Auto File: Tesla's Great Deflation
15/03/2024 15:00
March 15 - Joe White
Global Autos Correspondent
Greetings from the Motor City!
Beware the Ides of March, eh? Yes, today is that day, and if
you are a Tesla shareholder you don’t need a reminder to be
anxious.
The downward spiral of what is still the world’s most valuable
automaker has erased nearly $250 billion - the value of five
Ford Motor Companies - from the collective wealth of Tesla’s
owners, including Elon Musk, since the start of the year.
A lot has changed in the World of Cars since the future was
all about EVs and Tesla was worth $1 trillion. Yesterday,
brokerage Piper Sandler said it was launching coverage of “five
cornerstone stocks in the automotive sector.”
Are they EV companies? Autonomous vehicle software builders?
Nope. They are the Motor City Three and two well-established
auto suppliers, Borg Warner and Mobileye. Of the MC3, “our
favorite is Stellantis,” Piper analyst Alexander Potter wrote in
a note. Stellantis – one of the companies along with Toyota that
has been the slowest to launch electric vehicles.
Apparently, it is not sunset time for legacy automakers just
yet. We’ll find out why – and look at a new deal pointing the
way to EV industry consolidation.
Have a great weekend! Here we go -
Today –
* Wall Street walks out on Tesla
* Honda and Nissan could share EV technology
* Ford’s Pro tip: Sell big company software to the
little
guys
Wall Street rethinks Teslamania
Tesla hit an ignominious milestone Thursday when its shares
replaced Boeing as the worst performing stock on the S&P 500
index. Worse off than Boeing is not a good place to be these
days.
Tesla shares edged up Friday morning. Still, they have shed
nearly 35% this year as investors reassessed how rapidly
electric vehicles will replace legacy automakers’ combustion
models. The consensus: Not as fast or as profitably as Elon Musk
and other EV advocates expected.
One catalyst for this week’s selloff was a scorching
downgrade by Wells Fargo analyst Colin Langan who called Tesla a
“growth company with no growth.” Other analysts have drawn
similarly bearish conclusions from Tesla’s continued price
cutting, the short term disruption to production at the
automaker’s Berlin factory, intensifying competition from
Chinese rivals and signs that the pace of EV demand growth in
the United States and Europe is shifting to a lower gear.
Investors who bet against Tesla by putting money into EV
laggards Toyota (up 27% year to date) and Stellantis (up19%)
would have done better since Jan. 2.
Tesla got some good news over the past 24 hours. Elon Musk was
in Germany on Wednesday to celebrate the re-start of production
at the Berlin Gigafactory following a suspected arson attack on
its power supply.
India’s government on Friday said it would cut the tax on
imported EVs for companies that committed to investing $500
million in manufacturing facilities within three years. Tesla
has been lobbying for just such a deal – though rivals may try
to squeeze through the same opening.
Tesla shares still trade at nearly 38 times earnings – a far
richer multiple than GM (5.38) Toyota (10) or Ford (11).
The next check point for investors who believe Tesla’s lofty
valuation is justified will come on or about April Fool’s Day,
when Tesla should release its first quarter delivery figures.
Essential Reading
* Xiaomi does the car Apple didn’t do
* The lithium crash squeezes China’s EV mineral sector
* It’s brandy vs EVs in the EU-China trade war
Honda and Nissan look at EV consolidation
Japan’s No. 2 and No. 3 automakers said they have agreed to
study how they could consolidate electric vehicle and software
development.
The preliminary agreement between Honda and Nissan could fizzle
– as partnerships between auto industry rivals often do. Just
ask Nissan and Renault.
But even talks between the Japanese rivals are noteworthy,
because they underscore the pressure on legacy automakers and
struggling EV startups to put aside big-budget efforts to
develop unique EV technology, and start standardizing and
sharing to match the Chinese EV industry’s superior economies of
scale.
All in on Hybrids
U.S. sales of gas-electric hybrid vehicles have accelerated this
year, and automakers and suppliers are doubling down on
investments that count on demand for hybrids to keep growing for
years to come – notwithstanding California’s call to phase out
all combustion vehicles by 2035.
U.S. sales of hybrids – including those that plug in to the grid
to enable 20, 30 or 40 miles of petroleum free driving – rose by
49% in 2023 from 2022, and are up 177% since 2020, according to
S&P Global Mobility. Fully electric vehicle sales are up 320%
since 2020, but they rose by 49.6% year over year in 2023 –
impressive, but slower than the change from 2020 to 2021.
Hybrids outsold EVs in the U.S. market overall in 2023, S&P data
show. Certain hybrid models – Ford’s Maverick and F-150 hybrids,
the Honda CRV, the Toyota Sienna and RAV 4, Jeep’s plug-in
Wrangler 4xe – are among the industry’s fastest-selling
models.
Ford is adding production for the Maverick and F-150 hybrid at
the same time it throttles back on building electric F-150
Lightning trucks.
The hybrid bump comes as the Biden Administration next week is
expected to back away from earlier proposals that effectively
mandated that electric vehicles account for 67% of new cars and
light trucks sold in 2032.
Chery’s Italian Job
Chinese automaker Chery is talking to the Italian government
about building a vehicle assembly plant that would compete with
Stellantis’ Fiat operations, Reuters colleagues Giulio
Piovaccari and Giuseppe Fonte reported.
Surprised, given the geopolitical tensions between Europe and
China? Don’t be. Rome wants to boost Italy’s national auto
production to 1.3 million vehicles annually – translated, jobs.
