Auto File: The EV Industry's Washington Problem

Innoviz Technologies

03/08/2022 16:12

Aug 3 - Joe White
Global Autos Correspondent

joe.white@thomsonreuters.com
Greetings from the Motor City!
Everybody says cars are turning into smartphones on wheels. So
will my next car demand every few months that I come up with a
passcode that is different from any series of numbers or letters
I have used to unlock the device in the recent past? That's what
my iPhone does. And today, I ran out of codes I can remember
without writing them on my hand. Brilliant. Suggestion for
automakers: Design a notepad and pen holder into the dashboards
of your "smart" cars.
Today, Tesla and its electric vehicle industry rivals look a
gift horse in the mouth, there's new trouble with China and how
Ford's F-150 Lightning is bucking the U.S. EV industry trends.
Here we go -
* Washington, we have a problem
Democratic leaders in the U.S. Senate are proposing a collection
of electric and hydrogen vehicle subsidies valued at more than
$14 billion over the next decade, plus about $30 billion worth
of "advanced manufacturing" tax breaks automakers could share
with other sectors. You'd think the industry response would be
two words: "Thank you!" 
In fact, the industry's reaction starts with three words: "Thank
you, but…."
Automakers are looking the proposed "Inflation Reduction Act"
gift horse in the mouth because the EV subsidies come with
complex requirements limiting the full subsidies to vehicles
that meet North American content requirements for battery
components and minerals. The domestic content targets rise over
time, and automakers are worried they will be impossible to meet
barring a broad, hugely costly shift of battery material and
cell production away from China. 
Reducing America's reliance on China is the goal of the plan's
architect, West Virginia Sen. Joe Manchin. He told automakers to
"get aggressive" and figure out how to build EV supply chains
that don’t depend on China.
The proposal agreed by Manchin and Senate Majority Leader Chuck
Schumer has other features that worry electric vehicle makers.
Those include limits on the prices of vehicles eligible for a
$7,500 tax credit, and caps on the household incomes of buyers
who can use the credits.
Those income and price limits are a concern for Rivian, which is
just now launching a line of luxury electric trucks and SUVs
that can easily exceed the $80,000 price cap proposed in the
Manchin-Schumer plan. If the new income and price limits go into
effect upon passage, presumably this fall, "it's going to cut
off a number of our customers from being eligible for the
credit," said James Chen, Rivian's vice president for public
policy.
Rivian is asking lawmakers to extend the current EV subsidy
system - which does not have vehicle price or income limits - to
the end of 2024. It could help that Rivian has its only U.S.
assembly plant and some 6,000 workers in Illinois, the home
state of Sen. Dick Durbin, No. 2 in the Senate Democratic
leadership hierarchy.
Rivian is not alone in having problems with the Manchin-Schumer
plan as drafted. The price and income limits may be less
problematic for Ford's efforts to sell electric F-150s or for
Tesla's Model Y franchise. But the $55,000 price cap on electric
sedans looks like trouble for Lucid's $154,000 + Air sedans.
(Lucid does have its factory in Arizona, represented by the
other swing vote in the Senate, Kyrsten Sinema.)
The debate and the lobbying over the Manchin-Schumer plan are
far from over. In the meantime, the EV industry has another
Washington issue….
* China, Taiwan, Nancy Pelosi and Tesla
House Speaker Nancy Pelosi's visit to Taiwan, and the angry
reaction to it from Beijing, put a spotlight on how vulnerable
Tesla and other EV manufacturers are to the unsettled state of
relations between China and the United States. 
"The race for global EV battery dominance goes hand-in-hand with
geopolitics and national security," Morgan Stanley analysts Adam
Jonas and Evan Silverberg wrote in a note. "Tesla is highly
exposed to both the risk and the opportunity."
China is Tesla's No. 1 market, and home to its largest factory.
The company has already gotten warnings about the consequences
of crossing Beijing.
Tesla is not alone. Ford last week announced plans to import
lower-cost lithium-iron batteries from Chinese battery champion
CATL starting next year, in anticipation of CATL building a
battery plant in North America. Beijing's fury over Pelosi's
Taiwan visit prompted speculation that CATL could delay the
announcement of the North American site. 
CATL is pressing ahead with its plans to supply Ford and build a
North American plant, sources said.  One potential site is in
Kentucky, the home state of Senate Republican leader Mitch
McConnell. 
The overarching challenge, as seen by Morgan Stanley and others,
is that China currently produces 50% of the world's EV batteries
and 50% to 75% of the processed battery materials needed for
EVs. Taiwan is the OPEC of computer chips. Someday, the United
States and Europe may develop domestic battery and chip
manufacturing infrastructure to allow manufacturers in those
markets not to worry so much about U.S.-China-Taiwan relations.
But until then.
* The F-150 Lightning is the rare, 50-State EV.
Ford said Wednesday it has now delivered its electric F-150
Lightning pickups to all 50 states - more than 4,400 in all
since the start of the year. 
The Lightning's 50-state footprint is the exception to the sales
patterns for electric vehicles in the United States. 
The good news for EV manufacturers is that monthly EV
registrations in 15 U.S. states with the strongest EV demand
rose 87% in May 2022 compared to January 2019 (before the
pandemic kicked in,) according to data from S&P Global. From
