Digital Car – Sitting ducks pt. II

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The best automotive infotainment unit is the one in my pocket

  • A car maker with a future is a car maker that realises how vital its data is and pays the buyers of its vehicles for the right to use it.
  • This also has the added benefit of creating a relationship with the buyer of the vehicle which is something car companies have not really bothered with to date.
  • The latest survey from IHS examines the technology that consumers are and are not willing to pay for when they buy a new vehicle (see here).
  • The data shows that consumers across the world are most willing to pay for a sunroof and rear seat entertainment systems with things like telematics and in-car Wi-Fi trailing significantly.
  • The survey also revealed that consumers expect technology in vehicles to evolve as quickly as it does in mobile devices.
  • This creates an enormous problem for an industry with a 4 to 5 year design cycle where even the top end infotainment systems costing thousands of dollars are using hardware that is 5 years out of date.
  • The result is that they can be outperformed by a $150 Android device.
  • This means that the user is likely to have a better digital experience in a top of the range vehicle with a cheap smartphone rather than with the infotainment unit.
  • This strongly encourages the user to access his Digital Life with his smartphone in the vehicle rather than to use the infotainment unit.
  • This is the last thing every car maker needs.
  • Users still buy cars based on performance, form factor, safety and economy but increasingly digital services will play a part in the user’s decision of which car he buys.
  • If the infotainment unit is not being used and everything is being done on a smartphone then the digital battle will have already been lost and cars will have moved closer to being commodities.

 

  • Furthermore, I think that the automotive industry has its strategy with regard to telematics completely back to front.
  • Instead of forcing users to pay for telematics, they should be giving users a discount or free services for agreeing to grant access to the data that these systems generate.
  • Using digital ecosystems as a benchmark, I think that car companies could give users meaningful discounts on the price of the vehicle and still end up with higher revenues and margins.
  • This is because the data that these vehicles generate could be very valuable to other companies who provide services based on collecting data.
  • For example, using cars as weather or traffic probes would cut down on the need to install expensive infrastructure.
  • However, to be valuable, all cars need to be generating this data and while car makers continue to charge users for this feature, penetration will remain low leaving the door open for disruptors.
  • One only has to delve very briefly into the world of start-ups to see this disruption coming.
  • For example, many start-ups are providing their automotive related digital services on smartphones and not infotainment units and there is significant development of technology that could by-pass the car companies entirely.
  • For example, a quick tour of the automotive section of a technology trade show revealed two companies that use vibration to work out exactly what is happening within the vehicle rather than use the traditional sensors.
  • One of these claimed that it could, using 10 vibration sensors on a helicopter, completely replace the 160 sensors currently being used.
  • This data could easily be relayed to a smartphone app and cut the car companies out from the only data source which remains proprietary to them.
  • I found these start-ups on the stands of the very companies which they intend to disrupt, further reinforcing my opinion that most of the automotive industry still has its head in the sand.
  • Instead automakers should be aggressively moving to obviate the reason to be bypassed by making their infotainment units and sensor data easy to use and readily available with simple APIs.
  • Currently, by far the best infotainment unit I have is the one that is in my pocket which is further enhanced because I can use it in any vehicle (including trains and planes).
  • While, this reality persists, the automotive industry remains a sitting duck for the ecosystem companies who have long understood the value of that which the car industry seems to ignore.

 

  • RFM would like to acknowledge John Ellis of Ellis and Associates which was the starting point for some of the views presented here (see here).

 

LeEco – Le-trenchment

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LeEco looks to return to its roots at home.