Chery needs a production base inside the European Union as a
hedge against steeper tariffs.
Other Chinese automakers are looking to build factories outside
their home market as politicians in Europe and the United States
reach for bricks and trowels to build higher walls against
imported Chinese cars.
Chinese industry executives – and the Beijing government – are
accelerating down the road that Japanese automakers traveled in
the 1980s and South Korea’s Hyundai followed a decade later. Now
tens of thousands of jobs in the United States, the UK and
Europe depend on factories owned by, or supplying, Toyota,
Honda, Hyundai and other Asian automakers.
As in Italy, the promise of manufacturing jobs and investment
could once again outweigh concerns about giving emerging global
players a foothold to compete with domestic champions.
Volkswagen promises a cheap EV… by 2027
Volkswagen has four teams working to develop a more
affordable ID.1 EV that can compete with Chinese EV champion
BYD’s ultra-cheap models.
VW executives outlined plans to for 11 new EVs for the
Volkswagen brand over the next three years, including an ID.2
that could sell for about 25,000 euros starting in 2026.
Low-cost EV projects are the new black in the auto business.
Ford has a “skunk works” project to develop a low-cost EV that
can compete with models BYD is already selling.
Ford Pro finds software gold
Automakers have made big plans for mining profits from ”software
defined vehicles” and software services piggybacking on vehicle
data connections.
Consultancy AlixPartners cautioned this week that 86% of
industry executives it surveyed for its most recent “Disruption
Index” say they are getting a return on investment of just 10%
or less.
Ford Pro, the commercial vehicle unit of the Dearborn, Mich.
automaker, appears to be doing better with a strategy of
bundling work-oriented software and telematics with pickup
trucks and Transit vans it sells to small and medium-sized
businesses.
Ford CEO Jim Farley has signaled to investors that Ford Pro
could generate 20% of its pre-tax profits from telematics and
software services within two years. That calculates to more than
$1.8 billion annually, assuming Ford Pro’s EBIT doesn’t tank
from the levels projected for 2024.
The digital services Ford Pro sells are not video games or other
buzzy stuff. They are focused on tasks such as anticipating
maintenance to keep trucks rolling, monitoring the behavior of
commercial drivers and tracking the health of batteries in
electric vans.
Ford Pro must deliver on its profit promises to keep Wall Street
happy. But it has already received validation from rivals.
Stellantis and GM have both restructured their commercial fleet
businesses to go after Ford Pro. Stellantis called its new
commercial unit Stellantis Pro One.
Car insurance profits go up – so do insurer profits
If you are annoyed by food prices rising 3.8% from a year ago,
consider the inflation in auto insurance rates. They are soaring
– now up 20.6% during the past year, the U.S. Labor Department
reported this week. Motor vehicle insurance is public enemy No.
1 in Federal Reserve Chairman Jay Powell’s fight to whip
inflation now.
Insurers have blamed large losses from storms and other
catastrophes for rising policy costs. In the automotive space,
insurers cite higher repair costs.
But Allstate last month reported higher profits thanks to higher
premiums. Big auto insurer Progressive said its fourth quarter
profits jumped 42%.
The insurance industry’s windfalls do not mean that car repairs
are cheap. The government’s auto repair cost index is up 36%
from February 2019 – just prior to the pandemic lockdowns.
Repair costs are rising along with sales of electric vehicles,
which cost an average of $1,322 more to repair in the United
States than a combustion vehicle, according to a study by
Mitchell, which gathers and analyzes collision claims data.
EVs have fewer moving parts to break or wear out. But when they
get into a wreck, expensive sensors need replacement. Tesla
vehicles have large castings that reduce assembly costs but
could cost more to repair than smaller metal pieces.
Japan’s workers feel the UAW bump
Japan’s big employers, including Toyota, have agreed with unions
to pay the biggest wage increases since 2013.
Japan Inc’s willingness to pay has to do with efforts to spur a
weak economy. Japan’s central bank wants a higher rate of
inflation – the opposite of U.S. policy. But the echoes of the
record wage increases won by the United Auto Workers last fall
are hard to ignore.
UAW President Shawn Fain credits the “UAW Bump” for wage
increases at non-union automakers in the United States,
including Toyota, Honda and Nissan.
Fast Laps
Waymo and Zoox, rival robo-taxi operators, are expanding
operations. Waymo, controlled by Google parent Alphabet, is
offering driverless rides in Los Angeles, and Zoox, owned by
Amazon, is expanding its driverless ride service area in Las
Vegas and boosting driving speeds. Waymo and Zoox are moving
ahead while rival Cruise, the robo-taxi unit of General Motors,
is still off the road, restructuring after a serious accident in
San Francisco.
NIO and CATL are teaming up to develop longer-lasting EV
batteries.
Lithium Americas received a preliminary commitment for a
$2.26 billion U.S.government loan to develop a lithium mining
and processing operation at Thacker Pass in Nevada. The DOE loan
plus an investment by General Motors should provide Lithium
Americas with the capital it needs to launch the project.
The DOE loan commitment comes as sagging lithium prices are
hammering miners. Global lithium prices are down more than 80%
in past 12 months
Struggling EV startup Fisker is preparing for possible
bankruptcy, the Wall Street Journal reported. Fisker said in a
statement reported by Electrek that it "often works with outside
advisors" but did not comment on the report that it has hired
advisors for a potential bankruptcy. The company said it is
focused on raising additional capital and engaging in a
partnership with a large automaker. The company is in talks with
Nissan about securing an investment in return for sharing its
design for an electric truck.
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(Editing by Alexander Smith)