🚗 Car Talk - Issue #17 (Book Review, Nio's BaaS)

Hi friends

I hope you have as much reading this week’s issue as I had writing it!

In #17, I review an insightful book on transportation I had been reading and digesting for a while. I also take apart Nio’s new business model. And of course, the latest in the world of new mobility is below 👇.

Buckle up!

In my teens, I was really into playing Microsoft’s Age of Empires. A challenging feature of the game was that you could only see the action a few feet ahead of you. Completely unexplored areas on the terrain were pitch black, while currently unobserved areas were covered in a grey shroud. You never knew who lurked in the darkness. To find what other players were up to, you needed to use a cheat code (“no fog”) and suddenly the entire map would present itself, including all your foes, friends, or those indifferent to you.

I’ve been reading Transportation Transformation by Dr. Evangelos Simoudis and the book is equivalent to using a “no fog” cheat code on the new mobility landscape. In speaking about the new mobility revolution, very early in the book Dr. Simoudis writes:

and I did a double-take because it validated a belief I’ve held for a long time myself.

At it’s core, Transportation Transformation lays out the complex tussle that lies ahead between the triumvirate of car manufacturers, mobility service providers, and government entities. Systematically and in very clear terms, Dr. Simoudis explains:

Here’s an example of how systematically the topics are addressed in the book - often times, the media gives outsized airtime to Cruise/Waymo/Argo’s driverless passenger vans at the expense of other autonomous use-cases. However, autonomous mobility is more than just driverless vans. Dr. Simoudis outlines six uses-cases for autonomous vehicles alone:

You see this level of systematic thinking repeated over and over again throughout the book. And with every challenge outlined in the book, opportunities are presented. Opportunities to start new companies, opportunities to invest, opportunities to reinvent careers, opportunities to generate value and create wealth!

I recommend the book highly to anyone interested in new mobility - engineers, city planners, entrepreneurs, enthusiasts. This book demystifies the entire landscape, connects the dots of a seemingly vast and disjointed industry very logically, leaving the reader with much to think about!

(Yes, I’m very pleased about coming up with “Rent Your Range”. Look, clever slogans and clever business models both excite me!)

We’ve talked about subscriptions in the world of new mobility in the past and Nio introduced a new subscription model this week - “Battery-as-a-service” (BaaS). Here’s the deal - the Nio ES6 EV sedan costs ~$50k to buy outright. However, for customer who can’t pony up $50k, the company will let you buy the car without the battery for $40k and let you lease the battery pack for ~$140/month.

How is this technically possible? Nio has partnered with CATL to devise “swappable batteries” allowing consumers to take their EV into a swapping station and have their batteries replaced, just as you would change dead batteries in a flashlight. If your battery is showing signs of degradation, or you’re on a long road-trip and need more range, just drop by these swapping stations to get a fully charged pack and be on your way within minutes!

Now, some juicy tidbits - China recently dropped EV subsidies to $3,500/car but made is so that these subsidies are applicable only to vehicles costing <$42k. Is this why Nio sliced the battery out of the car’s selling price? Possible, but it is reported that EVs with battery-swap technology get the $3,500/car subsidy regardless of cost! Local laws, it seems, are really trying to favor Nio’s technology.

Well then, recapping the two scenarios:

According to official data, a middle class household in China earns as much as $37k/year. It’s safe to say that coming up with even $36.5k (math above) would be a stretch for a regular Chinese family and they’d have to take out an auto loan to get into a Nio ES6.

Assume the purchaser puts 20% down and takes out a loan for 80% of the value. Let’s assume a 3 year loan at 3% interest (not unreasonable, per this amazing source). Monthly payments under two scenarios:

The delta of $90/month might make the Nio die-hard fan take the latter deal vs the former. However, does this model lure away customers planning to buy non-Nio cars and expand Nio’s TAM? That’s very, very debatable. Link

(Technical side note #1: while CATL is developing swappable batteries with Nio as above, they’re also working on technology that sounds to me like the exact opposite of swapping batteries. CATL is aiming to integrate the cells into the vehicle’s chassis to give the cars longer range. You can swap out battery boxes, but can you nonchalantly swap out the chassis? No way. Right?? No way!)

(Technical side note #2: Nio swapping stations would need to keep battery packs charged up to nearly 100%, ready to go. This is bad for the battery’s health! It also doesn’t escape me that Nio would need to spend significant capex setting up swapping stations, hiring personnel, adding to their costs. But hey, if the Chinese government wants to promote swapping, who am I to complain?)

Another EV + SPAC marriage goes public: You know the drill, guys:

Uber, Lyft, AB5 continues: Last week, Uber and Lyft sent out notifications saying they’ll suspend operations in California because a judge had ordered them to classify their employees as drivers and not contractors. Soon after, they reversed direction when the courts stayed their judgement, putting the decision back in the voters’ hands. So, just as you can select your new president on November 3rd, you can vote for ballot measure AB5 in California and let law-makers know whether you want drivers to be considered as contractors or employees.

Uber CEO, in a great interview said the shutdown will be temporary and they’ll return in California with a franchise-style model and higher ride prices (obviously!). Lyft Link, Uber CEO interview with Kara Swisher

Amazon, again: Just as I avoid discussing Tesla in CarTalk (I work there), I dislike bringing up Amazon too much because I’ve given them enough coverage. And yet, they find ways to stay top of mind in new mobility. Amazon will partner with Toyota (as legitimate of a car company as they come) to build their data services. Amazon has done this in the past with Volkswagen. They are invested in Rivian, they recently bought out Zoox. Yeah - Amazon has many, many tentacles in the new mobility jar. Link

Berlin’s sweet experiment: The city of Berlin wants you to turn over your car keys to them for a month. Not joking! In return, you will get credits for a number of services (public transport, micro-transit, e-scooters and bikes, ride-sharing, car-sharing) that ought to cover all your transportation needs for the month. It’s an amazing social experiment and the city will learn a LOT about the gaps in offerings to ensure they can be car(bon) free. Link

Beijing makes autonomous vehicles a priority: The Chinese government has formally deemed autonomous driving, along with 5G and artificial intelligence, as one of the strategic technologies to counteract the economic impact of the COVID-19 pandemic, boosted by state investment fund that has breathed new life into the ecosystem. This goes back to the excerpt from the book I reviewed up - Asia will win this thing! Link

That’s all from me folks. Have an awesome week!