Good Morning! Welcome to The Morning Shift, your roundup of the auto news you crave, all in one place every weekday morning. Here are the important stories you need to know.
1st Gear: Meet The New Boss
Nissan is taking a controlling stake in Mitsubishi Motors, an automaker beset by a major fuel economy cheating scandal in Japan. But while Nissan CEO Carlos Ghosn will be able to nominate a third of Mitsubishi’s board and its leader, it definitely sounds like nothing drastic will occur quite yet—like phasing out the Mitsubishi brand or integrating it entirely into Nissan.
Quite the opposite, Reuters reports:
The Nissan CEO sought to downplay talk on Friday of wholesale change at Mitsubishi Motors, telling a news conference at Nissan’s headquarters in Yokohama, south of Tokyo, that his company will propose the board members but won’t “impose anybody” on Mitsubishi.
“The biggest challenge is to support Mitsubishi changing itself and growing and being profitable and restoring its reputation,” he said, adding that winning back consumers’ trust was Mitsubishi Motors’ job, though Nissan would support its efforts.
The completion of the deal is subject to due diligence. “We don’t want to anticipate on the (results of the) due diligence,” Ghosn said, adding that he is still waiting on the results of the Japanese regulators’ investigation into Mitsubishi Motors.
The Mitsubishi takeover gives Nissan a new set of resources and a lucrative sales market in Southeast Asia. How it will affect the North American market remains to be seen.
2nd Gear: Dammit Takata
Speaking of Japanese automakers, Honda continues to feel the sting from the never ending Takata airbag recalls. Once more from Reuters:
Honda Motor Co (7267.T) posted a quarterly loss on Friday, hit by massive recall costs for Takata air bags but forecast a rebound this year as it took dramatic steps to put the debacle behind it.
Japan’s third-largest automaker by sales said it would recall 21 million more vehicles, on top of the 30 million already recalled, to replace potentially deadly air-bag inflators made by Takata Corp (7312.T).
“Honda accounted for the worst of the Takata-related issue in the last financial year,” said a brokerage analyst who asked not be named because he covers Honda as part of a team. “The worst could be over and that’s positive.”
3rd Gear: Te$$$la Needs Money
You know your plans might be overly ambitious when even Bloomberg calls them “ludicrous,” even if it is a clever nod to the go-fast mode in Tesla’s cars.
The automaker wants to produce 500,000 cars a year starting in 2018, and it’s going to need a huge pile of cash to do that:
When Chief Executive Officer Elon Musk pulled ahead the electric-car company’s target to increase vehicle assembly to 500,000 a year to 2018 from 2020, he added that capital spending will increase by about 50 percent — $750 million — from the original budget for this year, which would probably require some fundraising.
The smallest and youngest publicly held U.S. automaker — which sells models with a $10,000 optional Ludicrous Speed Upgrade — faces huge capital expenditures as it ramps up its massive battery factory toward full production, adds tooling for a third model, expands sales and service operations globally, installs more superchargers, seeks to hire additional manufacturing experts and contemplates adding more vehicle-assembly capacity. Analyst Brian Johnson of Barclays projected a $3 billion equity raise sometime in the second quarter. At current stock prices, a transaction of that size would be about 14.5 million shares, an increase of 11 percent to the number of shares outstanding.
“With its ambitious plans that will require an incremental fundraising, we view Tesla as more of a cash-hungry startup unicorn than a traditional public company,” wrote Johnson in a research note. “With Tesla likely to come to the market for a capital raise near-term, it’s worth asking whether it deserves an up round or a down round.”
4th Gear: Detroit Still Can’t Get Any Wall Street Love
Once again, despite record auto sales, stock prices for the traditional American automakers remains flat, much to the lamentation of the people in the Motor City. Via The Detroit News:
Shares in Ford are stuck, apparently impervious to good news. They have been for years, despite the turnaround led by former CEO Alan Mulally, or the gangbuster financial performance under his successor, Mark Fields, or a focused product line-up or a European revival ahead of schedule.
With apologies to comic Rodney Dangerfield, Wall Street remains disinclined to give Detroit’s automakers the kind of respect that translates into rising share prices. And some shareholders understandably are not happy about it, including the guy whose name is on the building.
“We are frustrated with the stock price,” Executive Chairman Bill Ford Jr. told shareholders at the automaker’s annual meeting Thursday in Delaware. “As someone who owns a lot of stock myself, I watch it every day.”
In short, investors and analysts aren’t convinced the Big Three can weather another downturn, or move fast enough in a world where mobility is changing and tech startups have the potential to transform the game:
Despite years of rising profits and record sales, lower break-even points and smarter plant capacity utilization, this town’s three automakers still have a credibility problem with constituencies who affect share values.
The problem isn’t what GM, Ford and, to a lesser extent, FCA have achieved in the core business since, say, 2010. It’s whether they can remain solidly profitable when times get tough and sales slide, or whether they can match the innovation, risk-taking, agility and speed associated with tech sectors — without botching the basics that account for most of their revenue and profits.
5th Gear: VW Readies The Comeback In America
Reuters reports that we will see the final Dieselgate resolution agreement between Volkswagen and U.S. regulators next month, meaning this mess has consumed the better part of a year. Then VW will attempt to mount an SUV-centric comeback:
VW will launch a new mid-sized SUV and a re-designed Tiguan crossover next year, assuming that recalls and buybacks of tainted diesel models have won back the trust of the market, Stackmann said.
“We are not working on a defensive strategy for the United States but what we want to achieve in North America is not only to gain a foothold but to grow again,” the executive said.
Following the SUV campaign which next year will also feature an even bigger next-generation version of the flagship Touareg model, VW is planning an all-new family of electric cars based on its new MEB modular production platform.
Experts believe a rush of new products combined with a brand image campaign will drive VW’s recovery in the United States.
We’ll see about that.
Reverse: The UAW Gets A Seat
Reverse: What Should Nissan Do With Mitsubishi In America?
Keep the brand around and inject new product into it, fold it into Nissan, or phase it out?