Auto File- Tesla’s Red Sea Blues
12/01/2024 15:30
Jan 12 -
Joe White
Global Autos Correspondent
Greetings from the Motor City!
Remember how some auto industry observers (like this newsletter)
said the worst is over for the supply chain snafus that
bedeviled automakers in 2022?
Nevermind. Supply chain pain is back! And Tesla is among the
companies hurting the most as we’ll see below.
It’s also been a tough week for electric vehicles, thanks to
Hertz. Plus, Lucid and Polestar fell short of their delivery
goals.
But Detroit has something to look forward to: The Detroit Auto
Show is moving back to January after a disappointing
pandemic-era effort to make the show a fall event.
Once again, Motor Citizens will liven up the dark days after
Christmas by skipping through the sleet and snow to promenade
among shiny new cars and trucks at our municipal convention
barn.
Keep your silly AI gadgets, CES! We’re having an old fashioned
party in Motown!
Have a good weekend! Here we go -
Today –
* Red Sea attacks shut down Tesla Berlin
* Hertz dumps EVs
* CES: The AI Horsepower race is on
Tesla feels the supply chain burn
Tesla will halt production at its Berlin assembly plant for
two weeks because its supply chain has been disrupted by attacks
on shipping in the Red Sea, Reuters reported late Thursday.
Tesla shares fell in early trading Friday.
On Friday, Volvo said it would idle production at a factory in
Belgium, and blamed Red Sea shipping delays.
So far, Volkswagen, Toyota and other automakers have not
disclosed production cuts related to the Red Sea troubles. But
companies are reopening those pandemic supply chain war rooms.
Even if production lines keep moving, ocean shipping rates are
spiking.
The risks for EV manufacturers are high. About two-thirds of EV
batteries and battery components sent to Europe from Asia travel
by sea, according to S&P Global. Many of the brake components,
axles and windshields used in European-made vehicles also come
from Asia on boats that normally journey through the Red Sea and
the Suez Canal.
Now, shipping lines are re-routing some cargo carriers around
Africa’s Cape of Good Hope.
During the pandemic and the ensuing semiconductor shortages,
supply chain crisis management became a competitive arena for
automakers, with some managing better than others.
The Red Sea disruption will be another test of how well
companies have learned their lessons about hardening supply
chains against black swan events.
Essential Reading
* Microsoft deploys AI to build better EV batteries
* Why energy storage and charging should be Tesla’s future
* You’re not crazy: U.S. car insurance costs are soaring
Hertz pops its EV bubble
Hertz will dump 20,000 electric vehicles, many of them
Teslas, from its fleet and buy more gasoline cars instead,
slamming the brakes on an electrification strategy that has
proven more costly than management expected.
Hertz shares slumped on the news. The retreat will cost the
company $245 million in writeoffs. Hertz said it expects to save
a like amount over the next two years by avoiding high repair
costs and rapid price depreciation it has experienced with
EVs.
Most of the repair cost and depreciation problems related to
Tesla models, which were 80% of Hertz’s EV fleet, company
executives said during an October teleconference.
Hertz’s move promises to increase pressure on both new and used
electric vehicle markets in the United States.
Used EV prices in the U.S. market were already dropping
faster than overall used vehicle prices during 2023, according
to data from used EV market tracker Recurrent and Cox
Automotive. Price cutting by Tesla and other manufacturers has
hammered EV resale values – and hurt Hertz’s bottom line.
Hertz said in an SEC filing that reducing its EV fleet by a
third will “position the Company to eliminate a disproportionate
number of lower margin rentals and reduce damage expense
associated with EVs.”
That sort of talk won’t help new vehicle manufacturers convince
consumers that EVs can be cheaper to own and operate than a
petrol-fueled model.
“Seeing the problems the company is having related to collision,
repair, other opex (operating expenses) and residual values is a
warning across the EV space,” Morgan Stanley analysts told
clients.
In 2022, Hertz announced plans to buy 100,000 Teslas and 65,000
electric vehicles from Geely-Volvo EV brand Polestar. The
company touted EV rentals in ads starring U.S. football legend
Tom Brady. Now, Tesla, Polestar and other EV marketers won’t be
able to count on Hertz to buy in bulk to offset ups and downs in
consumer demand.
Other rental car companies are retreating from electric
vehicles.
Sixt, a European rental car company, stopped ordering Teslas in
2022 and said in December it would be phasing them out. Sixt
says it still plans to electrify 70%-90% of its European fleet
by 2030. “Electrify” is industry code for a mix of fully
electric and gas-electric hybrid vehicles.
The AI Horsepower Race
This week’s CES technology show in Las Vegas put a spotlight
on one of the biggest challenges facing established automakers:
Catching up to advances in artificial intelligence and advanced
software.
The CES announcements about applications of ChatGPT in vehicle
voice command systems may seem gimmicky. But grappling with
emerging AI adds to the burdens on the 20th Century auto giants
of Detroit, Europe, Japan, and South Korea.