  • LeEco’s foray into the United States looks like it is coming to an end which combined with a major restructuring at home, probably brings to an end any realistic hope of becoming a digital ecosystem.
  • I understand that LeEco is about to lay off all of its employees in the US that are involved in developing, building and selling the devices and ecosystem that LeEco is offering.
  • Those that remain are thought to be staying to look after existing customers but I suspect that most that remain will be the ones that are working on the automotive ambitions of Faraday Future.
  • On top of this, Jia Yueting, the mercurial founder of LeEco, is also stepping back from his position as CEO of Leshi Internet Information & Technology Corp. (LeEco’s parent) although he will remain chairman.
  • He will be replaced by Liang Jun who has been running the content business since joining from Lenovo in 2012.
  • LeEco’s CFO has also been replaced with the CFO of the China business.
  • Furthermore, it looks like all of the content related businesses will be merged into Leshi while the automotive business is spun out as a separate unit.
  • All of this points towards a big retrenchment where LeEco will once again become a Chinese digital content company with a shareholding in an electric car company.
  • I think that this means that all LeEco’s activities in the US will be focused on Faraday Future which is trying to build an electric vehicle at a yet-to-be-completed factory in Nevada.
  • At the end of the day, I think LeEco tried to do things much too quickly and did not pay enough attention to the fundamentals of creating an ecosystem.
  • If I take LeEco’s ecosystem as it is today it has weak coverage of the RFM Digital Life Pie as it really only covers Media Consumption.
  • It also gets a poor score against RFM’s 8 Laws of Robotics mostly due to the fact that it has not paid enough attention to detail when it comes to the user experience.
  • I get the impression that the software was simply ported over from the Chinese version and not enough time has been taken to adapt the user experience for the US consumer.
  • The devices themselves offer great value compared to competitors with an 85 inch 4K TV for $5,499 being the best deal available by quite some margin.
  • However, it all falls to pieces when it comes to software and this is where LeEco was hoping to make its money.
  • I have long held the opinion that LeEco did not have the resources to create both a digital ecosystem and an electric vehicle and that it should close its automotive operation and focus on its core business (see here).
  • However, it appears to have gone one step further in closing its ecosystem ambitions and spinning out automotive where I suspect it will be seeking participation from other investors.
  • I suspect that Leshi will now return to competing in the Chinese market which is heating up with increasing levels of investment in content coming from the BATmen.
  • Consequently, the outlook is pretty bleak as Leshi’s ability to out invest the BATmen is highly questionable especially given the troubles that it has had with expanding into the US.
  • I would pick Tencent as my favourite Chinese ecosystem for investment.

 

Google Auto – Greek gift pt. II.

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Tinkering with Android for cars is a dangerous game.

  • Ahead of its developer conference, Google i/o, Google has demonstrated another version of Android that will be able of running many more aspects of the car beyond infotainment.
  • While Android Auto is limited in terms of what it can do and the data that it can access, this version of Android for the car is much more deeply embedded.
  • As a result, I think it will have access to everything as the infotainment unit is the nerve centre of the vehicle where the 4 data networks in the car (CAN bus) meet.
  • This means that Google services such as Maps, Search and Assistant will be fully embedded in the car enabling these services to be far more contextual and relevant.
  • It also raises the possibility that Google will be able to suck all of the data out of the car, robbing the OEMs of one the most important pieces of exclusivity that they have.
  • Audi and Volvo have signed up to use this software which will be demonstrated on the Q8 and the V90 SUVs at Google i/o this week.
  • The two most important issues are:
    • First, Code control: Who is in control of this code is crucial to the outlook for the OEMs.
    • From the presentation, I get the impression that the manufacturers are nominally in control of the Android code going into their cars but I seriously doubt that they have done the implementation themselves.
    • This was most likely done by their tier 1 suppliers or even Google itself.
    • While this means that the OEMs will have control over software updates and feature releases, there are almost certainly going to be hooks in the code that Google can still use.
    • Second, Google agreements: If the OEMs have a similar relationship with Google that the handset makers do, it is important to understand what the OEMs have agreed to.
    • Google controls Android through its agreements with the handset makers and given that the OEMs are getting Google services deeply embedded in their systems, something similar is likely to be demanded by Google.
    • Parts of those agreements are likely to include aspects of user interface design as well as the sharing of data.
  • I view this software as a replacement for the OEM designed software that resides in the head unit of the vehicle.
  • Android Auto and Car Play run on top of the OEM software but have limited access to the rest of the system.
  • This is likely to be the same such that CarPlay will still run as before but Android Auto will obviously be obsolete.
  • Google has said that the new software will not be draining the vehicle of data but I suspect that Google is referring to how the software behaves as it leaves the factory.
  • Once it is in the hands of the user and he has agreed to a pop message requesting access to data to improve Google services, the reality could be very different.
  • Sharing this data will make Google services on other devices better for the user but critically, this is the data that the OEM needs to hang onto in order to differentiate itself in all things digital in the car.
  • This is the risk of deploying software that has not been written in-house as the reality is that the OEMs will have no real idea about what they are deploying on what is becoming the most strategically important part of the vehicle.
  • Tesla and BMW are the only ones that seem to understand the importance of this which is why they are the only OEMs I know of that write their own code.
  • Google has everything to gain and little to lose by helping OEMs use Android instead of their in-house software which is exactly why OEMs need to look in minute detail at this gift before letting it into their holy of holies.

 

Autonomous Autos – The back foot.

