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Published on May 8th, 2019 |

by Maarten Vinkhuyzen

Tesla Thanks VW

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May 8th, 2019 by Maarten Vinkhuyzen

Today was another exiting day for the electric drive aficionados. Volkswagen presented its ID. sub-brand to the world, with the first model, the ID.3, ready for reservation. The times that VW was short for VaporWare are over.

My colleagues are covering everything there is to say about today’s announcement from a VW perspective. This article is about the impact on the competition.

Who are the competition? We have seen announcements from PSA about the Peugeot e-208 — and its siblings for the Opel, Citroen, and DS brands. We expect the Renault Zoe and Nissan Leaf to become mature with larger batteries and usable DC fast charging. In the upper regions of the market, the Jaguar I-PACE, Audi e-tron, Mercedes-Benz EQC, Polestar 2, and Porsche Taycan are all trying to get a piece, and the 900 pound gorilla out of Fremont, California, is extending its market to the rest of the world.

What the competition is not doing (yet) is launching a big marketing campaign. This afternoon’s presentation will be a big news item on the evening news in much of Europe, followed by repeated segments on all the mobility and auto shows on television and numerous articles in the car segments of major newspapers and in auto magazines.

What VW is doing with this introduction of its ID. sub-brand is giving electric cars a seal of approval that no other carmaker has provided. It is not that VW has something new for a few enthusiasts (most of you reading this). However, VW is saying that electric vehicles will replace their fossil fuel models in the coming years, likely in the next decade, and transfers the story we enthusiasts know so well to the broader public. VW is clearly all-in, which means a lot more to the average Joe (or Jürgen) than Tesla predicting the industry will go electric. It also means a lot to all of VW’s conventional auto industry colleagues.

Thank You, VW
The impact on the competition can go two ways in the eyes of many critics and followers. Those who see the electric car space as a limited space will argue that VW will push the competition to the margins. VW will crush the ambitions of PSA, Renault, Nissan, and most of all Tesla, according to these people. The competition is here — go home, Tesla. No doubt Seeking Alpha and Wall Street will see this as another sign of the coming demise of the upstart from California.

The market researchers who see the auto market as one market where all powertrains are competing for a bigger slice think differently. The battery electric powertrain is still mostly unknown and misunderstood. The biggest problem is still convincing customers that fully electric cars are real cars, better cars. Able to do everything one expects from a normal car, but better.

This media campaign by VW will not only sell a lot of ID.3 cars all over Europe. It will also sell a lot of Leafs, Zoes, e-208s, i3s, Konas, Niros, and most of all, very many Tesla Model 3s. It is the perfect example of a rising tide lifting all ships.

The competition in the luxury segment from Jaguar, Audi, Mercedes, and Porsche is mostly sold out for over 12 months. Some have stopped taking new orders. It will be frustrating for automakers to see this tide wash away fossil fuel sales without having the capacity to profit with their own new electric offerings. The interest VW is generating can only be turned into orders by Tesla, because it’s the only company with the production capacity and maturity to profit right now from this rising tide.

It is great to be the only one that can deliver in volume when the competition starts a media campaign. Tesla (investors) must thank VW for this present. Other automakers in the top half of the EV market — Renault, Nissan, Peugeot, Hyundai, and Kia — should also thank VW for the long-term benefit, for the extra demand and interest they get from VW’s public push.

Editor’s note: One thing I found interesting from the Q&A after the presentation was that journalists repeatedly referenced Tesla without saying “Tesla” — but everyone knew what company was being referenced. Something I learned long ago in a sociology class was that unspoken shared assumptions are often the most powerful — they are so clear that no one has to speak them. It is clear that Tesla is setting the high bar for this competition. And not only were the questioners clearly referencing Tesla — many of the highlights of VW’s presentation were essentially VW’s copies of what Tesla had done, what Tesla had shown consumers like and want.

This is, honestly, not a knock on VW. To the contrary, I think it’s very big of VW and a sign of strong long-term vision that the gigantic company swallowed its pride and rolled into its doors and policies numerous lessons it learned from Tesla. Sure, it threw some shade here or there to try to place its evolution a foot above Tesla’s. Perhaps that fooled some people, while it surely didn’t fool others, but much more important than that is that the company has studied Tesla and is trying to be flexible, innovate, and evolve quickly in order to try to maintain its position on top of the world’s auto market (in terms of sales). The journalists recognized the similarities, felt confident getting up and asking questions about other puzzle pieces that were lacking or didn’t match Tesla’s example, and Mr. Stackmann politely and graciously answered the questions to — I think — honestly explain where the company thought it was smart to copy Tesla and where the company thought it was smart to do something else — without mentioning “Tesla.”

