Auto File: GM Roars, Tesla Sputters
23/04/2024 15:35
Joe White
Global Autos Correspondent
Greetings from the Motor City!
It is good to be back. I enjoyed a few days visiting the Great
Smoky Mountains National Park, where I dodged hundreds of
vintage Ford Bronco SUVs whose owners had descended on the same
corner of rural Tennessee for a long weekend rally.
Combustion trucks and SUVs may be headed for history’s dustbin,
but right now the past has a lot of fans.
You know who else likes combustion trucks and SUVs? Wall Street.
The increasingly divergent fortunes of General Motors and Tesla
are the No. 1 topic as we dive back into the news from the World
of Cars. Let’s hit it!
Today -
* GM hits Q1 out of the park
* Elon Musk faces a big test
* EV demand is all about China
Elon Musk looks for a rabbit in his hat
Tesla reports Q1 results after the New York markets close
this afternoon, and shortly after the numbers drop Elon Musk
will be on the spot to explain how his electric car company will
reboot after a calamitous start to the year.
Tesla is still by far the world’s most valuable automaker, with
a market cap of $452 billion. However, Tesla shares are down 43%
since Jan. 1 – underperforming major indexes and legacy metal
benders such as General Motors.
The narrative on Tesla has taken a sour turn. Chinese EV makers
are gaining share at Tesla’s expense in the world’s largest
market, and show no signs of easing up on price cuts.
Tesla tried to raise prices earlier this year, but is cutting
them again after reporting Q1 deliveries well below
expectations.
Tesla has also slashed the price of its marquee software
product: The Full Self Driving or FSD system that partially
automates driving. The one-time Wow Feature is now another
discounted deal sweetener. Very Detroit.
Tesla’s slow growth has forced it to do other legacy automaker
things, such as announce mass job cuts.
Even so, Tesla’s board moved to restore a controverisal pay
package for Musk that could be worth $56 billion. Look for
United Auto Workers President Shawn Fain to talk about that a
lot as he tries to convince Tesla workers to join the union.
Analysts who once sang the praises of Tesla’s software-defined
vehicle technology now complain that the Model Y and Model 3
designs look old.
More importantly, investors are worried that Tesla has a
technology growth company valuation but no engine for near-term
growth – unless you believe that non-EV projects such as the
Optimus humanoid robot could put the company back on the path to
Musk’s target of 50% annualized growth.
Some Tesla shareholders apparently do – a question about Optimus
is now at the top of the investor question list on Tesla’s IR
website.
Musk’s decision to go “balls to the wall” on autonomous cars and
sideline plans for a more affordable consumer EV has even stout
Tesla bulls questioning his strategy.
Musk abruptly cancelled a planned visit to India this week,
citing “very heavy” obligations at Tesla.
Whatever message Musk is honing for this evening’s call – which
should be webcast here – it will be the most important talk he’s
given since the company’s Model 3 “production hell” crisis in
2018.
As they say in the legacy media world, this is must-see TV.
Essential Reading
* China’s EV makers go small to win in SE Asia
* SpaceX’s high worker injury rates
* Porsche’s challenge: Getting VW to step back
GM: Who’s the dinosaur now?
General Motors shares jumped after the leader of the Motor
City Three raised its full-year profit forecast and beat Wall
Street’s Q1 forecasts. Electric vehicles had nothing to do with
it.
GM’s dependence on legacy technology, once viewed as a
liability, is now a strength. The company made nearly all its
money selling combustion trucks and SUVs in North America.
GM CFO Paul Jacobson said U.S. consumers have been “remarkably
resilient” despite higher interest rates. Those consumers are
still paying stout prices to own Chevy Silverados and Cadillac
Escalades with V-8, gas burning engines – in contrast to Tesla’s
continued price chopping.
GM revved up production of its most expensive large SUVs during
the quarter – contributing to an 8% increase in revenue. Who’s
the growth company now?
Not all of GM’s eight cylinders are firing at full power.
