China's EV Market Dominance and the Challenges Facing Tesla — #48

China's EV Market Dominance and the Challenges Facing Tesla — #48

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Welcome to Manifold. My guest today is TP Huang. You may remember that I had him on the show about a month ago and he gave us an, a really excellent introduction to what is happening in the U S China chip war. Now, TP is a real expert on the frontier of technologies across several areas.

Today, we're going to talk about electric vehicles. And if you follow him on Twitter, you'll know that he is one of the best sources tracking developments in EV markets, not just in China, but around the world. And he also follows a lot of the really hardcore technical developments, which a little bit we'll get, we'll get into that a little bit today. So TP, welcome back to the podcast. Thanks for having me, Steve. Yeah, really a treat to have you back again.

there was really intense interest. In our last episode, partially I think because of your obvious expertise and then obviously partially because the chip war is really in the news a lot. as far as electric vehicles go, it's not something that I know much about. I'm not really a car guy. I'm still driving my 2007 Honda Fit. internal combustion engine car.

Right? And despite it being really old, it only has, I think, about 80, 000 miles on it. but EVs kind of got into my, onto my radar a little bit slowly, but because A, number one, a lot of Silicon Valley dudes that I interact with drive Teslas. And out of my peripheral vision, online, I started noticing that the Chinese are getting really good at making. electric vehicles and maybe even have kind of completely dominated the battery part of that industry. And actually that might be how I know about UTP because I might have actually like noticed your tweet. on this subject.

So maybe just say a little bit about how you got interested in electric vehicles. Yeah. So, my story is that I've always, you know, being more of like a culturally liberal person, I've always been more, interested in the entire area of climate change and, you know, energy transition than a lot of people.

And from about 2008, that's when I first started, noticing this company called B. O. I. D. And they were at the time already introducing, uh, dual motors, so like plug in hybrid at the time, and then eventually electric vehicles. And obviously Musk was also starting Tesla at that, around that time too.

And I would say that for about seven or eight years, there's things kind of just really progressed very slowly and I kind of lost interest partially, but you know, I still focused on it. And, and then later on when EV itself became more affordable, that's when I got my Tesla and, and I found that BYD itself was also doing really splendidly. So I decided that this is one of those just really interesting topic that I need to get into.

With respect to energy transition. So, I've been kind of, spending a lot of times in the past couple of years, just researching on this because, China itself is where the frontier of, EV development is happening right now. So. I find that a lot of the Western sources, because they're not going to China to actually see this, they're not really getting the full picture of it. So there's a lot of interest in, where the development is actually going, that the mainstream media is not really covering.

And I think that it's a real shame that this is, that it's not being covered more, because this will have a immense, affecting all our lives. I was thinking that, you know, when we, when we think, when we think about automotive industry, it's basically the largest manufacturing industry in the world. a lot of the economies, their manufacturing sector is dependent on automobile automobiles, right? So, you know, we can think about chips as this really important technology, but for a lot of countries around the world, having a car industry is actually the most important thing they could have. Yeah, you're making an important point, which is that the automobile industry, even though, you know, you until recently, people didn't think about it as an exciting part of technology.

it is really one of the dominant components of any country's manufacturing, supply chain. So you can't be a leading manufacturing country unless you have a strong presence in the automobile industry. So in terms of, like, the future development of China, it was, I think, eventually important that they, that they somehow crack, that market, and in a way, they were very strategic because they said, when it comes to internal combustion engines, it would be very tough for us to fully catch up with the Japanese and the Americans and the Europeans. And so they invested heavily in this different kind of car, and things have kind of worked out in their favor, I guess, more, more than I had really originally expected.

Yeah, it's kind of, really took off so fast in the past, couple of years. I think there's been some one thing that I, that I tweeted recently, and I think it's kind of shocking is just the export numbers coming out of China. Cars. So based on my, based on the data we've seen, so 2019 was the last year before COVID and, in September of 2019, China exported 110, 000 cars in total, and this year in September, they exported almost 500, 000. So that's almost a five fold, a four, four to five fold increase over in space of four years. So it kind of just shows you how fast things changed in the past, four years, and I don't think anyone in the Chinese government expected it to happen this quickly.

Now just to clarify that, so I believe, is China currently the number one exporter of cars right now? It is the number one exporter of cars and obviously the number one exporter of EVs and also, trucks and buses, I think. Right. So I think a lot of Americans, especially like, you know, when, when I have these conversations, there's obviously a whole spectrum of people that I deal with, and there's always this spectrum of people that are, I think, a little bit behind the times. So they still think Chinese products are low quality, and they're just copying Western technology, etc. And so they're often surprised to learn, for example, number one, that the most competitive automobile market in the world bar none is the Chinese market. It's also the largest and fastest growing.

And as you just pointed out that the Chinese companies themselves now are competitive in that market and are now exporting huge numbers of cars outside of China. Yeah, I think keeping in mind that a lot of these exports are from probably foreign companies that are making the cars in China and rely on the Chinese supply chain. So it's not just the Chinese automakers themselves, but, you know, even with that, you can see just the trend of where things are heading in terms of the exports and such. Right. Now, before Tesla built its Gigafactory near Shanghai, my understanding was a foreign entity that wanted to be making cars in China had to basically enter a kind of joint venture deal with a Chinese company. That was the legal requirement, but, and so that, as you point out, like all the major manufacturers that make cars in China, like GM and Volkswagen.

