Preparing for the Mobility Revolution
How Nio, Byton, Lucid, Rivian and others Emulate Tesla
Established Automotive Original Equipment Manufacturers (OEMs) were founded 60 to 130 years ago. They operate in a low margin business, with complex products and supply chains, combined with high volumes. There has been significant consolidation among OEMs to bring economies of scale. Outsourcing shot up in the 80’s and 90’s to reach about 70% of sales. Their expertise is centered today on overall vehicle design, systems integration, powertrain as well as high volume supply chain and manufacturing. This has resulted in an industry that delivers incremental improvements focused on user experience and overall efficiency. The OEMs’ legacy and culture prevent them from inventing the “next big thing.”
Then comes Tesla with the introduction of its Model S in 2012. Incumbent OEMs downplayed the potential of the Silicon Valley-based startup. Only Nissan, Renault and Mitsubishi were selling battery electric vehicles (EVs) at that time, in low volume. It took about 3 years (2015), when Model X was launched and Volkswagen’s Diesel scandal came to light, for incumbent OEMs to initiate accelerated EV development programs. JLR was the first to market with i-Pace in 2018 (image below). The year 2019 will see the beginning of slew of new EVs by all major OEMs. Yet that’s not all, Tesla and the other emerging OEMs were developed from the get-go as software powerhouses with agile organizations. This will prove difficult for cumbersome OEMs to compete against.
Can other EV startups successfully follow in Tesla footsteps? It is one thing to raise funds on the basis of a disruptive business plan, assemble teams with hundreds of well-paid technical experts, and create a concept vehicle for a few million dollars. It is yet another thing to establish a well-oiled supply chain and a manufacturing unit capable of high yield and high quality. Nevertheless, these emerging OEMs are free from any legacy related to engineering, product platform, manufacturing, culture or organization, which gives them a lot a leeway to do things differently.
Who are these emerging EV OEMs, what is their approach, and can they succeed?
Much has been written on the company, so I will only highlight a few aspects that are relevant here. Founded in 2003, Tesla has managed not only to make EVs appealing and create a strong brand, but has forced incumbents to adapt. The company will sell about 250k vehicles in 2018 between Model S and X (~50k units each) and Model 3 (~150k). This has not been without great pain, mainly with production ramp-up over the past 15-18 months. According to Elon Musk, this hardship brought Tesla just weeks away from bankruptcy.
From the very beginning, Tesla created a different kind of OEM focused on technology and software, leveraging its localization in the heart of Silicon Valley. The company favors vertical integration for differentiating technologies. This applies to power units and electronics, battery packs (Gigafactory produces 3.5M battery cells/day), the vehicle’s operating system and infotainment (including over the air update), a high speed charging network or autonomous driving tech. None of these were initially available in the market at Tesla’s required performance level.
The bottom line: incumbents are playing catch-up on things like powertrain efficiency, OTA updates and charging speed. They have also fallen behind on volume. Tesla is ahead of the German premium sedans in the US (similar pricing), and sells more Model S vehicles in Germany than S Class or 7 Series. Lastly, Tesla’s market cap stands at about $60B (250k veh), 20% more than Daimler’s (2M+ veh), 30% over Renault+Nissan’s (10M+ veh) or 3/4 of Volkswagen AG’s (10M+ veh). However, Tesla still has to prove it can reach sustain profitability. I am confident the company is out of the woods. However, incumbents are closing in.
Since its foundation as NextEV in 2014, the Tencent- and Baidu-backed Chinese company has been a fast follower. NIO has developed and already sold 8k units of their first vehicle, ES8, a 7-seat , China-only SUV (image below) retailing for about $70k (image). The company went public on the NYSE last September, raising $1B at a valuation of $6.4B. NIO just presented their second vehicle, ES6, a 5-seat SUV emphasizing performance with 540 hp and 510 km of NEDC range ($58k and up). It is destined for the Chinese market where deliveries will start in Q2 2019. That is quite an achievement in just 4 years!
Teams are spread over 3 continents: Shanghai (mostly hardware), Silicon Valley (mostly software with over 500 people), Munich (design) and London (performance program). China’s JAC Motors manufactures the vehicles, thus minimizing expertise and cash drain, as well as maximizing the chance of a smooth ramp up. The company had 6,500 employees as of June 2018. NIO also has a unique division in-house: XPT Global aims at providing engineered power units (induction and permanent magnet), battery packs and power electronics to other OEMs.
NIO focuses on the complete user experience, positioning the car as a means rather than an end. The company is building a network of battery swap stations in China, an equivalent of Tesla’s supercharger network. This approach is unique for this market given the relative lack of home charging capacity. NIO is also opening private lounges or “user centers,” at the heart of China’s main cities. NIO seems to have found a winning recipe, at least for the Chinese market. Other manufacturing partners will likely be needed to access other markets depending on tariffs.
