Everyone is losing money, America introduces its first official self-driving transit, and GM wants you to take its EV prospects seriously. All this and more for The Morning Shift on Wednesday, February 5, 2020.
1st: It’s A Bad Time To Be An Automaker
Profits across the automotive industry suffered in the fourth quarter. We’re not talking paltry losses. We’re talking big-time losses up into the billions. And both Ford and GM are taking some of the worst hits.
While GM only lost $194 million in actual sales, the UAW strike saw significantly larger losses. From Automotive News:
General Motors lost $194 million in the fourth quarter, including a $2.6 billion hit from the UAW’s strike, resulting in a net profit of $6.7 billion in 2019.
Adjusted earnings before interest and taxes in the quarter plummeted 96 percent from a year earlier to $105 million. Revenue declined 20 percent to $30.8 billion, and the company’s profit margin declined 7 full points to 0.3 percent.
The UAW strike resulted in a full four-week stoppage of production during the quarter, GM claimed, which is the equivalent of about 191,000 vehicles produced.
And if you think that’s bad, just wait until you hear what happened to Ford. From Automotive News:
Ford Motor Co. lost almost $1.7 billion in the fourth quarter after taking a big accounting hit from employee pension liabilities and retirement benefits, but the automaker eked out a modest profit for the year.
Ford on Tuesday said its fourth-quarter earnings before interest and taxes in the quarter plummeted 67 percent to $485 million, while automotive EBIT dropped 81 percent to $215 million. Ford’s North American earnings fell 64 percent to $700 million, mostly due to UAW contract costs, warranty expenses and problems with the launch of the redesigned Explorer and Aviator crossovers.
Ford CFO Tim Stone summed it up very succinctly: “2019 financially was not OK.” I’d call that an understatement.
And before you think that this is just an American problem, or a result of UAW negotiations, let’s turn our attention to some global brands. Subaru lost 42 percent of its operating profit in Q4 as a result of falling global sales. Mazda, too, saw a terrifying 76 percent drop in its operating profits. Both automakers cite unfavorable exchange rates and fewer global sales as the one-two punch combo that saw them suffer.
If you were thinking that this might be the right time to get into the automotive business, think again.
2nd: Ohio Introduces America’s First Autonomous Public Transport
The future is here: a fully-autonomous electric shuttle bus has hit the streets of Columbus, Ohio, Bloomberg reports, making Columbus the first American city to feature this new era of public transit. That’s right, everyone. Buses are the future.
This project is part of the Obama administration’s Smart Cities Program, which encouraged mid-sized cities like Columbus to develop cleaner transportation. While 78 cities took part, there were only six finalists: Austin, Denver, Kansas City, Pittsburgh, Portland, and Columbus. And Columbus beat ‘em all there.
From the Bloomberg article:
With a $40 million federal grant, an additional $10 million from the late Paul Allen’s Vulcan Inc., plus contributions and services from regional employers including the Ohio State University and Honda Motor Co., “Smart Columbus” was born.
The scope of the program is audacious for a midsize U.S. city. It funds demonstration projects ranging from electric-vehicle test drives to digitally connected cars. It’s also building kiosks with payment systems that let users plan trips combining multiple kinds of transportation—including e-scooters, bicycles, Uber, Lyft and the city’s bus system, the Central Ohio Transit Authority (COTA).
[...]
The vehicles, which cost $320,000 each, are configured to hold about 12 people and run 14 hours on a single charge through all but the most extreme temperatures. They can operate at Level 4 autonomy, meaning full autonomy with the ability for an onboard operator to take control (there’s no steering wheel or brake pedal, just a double-joystick controller).
Just to be extra clear: These are small shuttles not big buses. They are limited to 25 miles per hour and are restricted to set routes and set times, as Bloomberg notes. They even take breaks when kids are going to and get out from school.
Part of the beauty of Columbus’s initiative is that it’s working to connect previously disparate parts of the city—like South Linden, which has been cut off from Columbus proper since the introduction of Interstate 71 in 1960. Here’s what some of the reasoning behind the decision looked like:
Prominent in the city’s grant proposal was its aim to reduce South Linden’s above-average infant mortality rate. By improving access for pregnant women to St. Stephen’s clinic and its food pantry, the city hoped to show it could bring that rate down. (By May, Smart Columbus plans to have 300 pregnant women enrolled in a program to guarantee they have transportation to prenatal care.)
“St. Stephen’s was largely disconnected from transit,” said Jeff Kupko, an engineer with Michael Baker International Inc., who serves as a project manager for Smart Columbus. “Some people were limited in the amount of food they took from the food pantry because it was too far to walk to the bus.”
Linden LEAP is also designed to address this particular transit problem—the so-called first-mile, last-mile gap. For some South Linden residents it’s difficult to reach city buses on nearby Cleveland Avenue, let alone area retail centers and sprawling warehouses and distribution complexes where jobs are more plentiful.