They are involved in a joint venture, situation with a Chinese company, but Tesla was granted some kind of special deal where they could wholly own their, Gigafactory in Shanghai. Maybe you could say a little bit about that. I think so this is, partly, partly related to the, trade war between China and US started under Trump. And part one of the things that Chinese government did agree to is that, you know, foreign automakers can come to China, have a hundred percent ownership of the plants that they operate. So Tesla was definitely the first one to take advantage of that. And since then, I would say, some of the other Western automakers have, bought more of their JVs, so joint ventures from their Chinese partners also.

Right. Now, in the Chinese market right now, there's a kind of apocalypse happening for, internal combustion cars, partially because the government, which has been supporting electric vehicles by building up the infrastructure and also having, you know, preferential treatment of, electric vehicles, i. e. in terms of registrations in cities, and I think maybe the way they can, the way that, you know, access to the roads and things like that during rush hour, tell the listeners what, what's happening in the Chinese auto market right now. Yeah.

So I think, so there was a two or three years during COVID time where people didn't get to go to China. So they didn't really see what was going on in the Chinese market. And the one thing that we noticed is after. Tesla came. So the one major driver for the Chinese EV market was actually not even the Chinese government, but, but Tesla actually, because when Tesla came, people in China start viewing EVs or they call it any EVs, like new energy vehicles, which compost the battery electric, and also the plugging hybrid EVs, they started to see both of these things as, I guess, more desirable, higher value, more, more attractive. And, because of this, this, this, Tesla brought this a new sense of awareness and, desire for, EVs, then the local manufacturers like, BYD, NIO and Xpeng and Li Auto, they started doing better also.

And over time, you start seeing every tech company in China wanting to get into the EV space. And then that has added to a lot of the competition. So all the research right now in China are devoted to improving EVs and smart car features. So what happened is over by the time of this, April, when we had the Shanghai Motor Show, when people went there, they saw that all the exciting cars on display were EVs.

And then the entire automotive industry, especially the Germans, they realized, Oh shit, we're behind, we need to catch up. And the Chinese customers noticed that all the cool stuff were locally built EVs. I mean, Tesla didn't show up at this, the Shanghai motor show. And, there was all sorts of really, really advanced looking cars in this display.

So, so then the, this entire market really changed around April and, I mean, it was already shifting like very progressively to maybe like 30 percent and EV penetration. But since April, you started seeing that people just started not want internal combustion engine cars anymore. And, recently, I think in the most recent week, we're, we're at about. We've just surpassed 40 percent penetration for EVs, but even more importantly than that, is that just what's happening to the, internal combustion engine market, because a lot of the legacy auto makers are losing money, just trying to unload industry. So the local dealers are closing and they're trying to just, selling things at 30 for 30 percent cheaper than what they used to sell them to just unload it.

So the expectation is once we get to next year and maybe the year after, we're going to see just any of these getting to like maybe 60, 70 percent of the local market. And, we'll, we'll see, we'll see what happens to the legacy automakers, and the countries that they're from. Once, once this happens, because, China is the largest market for all the German automakers and it is, you know, a huge market for, for Japan and, all the Japanese automakers.

So. If they're forced to not make any more money and probably take losses in China, what does that do to their, you know, overall situation? That's, that's a big question right now. Yeah. So I just want to emphasize, again, what you just said to the listeners. Already the EV percentage of new car sales in China is like 40%.

and. That is in an environment where the internal combustion cars are having their prices slashed because the dealers want to, you know, see the handwriting on the wall and they're just trying to get rid of their inventory. So you would expect in another year that percentage to go even higher. Like I think you just said 60 percent or more. So you've got a market that's really passing through a tipping point very fast, like just over a period of a couple of years, it's passing through a tipping point. And Because the Chinese auto market is the biggest in the world and it's definitely the fastest growing auto market in the world all the main manufacturers that people are familiar with like Volkswagen and GM and Toyota.

They are very dependent on that market for revenues. So some, you know analyst who does a kind of macro analysis of you know, western automakers, they need to take this into account in their projections For where the earnings and revenues of those companies are going to be in a year or two, Yes. And, I think, you know, even if we look a little bit, further than that, it's just the entire idea of what's going to happen with the hydrocarbon industry when, you know, when this, when this kind of growth has happened in the EV industry. Right. So, there's.

There's obviously talks already of gasoline, peaking in China around 2024, right? I think the diesel, peaking 2025, like, you know. Yeah, I think the official government projections, which in China, you know, despite what a lot of Westerners think they're pretty serious when they make these projections, they're projecting peak gasoline consumption in China within, you know, the next year or two. it's, it's also based on my personal calculation that gasoline itself will happen faster than the government regular, projection, because honestly, the governments are way too slow on this, like the consumers are already left with, you know, chosen with the pockets, pocketbooks, and, that's going to have a, obviously a huge effect in the oil demand and in the future. So can we, I think we've already, I think the, the, the important facts you've already shared with us have probably already whetted the appetite of the listeners. So they probably realized this is an important topic that things are changing very fast. This is a super impend, important industry for the economies of, you know, all major countries, but I wanted to just take a step back and have you paint a picture for, what it's like for the average Chinese person who's buying a car, you know, when they're looking at an electric car, is the price comparable to the ICE, the internal combustion engine car they're looking at? What are their, what are their considerations in terms of the range, the convenience recharging it? That I think that's so foreign to Americans because an American like either you're a Tesla diehard fan Or you have no idea what it's like to own a fully electric car.