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Uber is now even more on the back foot.

  • The partnership between Waymo and Lyft puts Lyft streets ahead of Uber when it comes to developing autonomous cars but is likely to cost it heavily in the coinage of data.
  • Uber has described autonomous autos as “existential” to its long-term future and in that regard this partnership represents a huge threat.
  • This is because when it comes to autonomous driving, Uber is by far the worst.
  • It is worse even than the dull old OEMs that everyone derides as being hopelessly unprepared for the changes coming in their industry.
  • Data from the California DMV analysed by RFM (see here) showed that Waymo is 5000x better at autonomous driving than Uber is.
  • Furthermore, Uber was also comfortably beaten by BMW, Nissan, Tesla and Mercedes.
  • Uber, Lyft, Didi and the other ride hailing companies operate market places where drivers and riders are matched making their economics exactly like that of classifieds.
  • This means the to make money a player, needs to have 60% market share or be double the size of its nearest competitor.
  • This is why I am of the opinion that its time Uber started trying to make money in the US (see here) and Didi should be trying in China where it is now unopposed. (see here).
  • Against that backdrop, Lyft looks doomed except that by signing a partnership with Waymo, it is now in pole position to have by far the best autonomous solution and be there first.
  • From this partnership, Google gets a route to market and a source of data whereas Lyft gets access to technology that it is unlikely to be able to develop on its own.
  • The problem that all the ride hailing companies face is that if all cars become autonomous, then their current businesses become obsolete as, while there will be riders, there will be no drivers.
  • This is why they must be present in this space as it will give them the ability to migrate from human to robot drivers as the technology comes to market.
  • I have long been of the opinion that this is going to take much longer than expected.
  • This is not because the technology is not ready but because the market is unprepared to receive it (see here).
  • This gives Uber time to catch up but the example of Waymo indicates that developing this technology is more difficult than many think and it requires a vast amount of practice (miles driven).
  • I still think that autonomous vehicles will not become a market reality much before 2030, meaning that the field is wide open but this partnership puts Uber even more on the back foot than it already was.

LeEco – Le Crunch.

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Crunch time appears to be fast approaching.

  • The LeEco proposition seems to be quickly unraveling as a flurry of bad news reinforces my view that this company only really has a chance if it dumps automotive.
  • New blows upon the already bruised company include:
    • Vizio: LeEco and Vizio have called off the $2bn acquisition by LeEco stating that regulatory hurdles got in the way.
    • Vizio was supposed to give LeEco a US brand with which to get a toehold in the US market while the Chinese market would become more open to Vizio.
    • I suspect that LeEco was having difficulty getting the money it raised from Sunac (see here) out of China giving it a good reason to back out of an acquisition that now makes less sense given LeEco’s current predicament.
    • 2016 revenues: LeEco appears to have massively missed its 2016 US revenue target but given that it launched in October this is hardly a surprise.
    • It looks like 2016 revenues were just $15m compared to a target of $100m but given the late launch, this target looks to have been way too ambitious.
    • Consequently, I don’t think that this reflects as badly as it would seem on the management of the US operation.
    • Job cuts: LeEco also appears to weighing up more job cuts with 175 of the 475 US workforce expected to be cut.
    • This does not come as a big surprise given the cash crunch that the company admitted to at the end of 2016 and the problems the company is having in getting money out of China.
    • However, growth companies tend not to need job cuts raising questions about the products being offered and the services that come with them.
  • This news comes on the back of abandoning its ambitious plan to build a US HQ with 12,000 employees (see here) and severe pressure being placed upon its automotive strategy.
  • Giving up the acquisition will massively increase cash for investment in the ecosystem but if it remains unable to get money out of China, not much development is likely to happen.
  • I find this situation strange as its competitors, Xiaomi, Baidu, Alibaba and so on all have substantial overseas operations which are most likely to be financed from China.
  • In my view, the biggest issue remains automotive as it has very little to do with the development of an ecosystem and is hugely capital intensive.
  • Apple and even Tesla have found that building cars is a difficult business that requires a lot of time and very deep pockets.
  • Faraday Future clearly needs hundreds of millions of dollars of new investment which LeEco simply cannot afford if it is to have any chance at delivering on its ecosystem ambitions.
  • Hence, I think that LeEco’s best interests will be served by not having this millstone hanging around its neck.
  • I continue to believe that for LeEco to have the best chance of succeeding, it needs to extract itself from Faraday Future and forget about self-driving cars.
  • Building a thriving ecosystem is difficult enough and throwing in cash constraints and management distractions can only make it next to impossible.