I’ll be honest—it’s a very impressive initiative that Columbus has here. Enabling widespread access to crucial public services via so-called ‘smart’ transportation is pretty awesome.
The initial program will only last twelve months, but the point is that this is a testing ground. If it works out well, there’s a good chance Columbus will adopt it as a full-time transit option. If not, well—back to the drawing board.
3rd: Please Take GM’s EV Plans Seriously
As Tesla’s stock valuation continues skyrocketing, other automakers are looking on in envy. “Why can’t that be us?” they ask, “We make electric cars, too!”
As reported in Reuters, GM is one of those companies hoping that Tesla’s success will manage to convince investors that it’s actually worth pursuing this whole EV thing, and that there might just be a future in it.
Here’s more from the article:
GM Chief Executive Mary Barra and her top executives will host an investor conference in New York. They hope to convince potential shareholders GM is more than just a company in a cyclical industry, but a burgeoning technology firm at the forefront of tomorrow’s electric and self-driving cars.
Barra has been restructuring GM’s operations and stressing her goals of readying GM for a future of “zero emissions and zero accidents” for several years.
Still, GM shares trade just above the $33 share price of its November 2010 initial public offering. That has left it with a market capitalization of about $49 billion, compared with Tesla’s valuation of about $160 billion. Tesla shares surged on Tuesday, extending a rally that has more than doubled the company’s market value since the start of the year.
It’s going to be a tough one. GM’s image kind of depends on its not-so-fuel-friendly vehicles (think: very large trucks). But the hope is that, after the investor conference taking place today, February 5, GM will have a slightly more impressive plan for its electric and autonomous future.
4th: Giga-Texas?
Elon Musk is tweeting again.
At 12:23 AM this morning, Musk asked his followers a simple question: “Giga Texas?” Almost 200,000 votes later, and a near 80 percent of people seem to like the idea.
The implication here, of course, is that Musk is looking for somewhere to locate his next Tesla factory, which, for some reason (The Future™?), Musk calls Gigafactories. There are currently three of these factories, with current locations in Nevada, New York, and Shanghai and a fourth prospective factory located near Berlin, Germany to be completed next year. It sounds like Texas could become the next location.
From Reuters:
During an earnings conference call last week, Musk said that Tesla needs to increase its battery capacity to produce high-capacity models like Cybertruck.
“We’ve got to scale battery production to crazy levels that people cannot even fathom today. That’s the real problem,” he said.
If you need a lot of space to build a lot of cars, Texas is admittedly a pretty good place to do it. Funny as it is that Texas and Tesla have some history together and it’s not exactly rosy.
According to the state’s government, the auto industry has actually continued to grow throughout the 21st century, unlike many other formerly production-heavy states. But whether this is just another round of Musk’s shittweeting or of this is actually a sorta-serious attempt to gauge interest remains to be seen.
5th: GM Rolls Back China’s Three-Cylinder Plan
General Motors had a strong strategy for its China market: aggressively promote the cleaner and more fuel efficient three-cylinder engines in its cars as opposed to more traditional four-cylinders. With China’s strict regulations, it seemed like the perfect way to go until, suddenly, it wasn’t. Now GM is backtracking on its decision to offer some models with only the three-cylinder option. According to GM, it didn’t actually reflect market demand. From Automotive News:
But many Chinese consumers perceive cars with three-cylinder engines as noisier and prone to vibrating, and sales began to tumble in third quarter of 2018. Last year, GM’s China sales fell 15 percent to 3.09 million vehicles, its second straight year of steep declines and the lowest level since 2012.
The move was “too quick, too radical and lacked sophisticated planning,” a senior Shanghai-based sales manager at a Buick dealership told Reuters.
That’s a Big Whoops. Anyone who sells anything desperately doesn’t want to make a decision that their consumer base actually kind of hates. But that’s exactly what GM did. Many local dealers lobbied GM after a decrease in sales, hoping that the marque would change its mind.
Here’s more from the article:
By resurrecting four-cylinder options for key models, the hope is that GM, which reports fourth-quarter earnings later on Wednesday, can regain some of the ground it has lost at a time when the new coronavirus is threatening to sink sales in the first quarter.
The outbreak is only adding to pain caused by to a slowing economy, U.S.-China trade tensions, new emission rules as well as fierce competition from Toyota Motor Corp. and Volkswagen Group.
Let’s hope this decision isn’t yet another hasty one.
Reverse: Southern Pacific Railroad Completes Its Sunset Route
From History.com:
Termed “the Octopus” for its tentacled stranglehold on much of the California economy, the Southern Pacific inspired Californians to create some of the first strong public regulations over railroads in American history. But despite the anger and outrage Huntington’s exploitation inspired, few would deny that the mighty Southern Pacific Railroad played an essential role in fostering the growth of a vibrant California economy for decades to come.
Neutral: Why Aren’t You Buying?
It’s been pretty clear that 2019 was a real bad time to be an automaker, and part of that has come down to a general lack of sales across the board. Did you personally decide against upgrading to a new car? What stopped you from buying?