In the end, we’ll see how the automaker’s approach serves the German giant. We’ll also see if the departures from Tesla’s path are smart or are strategic mistakes. To me, though, VW’s new focus is long-delayed (very long-delayed) leadership, the kind of honest leadership that does not pretend to invent the wheel but instead learns from prior leaders. And the good news, as Maarten insightfully shows us, is that it will push less thoughtful, less humble, less ambitious, less in-need-of-a-brand-revival fossil automakers to follow the growing excitement down electric avenue.

About the Author

Maarten Vinkhuyzen Grumpy old man. The best thing I did with my life was raising two kids. Only finished primary education, but when you don’t go to school, you have lots of time to read. I switched from accounting to software development and ended my career as system integrator and architect. My 2007 boss got two electric Lotus Elise cars to show policymakers the future direction of energy and transportation. And I have been looking to replace my diesel cars with electric vehicles ever since.

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The first Chinese automaker sets sights on US with start-up Zotye taking on big rivals in Detroit

The Zotye Auto debut at Shanghai auto showH/O: Zotye AutoWhen Guangzhou-based GAC Group rolled out a concept vehicle at the North American International Auto Show last January it was just the latest among a procession of Chinese automakers laying out plans to enter the American car market.
To date, however, the only Chinese-made vehicles to reach U.S. shores have been imported by General Motors and Volvo. But Zotye Auto, a small, privately held carmaker from Yongkang, Zhejiang, China, is determined to be the first domestic Chinese car company to reach American shores — and in as little as 18 months from now.
With a name that few Americans will likely know how to pronounce — it's Zoh-tee, not Zot-yee — a small budget and even less brand equity than bigger Chinese brands like BYD, Geely or Great Wall, there are plenty of skeptics. Americans “have a bad perception of Chinese vehicles, overall” cautioned Augusto Amorim, a senior analyst with LMC Automotive. And Zotye is particularly unknown, he said.
But the team of industry veterans who are leading the Zotye launch effort are confident they can pull it off, including seasoned salesman Duke Hale, 69, who sold his first car as a teenager and has spent decades working with automakers as diverse as Isuzu, Lotus and Land Rover. Hale said he's confident his “seven Ps” strategy will clinch the deal.
The list includes such things as “processes,” as well as “product.” The first model expected to enter Zotye's U.S. line-up debuted barely a month ago at Auto Shanghai. The T600 is a compact crossover that will be aimed at the likes of the Toyota RAV4 and Honda CR-V. It will be followed in 2022 by the midsize T700 crossover and, about a year later, by a three-row model.
The Zotye Auto debut at Shanghai auto showH/O: Zotye AutoBut while the T600 has generated some positive press, Hale believes the brand's biggest selling point will be “price.”
“Think in terms of 20% less than the targeted competition,” notably including the likes of Hyundai, Kia and Toyota, Hale said over dinner with journalists at the Detroit Renaissance Center on Thursday night.
That's an even bigger discount than Hyundai offered buyers when it came to the U.S. market 30 years ago — and with a name that was equally baffling to American consumers. And it would come at a decidedly opportune time, industry officials like Joe Hinrichs, Ford's president of automotive operations, have openly worried about the rising cost of today's new vehicles. The average sticker price of a new car hit a record $34,000 at the beginning of the year, according to data compiled by industry research company LMC Automotive.
Industry observers note that translates into a typical monthly payment of around $550, enough to price millions of potential buyers out of the market, especially millennial and Gen-Z motorists, many already straining to pay off student loans.
Jan Thompson, a former marketing executive with Mazda and Toyota who's now handling that role for Zotye, believes the Chinese brand's primary buyers will be young shoppers who don't want to buy a used car. But with an estimated 42 million used vehicles sold in 2019, nearly three times more than new, customers could come from every market demographic, she said.
2019 Honda CRV with camper tent accessories.Adam Jeffery | CNBC “I tell my neighbors in Tennessee I'm going to sell a Chinese car and they all say they're not interested,” she said. “Then I tell them the price and they all ask where they can sign up.”
Unlike Hyundai, Kia and the many new automotive start-ups coming on the scene, Zotye won't actually run the show, if and when its cars come to the U.S. The marketing operation actually lifts a page from the strategy several Japanese automakers used in decades past when they tried to pry open the door to the U.S. market. Subaru, Mazda and even Toyota initially relied on independent American distributors — the Japanese giant still represented by one in a number of Southern states.
Hale's HAAH Automotive Holdings negotiated a deal to import and distribute Zotye's products in the U.S., a plan the Chinese carmaker was more than glad to accept, he said, considering it currently has capacity to build 1.2 million vehicles annually but only sold about 400,000 last year.
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The good news for HAAH and Zotye is that they claim to be generating strong interest from dealers, with several dozen now signed on representing 60 “points” in 15 states, and negotiations are well underway with about 20 others, according to sales chief Bob Pradzinski, who has spent decades working for Asian automakers including Hyundai, Mazda and Toyota.
What might surprise buyers is that despite record new vehicle prices, the typical automotive retailer loses about $331 for every car, truck or crossover they sell, according to the National Automobile Dealers Association. They have to try to make that up by pushing finance, insurance and service.
Hale and his team is trying to make it easier — more profitable — for dealers. Zotye plans to use a “no haggle/no hassle” approach to pricing, like Saturn. And dealers will be offered large geographic franchises in which they could set up multiple outlets. That could include showrooms in malls, something Tesla has done.
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“Overall, we view the 1Q update as positive as the company progresses towards its long-term goals,” Stifel said.
The first quarter results, as well as Lyft's 2019 earnings forecast, was “a good first step for the company to provide evidence toward that goal” of profitability, Credit Suisse said.
“Long term, we still see shared transportation as a market with a long runway for secular growth, potentially more rational industry competitive dynamics as maturity approaches & broader positive impacts on society,” UBS said.
JMP Securities urged investors to “take advantage of the recent pullback in shares,” the firm said, as Lyft has fallen more than 24% since its IPO.
Lyft shares were 3.6% lower in premarket trading from Tuesday's close of $59.34 a share. Its IPO price was $72.
Here's what every major Wall Street analyst said about Lyft's results.