Didi – Nasty economics

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Didi encounters a real growth problem.

  • Didi is now the only credible ride hailing platform left in the Chinese market, but its problems are far from over because local Chinese governments are finally enforcing regulations designed to protect the taxi industry.
  • In December 2016, the governments of Shanghai and Beijing approved a policy called local cars, local drivers.
  • This meant that ride hailing companies could only use drivers who had locally registered vehicles and could prove residence in the city.
  • This may not sound like a big deal until one looks at the demographics of the urbanised workforce in China.
  • Around 40% of the workforce of both of these cities reside outside of the city and in the younger, paid part of the workforce, that number is much higher.
  • For example, prior to the enactment of this regulation, less than 3% of Didi’s Shanghai drivers had the necessary residential registration to qualify as drivers.
  • I suspect that that Didi’s Beijing drivers show similar characteristics and that other major Chinese cities also have a large migrant workforce.
  • This has not become a problem until very recently because although the policy has been approved, it has not been enforced until very recently.
  • The result has been that Didi has now been forced to substantially reduce the number of drivers in Shanghai and as of April 1st, is only allowing cars with a Beijing licence plate to operate in Beijing.
  • The net result is that supply of rides has been drastically reduced meaning that the price of those rides will inevitably increase.
  • Furthermore, on top of the service becoming more expensive, the quality of the service is also likely to meaningfully decline.
  • With less cars available, wait times will certainly rise and the chance of successfully hailing a ride will decrease.
  • Rising prices and lower reliability is likely to drive many users back into the arms of the taxi industry thereby achieving exactly the result for which the rules were created.
  • Beijing and Shanghai are the two cities which have the largest non-resident workforce but I suspect that this sort of legislation could easily be used in many of the other large Chinese cities.
  • This creates a very serious problem for Didi as, with its supply of drivers substantially limited in the areas where it has the highest demand, there will be a real crimp on its ability to grow.
  • Furthermore, there remains the very real risk that other major cities in China follow Beijing and Shanghai’s lead causing Didi further agony.
  • If this spreads, it is not inconceivable that Didi’s revenues start going backwards.
  • Didi was originally created as a taxi booking service and one possibility is for Didi to return to its roots.
  • The other is for Didi to move into the high end (where Uber started) and develop a black car offering but I think that demand for this will be quite limited.
  • This leaves Didi’s outlook at the mercy of regulation, which is not what one wants to hear when one has put money into the company at a valuation of $34bn.
  • DJI or Ant Financial are the only two private Chinese unicorns that I would be willing to consider.
  • In the listed sphere I still prefer Baidu and Tencent.

Tencent – Home circuit.

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I think investing in Tesla is about China, not overseas.

  • Tesla has announced that Tencent is investing $1.8bn in a 5% stake in the company that should bring in both badly needed capital as well as serving as a way to open doors in China.
  • Some commentators are of the opinion that this investment is part of Tencent’s plan to expand overseas, but I see this as a move to catch up with what is going on at home.
  • This fits nicely with Tesla’s ambitions in China which has had a pretty torrid time there since it launched in 2014.
  • RFM research clearly shows (see here) that Tencent is the dominant ecosystem in China with over 850m MaU and 77% coverage of the Digital Life Pie.
  • However, when it comes to automotive, I see it as being behind both of its major domestic rivals, Alibaba and Baidu.
  • Baidu has leadership in maps, leadership in autonomous driving and is already putting its services into cars with Baidu CarLife in conjunction with Harman.
  • Alibaba is also actively pursuing Chinese car makers to use its Yun OS software in their cars and already has a deal with SAIC.
  • On the other hand, Tencent has very little other than a small stake in Didi which is unlikely to help it much as both of the other BATmen are also shareholders.
  • This is why doing a deal with Tesla makes some strategic sense on both sides of the table.
  • Tesla gets a strong partner to help it fix the problems that it has had in terms of penetrating the Chinese market, while Tencent gets a potential route into both the automobile and autonomous driving with a major global player.
  • I view the automobile as another device alongside the smartphone, tablet, console, TV and so on for delivering Digital Life services to users.
  • Chinese cities have some of the longest commuting distances in the world (see here) meaning that the automobile is a place where those that drive spend a meaningful proportion of their day.
  • Much of the commuting is done on public transport which Tencent already has covered with its very strong presence on the smartphone.
  • Tencent will be a little more than a passive investor, being referred to as an advisor, which I take to mean helping out in China.
  • This is the latest of a series of moves that has seen Tencent address some of its weaknesses (see here and here and here) but the biggest one still remains.
  • I have long believed that integration is key to monetisation and see substantial upside in Tencent’s financials if it really embraces this notion.
  • However, I still see no evidence that Tencent is making any moves to integrate its Digital Life services into a single system where it can really understand the profiles of its users across all of its services.
  • As a result, its growth is likely to continue to come from selling games and media rather than from its ecosystem which I think limits its real long term upside.
  • Fortunately, the short-term picture remains pretty healthy and so there is still upside to be had without Tencent really developing its ecosystem, but the time is fast approaching when it will need to make that move.