January through May 2022, EV registrations in the top 15 EV
states have averaged more than 40,000 vehicles a month,
according to S&P Global's data. A year earlier, the January-May
average was 26,743 vehicles per month.
The challenge for Tesla and other manufacturers ramping up EV
capacity is that the top 15 EV states account for nearly 83% of
total U.S. EV sales, according to S&P Global data. You can
probably name most of the 15 EV states, but yes California is
No. 1 by far with a nearly 13% EV share in May, then the
Northeast states, the Pacific Northwest, Colorado, Arizona,
Texas and Florida. 
Some combination of progressive politics, wealth or sunshine
(not necessarily all three) appear to correlate to EV demand. So
do increasing numbers of EV models and rising gas prices. 
The EV sales pattern helps explain why GM, which is big in the
Heartland, has launched an EV education effort. 
* Consumers are finally tapping the brakes
Inflation and economic angst are starting to cool off demand for
mainstream cars and trucks. Industry executives are conceding as
much in Q2 investor calls, although they so far portray the
slowdown as manageable. Automakers still say they have more
demand than they can satisfy given supply chain challenges. 
However, the days when automakers could jack up prices to offset
rising costs for parts and raw materials could be numbered.
"There is a limit to price hikes," Stellantis CEO Carlos Tavares
said.
The exception… brands aimed at the very rich…
* No recession for Italy's supercar companies
Ferrari trounced investor expectations for second quarter
profits and raised its outlook for the year.
Italy's other supercar brand, Lamborghini, said it had a record
first half, driven largely by demand not for its sports cars but
for the Urus SUV. However, Lamborghini Chief Stephan Winkelmann
said the Volkswagen-owned brand is banking natural gas and
watching developments in Italy's energy markets. Russia's
threats to cut natural gas shipments to the European Union are a
very large cloud on what otherwise looks like a bright horizon
for European manufacturers catering to the very rich.
* VW's $4 billion lidar deal
It's been a rough couple of years for the lidar industry, which
makes Israeli lidar company Innoviz's announcement that it has a
$4 billion deal to supply sensors and software to Volkswagen
jump out. Certainly for investors who sent Innoviz stock to the
moon Tuesday.
Volkswagen could have bought the entire company for one-sixth of
the deal's value. 
* BorgWarner buys EV charger maker
Auto supplier BorgWarner is retooling itself for the EV world,
and has now acquired EV charging gear startup Rhombus Energy
Solutions as another step in that strategy. Tough capital
markets close doors for some, open them for others.
* Stellantis' FCA emissions hangover
The former Fiat Chrysler, now part of Stellantis, agreed to pay
a $300 million penalty to settle a U.S. federal criminal
investigation of diesel emissions cheating.
That $300 million comes on top of a previous $311 million civil
penalty paid to the U.S. government, and $183 million in
compensation to vehicle owners. In all, cheating on U.S.
emissions tests has cost the former Fiat Chrysler, now
Stellantis, nearly $800 million. 
* Toyota affiliate Hino discloses emissions cheating
Hino, a Japanese truck maker affiliated with Toyota, said an
internal investigation found employees cheated on emissions
tests as far back as 2003. The report faulted the company's
culture and blamed lower level engineers for covering up the
falsifications. Japanese authorities are investigating. 
* Uber hits it over the wall
Uber delivered positive quarterly cash flow for the first
three-month period ever, and rolled past Wall Street estimates
for operating profit. Investors loved it. 
Uber is one tech industry company that is winning as the U.S.
economy re-sets after the pandemic. The company said rides have
recovered to pre-pandemic levels, and the number of drivers and
delivery agents working on the platform rose to 5 million
people, an all-time high.
* GM brings Super Cruise to the Blue Highways
GM said customers who purchase its Super Cruise driver
assistance system will be able to roll hands-free down 400,000
miles of North American highways later this year, up from
200,000 miles of lidar-mapped highways today.
The main addition to the Super Cruise operating envelope are
undivided roads that link towns in rural areas, sometimes called
blue highways because they were often colored blue on old maps
(you remember maps?) 
For GM, the expansion steps up Super Cruise's game in the race
among Tesla and other automakers to market hands-free highway
driving as a gotta-have-it option. It also makes Super Cruise
relevant to more potential buyers of GM's Silverado and Sierra
trucks, which will get Super Cruise as an option later this
year.
GM counters concerns about the safety challenges of allowing
drivers to take their hands off the wheel while still expecting
them to stay alert and ready to reclaim control by pointing to
its driver monitoring technology.
* A warning from BMW 
BMW warned that its production for the year could fall below
last year's record 2.52 million vehicles because of volatile
chip supplies and uncertain European energy supplies. BMW's
caution contrasted with more upbeat outlooks from rivals Tesla
and Mercedes-Benz.
* Twitter v. Musk loops in the banks
Lawyers for Twitter want a word - actually quite a few words -
with the global investment banks that put their names behind
Elon Musk's now-scuttled proposal to buy the social media
company. Experts said Twitter is trying to discover evidence
that Musk had no real intention of making good on a contract to
buy the company for $44 billion. Musk has countersued Twitter.
    
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