Because and you have no idea how you would recharge it if you went on a road trip or something like that So maybe just talk about what the world looks like to a driver in China who's trying to decide what to buy for their next car? Yeah. So I have some stats in front of me right now, which is kind of interesting. I think it paints a picture. So this is. current market penetration of new sales for battery, electrical, pure electric vehicles doesn't count the plugin hybrid, for under a hundred thousand in September, it was 33% battery electric. For a hundred to 200,000 it was 20%.

For 200 300, it was 33.5%. Can I can I can I interrupt you for one second? So I think those prices are rmb, right? So so for and b. Yes.

So Americans divide by about 7, right? Or 6. 5. So, under 100k, that's a pretty cheap car, right? 000, 16, 000 car.

You can't even buy a new car in America for that, I don't think. no, I mean. I think, yeah, so I think the point I was trying to just get to is just that people are actually transitioning to new electric vehicles faster on the cheaper end because they made the, so there's, so there's two factors here.

There's the, the plugging hybrid and there's also the battery electric. So what we saw, what we see is the battery electric has really taken over the. The sub 80, 000 RMB range because the cost of electricity in China is so cheap that if you can get a, a battery electric car for really cheap, then you're basically. You know, you're basically driving free for most of the year, and there's, there's, there's no gas costs to worry about, and, the infrastructure is already built for, to take care of, electric vehicles. Can I interrupt you there? So, electricity costs in China is kind of on average, is it like a third or a fourth of the U.

S. cost? Is that fair? I, you know, I haven't, sorry, I, I haven't actually looked into that, but I think it's cheaper than, than the United States. I'm not 100 percent sure.

The reason I, the reason I saw the 4th numbers when it's actually a different context when people are comparing the use of AI chips, they're saying that the data centers in China pay a much lower price for electricity to run those chips. And I think I saw the number was one third, one fourth. So anyway, it's, it's much cheaper. Now, the people who are buying these inexpensive all electric cars in China, are they just plugging them in, in their garage? How, how are they like, what is their daily life like with this car? I think there's just a lot of, areas where you can charge your car into just, you know, not supercharger, just...

Just regular plug into into the, you know, the at home kind of chargers and most of the cheap lower end car. They charge so slow that you don't really want to plug them into like 150 kilowatt charger anyways. Okay. So the owner, the owner would have a car that has a range of, we, again, we can't use kilometers. Well, maybe with my audience, we can use kilometers, but like maybe, maybe 300 kilometer range.

And so. When they plug it into, if they need to fully charge it from zero, does, how many hours does that take? Yeah, so I think what, what typically happens is you get a car, a mini car that has maybe 300 to 400 kilometer range, but in real world, it's probably 300 and then you charge it, overnight. So you drive in a day, you come back and if it gets below a certain point, then you, charge it maybe seven or eight hours, maybe like normally you can probably fill it up in maybe five or six hours overnight.

And the next day you come and you just drive out again. It doesn't, you don't have to wait or anything like that. So there's, so there's a battery electric.

There's also the plug in hybrid. normally those have maybe a hundred kilometers of like pure electric, electric range. So during most days, that's enough for you to never use the actual, the combustion component of it.

And, you just charge it every night. And charge your phone every night, close the phone every night, and that's enough for you to drive to work, pick up your kids and come back. So net net for a Chinese consumer, it's really not a big hassle for them to switch even all the way to like fully EV. Sure. And of course, you really do have to have enough chargers around, uh, in your buildings and parking lots and things like that for people to live hassle free with EVs. And is, is there a distinction between like if you're in a tier one, tier two, tier three city or rural place in China for the availability of the, that charging infrastructure? You know, it's, it's quite common.

It's like, obviously it's very, very abundant in the big cities in China, but I think it's actually also getting quite abundant in the smaller cities because you see that the sales numbers, for like the third, fourth, fifth tier cities also, you know, going up quite a bit. And also people also use, EVs themselves as ways of supplying electricity, feeding electricity back into the system. A different point of the day. Yeah, actually at the podcast, I would like to talk to you a little bit about like. How the smart grid with attached battery storage, you know, will be very revolutionary for just general energy considerations for aside from cars, but we can talk about that at the end of the podcast.

But, so your projection is, you know, within a year or a few years, the majority of new cars sold in China will be, I guess, fully EV and. I think like, plugging hybrid will actually be a, a mainstay in the Chinese market until for the next four or five years, at least that's my opinion on this because, for most people, especially, especially if you are getting to the higher end market. So, you know, for like, 50, 000 or higher market, you know, people are driving these for longer trips away from home and what we, you know, there's a lot of off road new energy vehicles coming on the market and people just aren't comfortable with the idea of having a pure electric car because even the high end, they're saying that we have 700 or 750 kilometer range.

But in reality, you might only get 600 kilometers out of them. And sometimes you need more than that when you're going far away from home on these long weekend trips and coming back. So a lot of people are preferring to go with plug in hybrid for this kind of stuff. And, so there, so I think there's going to be a market for that for quite a few years, but in overall, I would expect internal combustion engine cars. To basically disappear from the sub 300, 000 RMB market, so sub 40, 000 market in the next three or four years. Right.

So that's a, that's a huge kind of seismic shift for non Chinese automakers and even some Chinese automakers, obviously. and, do you think that there are any other than Tesla, do you think there are any non Chinese automakers that will have significant growing market share in this new reality? Yeah, so, so actually there's two, two parts to that question. One, I think Tesla is in trouble in China. That's, that's one.

two, I think it really depends on how hard some of these Western automakers lean on Chinese partners. So we just saw this past week with Stellantis is actually taking a 20% Ownership in a leap motor. So there's, there's my projections over the, by the end of this year, or maybe over the first few months of next year, all major European automakers groups will have a local Chinese partner that are, that they were relying on for their EV architecture.

