Category: personal_noteS

How much money did electric vehicles companies burn (China Trio: Nio, Li, Xpev)

Employee counts at the end of 2020, 2021, 2022:

Nio total 7,763 15,204 26,763
Xpev total 5,084 13,978 15,829
Li total 4,181 11,901 19,396

Their R&D expenses combined is likely to be similar as Tesla’s R&D expenses in 2023, or ~$4bn.

CapEx (rmb, mn) in 1H 2022, 2H 2022, 1H 2023:

Nio -3,463 -3,510 -5,039
XPEV -2,383 -2,297 -1,429
Li -2,010 -3,118 -2,569

Despite a macro downturn, Nio is spending more in capex.

Nio’s capex is now 26% of its revenue in 23H1; XPEV capex has come down a bit to 16% of revenue; Li Auto had the best ratio at 5.4% of revenue in 23H1.

The trio has spent 18bn rmb in capex from H2 2022 to H1 2023, or ~$2.5bn in usd.

To compare, Tesla has spent $7.8bn in capex during the same period; Rivian spent $1.1bn and Lucid spent $1bn.

While Tesla and Li Auto’s gross profits are higher than their capex number, the other 4 companies were burning their own cash.

Middle-east (CYVN, Abu Dhabi based) is backing Nio in 2023, providing ~$3bn net new funding to Nio.

EU (Volkswagen) is backing Xpev in 2023, providing ~$700mn financing to Xpev.

 

 

TSMC in EU

Capital structure. The setup seems simple. Total cost is 10 billion euros. German gov shall give 5 billion euros in subsidies. TSMC will put down 3.5 billion euros, for a 70% stake. Bosch, Infineon Technologies and NXP Semiconductors will each put down 500 million for a 10% stake – 30% total.

Timing. TSMC’s fab in Japan announced in Oct 2021, started construction in Apr 2022 and is finishing in Q1 2024 (2 years of construction), and began mass production in H2 2024. The Kumamoto plant will start with 28-nm and 22-nm chips.

TSMC’s German fab hasn’t started yet. Should it began construction in H1 2024, it should finish in 2026 and start mass production in 2027. which sounds a bit far away. And this fab is for mature node (28/22nm planar CMOS and 16nm/12nm FinFET nodes).

Cost. Back in 2016, TSMC’s Nanjing plant (Fab 16) is said to cost $3bn for 20,000 12-inch wafers per month, plus the construction of a design service center. The German plant is designed to have 40,000 wafers a month, but still, the cost has inflated to almost 2x after 8 years, or ~8% annually.

 

MSCI China 2023 EPS growth expectation vs. reality

MSCI China EPS in CNY terms from 2023 Q1-Q3 is 1.08, 1.23, 1.25, growing 3.85%, 1.65%, 2.46% yoy.

While reversing the downtrend in 2022, the growth is less than expected. Even with 23q4 current expectation of 9% growth yoy, MSCI China EPS growth is ~4.3% for the full-year 2023.

What was the expectation at the end of 2022 / early 2023?

Let’s take a look:

UBS (Nov/Dec 2022) – “We expect significant easing in COVID-19 restrictions in the second quarter. We forecast earnings growth of 15%-20% for MSCI China, which would be underpinned by lower commodity prices, improved economic growth and lower asset write-downs,”

Morgan Stanley (EPS growth in 2023: 12% -> 13% -> 16%) – for 2023 YE MSCI China Index target, in Nov 2022 report it was 59; raised to 70 in Dec 2022; raised again to 80 in Jan 2023

Goldman Sachs (Dec 2022) – “revise up our earnings forecasts to 13% from 8%” (the link is a report in Jan 2023 but revision is made in Dec 2022.

Citi (Jan 2023) – “expects earnings per share for the MSCI China index to grow 15% year-over-year in 2023. ”

The outcome is the big miss in earnings. We are like to see ~2% 2023 EPS growth in reality vs. expectation of ~15% at the beginning of the year

 

 

German car market 2023

Based on German’s official passenger car registration, here are some takeaways:

  • 2023 total German market is ~2.84mn cars, up 7.3% yoy from 2022; but in 2019 that number is 3.6mn, so still down 21% from 2019-level (most decline happened during 2020 and 2021)
  • German brands got ~52% market share and the three German companies got ~59% market share

  • Audi (+16%), Mercedes (+14%), and BMW (+11%) brands are all share gainers from 2022
  • Skoda (+17%) and Seat (+19%) brands, owned by VW, are also share gainers
  • Tesla, although with a local factory, only got 2.2% market share in 2023, and is losing shares in German vs 2022; German market is less than 4% of Tesla’s global deliveries
  • Ford got 4.1% market share in 2023, and keeps losing market share. Pressure continued since covid. Ford new registration in German dropped over 30% in 2020 and dropped another 35% in 2021. Its 2023 number is still a bit lower than 2021
  • Two South Korean brands, Hyundai and Kia, are flattish in number of cars, but lost small share as the market grew.
  • Toyota new registration PV dropped 4% yoy, also a share loser in German.

