I’ve had a little more than a day to absorb the news that Volkswagen is going to put billions into its erstwhile competitor Rivian in order to gain access to its software platform. It’s bad. Real bad. It’s obviously not great for Volkswagen, which appears to be in the middle of the kind of Wolfsburgian struggle that was supposed to eventually stop. It’s worse for other automakers, though, as one of the biggest and smartest of them shows it’s not ready for a software-defined universe.
Remember all those Lidar SPACs that bubbled up during the pandemic? It’s ok if you don’t; that whole time was pretty dark and I’m sure Lysol-ing bags of wasabi peas broke my brain, but there was a sense that all cars would need Lidar and, combined with shortcuts to going public, these companies would be goldmines. What actually happened? So far, Chinese suppliers dominate the industry.
China also dominates batteries, though it’s not the only player. South Korea has a large battery industry and a major company there experienced a scary runaway fire that claimed the lives of 23 people.
And, finally in today’s installment of The Morning Dump: Will the CDK Global ransomware attack materially impact June sales? People don’t seem to agree.
Rivian, VW, And The Cariad Fuckdown
A recent installment of The Morning Dump Saga included a breakdown of various CEOs and one of the interesting points made in a linked article was that maybe VW CEO Oliver Blume should let go of Porsche because he seems a little busy. I disagreed and I still think I do, but there’s one funny bit from that Bloomberg Opinion piece I think that’s worth highlighting:
[R]unning VW is one of the toughest corporate gigs around: It involves overseeing 10 brands and almost 700,000 employees (many of them unionized), while mollifying the Porsche and Piech families and VW’s home state of Lower Saxony, who together control a majority of VW’s voting shares.
In fairness, Blume has so far shepherded these various constituencies rather well: Relations with the trade unions have improved, and he has the backing of VW’s family owners.
There has been less of the smell of rot coming from the State of Wolfsburg (well, technically, the state of Lower Saxony but that’s less poetic) lately. The bit of obvious brawling has come from the parts of Volkswagen unhappy with the company’s overarching software unit, Cariad.
Volkswagen, like most automakers, realized a few years ago that what Tesla was doing was shifting the desirability of cars purely from their stats/comfort/style (hardware) to their added electronic abilities (software). This is how we get the industry term Software-Defined Vehicles or SDV.
At the time, VW did what a big company is going to do and created a company called Cariad (originally Car.Software, which, lol). The company staffed it up with thousands of engineers to build a software platform for all Škodas and SEATs and Porsches and Bentleys and everything else.
Believe it or not, the move-slowly-and-don’t-break-things approach of VW didn’t work. The company lost billions of dollars and produced software that is fine, I guess. Despite smoothing the waters elsewhere, Blume was reportedly not happy with Cariad from his time running Porsche and this carried over into his term as CEO of both Porsche and the wider VW Group.
From a Business Insider piece last year on his ouster of Cariad’s leadership:
From the outset, Cariad was seen as a dispute between the brands, and produced mostly negative headlines. It was about wrangling over competence, schedules could not be met, delays kept occurring, and costs exploded. The software debacle was a major reason for Herbert Diess’s replacement. And for his successor, Cariad is probably the biggest construction site in the group.
With the announcement that VW would be giving Rivian a few billion dollars for access to its software, it seems like Blume has all but given up on the idea of Cariad being in control of SDV at VW.
The timing is interesting, as there was a recent report in Germany’s Manager Magazine that talked about Blume traveling to China for the Beijing Motor Show earlier this year to drive an Audi with the Cariad’s next-gen software and, well, it didn’t go well:
During a group acceptance drive, new models were tested, compared with the competition – and the boss was not very enthusiastic. Blume’s reaction? From the Audi people’s point of view, a “catastrophe!”, as one participant groans. The new Q6? “For Blume, the last in line,” says another.
It wasn’t just the design that was disappointing, as was the interior, presented by Gernot Döllner as a sparse basic version and not exactly luxurious like China. The infotainment system in particular was not up to scratch. Once again, the group’s own development subsidiary Cariad was unable to deliver anywhere near what was expected of it. Instead, it lived up to its reputation as the group’s problem unit.
When Rivian announced the VW deal there was a lot of surprise because, so far as I can tell, both companies managed to keep the secret quite well.
Reuters has the best background on this, and the timing, again, is what I care about:
The talks that led to the dramatic tie-up began, Scaringe said, when he and Volkswagen CEO Oliver Blume met privately at Porsche’s experience center in Atlanta.
Two sources said the meeting was in August last year.
Ahha, tell me more:
The companies got to work straight away, with a Rivian team visiting Volkswagen in Germany that fall.
The testing to make sure everything worked together was “like a scrimmage,” Scaringe told a company townhall on Wednesday, according to one source. Another trip to Germany followed early this year with lawyers and software experts, this person said.
[…]
To overcome the difficulty of integrating starkly different work cultures that often plague such deals, Volkswagen leadership agreed to embrace Rivian’s agility, its software chief Wassym Bensaid told analysts on Tuesday. He said “very clear rules and responsibilities” had been set for the JV.
Like I said in the headline, this is a bad sign for big automakers. Volkswagen may be big and lumbering, but it’s not dumb.
I just think the big-and-lumbering is kinda the problem. I don’t develop software and claim no expertise there, but with SDV it does seem like the smaller and leaner Silicon Valley model seems to consistently outperform what comes out of Germany, Japan, or Detroit.
VW threw billions of dollars and thousands of engineers and coders at the problem and, basically, gave up.