So with that, you know, I would say that most of them, especially the Germans, I think they'll remain in the Chinese market. I don't think they'll build on their market share, but I think they will have a place because their, their brand recognition is still very strong in China. Got it. ones, I would say that anyone outside of Toyota, the rest of them are all leaving very soon. Leaving China.

Yes. Honda is in a lot of trouble. Little background for the listeners. So, if you're not a car guy, Stellantis is a multinational that owns Fiat, Chrysler, and some French brands like Citroën, Opel, and, a major automaker, and they, as, as, TP was just telling us, they've taken a significant stake in one of the main competitors in the Chinese market. Yeah.

It's huge news, I think, if I was actually a politician who wants to be serious about, dealing with China tech and China threat, I would, see that as a very interesting development. Right. So the, my, my personal opinion is the U. S. government is going to block Chinese, penetration of Chinese cars and EVs into the U. S.

market. And they're probably leaning, well, they are leaning on the Europeans to do the same. But the fact that a company like Stellantis is, you know, they, and Volkswagen and others, they want to continue being successful in the Chinese market suggests that they're not going to be able to. They're going to push their politicians to, to keep their market at least partially open to imported Chinese vehicles. Yeah.

So I think with that, the problem was facing the, the Europeans is this, uh, regardless of whether the Chinese automakers are coming in or not, Tesla's already in their market. So they need something that can compete with Tesla locally. If you're able to, even if you're able to completely block the Chinese, you're still have to deal with Tesla. So the, so the problem with that is then you need to actually catch up to Tesla in terms of not just the EV cost of things, but also the smart car features.

And right now all the smart car development is going on in China. So this is why I say, like, you, you can't use, I guess you can try, but you really long term, you cannot block progress in technology. And the, the world as a whole is moving toward using more smart product, more electric based product. You know, when I first came to New York city, this was in 2006, everyone was using a BlackBerry, everyone.

And then, with, within a year, iPhone came to the market and, you know, BlackBerry died in a few years. Right. So you, the legacy automakers are BlackBerry right now. So if they don't adopt, they don't try to use the latest technology. They're going to suffer the fate of BlackBerry.

So let me, let, let's come back to that in a second because the smart aspect of the car I think is super important. But before we do that, let's, let's finish up with the electrical, the electric power aspect of the car. So, is it true the most important, the most expensive component, at least in the drivetrain or whatever part of this car, is the batteries, correct? And that industry is heavily dominated by, I guess, Chinese and maybe Korean manufacturers, am I correct? Yeah, so, so I think that, maybe two years ago, it was probably a parity level between, you know, CATL or cattle and BYD and LG and Panasonic in the motor battery industry.

And then as time went on, I think the, the Chinese competition and investment area allowed the Chinese players to overtake the Koreans and the Japanese in the market share. So now you're basically seeing that the Koreans have disappeared from the Chinese market completely. And yeah, there's Chinese battery makers taking over. And the one of the interesting thing part of this is how they've been able to cut down on the cost of batteries. So maybe back in 2020, we would think, you know, battery costs are just super expensive, but then over time, they really improved on the, battery chemistry.

So we're no longer using these, very expensive stuff like, cobalt and nickel in our batteries. they're using a lot of, cars in China and around the world now are using what they call the LFP technology. So lithium iron phosphate. So we still use lithium, but, you know, we use more iron phosphate, you know, obviously there's different chemistries around, but they're, they're trying to lower the cost as much as possible.

And going forward, there's a lot of development right now on sodium ion batteries and the goal of sodium ion battery is just to get, get it cheap enough, But dense enough that you can use it in, energy storage systems and also mini cars. And then you can leave the, you know, the more expensive cars to using the lithium chemistries when it comes to battery. So what, what this has happened is basically cut the, battery costs down to a point where it's no longer the most expensive portion of the cars.

It is, you know, still costly for depending on the type of, uh, battery you use, but if you use LFP or sodium in the future, it's going to be a much smaller portion of your cost, and that's how we're able to see all these video cards in. Yeah, that are dominating the sub, a hundred K R and B range in China right now. Right. So just to recapitulate that.

So there's been a lot of innovation in the chemistry and also even the physical design of these batteries to make them more efficient. And it's happened very rapidly. I would actually point to that as an example of places where Chinese companies actually can integrate, innovate extremely well, because I think most of that innovation is due to Chinese companies. And at the end, when we come back to it. The overall, you know, power grid and energy storage, which is necessary for solar, the point you made, which is that the least expensive kind of battery right now is sodium based, it doesn't have quite the energy density of the lithium variants, but it's enormously cheaper and you don't need the density for power grid storage applications because obviously it's not, it's not something you move around on a vehicle. It's something you attach to your grid.

And you can use it for, power, for load shifting. that is a very important, breakthrough, the, the low cost sodium batteries, which I, I think, you know, will affect, our ability to use solar power in the grid. Definitely.

So you mentioned, so, probably some listeners are pulling their hair out wondering why did TP say Tesla is in trouble in China? Because there are probably some people very concerned, like they own some shares in Tesla and they, they want you to elaborate on why you said that. Yeah. so this is actually not a, is this, this will be a controversial, position to, I guess, our Western viewers, but, if you're in China, this is actually commonly held belief at the moment. And it's actually seeing the data actually shows it because there's a couple of things going on right now. There are, when Tesla came in, it had a major advantage in terms of technology because It was, bringing in a hyper efficient electric train.