They are still trying to catch up with the infinitely
upgradeable infotainment and energy management software
architectures developed by Tesla, Rivian, and the crop of new
Chinese EV companies.
ChatGPT illustrates why it’s hard for legacy automakers to
become software-first enterprises. The buzzy artificial
intelligence system is a work in progress.
Until Tesla started doing it, automakers usually did not test
unfinished technology on consumers. Conditioned by years of
dealing with safety regulators, warranty claims and unforgiving
customers, automotive engineers are risk averse.
The worst-case scenario for a buggy phone app is that the
customer deletes it. The worst-case scenario for software that
distracts a driver or contributes to an accident is… very bad.
But industry executives agree that to avoid losing more market
share, legacy automakers must narrow the gap between their
traditional multi-year product cycles and tech industry cycles
measured in months.
Even Mercedes is considering “beta” testing new software, the
head of its software operations told Reuters. A sign of the
times.
Toyota’s super battery: Just around the corner?
A senior Toyota executive said that in a couple of years, the
Japanese automaker will begin offering solid-state batteries
that could deliver 750-miles of driving range and recharge in
just 10 minutes.
That would be a gamechanger. But it remains to be seen how
rapidly Toyota and others pursuing solid-state EV batteries can
scale up mass production.
Lucid, Polestar deliveries stall
Lucid and Polestar disappointed investors with underwhelming
fourth quarter delivery numbers that showed an EV market that is
not growing fast enough for all players to thrive.
The battle between Tesla and BYD for EV sales leadership is
forcing smaller rivals to choose between slashing prices or
accepting lower sales volumes.
Despite discounts of as much as $10,000 per vehicle, luxury EV
maker Lucid’s Q4 deliveries were down 10% from a year earlier
and shares of the Saudi-backed EV maker skidded to a new low.
Lucid’s stock price was headed down again Friday after the
company announced a recall.
Tesla has attacked Lucid’s Air sedans with repeated price cuts
for its competing Model S. Lucid’s production and delivery
numbers suggest that Tesla’s strategy is working. Lucid produced
8,428 vehicles in 2023 – within a previously reduced target
range – and delivered 6,001. The difference – 2,427 vehicles –
is greater than the 1,734 vehicles Lucid delivered in Q4
alone.
Lucid’s Q4 results call is scheduled for Feb. 21, here.
Polestar CEO Thomas Ingenlath has said he prefers profit
over volume. In the event, Polestar’s full year deliveries of
54,600 vehicles fell short of a 60,000-vehicle target that was a
climbdown from more ambitious goals earlier in 2023.
Polestar announced it has appointed a new sales chief and a new
CFO on the same day it announced the delivery miss.
German luxury brands keep on trucking
BMW delivered more vehicles than its German nemesis
Mercedes-Benz in 2023, but Mercedes appears to have defended
higher profit margins. Volkswagen’s Audi brand boosted worldwide
deliveries by 17%, but still trails BMW and Mercedes overall,
and in sales of EVs.
Good news, but Tesla still looms over the German brands. The
electric vehicle company had the lead in the U.S. luxury vehicle
segment last year with a 25% share, according to Automotive
News.
Fast Laps
Tesla will raise pay for U.S. factory workers as the United Auto
Workers steps up its campaign to organize them, Bloomberg
reported. Other non-union U.S. automakers have also increased
wages since October to counter the UAW’s organizing drive, a
phenomenon UAW President Shawn Fain calls the “UAW Bump.”
European Union investigators are heading to China to probe
whether several Chinese EV makers, including BYD, are achieving
their cost advantages with improper government help. The EU has
threatened new tariffs on Chinese EVs. China has in turn
threatened to impose levies on French brandy.
SK On will launch a lithium-iron phosphate battery by 2026 to
challenge lower-cost LFP batteries made by China’s CATL. Western
automakers need LFP batteries to cut costs, and those selling in
the United States need them to come from someplace besides China
to meet domestic content requirements for subsidies.
The redesigned Tesla Model 3 is now available in the United
States, with a redesigned interior, longer driving range and an
unchanged price. The refreshed Model 3, code-named Highland, is
already on sale in China and Europe.
Lidar startup Aeva said it landed a $1 billion deal to supply
sensors to Daimler Trucks for automating semis.
Honda unveiled futuristic concepts at CES for a new line of
electric vehicles called the “Honda 0 series.”
Stellantis invested in Tiamat, a European sodium-ion EV battery
startup. Sodium-ion chemistry is the latest hope in the auto
industry’s quest for lower-cost batteries with less Chinese
content. Stellantis put in an undisclosed share of Tiamat’s 150
million euro funding round that the startup will use to build a
factory.
Vinfast said it will float more shares, and unveiled a design
for an electric pickup truck that might attract investor
interest in the Vietnamese EV startup’s capital raising
efforts.
Kia turned heads at CES with designs for a fleet of modular
electric delivery vehicles – and a short glimpse of a compact
pickup truck design.
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(Editing by Mark Potter)