Auto File: Elon Musk takes a holiday

Hyundai

01/07/2022 16:00

Joe White
Global Autos Correspondent
joe.white@thomsonreuters.com
    
    Greetings, one last time from Munich!
    Welcome to July 2022 - starting point for the “second half
recovery.” Or will it be? 
    Today, Elon Musk goes silent as investors wager on Tesla’s
Q2 deliveries, Apple wants to help you buy gasoline, and a visit
with the chief of Mercedes-Benz’s ambitious software efforts.
    I will miss seeing the Bavarian Alps out my window and the
delightful outdoor Biergarten that’s a short walk from the
hotel. But I will be very glad to get back home. Like many
others in the automotive world, I am taking next week off. I’ll
be working on my personal second half recovery - and my 1961
Dodge Town Wagon. Have a great weekend. Stay safe.
    Here we go - 

* Tesla’s second quarter: End of the win streak?
Elon Musk’s private jet headed for Rome earlier today https://twitter.com/ElonJet/status/1542690022364684288,
 according to the ElonJet twitter account, suggesting the
world’s richest person and Tesla Technoking could be taking a
few days off after closing out the quarter.
    Who can blame him? Musk has already warned investors that
supply chain snarls had turned his newest factories into
“gigantic money furnaces.” Production from Tesla’s factories in
Shanghai and Fremont, Calif. was depressed by parts’ shortages
and virus shutdowns in China. Wall Street expects Tesla will
report lower second quarter production, snapping a streak of
record quarters that started in 2020.
    To top it off, the Carbon Disclosure Project, an
organization that tracks the CO2 footprints of major companies
for ESG investors https://www.cdp.net/en/articles/investor/a-record-263-financial-institutions-with-us31-trillion-demand-environmental-data-from-1400-non-disclosing-companies,
 lumped Tesla in with oil giants Exxon and Saudi Aramco on a
list of corporations that are failing to fully disclose their
environmental impact.
    Tesla faces another lawsuit accusing company managers of
tolerating - or participating in - racial harassment at its
factories.
    Tesla shares are down 45% from their 52-week high - but that
is the new “outperforming” in the beaten-up technology sector.
    Musk’s 100 million + followers on Twitter (and the media https://www.marketwatch.com/story/elon-musk-hasnt-tweeted-anything-in-9-days-whats-going-on-11656642717?mod=mw_latestnews)
 also are wondering why he has not tweeted anything for nearly
10 days. Musk has proposed buying Twitter for $44 billion - a
deal Twitter’s board this week urged shareholders https://d18rn0p25nwr6d.cloudfront.net/CIK-0001418091/1b5d3dab-e993-4677-ac63-80170a60bd30.pdf
 to approve. Whether Musk tries to get out of that deal with the
help of his new friends in Texas government will be a drama for
the Second Half.
    
* Could the chip crunch be ending?
Some big chipmakers have warned that clients are cutting orders
for semiconductors, reflecting weaker demand from China and the
PC sector. Stocks in Micron, AMD and TSMC fell Friday.
    Could this be good news for the auto sector? Perhaps.
    “We expect a better supply of semiconductors in the second
half of the year," Volkswagen AG Chief Financial Officer Arno
Antlitz said Wednesday at the Reuters Automotive Europe
conference. Demand for new vehicles may come down, "but our
supply will go up."
    Many of VW's electric vehicles are sold out with full order
banks, Antlitz said. Improved chip supplies would allow VW to
build more of those orders and boost sales during the second
half. The order banks "will carry us through the difficult
months ahead," he said.
    General Motors offered a similar view, in an indirect way.
The company disclosed that it had nearly 100,000 vehicles parked
at its facilities https://www.sec.gov/ix?doc=/Archives/edgar/data/1467858/000146785822000088/gm-20220701.htm,
 undeliverable before June 30 because they lacked certain
components.
    But, GM said it expects “substantially all those vehicles”
will be shipped to dealers (and revenue booked) by the end of
the year. Put another way, GM expects to have enough chips to
build the second half schedule and ship some 95,000 leftovers
from Q2 as well.
    GM confirmed Friday it is NOT one of the companies cutting
chip orders.
    The parts' shortages whacked down GM’s Q2 sales numbers by
15% - and overall Q2 sales reports from U.S. automakers
continued a trend of numbers that have almost no meaning. The
gap between supply and demand in the U.S. light vehicle market
could be large, or it could be small, but it is invisible, even
as more economic warning lights turn yellow or red.
    Will automakers capitalize on looser supplies of chips
without tilting their own pricing into a nosedive with
overproduction? Stay tuned. That’s why this newsletter comes out
three times a week.