Didi – Jam today

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Its time Didi started trying to make money.

  • With the ride hailing market in China now wide open for it, Didi has no reason to go on burning billions of dollars for the sake of growth.
  • Consequently, I cannot see a good reason for Didi to raise $6bn as it should be looking to internal cash flow to fund its investments.
  • The one exception is to have a war chest for acquisitions in order to go global, but I think that it is better to buy expensive paper with equally expensive paper rather than cash.
  • In China and across the world, ride hailing has been a bottomless black hole into which Uber and many others have poured billions of dollars in order to establish a firm grip on the ride hailing market.
  • This is because like all network businesses (see here), barriers to entry are very low meaning that competition will be brutal unless one player becomes significantly larger than all of its rivals.
  • A company in this hallowed position then becomes to the “go-to” place for the service in question and it is then that real monetisation can begin.
  • The rule of thumb that I apply here is:
  • A company that relies on the network must have at least 60% market share or be at least double the size of its nearest rival to begin really making profit.
  • Any market with more than one player will be a bottomless hole of investment as each tries to undercut the other in order to reach the hallowed status of being the “go to” market place.
  • Once there, it will have become so sticky that customers will pay a little more to access the sellers and the sellers will be willing to do exactly the same.
  • This how a network business changes from being a bottomless pit and becomes a gold mine.
  • With Uber’s ignominious withdrawal from the Chinese market (see here), I think that Didi has already reached this status and so it should now be looking seriously at monetisation rather than growth at any price.
  • For Didi, a position in autonomous driving is likely to be as important as it is for Uber (see here), but I struggle to see how it needs $6bn for this.
  • Furthermore, RFM research and historical data strongly indicates that excellence in autonomous driving and artificial intelligence is a function of time spent and data collected rather than absolute numbers of dollars invested.
  • Consequently, even if it starts today, Didi is likely to be far behind Baidu which intends to have autonomous cars on the road next year.
  • At the end of the day, the price of ride hailing in China (and elsewhere) has to rise otherwise Didi, Uber and all of the other players will never be going concerns.
  • Hence, I think that Didi should be looking at strategies of phasing in the price rises that it needs to offer its existing shareholders a decent return rather than investing right, left and centre and promising jam tomorrow.
  • Dull as it sounds, Didi is in a position to start producing jam today.

Uber – Fatal disengagement.

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Google is 5,000x better than Uber at autonomous driving.