It was able to build the cars at a cheaper cost than most Chinese competitors, except for BYD. BYD is its own story, so we can talk about that later. And in terms of smart car features and, autonomous driving.

It was leading, it was definitely the market leader and also it had the coolness and brand factor to it. But you know, if you've ever driven, you've never sat inside a Tesla Model Y, like, you know, the one I have, you realize the build quality is not what you consider a luxury car. It's just, it's the handling is really nice. But you don't think you're driving a luxurious car when you're sitting in a Model Y and then over time What's a half what's has happened in the past couple years is that Tesla's number one flaw has shown up Which is they just don't have enough model types for the Chinese market They have Model 3 and Model Y for the mass market Whereas the Chinese market, the one, the one funny thing about the Chinese automakers is they love to launch like 10, 20 different models for different segment of the market. And because the Chinese market is so large that there is demand for all these different type of vehicles.

so because Tesla only has basically two models, it could never, capture a certain segment of the market. It could never capture the, the mini car market, for example, and it could never catch the, the, the, the, you know, what, what they call the milk dads in China, which are people who are looking for these. just basically, you know, family cars, huge family cars are looking for China and these off road vehicles and, just model Y just can't do that. So because of that, Tesla itself is facing a shrinking pool, a smaller pool of potential buyers. And what has happened in the past couple of years is everyone in China is trying to build their own Model 3 and Model Y. So the, so the competition in the market is, has really gone up and in terms of, product quality, Musk has been very specific about his desire to lower the cost production of the cars.

And, you s so you s you see him doing certain things to the, to the Tesla models, which, like, for example, no lighters, for example, and rely only on cameras when it comes to, sensors for your, for your Tesla model Y. And also in terms of, electric motor, he talked about reducing the usage of silicon carbide. things like that, and because he hasn't been pushing things into, pushing things hard in technology point of view for Model 3 and Model Y, the Chinese competitors have caught up to the, to the technology standard of Tesla.

And so now that he has to compete against all these competitors who, a lot of them, I would say they're probably not getting great margins. Aside from BYD and, but they're, they're really looking to get a space of this market. So with this increased, pressure and competition in this market, you're seeing that Tesla has to keep cutting prices to generate sales.

And it needs to keep on generating sales so that it can ramp up production as this Shanghai Gigafactory. And this Shanghai Gigafactory is by far the lowest, the factory that can produce its EVs the cheapest. So I think people who are following this would all admit that definitely Tesla is in for a difficult fight in China. and, but obviously there's some disagreement, right? About whether Tesla can still win out and just how good the Chinese competition is. For, for that subset of my listeners that really are just 100 percent America based and don't believe any information coming from China, you know, you really just need to go online and look at reviews of, say, BYD cars, you know, maybe by Europeans or Australians or even Israelis.

And comparing the quality of those cars to Teslas, and such. And you, you can see that, you know, I'm not an expert in this area, but I've watched some of these videos and you can see there's some kind of parity now. It's a very competitive situation and it looks like Tesla is going to be under significant pressure from its competition in China. Yeah, so I think, part of the thing is that the Chinese market right now, the crazy thing about the market itself is just moving so quickly that unless you're actually on the ground and looking at it, you really can't just see how things are moving.

And these are the conversations that these are the things that Tesla, China, people probably realize. And I'm not sure if the I'm sure they've gotten the message across to Musk, but I'm not sure they, they, they figured out what they want to do with the, with the current situation yet, because they still derive a pretty large chunk of their, sales from China at the moment. And, in terms of production costs, it's. Because the supply chain in China for EV industry is fully built and fully scaled. it's, you can't really compare it to any other of their gigafactory in terms of construction costs and things like that.

So before we get into the sensors and the brain and the AI in these cars and in other cars as well, not even non electric cars, Is there anything we want to say, you want to say that's specific to the, you know, the electrical aspect of the drivetrain, the battery technology and anything you want to say about that before we leave the topic? Yeah, so, one thing I always wanted to, that I realized, recently, and I think it's kind of important to think about is, a lot of people say, Look at, EVs in general as maybe it's something that, you know, the environmentalists are pushing us toward and, that that's why we're going that direction. I, I, I just want to emphasize that I, I generally see EVs versus, internal combustion engine cars right now as electrical versus mechanical, because, in terms of EVs itself, it's the entire motor to drive train itself, the, the, this, the, all the chip technology and the infotainment system, it, everything uses electrical component, whereas your typical internal combustion engine cars, it's, you know, it's a mechanical system. And just because of that, in terms of system reaction times. And safety and things like that, the EV itself, regardless of whether it's a plug in hybrid or a pure battery electric vehicle, the system reaction is just faster. And the computation inside the EVs faster. So you can react faster to safety situation.

And there's, there's more sensors to it. And it's all connected by wire, right? So it can just, the system can just react faster. So you see that in terms of safety, all these EVs are coming out, they're getting tested like some, you know, aside from Tesla, all these Chinese EVs are getting tested in Europe right now.

They're all getting five star on the NCAP because in terms of advanced safety features. They're all really good compared to internal combustion engine cars. And the way I look at it is, in the history when, when the electrical system and the mechanical system has about the same cost, I, I don't think the mechanical system is going to win against electrical system. Yeah, I mean, you know, when, when people look back, like your kids grow up and they've only driven an electric car, they look back, they'll be amazed when you tell them, yeah, there were these little cylinders and we had an explosion in each cylinder and that's actually what it's caused a piston to move and that. you know, drove the drive shaft and powered your car, they'll say, like, what a crazy way to do it. Like, I can't believe that, you know, you had to, what, what, you know, how, just think how much engineering was required to get all that stuff working.

