Leshi's (300104 CH) CEO Jia Yueting has been developing an electric car and will seek the appropriate manufacturing license. After disrupting China's smart TV market with low-cost but high quality smart TVs, Leshi is potentially looking to disrupt the Chinese EV market with low-cost but decent quality EVs. This would be a negative to Tesla (NASDAQ:TSLA) in that TSLA's pricing in China may need to come down to match that of Leshi or else volume could be disappointing. Given Leshi's disruptive track record, I expect the company to successfully enter China's EV market. Moreover, government backing on the development of EVs should be a positive to Leshi given the government's preference towards local OEMs over foreign OEMs.
Will you buy a LeCar? Leshi has been preparing for its push into the EV market for over the past year with a R&D team in Silicon Valley. The team consists of people from traditional carmakers such as Mercedes and Ford (NYSE:F), as well as from Tesla. In addition, Leshi has been working with Google (NASDAQ:GOOG) (NASDAQ:GOOGL) on what I suspect is the self-driving car features. While Leshi has not given out any details, the CEO did acknowledge that pricing will be reasonable, and that the vehicle will feature a multi-touch display similar to that of TSLA's. The car will also feature self-driving, automatic parking and cloud services such as GPS and search. Given Leshi's investment in cloud platforms, I believe that the company could partner with offline retailers to commercialize O2O and LBS. BAIC will be responsible for the production of the car and the battery will be provided by Atieva, in which Leshi made an investment earlier this year. Atieva is a battery start-up with a third of the founding team and a fifth of the current one coming from TSLA. Atieva is already working with China Lishen on developing battery packs for buses in China and I believe Leshi picked the right partner for its EV project.
Implications to TSLA. TSLA's current model is priced at Rmb650k in China, and I expect this pricing will come down as Leshi introduces an aggressively priced EV to compete against TSLA. It is important to note that aggressive pricing does not mean lower quality. As a matter of fact, the Leshi TV is just as good as a Samsung or LG, if not better, but the pricing is 1/3 compared to that of the competition. The reason is that Leshi makes money off of content distribution such as music, movies and gaming apps as well as in-app items. By selling the hardware (and soon the EV) at cost, Leshi could gain a competitive advantage vs. TSLA. The revenue stream from Leshi's EV will be in the form of mobile ads, LBS, O2O and telematic services, which are high margin and recurring. Expect EV and self-driving cars to take off in China by 2020.
In the short term, TSLA is a good short candidate given the declining oil environment. Speaking for the long term, TSLA remains a short if it tries to bank its future on China's EV market, and I certainly hope that is not the case.
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