UBS' Eric Sheridan – Buy rating, $82 price target “With its first earnings call/report, LYFT mgmt (in our opinion) laid out a positive LT vision for the industry, downplayed recent worries on competition and talked up the long term transportation oppty. In addition, we think a Q1 and upside forward commentary should also focus investors back on the potential upside. Long term, we still see shared transportation as a market with a long runway for secular growth, potentially more rational industry competitive dynamics as maturity approaches & broader positive impacts on society.”
Credit Suisse's Stephen Ju – Outperform rating, $95 price target “We note that as the potential for margin expansion (and particularly the long-term margin targets) has been a sticking point for LYFT shares among investors, we view the better-than-expected Adj. EBITDA margins reflected in the 1Q19 results, as well as the 2Q19 and 2019 guidance parameters as a good first step for the company to provide evidence toward that goal.”
Jefferies' Brent Thill – Buy rating, increased price target to $90 from $86 “Lyft delivered a clean ride out of the gate in its first qtr since the IPO, with a convincing beat and raise. Lyft showed: 1) strong momentum in rev & metrics; 2) significant progress in reducing losses; and 3) heading off a L-T concern with a partnership with Waymo. Valuation is attractive at 4.0x CY20 EV/S, and we expect stock to recover as Lyft executes and misconceptions clear.”
J.P. Morgan's Doug Anmuth –Overweight rating, increased price target to $86 from $82 “Overall, we believe Lyft's results & outlook were strong, & mgmt addressed a number of key points that we believe will bolster shares: 1) more details & confidence around leveraging insurance over time; 2) 2019 as the peak loss year; 3) core ridesharing losses improving; & 4) competition receding & ridesharing becoming increasing rational. Our 2019 & 2020 revenue estimates are increasing 3-4% & our EBITDA losses also improve notably. We continue to believe there is strong secular growth in TaaS, that Lyft's singular focus on transportation & emphasis on product innovation will driver further share gains, & that ridesharing will become profitable as the industry becomes more rational over time.”
Piper Jaffray's Michael Olson – Overweight rating, $78 price target “The company indicated that, while it continues to spend aggressively on various initiatives, the competitive pressure on rider incentives for core ridesharing has receded to some degree, which is a sign of a rational duopoly between Lyft and Uber for the time being.We believe Lyft will be both a catalyst and beneficiary of the growth of ridesharing and autonomous tech over the next 10+ years. LYFT may not be the right fit for all investors, given the company's current materially unprofitable state, but for those with a long-term view, and patience, we recommend owning shares at these levels.”
Raymond James' Justin Patterson – Outperform rating, $85 price target “We leave the quarter feeling incrementally better about Lyft's ability to win driver and customer loyalty via product innovation and service, and sustain >50% contribution profit growth into 2020E … the peak loss year is less steep than envisioned. Lyft will still generate EBITDA losses in excess of $1B this year…but that is an improvement from $1.3B previously. The incremental margin improvements demonstrated in 1Q suggest that Lyft can reduce cash burn as it exits 2019.”
Stifel's Scott Devitt – Buy rating, increased price target to $70 from $68 “The company's FY:19 revenue guide was set ~3% above our prior expectation at the midpoint. Adj. EBITDA margin for the full year is expected to be -35.4% at the midpoint, approximately 700bps better than our prior expectation. Management noted it is seeing a reduction in rider incentives across the industry and believes overall the current competitive market is rationalizing. Overall, we view the 1Q update as positive as the company progresses towards its long-term goals. We are raising our target price to $70 as a result of higher estimates.”
Canaccord Genuity's Michael Graham – Buy rating, $75 price target “Lyft delivered a textbook first public quarter, with modest upside on all key metrics, and solid guidance relative to consensus both for Q2 and 2019. Management sees the competitive landscape in key US cities becoming increasingly rational, which should be a positive signal for investors worried about the potential for near-term pressure from driver incentives and pricing. Lyft is now contribution-margin positive in nearly every market, and the core ridesharing business is showing enough operating leverage to offset even more of the 2019 investment in bikes and scooters. We continue to see Lyft offering the hallmarks of an attractive growth equity investment, including a large addressable market with an attractive duopoly structure, a strong value proposition that should get better with scale, and a business model that holds solid room for upside.”
JMP Securities' Ronald Josey – Market outperform rating, $78 price target “While acknowledging the concerns around competition, investments, and greater losses in 2019, given strong top-line growth, contribution margin expansion to ~50% in 1Q19 from 35% in 1Q18, Sales and Marketing leverage, and improving losses, we would take advantage of the recent pullback in shares; since Lyft's day 1 closing price post its IPO, shares are down 24% compared to +1.8% for the S&P 500. Importantly, with ~30-40% share of the domestic ridesharing market, a market we believe accounts for ~1% of miles driven, we believe Lyft is at scale and that its TAM could ultimately be significantly larger than the $1.2 trillion annual personal transportation market / TAAS market.
KeyBanc's Andy Hargreaves – Sector weight rating, no price target “Lyft reported solid 1Q results with better than expected rider and revenue growth. We believe Lyft is performing well and retains a strong top-line growth outlook. However, the ride-sharing market appears to be slowing and the degree of longterm profitability remains uncertain, preventing a more positive outlook on the shares.”
Atlantic Equities' James Cordwell – Underweight rating, increased price target to $52 from $50 “Q1 revenue and adjusted EBITDA were ahead and, encouragingly, management commented that promotional intensity had eased, aiding profitability. However, Q2 and FY19 revenue guidance imply a steep deceleration, and while not completely unexpected, could bring to the fore concerns regarding how much growth remains in the US ridehailing market under the current operating model … we remain Underweight given the slowing growth profile and our view that Lyft has insufficient scale to ultimately deliver attractive returns.”
Guggenheim's Jake Fuller – Neutral rating, no price target “The key debate into the release of LYFT's first quarterly results as a public company has been whether it could both sustain rapid growth in Active Riders and do so while showing improvement in unit economics. Growth in Active Riders was modestly ahead of consensus and we saw a sequential step-up in revenue/rider and contribution margin. After seeing Uber's preliminary 1Q results, we worried over the potential for mounting competition to undermine those metrics. While detail in the release and accompanying slide pack was sparse, the lack of obvious competitive pressure is encouraging.”