* AppleGas: Trojan Horse?
Apple is quietly rolling out a new feature for its CarPlay
dashboard software that will allow users to buy gasoline by
tapping an icon on their infotainment screens, Reuters’ Stephen
Nellis reports.
    Big deal, you say? Yes, big deal. Routing gasoline purchases
through CarPlay gives Apple the potential to dip a ladle in the
$2,945 the average household spends annually on fuel, and gather
information about those purchases. The gas-buying function is
just one of several in-dash apps Apple is developing to enable
(and control) purchases of goods and services, including EV
charging, parking and food.
    Apple’s strategy for expanding the reach and functionality
of its next-generation CarPlay presents a challenge to the
automakers whose dashboard screens would be the host for the
iPhone company’s latest revenue-building play.
    Consumers like Apple’s user interfaces and the seamless way
that smartphone apps enable purchases. Consumers are not so
enamored of the auto industry’s infotainment systems. Automakers
have tried to enable ecommerce from the dash themselves, with
mixed-to-fizzled results.
    This confronts automakers with a dilemma: Turn over
dash-commerce to Apple (or Google, or Amazon, or Chinese tech
companies such as Tencent,) or keep trying to develop in-house
info-commerce-tainment systems that are as good as those from
the ecosystems of tech giants that have limitless financial
resources compared to any car maker https://www.apple.com/newsroom/pdfs/FY22_Q2_Consolidated_Financial_Statements.pdf.
    The automakers do have a moat, as Mercedes-Benz CEO Ola
Kaellenius reminded attendees at this week’s Reuters Automotive
Europe conference. That moat is safety, and the product
liability risk that goes with a heavily regulated product.
    “When interacting with companies that are in this digital
domain...anything and everything that crosses into product
liability relevance, we would be very cautious,” Kaellenius
said.
    The speedometers that Apple wants to control with
next-generation CarPlay fall into the realm Kaellenius
identified.  And what Apple is to smartphones, automakers are to
auto accident liability litigation and safety regulation. 

* Mercedes and the software race
“Chief software officer” is a title that did not exist in the
auto industry a decade ago. Now, most global automakers have a
senior executive with that title, or something close to it. At
Mercedes-Benz, the job is held by Magnus Oestberg, who is in
charge of the effort to bring a “holistic” Mercedes-Benz
Operating System to the company’s vehicles starting in 2024.
    The goal is that Mercedes models using the MB-OS will bring
the 140-year old automaker into the era of the “software defined
vehicle” https://synapsepartners.co/author/esimoudis and make it
fully competitive with Tesla.
    I met with Oestberg at Mercedes’ Sindelfingen complex, near
where the company is building a 200 million euro ($209.26
million) Electric Software Hub, which it refers to as a software
integration factory https://group.mercedes-benz.com/company/locations/sindelfingen/electric-software-hub-sindelfingen.html.
 That’s another thing automakers did not used to have.
    To greatly simplify a complex undertaking, Oestberg and his
operation want to replace the collection of black boxes that
controlled different functions of past Mercedes vehicles. Each
of those boxes came with proprietary software developed and
owned by Mercedes suppliers. These systems were not designed to
be updated over-the-air, like a smartphone or a Tesla car.
Changing code was a process that required the supplier’s buy-in
and usually happened only at the turn of a model year.
    In the world of MB-OS, Mercedes will control (but not
necessarily make) the entire software stack - all the chips and
all the functions. Partners such as Nvidia and other suppliers
will provide hardware and software. But the system’s
intellectual property will be owned by Mercedes, and upgradeable
by Mercedes. (Yes, this is what Tesla and other tech-centric EV
startups already do.)
    Oestberg said Mercedes is aiming for upgrade cycles much
more often than once a year, which would help deliver a piece of
the financial return on investment: As Tesla has shown, a car
that can be provided with new features after it leaves the
showroom loses less of its value over time. That’s good for
lease financing and customer retention.
    Like Tesla, Mercedes aims to offer owners the option to buy
features - think, enhanced autonomous driving - after the sale,
or even after they buy a Mercedes second-hand.
    Oestberg did not give a figure for Mercedes’ total
investment in MB-OS, saying that will come at an investor event
later this year. But just the building to house about 1,000 of
the engineers involved will cost 200 million euros.
    The next 18 months will be crucial as engineers at the
Electronic Software Hub take software from Mercedes developers
around the world, and test it to “make sure that we can live up
to the quality, that quality badge that we hold,” Oestberg said.
 “This is all about dealing with this challenge - the quality
and validation piece and how to accelerate it.”
    Recruiting the software talent to manage all this is a
challenge for an automaker, but Oestberg said “it has been going
better.” Silicon Valley companies (and Tesla) are cutting staff
and rescinding job offers. Mercedes and other automakers
executing similarly ambitious operating system projects are
hiring. 

