Auto News Analysis #6
Analyzing developments at XPeng, Dodge, Tesla, BMW, and Lucid
Auto News Analysis concisely analyzes key developments in electric vehicles and new technologies in the auto sector. I post this update weekly in addition to fundamental investment research, all for free. If you’re interested in this topic, please consider subscribing!
This update will cover:
President Biden signs the Inflation Reduction Act
XPeng announces significant charging updates
Dodge discontinues the Charger and Challenger to pursue EVs
Tesla’s Shanghai factory produces its millionth vehicle
BMW begins sourcing 4680 battery cells
Lucid reveals the Air Sapphire
President Biden signs the Inflation Reduction Act
News: On August 16, President Biden officially signed the Inflation Reduction Act into law. This includes the $7.5k credit for select EVs in the U.S. beginning January 1, 2023.
My thoughts: I’ve already summarized my thoughts here so I won’t spend too much time on this, but it’s worth mentioning the final approval given the enormous impact this bill will have. It remains unclear exactly which models will qualify given the complex battery sourcing and assembly requirements, but OEMs who can ramp and localize their manufacturing and battery supply chains will benefit the most. These requirements will ultimately decrease America’s reliance on Chinese battery and raw materials supply, but will also make it difficult for OEMs to qualify their EVs for the tax credit initially.
Compliance with the EV tax credit will be an important area to cover until the bill’s expiration in 2032.
XPeng announces significant charging updates
News: On August 15, XPeng (NYSE:XPEV) completed its thousandth self-operated charging station and also built its first ultra-fast charging station. The announcement comes on the 8th anniversary of the company’s founding in August 2014. The new ultra-fast charging station reaches peak rates of 400kW and can charge 210 km (~130 miles) in just 5 minutes.
My thoughts: 1k self-operated charging stations is a big milestone and shows XPeng is serious about the customer experience. XPeng began developing its charging network with Nio (NYSE:NIO) in 2019 and reached 1k total stations in May 2021, so there are other charging options outside of just the company-operated locations. For context, Nio also has battery swap stations to complement its charging network and Tesla has over 1.2k of its own superchargers across China.
Other U.S. and European automakers have not dedicated the same time and resources to building out their own charging infrastructure, so customers have to rely on 3rd party networks like Electrify America (investors include VW and Siemens), ChargePoint (NYSE:CHPT), and EVgo (NASDAQ:EVGO). Just this week, J.D. Power just released an informative survey highlighting some of the challenges associated with third-party charging networks. A reliable, quick, and widespread charging infrastructure is critical for EV adoption rates.
XPeng’s ultra-fast charging stations are also impressive. This is one of the most powerful chargers that have been publicly revealed for passenger vehicles. In July, Nio revealed plans for a 500kW charger and Tesla also revealed details for a 350kW charger. Of course, there’s more that goes into charging than just peak rates. One of the most important parts of the battery charging equation is the impact it has on battery degradation. XPeng plans to mitigate this with its liquid cooling features, which protects against overheating, and IP67 protection, which seals the charger to prevent water and dust from entering. It will be interesting to see how quickly these latest chargers are rolled out, as existing infrastructure won’t be upgraded.
Dodge discontinues the Charger and Challenger to pursue EVs
News: On August 15, Dodge, a subsidiary of Stellantis (NYSE:STLA), announced that it will discontinue its flagship Challenger and Charger muscle cars at the end of 2023. Dodge just unveiled its first fully electric car, the Charger Daytona, which will replace these models and is expected to be released in 2024.
Dodge also introduced a new crossover, the Hornet, which will replace some of the lost volume from the Charger and Challenger. The Hornet will have multiple variants, including the gas-powered GT and the hybrid R/T. The R/T hybrid version, launching in 2023, will be the brand’s first hybrid model. The Hornet will be competitively priced, starting around $30-40k.
My thoughts: This is a bold move because the Charger and Challenger accounted for 61.5% of Dodge’s U.S. sales in 2021.
This isn’t the first time Dodge has discontinued a popular model. The company also stopped producing the Grand Caravan, formerly the brand’s top selling model, in 2020. It’s incredible how much Dodge’s U.S. sales have fallen in the past decade.