Lyft riders in Phoenix will soon be able to hail Waymo driverless cars

John Krafcik, chief executive officer of Waymo Inc.David Paul Morris | Bloomberg | Getty ImagesAlphabet's Waymo unit said on Tuesday that its self-driving vehicles will be available in the Phoenix area for users of ride-hailing service Lyft.
“As a first step, we'll deploy 10 Waymo vehicles on Lyft over the next few months,” Waymo CEO John Krafcik wrote in a post on Medium. “Once Waymo vehicles are on the platform, Lyft users in the area will have the option to select a Waymo directly from the Lyft app for eligible rides.”
Waymo attained regulatory approval and began to operate its driverless cars in Phoenix last year with human supervisors on board in a program it called Waymo One.
Truly driverless vehicles do not yet exist. However, ride-sharing businesses are eager for the advent of Level 4 autonomous vehicles, which would be able to operate in typical driving conditions without human supervision. These “robotaxis” could help ride-sharing businesses like Lyft and Uber skirt costs and liabilities associated with the human drivers on their platforms.
The Waymo-Lyft announcement follows promises made by Tesla CEO Elon Musk in recent weeks that his electric car company should have 1 million vehicles capable of functioning as robotaxis on the road next year, and that owners of the cars should be able to generate tens of thousands of dollars from them annually.
When Tesla began to discuss its ambitions in self-driving technology in 2016, Musk said they would conduct a hands-free trip across the US by late 2017. They have yet to complete that mission. And Tesla has not yet announced any regulatory approvals to operate a driverless transportation network.
Uber previously paused its self-driving vehicle programs in San Francisco, Pittsburgh, Phoenix and Toronto after a woman was hit and killed by an Uber self-driving car while was walking across the street one night in Tempe, Arizona, outside of Phoenix.
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