* Toyota doubles down on hybrids for India
Toyota Chief Executive Akio Toyoda and his executives have a
point of view about electrification that is simply not the same
as the stated views of many of their rivals, and the 
Japanese company demonstrated that again with the launch of a
hybrid SUV for the Indian market.
    The Urban Cruiser Hyryder SUV, developed with low-cost
engineering experts at Suzuki, is aimed at Indian consumers who
want better fuel economy, but are not ready to take a chance
going with a fully electric car on Indian roads that are poorly
provided with EV charging infrastructure.
    Toyota is taking heat from investors for refusing to “go all
in” on fully electric vehicles. Toyota’s bet is that customers -
especially in less affluent countries - will reward the company
for giving them a lower-cost option.
    Meantime, how on the nose is “Urban Cruiser Hyryder” as a
name for an SUV? Why waste time hunting for an animal that
hasn’t been used for a car name, when you can just cut and paste
words from customer research presentations https://www.caranddriver.com/features/a31979778/why-suvs-popular?

* Order your 2036 Ferrari Finito today
Ferrari has promised its first fully electric model by 2025, but
it has not said when it will be an all-electric brand. The
Italian supercar and F1 company’s reticence contrasts with
premium brands such as Bentley or Mercedes that are targeting
fully electric lineups by 2030. (Lamborghini, owned by
Volkswagen, also plans a fully electric lineup by 2030.)
    Ferrari will likely get some needed breathing room from
European regulators as it takes the slow road to a zero-carbon
future - in large measure because an EV that performs like a
petrol Ferrari would need to violate laws of physics, pending
battery technology advances.
    A European Union deal to ban sales of new combustion
vehicles by 2035 gives companies that manufacture fewer than
10,000 vehicles a year the opportunity to get relief from CO2
standards between now and 2036, when they would then be required
to cut off sales of petrol-burning cars.
    Of course, the last combustion Ferrari produced for 2036
probably won’t be called the Finito. But if you don’t put in a
down payment soon, you might be troppo tardi.

* California’s lithium tax
“If you drive a car, I’ll tax the street.” https://www.youtube.com/watch?v=l0zaebtU-CA
    Not a joke in California, where a plan to tax lithium that
would be used in EV batteries has been approved by lawmakers and
will go into force in January.
    California’s nascent lithium extraction industry is howling,
and threatening to hightail it for Utah or Arkansas. Controlled
Thermal Resources said the tax will force it to miss deadlines
to supply the mineral to General Motors and Stellantis by 2025.
Look forward to hearing more about how this tax works against
the Biden Administration’s efforts to develop domestic sources
of EV raw materials.

* Hyundai’s “electrified streamliner”
Hyundai took the wraps off the next member of its Ioniq family
of electric vehicles, which it calls an “electrified
streamliner” https://www.hyundainews.com/en-us/releases/3586. 
The Ioniq 6 joins VW’s ID.Aero concept
https://www.volkswagen-newsroom.com/en/id-aero-concept-car-8027
in bringing back to center stage the swoopy sedan concept that
was sidelined by the SUV boom. Points to Hyundai for a catchy
name for this nascent segment.
    This flock of slippery EVs owes its existence to the huge
role aerodynamics play in EV range. The GMC Hummer EV’s cinder
block on steroids profile is on target with today’s SUV-obsessed
buyers, but not ideal for coaxing miles out of a battery pack.  

* BYD customers get hot
Customers of Chinese electric vehicle maker BYD want the
government to compel the company to expand a battery recall.
This is the latest in a series of PR and regulatory challenges
for the world’s largest seller of EVs by sales volume (most low
cost vehicles sold in China.)

* Volvo Cars picks Slovakia
Volvo Cars said it will invest 1.2 billion euros to build an EV
assembly plant in Slovakia. This is a wave: European automakers
now know the market is going all electric, and fast. See also
the Mercedes roadmap released Wednesday for shifting its
European factories.

* GM scraps Indian factory deal
Tension between India and China appear to have forced General
Motors to scrap a deal to sell its former auto factory in India
to Chinese automaker Great Wall. GM said it could not get needed
Indian government approvals.


    
    * Auto File is published on Mondays, Wednesdays and Fridays.
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