Letter To Shanghai No 1153 - The direction to travel

If you have a moment, I suggest you look up Xiaomi SU7 - it is not, as you may think, Xiaomi's latest phone, it is Xiaomi's electric car. Pitched, as you can see, to rival the Porsche Taycan, selling through 59 Xiaomi stores in 29 cities,?88,000 orders were received in the first 24 hours of launch. This year's SU7 production target is over 100,000 units, and we can assume that is now pre-sold, with buyers waiting 3 to 6 months?for the delivery of?their car. The SU7's slippery shape gives it a drag coefficient of 0.195, and its in-house designed electric motors should propel it from 0-62mph in 2.95 seconds. At USD 29,900, it is USD 4000 cheaper than a Chinese-made Tesla Model 3, and SU7 deliveries are being made as I write. The point is that the construction of the Xiaomi factory did not start until April 2022 and was only completed in June 2022, while full trial production began in December 2023. Xiaomi's strengths and production agility have positioned Xiaomi from nowhere to the forefront of the electric vehicle industry in two years.

But for the moment, Xiaomi's focus on a luxury car makes it unusual among Chinese car production?which?is moving to emphasise smaller, cheaper and accessible EV cars to sell into Chinese and local Asian markets. These cars do not face sales tariffs such as the 27.5% value-added tax by the US on Chinese-produced?cars?designed to protect US domestic production. In comparison, Indonesia has requirements as to what proportion of the?car?is locally produced or assembled in Indonesia to receive tax concessions,?therefore?creating a positive incentive for the local Indonesian economy.

Tesla will release its earnings report later this evening, and for many of you, by the time you read this, it may well be out. The media will focus on the volume, revenue, net income and Elon Musk's seemingly eccentric pivot away from delivering a cheaper Tesla car for the masses; instead, he seems to focus on driving autonomy and robotaxis. The implicit message is how well Tesla is responding now that Chinese manufacturing prowess, which Tesla has exploited so well, has turned against Tesla in?the delivery of?high-quality alternatives. Perhaps Elon understands, and?certainly?it is up for debate, that the opportunity to dominate the "small" EV car market has already?expired,?and that the opportunity to deliver Tesla software for autonomous driving and licence it to other car manufacturers, which would create a long-term annuity business, is now the direction to travel.

Have a good day,

John