local competitors Since Tesla delivered its first Shanghai-made Model 3 to Chinese consumers back in January 2020, the car model has become the best-selling EV. Tesla reached around 46,000 car deliveries in the first half of the year, dwarfing smaller ones like NIO (14,483), Li Auto (9,500) WM Motor (7310) and Xpeng Motors (3,381, ex-June). Tesla's production is ramping up meanwhile, and it aims higher. The Shanghai plant's current production capacity for Model 3 is 150,000 per annum; its Model Y production is expected to begin in early 2021 with a production capacity no less than Model 3. Factoring this, we assume it can reach a total 300,000 annum capacity in 2021.  However, we hold the opinion that the ambitious EV leader is not yet ready to reach lasting dominance in the massive and lucrative market. Experience tells us that it could be hard for overseas leaders to dominate the Chinese market easily – consider the failures of giants like Uber and Google. We see a high potential of the new-generation management growing on the ground to rule the market due to 1. favoring policies 2. deeper understanding of domestic customers and innovation in service and tech.  China's new electric vehicle (NEV) subsidy policy that came out in April continues to favor the local. It is now only applicable to NEVs with the pre-subsidy price of CNY 300k or below, with the exemption of those adopting battery swap models, like NIO. We see a critical signal here: Beijing supports new tech innovations and will foster more domestic brands. Some foreign brands' versions of Tesla and Mercedes products will not be eligible – rather they will be the 'catfish' that will motivate others.  Tesla reacted to the policy by cutting prices down, which will lead to a slipping gross profit margin of the car model (the lowest among other, 17%) and the overall automotive GPM, in our view. This activity sparked the anger of Tesla car owners as they had bought the car with higher prices before (and it happens from time to time).  However, Li Auto choose to remedy the subsidy gap caused by the changing policies for its customers (around 8,000 per Li One), showing Chinese brands providing better services to win mindshare. The company's Extended-Range Electric Vehicles (EREV) tech is helping it carve out a position for itself as a company that understands the tipping point of battery tech, and the insufficient charging infrastructure in China. Read more about Li Auto, the brand that broke NIO's record in reaching 10,000 deliveries.  Tesla's neglecting of Chinese consumers has been reported widely. For instance, it was accused of substituting promised new control chips with an older version without notice in March. Chinese customers might switch to local brands that know them better, with higher cost performance and better service.  

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Jul 31, 2020 12:20 pm ·

Tesla Share Prices Decouple from the Fundamentals [1/2]

Recently the Tesla (NASDAQ: TSLA) share price broke above the $1,500 threshold, bringing its market cap to ~ $270 billion and making Tesla the largest car manufacturer in the world. In the past 52 weeks, Tesla share price has moved up by more than 500% despite a still negative return on equity. It is currently trading at a 730x P/E multiple vs a 10-20x in the industry, 40x multiple of luxury car maker Ferrari. Having 1% of the total car manufacturing revenue and 30% of global OEM market cap, investors are clearly valuing Tesla for far more than its sales. Although Tesla has a first mover advantage in the expanding Electric Vehicle market, we think the growth expectation baked in for Tesla’s current share price could be unrealistic. Technical Perspective – The end of the short squeeze A Short Squeeze happens when a stock rises higher sharply, forcing investors who bet on the stock price falling to purchase the stock at the market price to recover their positions, and as consequence, pushing the price even higher. We think short squeeze played a role in pushing up TSLA’s share price over a reasonable range, but now, with short bets on TSLA decrease, TSLA’s share momentum is likely going to face headwinds. According to data, TSLA shares shorted by investors were 23% of total shares one year ago, and this number decreased to ~ 8% recently. Along with short positions falling lower, the TSLA share price is also moving proportionally upward. Now, data shows it will take less than 1/3 of trading volume compared to last year to clear all TSLA’s short positions, meaning that a temporary sharp price increase will have less additional upward effects on TSLA’s share price because there will be less short sellers buying. Brand image and margin trade-off The success of Tesla in the EV market can be attributed to the brand image it has built with its technology and futuristic design. Tesla has traditionally been able to apply a premium value to its vehicles and shift consumer preferences. However, in Europe we see two headwinds regarding Tesla’s premium in brand image. 1. The high problem rate and low accessibility of relevant services are destroying Tesla’s credibility. 2. As Europe is the home court to many established auto brands such as BMW, Daimler, Volkswagen, Renault, and etc, Tesla is likely to face some headwinds as it expands. In addition, Tesla’s strategic shift, from high end S and X model sales to a focus on lower end Model 3 and Model Y sales, is further lowering margins and bringing both short term and long term bottom line concerns. Compared to the 24% gross margin of Model X and S, Model 3 and Model Y are currently running on 17% margins. With decreasing Model X and S deliveries and increasing Model 3 and Model Y deliveries, Tesla is further pressing its margins. While the increasing EV presence is a consensus, the pace of inflection is subject to debate. Given the volatility of taxes and various policy benefits in the past, Tesla might need to further lower its margin if existing tax and policy benefits are limited in any way. In the long run, as existing ICE (internal combustion engine) manufacturers launch more EV models at all price levels, Tesla might capture a smaller market share, resulting in weaker bottom-line growth. Europe – A big upside and big volatility In our view, Tesla sales in Europe have proven the high correlation of environmental law and Tesla sales. Currently, the two largest Tesla consumers in Europe are the Netherlands and Norway, accounting for 40% of total Tesla sales in the continent. Both countries are also pioneering in BEV adoption – while they account for 3.8% of total passenger vehicle sales in Europe, they accounted for 35% of the BEV market in Europe in 2018. Policy in Norway required all new light vehicles sales by 2025 to be ZEV (Zero Emission Vehicles) and 75% new heavy commercial van sales to be ZEV by 2030. In the Netherlands, the government also required an all ZEV sales target by 2030. Both countries also provided tax incentives for ZEV buyers. As a result, Tesla was able to quickly gain tractions and saw a jump in sales. With the EU's goal being to aggressively reduce carbon dioxide emissions by 2025, we might see Tesla’s adoption rate rise in other countries as purchasing and maintenance incentives come to light, especially in Germany and the UK. Policy is crucial, and growth is mixed To comply with the tough emission rules in Europe, EV penetration will rise by approximately 5.5x from 2018 to 2021, and Norway and Netherlands’ share will drop from 38% to 10%  by BNP Paribas’ estimate. Germany and the UK are likely to be the drivers for this EV growth. If sales in Norway and the Netherlands are any leading indicator for Tesla’s sales in Germany and the UK, Tesla could be capturing hyper growth in Europe and fully support a $400/share valuation given by BNP Paribas. However, we think the driver for Tesla’s growth in these two countries could be very volatile. The growth story in Germany and the UK was constructed upon the large corporate fleet demand in either country, accounting for 53% and 56% of total vehicle demand respectively. According to BNP Paribas, this could create a TAM of 3.2 million units. With multiple growth catalysts, it’s important to analyze how sales of each model for Tesla will perform under the current situation. For Model X and Model S, future sales are not looking very optimistic – 1. These two models might not be able to fully enjoy the tax benefits in Europe due to their high price, and 2. Model S and Model X are subject to quality concerns and can incur high maintenance costs. This article is part I of our analysis on Tesla. Please continue to part II.