Right. whereas an electric engine with a battery is just so straightforward the way it works. Yeah, there's also a lot less parts to it. It's just basically, it's, it's a lot simpler. Yeah. I mean, it's kind of amazing.

We actually got internal combustion engines working as well as we did. Right. It's kind of like amazing.

Amazing technology, but maybe past its prime now. Yeah, I think, I think that's what the people are thinking in China. That's why they are, most people, most people are moving on to, EVs now.

Great. So let's, let's talk about the brain in the car and the sensors. So, you know, Obviously, people heard a lot, you know, five years ago about autonomy, self driving cars. And I think a lot of people have maybe it's traveled the usual Silicon Valley hype cycle where initially people got super excited and started extrapolating like crazy what the world would be like with autonomous vehicles. Then it turned out to be a slightly harder engineering problem than people thought, and there wasn't as much progress and fortunes were lost.

And now people are kind of have kind of forgotten a little bit about autonomy, but slowly, but surely, it's creeping into the world. So, maybe you can talk about the state of autonomous vehicles in China and, the sensors that they use. Yeah. So in terms of smart cars, I'm talking about there's, there's, there's several components we're talking about here. There's a smart cockpit and there's a smart energy management. And there's also the, what we call ADAS, which, which means the assisted driving, automotive driving assistance system, something about that.

So basically the autonomous driving features. What we've noticed in the Chinese market is that, EVs have traveled this, this, in the direction of consumer electronic industry. So there's a pretty famous case of the company Geely, and they actually bought a smartphone company called Meizu. And at the time I thought it was a crazy thing.

Why are you trying to get in the phone industry if you're an automaker, right? And it turned out based on what one of the GDs explained to me is that they were doing it because they wanted to learn as an automaker, how to, integrate, smart car features into their cars. So in terms of just in terms of what we call the smart cockpit features, you have your, basically your electrical controls. So if you have displays like a sound system, you have your, infotainment screens.

You have your, your HUD, head ups display, and you have various controls. And then you have your, what they call the, you know, in the SOCs, the system on chips on top of that. And then you have your, auto OS on top of that. So, you know, you could have your, for different cars, you can have different operating systems sitting on top of your heartbreak computation layers. And then on top of that, you have your different.

app systems like, Apple CarPlay or Google CarPlay, something like that. And then on top of that, you have all the different apps that you can use to run your system. And what you've noticed in the Chinese market recently is, all these smartphone OEMs are looking to somehow get themselves involved in the car industry. So Huawei was like the, the pioneer in this industry.

It developed its Harmony OS that works through. not just your phone, the computer, but also cars and other devices. So when you, as soon as you get into your Huawei car, if you have a Huawei phone, it's actually can control the, the car itself. There's, you know, you can use that to control other Huawei devices at your home and such. The, the next one that's really gotten into this is Xiaomi. And Xiaomi is actually just came out recently with this new OS, which is, a Linux based OS called HyperOS, and their goal is to basically, combine, uh, your mobile endpoint with, with cars, with, a smart home so that your car runs just like another consumer electronics device.

For Xiaomi, that's, that's how Xiaomi thinks about things. And, and it's coming out with its own car based on that concept. So in terms of, your car is just another place, another thing you have in your personal possession that can be used to control your home, control, deliver entertainment to you and do tasks.

And it can be used to answer questions, like if you have, if you want to talk to Chat GBT, for example, you could just ask your car and it can answer you. And that's kind of like what the role of, smart car is playing in terms of the automotive industry in China, where it's, it's no longer just a transportation object. It's something that people use to, enjoy different entertainments and things like that.

Is it clear whether BYD will develop its own operating system for its car, smart car, or will it partner with a company like Huawei? It has its own OS actually. they, they all use some form of real time OS. I'm not really sure all the, all the major automakers in China have their own OS, it might be some kind of a copy of something else, but, you know, similar in concept, in terms of, BYD cars, you'll see that it's, it's got itself, you know, working it's OS works with like, the Huawei high car and also Apple car, Apple Car Play and probably the Google car play also.

Yeah, you know, before I was really thinking about EVs becoming important, I used to say, you know, internal combustion engines, it's kind of, a commodity now, I don't see a lot of difference in, you know, at least the, the low end cars that I would consider buying, I don't see that much difference in the powertrain and stuff like that. So the differentiation will be in the, you know, infotainment system and the smart car aspects of it. And the legacy automakers, I think, don't really understand that that's more obviously more of a software, and information technology industry. And there's no evidence that they really understand how to do it right. Yeah.

So I kind of want to talk about that too, because, there's some really interesting news came out this week, which is, Volkswagen, decided to fire, 2001, or at least it wants to fire 2000 more people from its, software company called Carriot. And, and if you go to China right now, one of the main, topic is, is BYD in trouble because it doesn't do software as well as, Huawei. That's, that's, you know, it's kind of crazy to think about that, but that's kind of a conversation people are actually having. By the way, I don't think it's in trouble, but, it's people, people looking at the different cars are coming out of China right now.