GM China, once a reliably profitable business, lost $100
million as sales fell 17% from a year ago. GM expects China to
make a profit in Q2. But the automaker’s China business is
destined to be a smaller contributor than it used to be.
The Cruise robo-taxi operation burned $700 million in cash
during Q1 – and at that rate has one quarter of cash left in its
accounts. GM expects $1.7 billion in total Cruise costs for
2024.
How GM will fund Cruise’s reboot remains an open question. Barra
told analysts GM is looking for “outside investments” but
offered no specifics.
As for EVs, GM boasted that its Cadillac Lyriq SUV outsold
European brand EVs. But GM sold just 9,000 of its Ultium
electric vehicles overall in the quarter, and said those sales
dragged down profitability.
CEO Mary Barra repeated a promise that GM’s EVs will make a
variable profit – excluding fixed costs – by the second half.
Barra’s key message was this: GM is past the peak of EV spending
and is now focused on driving cash flow and reducing its
outstanding shares.
When investors hear that, they smell more share buybacks. That’s
a key reason why GM shares are up 20% for the year.
A reminder: EV sales are still growing
Electric vehicles could account for one in five vehicles sold
globally this year, up 20% from a year ago, the International
Energy Agency said in a new report.
The EV market is increasingly regional. China accounts for 10
million of the 17 million EVs the IEA expects to hit streets
worldwide. In the United States, only one in nine new vehicles
sold is electric.
In Europe, the IEA said EV sales momentum is threatened by the
phase-out of government subsidies.
The UAW’s Big VW Win
United Auto Workers President Shawn Fain scored a historic win
late on Friday as a solid majority of workers at Volkswagen’s
Chattanooga, Tenn. assembly plant voted to join the union.
The win was the first after a long string of failed UAW efforts
to organize non-union auto plants established in the Southern
United States over the past four decades.
Fain’s gamble that the UAW could battle the Motor City Three for
a record-setting contract, and then immediately pivot to a $40
million campaign to organize non-union automakers is paying
off.
The UAW is driving to win a vote next month at the Mercedes
assembly plant in Alabama.
After that comes the much harder part. So far, the UAW has not
generated the 70% levels of support it needs to push for
organizing votes at Toyota, Tesla, Hyundai and other
manufacturers.
Automakers dream of electric grid revenue
Just selling electric vehicles is not a great business – as the
angst about Tesla’s margins or the smoking crater at Ford’s
Model-E illustrate.
That’s why automakers are getting excited about the prospect of
taking a cut from selling electricity stored in their EVs back
to electric grid operators.
The idea of using EV batteries to smooth out peaks and valleys
in grid demand has kicked around for years. Only now does what
industry people call “Vehicle-to-grid” bidirectional charging
look like it could become a reality at meaningful scale.
As ever, China is leading the way.
Caveat: It would take a million EVs feeding juice back to the
grid to equal the output of a large nuclear plant – and that for
short periods. That’s not nothing. But experts say China cannot
quit coal by 2040 – which puts global climate targets at risk.
Fast Laps
EV startup Fisker warned it could seek bankruptcy protection
within 30 days if it cannot get relief from creditors. Fisker is
trying to sell stockpiled Ocean EVs to raise cash but disclosed
that it missed a scheduled interest payment.
Xiaomi has 70,000 firm orders for its SU7 EV and will remain
focused on the Chinese market for the next three years, CEO Lei
Jun said.
Tesla will cut 400 jobs at its German giga-factory as part of a
broader cost-cutting effort.
Chinese automaker Chery and B-ON said they will create a joint
venture that could sell electric vans in Europe and North
America. B-ON, a European startup, would use Chery’s money and
production infrastructure. B-ON has been building vans in Europe
and the United States with other partners. Chery is looking for
a way to skirt anti-China trade policies to get access to those
markets.
Renault said new models will drive growth this year. The French
automaker confirmed its profit targets. The company said it was
on track to lower EV costs by 40%.
Auto File is published on Tuesdays and Fridays. Think your
friend or colleague should know about us? Forward this
newsletter to them. They can also subscribe here.
(Editing by Emelia Sithole-Matarise)