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Jul 24, 2020 06:04 pm · Zhitongcaijing

NIO Launches New BEV Model, Benchmarking Tesla's Model Y

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Jul 21, 2020 06:51 pm ·

Can Tesla Beat Didi and Xpeng?

►When technology has shown proven progress people will have more openness to the idea of taking a ride with a robotaxi. ►The future of autonomous driving is still unknown but is sure to lead to plenty of exciting milestones ahead. On July 15th, EqualOcean and the Shanghai-based accelerator XNode held a live webinar on the topic of the auto industry. We invited corporate innovation expert, Bob Wang from XNode, and Joe Sun, who is the founder of XID Lab and a former Chief Experience Designer at Didi. Key takeaways: We see the launch of commercial ride-hailing service as a key step toward building a long-term disruptive business. Companies such as Waymo, Pony.ai, AutoX and DiDi, among other pioneers focusing on Robotaxi, have reached some milestones in 2020. What are the reasons they chose to enter the market? What are the advantages and challenges? When asked this question, Joe summarized three kinds of group players who are interested in robotaxis: technology companies, leading carmakers and autonomous driving companies. According to Joe, the robotaxi is coming, sooner or later, and all the players have foreseen great commercial value and social impact from the robotaxi businesses. Consumers will benefit from this as robotaxis become more accessible and efficient. When that day comes, a big part of today’s mobility demand will be fulfilled by robotaxi. It will be the future form of the ride-hailing we see now. Bob’s answer offered outlined another way of thinking. He mentioned that one of Roland Berger’s recent reports showcased two key drivers in the current mobility market, namely technology progress, and consumer willingness. Technology progress – this concerns the question of the right timing to start testing the robotaxi business and challenges being another crucial deciding factor. The willingness of consumers – at the same time, mass consumers are generally not familiar with the concept of autonomous driving; but when technology has shown proven progress people will have more openness to the idea of taking a ride with a robotaxi. How are autonomous driving companies building out their businesses and what are the ways they can monetize? Bob talked to us regarding two scenarios in this area: one is a ‘determinative’ scenario, the other is an ‘open road’ scenario. An example of a determinative scenario is that, for autonomous driving companies, questions of logistics for transportation or parking started much earlier compared to other functions. Some players in the industry have already found a way to attain monetization here. On the other hand, an open road scenario needs testing and ample feedback from the market. One example being Didi, which recently started offering robotaxi in Shanghai but did not open it to the general public. Overall, it still a bit early to comment on this topic. Joe presented us with a vivid picture of a possible interaction in the current taxi-taking scenario. It mimics the experience of taking a robotaxi if no one were to talk to the driver during a taxi ride. In the cost structure of taxi-taking, a big part of the fee goes to the taxi driver. If and when autonomous driving replaces the driver, that will mean the cost of autonomous driving will be significantly lower. Removing the cost of the driver (as uncomfortable as it may first seem) makes for a good deal. Tesla Model 3, the killer product, has outstanding pricing and better performance compared to some leading ICE (Internal Combustion Engines) cars, not to mention its autopilot and Advanced Driver Assistance System (ADAS) features. Chinese EV markers like NIO and Xpeng are following suit, hoping to change how we think about cars. How do you see EV makers' efforts in autonomous driving? And why do you think many manufacturers are at L2-L3, and many tech/Internet companies are at L4-L5? Joe offered his previous experience working at Xpeng as an example. He Xiaopeng, founder of Xpeng (and UC Web), who Joe refers to as “a typical product manager from a big Internet company,” believes that technology can change the whole industry. According to Joe, ‘EV (electric vehicle) companies have a natural advantage in the autonomous driving application. Most important is many EV companies are new; they don’t have the historical burden. Some of these new tech companies, like Tesla, have strong DNA in technology development, which is more important than the technical proficiency per se. Under this logical rubric, the traditional car companies move at a slower pace. However, efficiency is often the key. Bob gave us an example concerning Beijing Automotive Industry Corporation (BAIC)’s blueprint in 2017, to make mass production of L3 cars around 2019, with the plan that car manufacturers would be in L2-L3, and tech/Internet companies mostly in L4-L5 around 2021.  