Founded in 2016 as Future Mobility Corp. by two Germans - former BMW and Infiniti executives, the company was initially backed by China’s Tencent and Taiwan’s Foxconn. Like Tesla and NIO, it will focus on EVs. It will launch its first vehicle, M-Byte, a 5-seat SUV (image below), in China in 2019, then in 2020 in Europe and the US (tariff permitting). A second vehicle, K-Byte, a sedan, has been presented as a concept and will be launched in 2021.
Like Tesla, Byton is building its own manufacturing plant, in Nanjing. It is likely to get assistance from Chinese OEM FAW and battery producer CATL, which both took part in a $500M investment round earlier this year. The staff, 700 as of last August, is distributed between Silicon Valley (R&D, 300 p.), China (HQ, engineering, manufacturing) and Munich (design). It’s interesting to note that Byton contracted Bosch to develop its powertrain, arguing it is not an element of differentiation.
Even more so than NIO, Byton positions its cars as mobility enablers with a focus on the digital experience, leveraging the vehicle’s pillar-to-pillar display (image). Conceptually, the car becomes a sort of “smartphone on wheels.”
The company started in 2007 as Atieva, a supplier of battery packs. Headquartered in the San Francisco Bay Area, Lucid was initially backed by Chinese OEM BAIC, which sold its shares to China’s electronics company LeEco. Last Sept, Saudi Arabia’s sovereign fund, which owns 5% of Tesla, invested $1B in Lucid and gained majority ownership.
The company’s first product is Lucid Air (image). The sedan will focus on luxury and performance with up to 1,000 hp and a 130 kWh battery good for a range of 650 km. It is expected to launch in 2020. However, there are no signs that construction has begun on the company’s own manufacturing site. In 2016, Lucid announced it would build a greenfield site with a capacity of 130k in Casa Grande, Arizona. The $1B cash injection received 4 months ago is expected to allow for the construction of the plant as well the completion of product engineering. Lucid continues to develop the Air at its SF Bay Area HQ. I look forward to an update on the product launch and its ramp-up.
Founded in 2009, the company operated in stealth mode for many years, while raising $450M from Sumitomo among others. The first two products were presented at the LA Auto Show in November 2018. Built on the same platform, R1T, a pick-up truck (image), and R1S, a 3-row SUV, are expected to launch in 2020 and 2021 respectively. In line with the “adventure vehicle” positioning, these EVs will offer up to 180 kWh of battery capacity for over 650 km in range (EPA).
The company, which will operate under the name Seres, has teams across in 3 continents and its HQ in Silicon Valley. R&D is done at its HQ as well as in China, Michigan and Japan. Vehicles will be assembled in both China (Chongqing) and the US, at a brownfield operation located in Indiana, acquired in 2017 from AM General for $110M. Production will reportedly start in 2019 for SF5 and 2020 for SF7. SF Motors tapped the expertise of Martin Eberhard, co-founder & former CEO of Tesla, through the acquisition of his small battery startup, InEVit, in 2018. Eberhard is now the OEM’s Chief Innovation Officer.
The Los Angeles-based startup was initially backed by LeEco (yes, same as Lucid). At CES in January of 2018, Faraday Future presented it first product, FF91, a “tall sedan” priced then at $150k and up (image). A second vehicle, FF81, was expected to compete with Tesla Model X. At that time, a $1B greenfield plant was announced in Nevada. Then, the CEO of LeEco got into legal trouble and was unable to provide the necessary cash, forcing the company to find new investors and downsize its ambition to a brownfield site — a former Pirelli plant in California.
In early 2018, a Hong Kong-based company committed to providing $2B for a 45% stake in FF. The project seemed to be back on track. Then a first body in white was presented in fanfare before financing collapsed again. Most of the senior leadership has jumped ship in the last couple of months and it is doubtful Faraday Future will get another life.
Common denominators to these companies include a focus on tech and software, skate-board-type platforms, high performance typical to EVs, high digital content and the progressive integration of highly automated driving capabilities with often pre-installed hardware. However, the latter seems to be a core element mainly for the mature Tesla.
Many of these companies are headquartered in China and/or have received significant Chinese funding. This is easily explained by the fact that China is by far the largest EV market, with about 60% of global plug-in EV sales (800k+ battery EVs expected in 2018).
I have focused here some of the most mature companies, but there are many other contenders such as Bollinger Motors (USA), Dyson (UK), Elextra (Switzerland), Evelozcity (USA), Chanje (USA), Fisker (USA), Karma (China), Sono Motors (Germany), Xpeng Motors (China), WM Motors (China) or Workhorse (USA) to name just a few. Only a handful of all these emerging OEMs will turn into mature businesses. Incumbent OEMs, especially laggards, may shop among those which fail, either for technology or for established teams, as a way to catch-up.
All the best to the new EV players! We need competition to foster electric mobility.
Managing Director, Orsay Consulting
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