While these moves are necessary, there’s a high degree of risk for Dodge. Discontinuing flagship products like the Charger and Challenger is a classic ‘innovators dilemma’ that all legacy OEMs are facing in the transition to EVs. Production will be challenging but demand is also a big question mark. Dodge’s core demographic drives classic muscle cars and are less likely to convert to EVs than customers of most other brands. Dodge recognizes this and actually implemented a fake engine noise for the Daytona since that’s what customers are used to.
Going forward, it’s obvious that gas-powered vehicles will continue to lose share, as fewer of these cars will be produced over time. This highlights why EV market share isn’t a relevant metric. It’s more informative to analyze total auto market share because EV adoption is still so underpenetrated (just ~9% of new car sales in 2021) and growing rapidly. As fewer gas-powered cars are produced, combustion engine production will lose market share and economies of scale in favor of EV and battery production.
Tesla’s Shanghai factory produces its millionth vehicle
News: On August 14, Elon Musk announced that Tesla’s Shanghai factory had produced its millionth car. Tesla originally began construction of the Shanghai facility in January 2019 and delivered its first Shanghai-made vehicle about a year later. Shanghai surpassed Tesla’s Fremont factory in quarterly production in Q3’21.
My thoughts: This milestone isn’t surprising since Tesla ended Q1 with ~934k cumulative Shanghai vehicles produced, but it’s still notable. Tesla’s Fremont factory took 7.7 years to produce 1M units while Shanghai accomplished this in just 2.6 years. This is despite significant headwinds from Covid, including recent government mandated lockdowns that shuttered this factory for half of Q2’22.
After upgrades in July/August, Shanghai is now on track to produce another million cars in the next year, which would equate to ~$50B in revenue over the next 12 months from just this factory. For comparison, Tesla’s Fremont factory took ~2.5 years to produce its second millionth car.
Compared to Shanghai, Tesla’s newer facilities have seen slower ramps in the first few months but production looks to be ramping quickly given the positive developments at both Berlin and Austin this week.
BMW begins sourcing 4680 battery cells
News: On August 17, Reuters reported China’s EVE Energy Co. (SZSE:300014) will supply BMW (XTRA:BMW) with large cylindrical 4680 batteries. BMW hasn’t confirmed the report but expects to provide a battery-related update in September.
My thoughts: This is a positive development for BMW, as securing battery supply is a critical leading indicator for EV production. With that said, there’s a lot of misinformation being reported here. Just because BMW plans to use 4680 cells, which were pioneered by Tesla, doesn’t mean they will have the same efficiency or costs. 4680 is simply the form factor/dimension of the cells (46mm in diameter and 80mm in height).
The cell chemistry, weight, and energy density are all more important than the dimensions. The battery thermal management and cell-to-pack integration processes are also important factors that are handled differently by each OEM. Without more details on the cells or agreement itself (volumes, timeline, etc.), it’s difficult to know exactly what impact this agreement will have.
This supplier, EVE Energy, has worked with Tesla in the past on lithium iron phosphate (LFP) cells. If these 4680 cells for BMW have the LFP chemistry, this could enable BMW to lower its battery costs significantly.
I’ll be on the lookout for more information next month and be sure to report on that here.
Lucid unveils the Air Sapphire
News: On August, 19, Lucid unveiled the Air Sapphire. This is a limited production, tri-motor variant of the Air sedan. Here are the key details:
Expected start of production in H1’23
Starting price: $249k
Battery size: 118 kWh (same as other Air variants)
Range: undisclosed
0-60: under 2 seconds
My thoughts: This is an interesting move to go upmarket with a more expensive model, which is a different playbook from other pure EV OEMs that begins with the most expensive product before moving down market after achieving economies of scale.
While Lucid has always had plans for this model variant, the timing is interesting given their issues ramping production (FY22 production guidance has been cut twice since March). While this will help gross margins, the Sapphire won’t be made in high volumes so this won’t have a material impact on overall profitability.
After burning $2.9B in H1’22 and with just $4.6B of cash and short-term investments as of Q2, I suspect Lucid will be raising additional capital within the next year.
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It would be interesting to see how customers react to Dodge stopping production on the charger and challenger, given the history of these cars. Is definitely a risky move, although that new Daytona looks pretty cool. I wonder what will be the price tag.