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: What’s Next
As we reported yesterday, tax overhaul is on the agenda in the United States, and the current proposed plan by House Republicans calls for an immediate repeal of the $7,500 tax credit per electric vehicle. It’s a move that’s got automakers from Chevrolet to Tesla shaking in their boots, as they all see the tax credit elimination as a serious threat to the widespread EV adoption the entire industry is attempting to pull off.
It’s hard to say exactly what will happen to EV sales nationwide if the credit is dropped, but Bloomberg examines what’s happened at the state level when additional credits were cut:
To understand what could happen to electric car sales if Republicans phase out federal EV incentives, look at what happened in Georgia. Electric car sales there were growing briskly until the state cut its $5,000 electric vehicle tax credit in June 2015. Sales crashed from as many as 1,400 electric cars a month statewide to fewer than 100 the month after the incentive was axed.
Automakers fear a similar sales plunge if the federal tax credit goes away. Losing the credit would crush sales of electric cars just as most major automakers are beefing up to sell a slew of EVs over the next five years. “The credits matter a lot,” says Eric Noble, president of the CarLab, a consulting company in Orange, Calif. “In states without EV mandates or incentives, you’ll see sales crater.”
Electric cars have always been a tough sell to Americans, who are hooked on big SUVs and cheap gasoline. But the tax credits have helped juice sales, especially for lower-priced EVs and plug-in hybrids, Noble says. Even if Congress doesn’t do away with the credits, each manufacturer—under the existing IRS program—would see the incentive start to phase out once it sells 200,000 EVs or plug-in hybrids. Tesla, Nissan Motor Co., and GM would be the first to see their credits dwindle, because they’ve sold the most EVs.
No one has met that 200,000 EV mark yet. One analyst told Automotive News that the credit elimination is unlikely to affect coveted, premium luxury EVs like the Tesla Model S and Model X, but that more affordable and mainstream cars like the Bolt (and Model 3 if it ever gets built) will undoubtedly suffer.
It’s bad timing for the auto industry. As I’ve said before, you’re probably not going to see widespread EV adoption until the charging infrastructure is far better than it is now, and gas prices skyrocket again.
2nd Gear: Tesla’s Had A Bad Week
Speaking of Tesla, the possible elimination of the EV tax credit is the cherry on top of the shit sundae of a week that they’ve had. First there was CEO Elon Musk’s explosive reckoning during a conference call with investors where he copped to Model 3 production problems.
Now, in part because of that and in part because of the tax credit thing, Tesla’s stock price took a big hit Thursday, reports Bloomberg:
Investors weren’t so sure: Tesla shares plunged 6.8 percent Thursday to $299.26, their lowest close since May 4.
The setbacks lengthen the wait for hundreds of thousands of customers waiting for their Model 3 and extend the payoff period for the billions of dollars the company has spent to expand. The manufacturing snags will embolden skeptics who’ve doubted the company’s ability to quickly reach mass production, a feat the youngest U.S. carmaker is trying to pull off for the first time with a car that starts at $35,000.
“We left the call frustrated with the lack of transparency from Tesla management,” Jeffrey Osborne, a Cowen & Co. analyst who recommends selling the shares, wrote in a note to clients. “Elon Musk needs to stop over promising and under delivering and the board should rein in a CEO who publicly shares his aspirational goals that have rarely been hit.”
And therein lies the biggest problem with Tesla. The Model S and Model X are objectively excellent cars—aside from the quality issues—and the company deserves credit for pushing the entire car industry toward electrification. But lately it’s been struggling to deliver on the wild promises and targets it set for itself. This is anathema to how Silicon Valley is supposed to work, but it’s probably time to slow down a bit.
3rd Gear: Electrified Cars Could Be Half The Market By 2030
But still! In spite of all the problems we just covered, analysts like the Boston Consulting Group still expect electrified vehicles—hybrids and battery powered ones—to make up half the global car market by 2030. Half! It’s not... anywhere near half now. Bloomberg that explains it’s far more than just America’s market at stake here:
China will lead the way in the adoption of electrified cars as its smoggy skies, high gas prices and government control enable it to enact regulations to quickly accelerate the shift. The U.S. will be close behind, thanks to low electricity costs and a quicker payoff on battery prices from American drivers’ high mileage habits, while Europe will make a slower transition. The rise of robo-taxis, whose high-mileage profile also offers a quicker payback on high-cost electric power, will help speed adoption of battery power globally, BCG said.
We shall see.
4th Gear: UAW Probe Widens
Remember that scandal with the United Auto Workers union and Fiat Chrysler, where money earmarked for training centers was used for Ferraris and private jet leases and other acts of graft? Not surprisingly, the FBI has extended the investigation to GM and Ford too, The Detroit News first reported Thursday:
Federal agents have expanded a corruption investigation to include a member of General Motors Co.’s board and the United Auto Workers training centers funded by all three Detroit automakers, The Detroit News has learned.
Spurred by corruption charges filed against a former Fiat Chrysler Automobiles NV labor executive and the wife of a deceased union vice president, investigators have issued subpoenas in recent weeks for information about training centers financed by GM and Ford Motor Co. that are operated jointly with the union, sources familiar with the investigation said.
Investigators are interested in Joe Ashton, a retired UAW vice president appointed to GM’s board in 2014, and Cindy Estrada, his successor in charge of the union’s GM department, according to sources familiar with the investigation. Ashton, 69, of Ocean View, N.J., is the highest-ranking official whose name has surfaced in connection with a criminal investigation into whether money and illegal benefits corrupted the bargaining process.
Great job, everyone.
5th Gear: What Could Have Been
Volkswagen’s recent post-Dieselgate share price gains are being hailed as this great victory for an automaker wrought with scandal. Don’t think of this as a comeback, Chris Bryant writes at Bloomberg; think what could have been.
Rather than toasting this symbolic milestone, VW should ask itself what it might have achieved were it not for the scandal and what it can do to improve what is still a paltry stock market valuation. At current levels, VW would earn its entire market capitalization in seven years.
VW has been fortunate: consumers are buying its vehicles as if diesel manipulation was a virtue, not a crime. Sales increased 2.4 percent this year, with U.S. demand growing at three times that rate, thanks partly to a new lineup of SUVs. Diesel sales are dwindling in Europe, but only slowly.
The company is on track to generate 11 billion euros of net income on sales of 230 billion euros this year, according to Bloomberg data. Despite the diesel scandal draining about 17.5 billion euros in cash, VW’s automotive division arm still had 25 billion euros in net cash at the end of September. As Bernstein analysts have noted, it’s as if the scandal never happened.
But if VW hadn’t cheated, it might now be sitting on more than 40 billion euros of net cash and in a position to hand large portions of that money back to shareholders.
Reverse: See Thrilling And Exotic Windsor, Ontario
Neutral: Keep The EV Tax Credit Or Nah?
The tax credit couldn’t last forever. Everyone knew that. But killing it now is especially poor timing for automakers trying to prepare for an electric future. Where do you land on it?
Correction: This post has been updated to note the BCG study addresses all electrified vehicles, not just pure EVs.