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%.
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(Editing by Emelia Sithole-Matarise)
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