AD #3433 – Toyota Backtracks on Hybrid Strategy; China Faces EV Price War; Tesla Changes Build Strategy

This is Autoline Daily, the show dedicated to enthusiasts of the global automotive industry.

CHINA FACES EV PRICE WAR
Tesla cut the prices of its Model 3 and Y in China by 9% or nearly $2,000. That’s triggering worries that an EV price war could break out in the world’s largest market. Analysts say it’s also a sign that the growth of EV sales in China, though still strong, is slowing. Tesla told Reuters that it was able to cut prices because its Shanghai plant is hitting higher levels of capacity utilization and that supply chain issues are getting resolved. Here’s our Autoline Insight. One of the problems that automakers face in China is that there are so many car companies, literally hundreds of them. New EV models keep pouring into the market every month and more are on the way. At some point, you’d expect to see most of them get bought up or go out of business. But so many of these companies are owned by municipalities and provinces that see them as important sources of jobs. And they’re going to keep those plants open to protect those jobs no matter what. And that’s why the pressure is building that could trigger a price war. 

NISSAN PUSHES RENAULT FOR EQUALITY
Despite Nissan owning less of Renault than Renault owns Nissan – 15% vs 43% – the Japanese automaker might hold the upper hand as the two are trying to renegotiate their alliance partnership. Renault is splitting its business in two; the EV side will be called Ampere and the legacy side will be called Horse. In order for Renault to pull this off it’s going to need a lot of capital and it wants Nissan to invest in the new EV side. Bloomberg reported that Nissan could invest $500 to $700 million in Ampere for a 15% stake in the company, but Nissan also wants Renault to lower its stake in Nissan to 15% to help balance out the relationship. As the two sides try to work this out Reuters reports that technology-sharing has become a sticking point in the negotiations. Renault doesn’t care so much about Nissan’s old tech, but it does about its intellectual property, engineering and common projects related to future stuff, especially the all solid-state batteries that Nissan is developing. So, it looks like Renault might have to give a little to get a little. 

TOYOTA BACKTRACKS ON HYBRID STRATEGY
Just a couple of weeks ago Akio Toyoda doubled down on his defense of hybrids, saying they represent a better strategy for carbon reduction than electric cars do. But behind the scenes it’s a different story. Reuters reports that the giant automaker is considering doing a strategic U-turn. It already suspended work on several future EVs as it considers what to do. Toyota currently uses its e-TNGA platform for its EVs, but that’s a modified ICE platform. So now it’s considering going with a clean-sheet EV platform instead. That could take 5 years to develop, but it would give Toyota a more efficient platform that is cheaper to manufacture. Toyota miscalculated how popular electric cars would become. And over the last 5 years’ battery costs came down faster than it expected. And all of this is forcing the company to reconsider a strategy that was heavily weighted towards hybrids.   

AVs BURN THROUGH TONS OF CAPITAL
While there are some examples of autonomous vehicles operating in the real-world, like Waymo and Cruise’s robo-taxi services, it’s still unclear when most companies will start generating revenue from AVs. Bloomberg reports that automakers, suppliers and startups have spent $75 billion combined on autonomous driving technology. But investors are getting impatient. AV companies Aurora, TuSimple and Embark Technologies have seen their stock drop by at least 80% this year. Intel downgraded the targeted valuation of its self-driving business, Mobileye, from $50 billion just ten months ago to $16 billion last month. And Morgan Stanley analyst Adam Jonas recently said that autonomy could be a 10 or 20-year proposition.

RENAULT USES OTA FOR AFTER SALES UPGRADES
Renault has said that it wants to keep its vehicles more up to date over a longer period of time, even across multiple owners. One way it plans to do that is with over-the-air updates. But as we know a vehicle will go through changes and maybe some modifications over its lifetime. Renault is now taking this into account. The software system in the all-electric version of the Megane can perform automatic updates but it will also save information related to after sales upgrades, like an alarm system or getting bigger wheels. Bigger wheels can impact things like GPS data or range estimates and it would be nice to not have to reprogram that kind of stuff after every update.

ARRIVAL SHIFTS PRODUCTION FROM UK TO U.S.
Commercial EV startup Arrival, which is based in the UK, announced it’s going to re-focus its business on the U.S. market with a family of van products. Instead of producing vehicles in large plants that can cost hundreds of millions of dollars and take years to build, Arrival is opening manufacturing sites in warehouses, what it calls microfactories, that only cost $40-$50 million and take six months to set up. But Arrival says scaling production at its UK microfactory requires significant further investment in tooling and working capital, so it’s going to shift its business to its microfactory in Charlotte, North Carolina. But it will continue to make a small number of vehicles at the UK factory. A big reason Arrival is moving to the U.S. is to qualify for tax credits under the new Inflation Reduction Act, which provides up to $40,000 in subsidies for commercial vehicles.

TESLA CHANGES BUILD STRATEGY
Ever wondered why Tesla was in a mad scramble at the end of every quarter to deliver cars to customers? Here’s the answer. Tesla would batch produce cars in Fremont and Shanghai by geographic region, and then ship them out in big groups. Batch producing cars can streamline assembly operations and reduce costs. But it also caused costs to go up in other areas, like logistics. Even Tesla admits it caused “extreme concentrations of outbound logistics.” And then it ran into problems with “ships from Shanghai to Europe and local trucking within certain parts of the U.S. and Europe.” So now Tesla will stop batch production and will smooth out the build across each quarter to reduce peak loads for outbound logistics. That will cut overall costs, and probably get vehicles to customers faster.

CONTINENTAL’S DISPLAY BUSINESS EXPLODES
Here’s a stat that helps show just how gaga automakers are going over big display screens. The supplier Continental says that its display solutions have generated 7 billion euros over their lifetime. But its new OLED and pillar-to-pillar displays, which was first introduced last year, have already brought in 2 billion euros worth of orders. And it won’t stop there. Conti expects to build more screens and generate even more sales. But because the pillar-to-pillar display is about 5 times bigger than a conventional digital instrument cluster it’s also having to expand its production facilities.

But that brings us to the end of today’s show. Thanks for tuning in.