  • Although Google is suing Uber for the alleged theft of its Lidar (key autonomy sensor) design, it does not seem to have helped Uber much as it appears to be by far the worst at autonomous driving.
  • This is still the case when one includes the regular car companies that most people have written off as having very little to offer in the new world of digital and autonomous cars.
  • The best measure of an autonomous driving solution is how often the driver has to take over to correct shortcomings in the autonomous driving software.
  • Regulations in California require those that test in the state to submit this data but typically, they all submit it in different ways (see here).
  • There are also different types of disengagement such as when the car is going to hit something (critical) or when the safety driver feels uncomfortable (ordinary).
  • Furthermore, companies test their cars in different conditions meaning that the data can really only be used as indication.
  • However, the contrasts are so stark that I think that meaningful conclusions can be drawn about how advanced the autonomous driving solutions from different players really are.
  • In order of performance the data shows:
    • No. 1 Waymo (Google) is 8x better than the number 2 with 1 disengagement every 5,128 miles driven.
    • Waymo has also driven at least 155x more miles (635,868) in the last 12 months than anyone else, meaning that it has collected more training data than all the others put together.
    • No. 2 BMW with 1 disengagement every 638 miles driven (8x worse than Waymo) but it only drove 638 miles raising questions to the validity of this data.
    • No. 3 Nissan with 1 disengagement every 146 miles and a total of 4,099 miles driven.
    • No. 4 Tesla with 1 disengagement every 3 miles with 550 miles driven but almost all of these occurred in wet road conditions.
    • I think that Tesla deliberately went out to push its system to the limit as wet conditions are known to be far more difficult for autonomous systems.
    • Hence, I do not think that is necessarily an indication of Tesla’s real position in the pecking order.
    • No. 5 Mercedes with 1 disengagement every 2 miles driven with 673 miles driven in total.
    • No. 6 Uber with 1 disengagement every 1 mile driven with a total of 20,354 miles in total.
    • Uber has just suspended its autonomous testing following a serious crash in Arizona despite the fact that it appears that the Uber vehicle was not responsible for the incident.
    • Uber has also been banned from testing in California for failing to register with the DMV.
  • This is yet another indication that the key to artificial intelligence (the heart of all autonomous driving systems) currently is the amount of time that one has been working on the algorithms as well as the amount of data collected (see here).
  • I am certain that this is why Waymo is the best because it began working on autonomous driving in 2009 (far earlier than anyone else) and in the last 2 years has driven more than 150x more miles than anyone else.
  • The fact that Uber, by quite some margin, ranks last is potentially a serious problem in the long-term.
  • This is because if the car companies have their own self driving technology (or use Google) then Uber may find itself being a middleman that is no longer required.
  • Uber currently has the advantage because it has already established itself as the market place for drivers and passengers to transact and these types of positions are extremely hard to disrupt once created.
  • This is why Uber commands the $70bn valuation that it does but unless it gets a handle on autonomous driving, this market place may become obsolete when humans stop driving cars.
  • I still think that the technology will become mature long before the market is ready to adopt it (see here) meaning that Uber should be able to pick-up a viable solution at an attractive price once 2020 deadlines are missed and funding runs out.
  • Despite this view, this is a key risk for Uber and one I would be uncomfortable with especially if I had put some money into the company at $62.5bn.

LeEco – Electric millstone.

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I think, LeEco must exit automotive to survive.

  • It looks very much like LeEco is giving up its grand plans for a 12,000 employee eco-headquarters in return for hard cash in order to give the ecosystem strategy time to succeed.
  • Despite these radical actions, I still think that LeEco’s only chance is to give up its automotive ambitions and focus on its core business: the ecosystem.
  • LeEco has recently raised $2.2bn (see here) which I calculated would leave $622m free to support the fledgling ecosystem of products and services.
  • However, the sale of the 48 acres it purchased from Yahoo to Genzon Group, the Chinese real estate developer this increases my estimate of free cash for investment to $1.132bn.
  • This is because to reach the $622, I took off $250 for purchasing the land but this outflow is now an inflow of $260m, improving cash flow by $510m.
  • This will give the company time to develop its offering but I remain concerned that its automotive ambitions remain a major problem.
  • LeEco’s automotive strategy is centred on an electric vehicle start-up called Faraday Future in which its founder is the major backer.
  • It broke ground on a huge 3m square-foot factory in Nevada in April 2016 but because contractors have not been paid, work has since ground to a halt.
  • Furthermore, Faraday Future has now reduced the size of the planned factory by 80% to 600,000 square-feet, cut the number of models from seven to two and delayed the factory opening by at least 1 year.
  • Faraday Future’s problems do not end there as senior management turnover has been high in the last 9 months and there could be as much as $300m in unpaid bills.
  • As Apple (see here) and even Tesla have found, building cars is a difficult business that requires a lot of time and very deep pockets.
  • I am pretty certain that Faraday Future has none of these things making its chances of long-term solvency very slim.
  • This is why I think that LeEco’s best interests will be served by not having this millstone hanging around its neck.
  • Faraday Future clearly needs hundreds of millions of dollars of new investment which LeEco simply cannot afford if it is to have any chance at delivering on its ecosystem ambitions.
  • These ambitions begin with a media consumption strategy that needs both heavy investment in terms of content and attention to detail when it comes to software and the user experience.
  • Furthermore, management needs to be focused on delivering on these ambitions rather than being distracted by building self-driving cars.
  • RFM research has found that currently, the user experience in the automobile has no effect on the user’s decision on where to live his Digital Life and therefore building a car to deliver one’s ecosystem makes no sense at all.
  • This combined with the difficulties, cost and poor profitability of automobiles, is why I think that Apple backed off (see here).
  • Hence, I think that for LeEco to have the best chance of succeeding, it needs to extract itself from Faraday Future and forget about self-driving cars.
  • Building a thriving ecosystem is difficult enough and throwing in cash constraints and management distractions can only make it next to impossible.