However, just one year after, in 2018, they changed gears. They are currently focusing on L2 and L2.5, and aim to achieve mass production of L3 in 2022. It offers real-life scenarios from traditional carmakers and industry. Furthermore, Bob suggested the reason behind technology companies’ current stages being L3-L5. Generally speaking, L3 and L4 attract more VCs to startups from an investment point of view.  Joe provided another point – which is that typical technology companies like Tesla and Waymo are much more attractive to the talents in the field. For example, Audi A8 and Tesla Model 3 both are under L3, model 3 is however seems smarter. Although tech companies are often ambitious – and sometimes too ambitious – the core values involved, and the autonomous driving team, etc. can drive them forward. Special question for Joe: Can you introduce Didi’s autonomous driving strategy and practices a little more? What will this concept/business mean to Didi as a whole, regarding its valuation? Joe’s extensive experiences at Didi offered a different outlook. Didi was low-profile regarding autonomous driving – until the recent news of its autonomous driving subsidiary emerged. Considering its platform and its drivers, it is still a sensitive issue all around. For the autonomous driving part, Didi is still in the stage of early commercialization. However, it is not far behind its counterparts. Due to Didi having the biggest data of mobility services in kilometers and in hours globally, Didi’s autonomous driving team will rise to the very top when the technology is ready for commercialization. Moreover, the data belongs to Didi instead of its autonomous driving team. In all possible scenarios, if the subsidiary does not perform well – as Didi is considering shaping the subsidiary as one separate company – Didi would have to spend more money. It would have to invest in the subsidiary to support it or buy another autonomous driving company to ensure success. Hence, the market will need considerable time to see the real value of the company. China's vibrant tech circles spawned dozens of billion-dollar enterprises in the past few years – and unavoidable failures. Companies like Drive.ai and roadstar.ai failed to deliver what they dreamed of. How do you see the challenges ahead, especially in the auto industry, and what's your advice to young startups? On this topic, Joe and Bob offered us some carefully considered wisdom. From Joe, we learned that not every autonomous driving company is created equal. In other words, not every company in this sector is needed. Young startups should be thinking from the commercial point of view and making friends with industry players that can help with commercialization. Bob suggested that everyone (all companies) in the ecosystem are in it together, for the time being, confronting the challenges out there. Insights from XNode’s close partner, NIO Capital, hold that “robotaxi and mobility services will be booming, and traditional OEM will keep losing profits.” In one way or another, huge opportunities for tech startups, and new players gather around three ways of being ready: stay focused, don’t directly compete with a giant, and get support from governmental organizations. Special question for Bob: In connection with autonomous driving startups and PE/VC markets, what changes have you have been witnessing in the last few years? What would you expect from the rest of 2020 and the following years? According to Bob, despite autonomous driving has become a hot topic among car companies, investors, and governmental organizations, there is currently a decreasing trend in fundraising based on a few reports. Some autonomous driving’s subdomains, such as AI chips and algorithm creation, are gaining more investments compared to the Advanced Driver Assistance System (ADAS). Nevertheless, the future is still unknown. With people’s needs around traveling and exploring likely to remain constant, the topic of autonomous driving will stay vibrant. The two auto experts in this WIM webinar relayed ample knowledge and perspectives on the central topic. Yet, as both Bob and Joe mentioned, it is still too early to say anything concrete. The future of autonomous driving is still unknown but is sure to lead to plenty of exciting milestones ahead.

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Jul 21, 2020 05:55 pm · 36Kr

Chinese EV Startup Hozon Auto Eyes IPO by 2021

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