China Controls 80% Of The Lidar Market
Lidar, which is a sensor technology that fires lasers at things to understand where they are in near real-time, is a big part of the driverless car future that’s supposed to be coming. This was especially the case in 2021 when a bunch of them used SPACs to shortcut the IPO process and go public.
Here’s a fun Forbes article from the time: “How Will Pure Play Public LiDAR Companies Use Their Money?”
The companies listed were Velodyne, Luminar, Innoviz, Ouster, Aeva, and Aeye. Velodyne and Ouster had to have a “merger of equals” and the stock is not even 10% of its pandemic peak. Aeva’s share price is in the $2 range after being up near $100. Innoviz is less than a $1 per share. Luminar is a little less than $2 a share
As the article points out, at the time the range of values for these companies was between $1 billion and $2.9 billion.
What happened? For one, the autonomous car bubble burst with companies like Argo going bust and players like Cruise hitting a bunch of speed bumps. What else? As S&P Global Mobility points out, China also happened.
Specialist suppliers from mainland China dominate the lidar market. Their dominance is a by-product of the rapid advancements in advanced driver assistance systems (ADAS) and robo-taxi applications in the Chinese market, supported by benevolent government policy and subsidies. In terms of volume, the country accounted for more than 80% of global lidar sales in 2023, according to S&P Global Mobility data. Having found a large customer base in their domestic market, the Chinese lidar suppliers are actively looking to expand their presence in international markets to stay on a strong growth trajectory.
When China wants to do something it’s hard to compete, though S&P thinks there’s a future here for some of these companies:
And what about the lidar companies that went public via SPACs? Their time to shine is coming. The likes of Luminar, Innoviz and Velodyne are expected to gain market share as we move through the decade and as North American and European markets follow the >L2+ lead of mainland China, driven by evolving regulatory environment and rising consumer demand.
So it’s not all bad news.
Scary Lithium Battery Fire In South Korea Kills 23
Just FYI, the video above shows the start of a runaway lithium battery fire in South Korea this week. While no one gets hurt in this video, it’s not possible to know if any of the people seen attempting to extinguish the fire perished in the blaze.
If you don’t want to view the video, it basically shows how quickly a fire can happen in this kind of environment and raises a lot of questions about how the company stored these items.
There’s been some confusion online, and I’d like to clarify here that these are not rechargeable lithium-ion batteries used in cars but instead non-rechargeable batteries used for consumer electronics.
Still, it’s a reminder that batteries can store immense amounts of energy. According to The Korea Herald, the government is ordering inspections at all kinds of battery plants in the country:
As such accidents could be prevented with the right measures in place, the government ordered more than 500 battery manufacturing workplaces to conduct emergency self-inspections based on a lithium handling safety checklist on Wednesday. In addition, fire authorities are conducting urgent fire safety investigations with relevant ministries for more than 200 battery-related companies.
As the article points out (and as we’ve experienced with fires here), once lithium batteries get going they take a lot of work to extinguish.
Are June Sales Going To Be Materially Impacted By The CDK Global Ransomware Attack?
We know that the attack on CDK Global, a major provider of essential dealership software, was a ransomware attack and that it’ll take at least another week to get services fully online.
As this happens, dealers have claimed they can still sell cars, albeit slowly. Will this show up in monthly sales reports?
A recent release from S&P Global Mobility estimated the seasonally adjusted annual rate (SAAR) at 16.2 million in June, which is about 1.40 million total sales. That would be an improvement over last month and over June 2023.
And yet, J.D. Power and GlobalData say that might not happen (note: they have slightly different estimates from S&P so the numbers don’t perfectly align). From Automotive News:
J.D. Power and GlobalData estimate that U.S. light-vehicle sales for the month will fall by 2.6 to 7.2 percent from a year earlier, for volume of 1.27 million to 1.33 million. They originally had expected sales of 1.41 million before the ransomware event that began June 19 created a “significant” disruption.
This is extremely complex stuff and it raises a few possibilities:
- Nothing happens. Dealers are able to figure out ways to get cars off the lot.
- Sales data is delayed because dealers can’t file sales easily with automakers, so those numbers show up in July.
- Some automakers use this as an excuse for poor sales (the Stellantis approach, perhaps) while others show no downturn.
- The apocalypse.
- Cats and dogs, living together.
It’s the end of the quarter in three days so we’ll know early next week what happened or, at least, what automakers say happened.
What I’m Listening To Today
I’m still rocking the Shoresy Season Three soundtrack and this popped up and it’s been on repeat.
The Big Question
Can a large automaker be responsible for building its own software? Will GM pull it off? Will no one other than Tesla make it work?
I never understood why the large OEM’s, after watching Tesla emerge in slow motion through the 2010’s didn’t claim off their own Tesla brands( outside their normal structures) and copy the model.
Surely, it was obvious that this type of vehicle couldn’t be shoe horned into the existing coorporate and manufacturing structures.
It’s not as if the squillions of MBA’s in these bloated bodies hadn’t studied manufacturing disruption paradigms.
It’s too late now, the horse has bolted.
In ten years, if your car can’t drive itself while the occupant/s do other things, then your company is dead. It’s that simple.
And, as we have seen. Tesla has invested tens of billions into achieving this. They have had the best computer and software brains on the planet working feverishly on it and their investment levels are still going up.
While the OEM’s plod along and create marketing utopias around “level3” driving. Tesla is creating in house designed chips/ vision based AI on inference computer hardware combined with mind boggling data training centres. Their cars are driving themselves everywhere in the US hands free. There are not perfect but they are improving at a crazy pace.
If I was in charge of any OEM I wouldn’t be bothering with Rivian( as good as their cars are) I’d be ringing Elon Musk. “We want to go all in on your fsd program. How much do you want!”