Market share in 2023 by origin of brands

 

Japan’s capital market to thrive (?)

Japanese gov has been pushing for corporate governance reform for years.

It has drawn lots of attention, but how effective is the result? Several things to watch:

1/ new M&A guidelines – aim to spur M&As. But can real deals happen soon? can these deals not only give shareholder returns, but also easy for acquirers to consolidate/get synergies after the deal?

2/ “Doubling Asset-based Incomes Plan” – aim to let more retail investors buy more stocks. Seem to be a good idea and retail investors can pay higher p/e, but will people just buy more US stocks? will people really buy in the improved corporate quality narrative?

3/ investors communication / forums etc. – maybe can make more info available in english first?

It seems harder to move money (in & out of JP to the US) compared with say HK.

Nikkei 250

After a 20-year [1982 to 2002] journey, Nikkei 250 index was back to the starting point.

And it hasn’t yet reached the previous high 34 years ago (1989 level) as of 2023.

What happened?

A lot of things to unpack.

GDP

I am looking at GDP (in local currency terms) first – equity market should be a ratio of GDP.

Japan already enjoyed a robust growth (1972-1982) with GDP almost tripped in 10 years (!), which translates to 11.4% cagr. 

The miracle continued for another decade.

1991 GDP also grew 6.4% yoy vs. 1990; however, GDP growth dropped to 2.5% in 1992 and to 0.0% in 1993.

During the second phase of which ended on 1991, Japan’s GDP still compounded at ~6% cagr (1981 – 1991), although not as high as the last decade. And Nikkei index climbed during this period as well.

What’s wrong then?

The “10-year GDP cagr” would drop continuously from 1991’s 6% to below 1% in 2002. 

Remember, Nikkei index peaked in 1989 (red mark).

While in 1990 and 1991 Japan’s GDP still enjoyed 7.6% and 6.4% growth, 1992 would be 2.5% and 1993 would be 0%.

It was the mid-term / 5-year projection that’s worrisome. And indeed, the 10-year GDP cagr would start to decay, with no reversal in sight.

Nikkei index bottomed in 2003, when the dot-com bubble also came to an end. S&P 500 dropped ~24% in 2002 (after double-digit drop in 2000 and 2001), but grew 26% in 2003.

The index bottomed as the 10-year GDP growth would be bottoming and things won’t go much worse from here.

 

Nikkei index is now (2023) ~4x the 2003 bottom though, what happened?

Nikkei index climbed 4 consecutive years (2003 – 2006), before the Global Financial Crisis hit.

Japan’s 10-year GDP cagr would still be ~0% in 2007, but from 2004 to 2007 it experienced a 4 consecutive year of GDP growth.

Things would look better in 2012, when Japan GDP would be re-entering a growth mode. 10-year GDP cagr would bottom in 2011 at -0.7% and recovered to 0.1% in 2015 and to 1.2% in 2019 before covid.

To make it a full graph.

As mentioned above, although 10-year GDP cagr still has pressure from 2003 onward, actually yearly GDP growth is positive from 2004-2007. Therefore the 3-5 year outlook would actually be reversing in 2003.

US-China direct flights recovery

Recovery Tracker

after China reopened in 2023, flights were set to increase from 16 per week to 24 per week, announced in March 2023.

In Aug 2023, two sides agreed to double capacity of 48 per week, ramping up to 36 per week on Sep 1, and 48 per week on Oct 29.

Flights would further increase to 70 per week starting Nov. 9.

Technical difficulties

US need to avoid Russian airspace, which requires longer distance and thus refueling.

Impact on tourism

e.g. SF: visitors from Mainland would be only ~20% of 2019 level.

“In 2019, 518,000 of San Francisco’s 4.3 million international visitors were from China, according to data provided by SF Travel. Though visitors from Mexico outnumbered them by about 100,000, visitors from China spent the most of any group, accounting for $1.2 billion of the $7.7 billion international tourists spent in the city that year.

This year, visitors from China are expected to number only one-fifth of their 2019 total, and expected to spend just under $450 million. That brings the city’s total international visitor spending down from 2019’s $7.7 billion to an expected $5.9 billion in 2023.”

— SF Chronicle (https://www.sfchronicle.com/sf/article/international-tourism-china-recovery-18188305.php)

 

Other sources:

https://www.regulations.gov/document/DOT-OST-2020-0052-0165