They're seeing how much software plays, how much of a role software plays in terms of, the success of cars and, integration of different components. And, and you kind of need that because, without, without a firm software engineering, culture around, which is a case with a lot of the legacy automakers, you will struggle to do the software hardware integration of, getting all these infotainment system and also this autonomous driving features into your cars. And if you think about it, in terms of, in terms of, if you want to do autonomous driving features, you have, different sensors, you have different cameras, you have different, millimeter wave radars, you have also lidars.

And they're all bringing in a lot of computation data into your, your, into your platform. And with this, you have to use a really highly powerful computation chip. A lot of people use NVIDIA or an X at the moment. And, and then, use this data to, to figure out where to turn next and, whether to accelerate or stop, things like that.

And then you have to also, do your own, big data center where you're training models against, you know, driving data and try to figure out, a large model that or algo that works for your, autonomous driving features. So all of this stuff takes software developers, AI developers and things like that, and these are things that Germans. I don't want to offend Germans, but they don't have a software industry and like, you know, you know, if you, if you, if you look at how the world software industry has developed and it's basically, dominated in the Western countries by, you know, the big American tech companies.

Yeah, I think it's been said that in the world right now, the only two countries that really can do world class software engineering is obviously the United States with its big tech companies and then the Chinese with their big tech companies. And, I agree with you. It's been observed that there isn't really, although individual Germans are obviously extremely well trained and talented, there isn't, they don't really have the, corporate infrastructure to really take on a task like this.

Yeah, and I, I, I'm not saying the Germans or the, any of the European can't program, but rather that, the, the, even the European industry itself is probably, most people when they grow up and they're a software developer, they probably want to go join Google or Facebook or Apple rather than, Volkswagen. Yeah, so I think what you pointed out is that there's going to be a lot of computation on the car because you're not going to want to do it in the cloud because for safety reasons, you're going to want to do it as fast as you can in the car. You're going to have to deal with lots of data fusion from pretty complicated sensor data, and then the actual AI code or the autonomy code that the car is running, whatever company provides that is going to be doing tons of offline training in giant data centers to have an actually smart, you know, AI that makes the right decisions in piloting the car. So it becomes like a super intense, sorry, information technology problem. Yeah. And I just want to point out, I think that's what Tesla has been planning all along, which is they have their own huge data center.

And in terms of the cars, one of the things that apparently drove them toward, eliminating LIDARs was, they wanted to reduce the amount of, data clutters. So they, they, they don't really have LIDARs on their car. And I think they're trying to rely purely on cameras. Yeah. And because you don't have to do as much sensor fusion in terms of figuring out, what the picture looks like, Right.

So I think you and I talked about this or maybe Taylor Ogun and I talked about this. the okay. So LIDAR is a laser sensing technology, which used to be quite expensive, but the cost has dropped tremendously again, thanks to innovation on the Chinese side. To the point where it's quite inexpensive to get it as an option on your Chinese car if you're buying a car in China.

Elon Musk famously sort of said at one point, oh, I drive my car fine or humans drive their cars fine with just visual input data like, you know, visual, visible light. Why do we need lasers and radars and stuff like this? And obviously, it was too expensive anyway to put on a consumer vehicle. So I think Tesla's push toward autonomy is, has always been based on, you know, actually just the visual input. But the academic researchers that I know, and lots of other companies that are really trying hard to build autonomous vehicles, they'll take all the input they can get because they know it's a hard problem. And LIDAR is a super useful vehicle. type of input into, you know, allowing your vehicle to be aware of what's around it.

Yeah, so I just want to address something about the cost set of things is that, I think if you don't, this is one thing where I think it's very important for people to go inside China and look at what's going on because I don't live inside China clearly and I see this, I see these things happening from abroad because if you just look at the news coming out of China in terms of, from maybe a year ago in terms of how they're building up or two years ago from how much BYD is scaling up its various battery components and then battery factory production to, how it's, raising its production of power chips, then you knew back then that if the battery prices are coming down, then you also know that the, uh, power chip prices are coming down and. What we're seeing right now is even though the, the LIDAR prices have come down a lot already and adoption has, I think for HSI, it's one of the, you know, leaders for supplying LIDARs in China. It's, deliveries 10X from last year to this year, but, it's gonna get a lot cheaper because I'm looking at right now at the Chinese market where the, the core component is what they call with what's called a VCSEL, V C S E L, and I don't know if I'm saying this correctly, but. I'm seeing that the production right now for 2025 is so much higher than what is right now. So we're going to see an overcapacity or at least enough capacity to keep up with any kind of demand that we have in a couple of years, which means that the cost for LIDARs is going to come down tremendously.

The cost for a millimeter wave radars are going to come down significantly also. And the resolution on the millimeter wave radar is going to get good enough where we might not need LIDARs for, for level three or level four driving. I don't know.

We'll, we'll have to see how this plays out. But, that's what a lot of people in China are trying to figure out right now, can we do full L3 or level three or level four, autonomous driving, with the lowest cost possible? And, and what is the amount of computation we actually need for that? And we don't want to use any more than that because we want to keep the, the cost of the system under 10, 000 RMB, for example. Right.

So again, another aspect of the automobile industry, in this case, autonomy and the sensors, which is changing super fast and actually, you know, large part of that change, or maybe most of it is actually driven by what's happening, in China right now. So again, like I think most Westerners could easily miss, miss this if they're not paying close attention. Yes.

And I think that, if you're not into the Chinese EVs. Even if you're just looking at what DJI drones are have came out recently with their Electro optical LiDAR system and it's and the performance is it's showing it it's better than anything the Russians are using on the battlefield. Let's put it that way. So the technology for this is just improving so quickly and the cost is coming down so much.

It's fun. It's so funny because TP that the next episode you and I do together is going to be about mill tech Chinese versus, you know, Western military technology. And just looking at what's happening on the civilian side with these sensors. It's hard to believe that the drones and missile systems satellite systems that Chinese have are actually behind, you know, the Western side when it comes to the sensors, because it's pretty clear to me that the Chinese are pretty much caught up and in some areas surpassed, Western technology for a lot of the, for a lot of sensors relevant to military technology. Yeah, it's it's kind of crazy. And I think it's been a very recent, very recent thing and I'm not sure this Chinese military, you know, the military contractors are always behind in terms of tech So I'm not sure they actually caught up on the the technology, but I have seen some autonomous, what they call the UGBs or unmanned ground attack vehicles in China recently that are using the same technology you would see on the on on your level 3 or level 4 ADAS system.

Yeah, I think, for example, where I first noticed this was the Chinese were putting actively electronically scanned radar systems in their missiles, long range missiles. So the missile could actually be very autonomous near the end of, you know, you know, it might fly several hundred kilometers looking for the, enemy fighter or bomber. And then at the end, it's fully capable of finding it and using its own sensors for final targeting. And that that was done, I think, before the Western systems had, a AESA radars on their on their missile. So you could see the Chinese were actually sort of getting ahead in certain areas. Yeah.

And it's all about just industrializing, scaling up production. I mean, AESA radars got so cheap in China now that they put them on weather radars. Yeah. The weather radars are using gallium nitrate aESA radars now. It's, it's so crazy. Whereas I think still very few of the Western missiles actually have their own AESO radars are often dependent on the AESO radar of the, the flight, the plane that launched the missile.

I mean, I think it's only the, the upcoming AIM 260 that I'll be using. Yeah. See, I only AESA. I think you noticed the same thing I noticed. So, so anyway, this, this is for our next conversation, but, there are some little indicators like this that suggest, this, you know, commercial. Rapid pace of commercial advancement of Chinese technology is, is also, you know, getting into their military supply chain as well.

Coming back to cars. Okay. I have a very simple question for you.

How do I invest in BYD? Like what it's listed in, in China or in Hong Kong. So I'm actually personally invested in BYD from the. As, it's an OTC symbol, I think it's B Y D D F or B Y D D Y. Let me just do a search on that. But it's basically, I think, an ADR of the, the one in Hong Kong stock Exchange.

Okay. We could have a whole nother discussion of exactly what the legal rights of these US, you know, Western listed ADRs of Chinese companies are. That's a, that's a tricky question that I sometimes discuss with my friends in finance. Cause I think in certain circumstances it doesn't quite have the same rights as actually owning a share of, of BYD or something. So. No, I think it's probably you're owning some shares of some place in Caymans or something like that.

Yeah, which, which then that thing, that entity is entitled to some share of profits, or it's, it's very tricky how, you know, how, exactly how one should value these things, but anyway, they're, okay, so I don't even have to go to the Hong Kong exchange. I could just buy these, these, OTC listed things, from my ordinary broker, I guess. Yeah, I actually, I brought it on Schwab. Yeah.

Okay. That's good to know. Now we're a little over an hour and I, I did want to shift over eventually to the implications for of cheap battery storage to, you know, the overall power grid and things like this. But before we do that, maybe let's finish up if there are any important aspects of the, you know, the EV industry, how you think it's going to progress in China, how you think it's going to progress outside of China, how geopolitics is going to affect it, anything that you want to add before we leave that topic would be Yeah. So I think, I think the one company, you know, I, I've been following, I want to always talk about is BYD because it's really an extraordinary company in its own way.

And, I think it's going to change the, the company itself is going to change the world in many ways. The one thing, if you listen to Wang Chun Fu, the CEO, the founder CEO talk about is he's very, pristine in understanding why he's, you know, building BYD and the demand for electric vehicles and his entire business model and things like that. So, so if we go back to like why, you know, people originally want, you know, environmental reasons where people wanted to get EVs and, there was always this, discussion, you know, when it comes to climate change and, energy transition, you know, what, why should we do it while, you know, China is, not doing it. And, one of the things I, I, really want to point people out to is that China and America are two different countries with two different strengths and weaknesses, like different countries have different advantages and disadvantages, right? So one obvious thing is America has this great, you know, depending on how you look at it, but it has a really large natural gas reserve. It has this great fracking industry that generates a lot of profits. It, we get a lot of cheap gas here, whereas China does not have much of a oil industry.

Like it doesn't produce as much oil, like it's not, it's largest importer in the world. And it also imports a lot of, natural gas from Russia, from surrounding Central Asia countries. And it buys from America, LNG from America and Australia and various countries. So it's a major energy importer, and this has always been viewed as a huge problem in China. And part of the reason that Wang Chunfu thought about this is that he, he looks at this as how do we get China to be energy independent? How do we get China to be energy secure? And what does China have more than anything else? It has a lot of deserts.

It has huge amount of deserts. So his view is, if we can put a, a whole bunch of like, solar panels around China, then we can be energy independent. And because, solar panels themselves has, are very intermittent in terms of, power storage and things like that, we need energy storage system and we need smart grids to handle that. And that's why I'm going to invest in building my own, solar panel industry.

I'm going to invite, build my energy storage system. I'm going to build my smart grid and we need, smart, we need EV so we don't have to, import as much oil to be energy secure. And that's, and he's doing this, not just for the, uh, passenger vehicles. He's also, spent a lot of, a lot of money investing in mass transit

2023-11-24 14:33

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