Accidents are back, EV sales are up big for VW and Tesla. All that and more in The Morning Shift for July 20, 2021.
1st Gear: Car Crashes Are Back
The Wall Street Journal looks at this in terms of insurance company profitability, because The Wall Street Journal is written for stock-market investors.
The stage will be set Tuesday by Travelers TRV -3.28% Cos., one of the first of the big property-casualty insurers to report earnings for the quarter. It is a leading issuer of policies protecting small and midsize U.S. businesses, and is a top-10 seller of car insurance to individuals as measured by premium volume.
Accidents are on the rise from last year. Last week Progressive Corp. PGR -1.67% reported a 47% year-over-year second-quarter increase in accident volume as well as an 8% surge in claims costs.
“Our expectation is for accident frequency to increase throughout 2021, as vehicle miles driven increase,” said James Shanahan, an analyst with Edward Jones. As a result, key profitability metrics are expected to be weaker, and significantly so, on a year-over-year basis, he said.
And yet the more interesting stuff is how driving behavior has changed.
Car insurers have grappled since last year with higher claim severity, the average cost of a claim. Some of the higher average cost has been a result of less-serious fender-benders being taken out of the equation, industry executives and analysts said.
Policyholders are driving more in off hours, and many are driving faster. Higher-speed accidents result in more serious vehicle damage and injuries, analysts said.
Repair costs are up, and the big spike in used-car prices—tied to supply-chain bottlenecks in car manufacturing—figures into the cost of claims on totaled vehicles.
It is, to put it mildly, a pretty complicated time to be a car owner, if you need a car, the market is squeezed; if your car needs fixing, shops are slammed and some parts scarce; the price of gas is also going up. Not that it was ever simple or inexpensive to be a car owner but nowadays the hits keep on coming.
2nd Gear: Tesla Chugging Along In China
That is despite some recent headwinds in the country, most of which were own goals. This is, basically, Tesla’s story in miniature, which is growth and success despite its bungling.
From Bloomberg:
Registrations of Model 3 sedans and Model Y crossovers made at Tesla’s Shanghai factory totaled 28,508 units in June, a 29 percent increase from May and more than double the figure in April, data from China Automotive Information Net show. Model 3 registrations rebounded to 16,995, while Model Y’s hit 11,513, a 10 percent drop from May.
The strong showing for Model 3 sedans can partly be attributed to Tesla promotions that included preferential loans and discounts for full upfront payments, local media reported. The carmaker started delivering Model 3s from its Shanghai factory to the public in early 2020, with Model Y production coming later.
It is also interesting that, in China, Telsa operates completely differently than it does in the U.S., offering discounts and incentives to goose sales. Of course, Tesla doesn’t do that in the US, presumably because it hasn’t really needed to— production capacity was a more pressing concern until fairly recently. We’ll see what it looks like in a year or more when Tesla has a bunch of Model 3s it’s looking to move, and quick.
3rd Gear: Back To Masks At A GM Plant Outside St. Louis
That is because of a rise in covid cases in the area. The plant in Wentzville, Missouri, makes GMC Canyons and Savanas, and Chevy Colorados and Expresses.
From the Detroit Free Press:
Nearly 4,000 workers at a General Motors plant near St. Louis must resume wearing face masks and social distancing starting late Monday because of an increase in COVID-19 cases in the area.
In an alert sent to workers and obtained by the Free Press, the union told plant employees of the change Monday afternoon.
The alert read, “We have been informed by the company and UAW International that based on the severe upward trend of COVID cases in the surrounding areas all GM Wentzville Assembly Center employees will be once again required to wear masks upon entering the plant starting tonight with third shift employees.”
Less than half of adult Missourians are fully vaccinated, which, at this point says more about the unvaccinated than it does public health officials.
4th Gear: Volkswagen’s Battery-Electric Sales Have Almost Tripled In The First Half Of This Year
This is in large part because of strong EV demand in Europe, where strict emissions regulations are in force and where there are a lot of incentives to go electric.
From Reuters:
In the first six months of the year, deliveries of BEVs climbed to 170,939.
“Our global electric offensive continues to make good progress and customer demand is high,” said Christian Dahlheim, Volkswagen’s head of group sales.
“This year, we plan to deliver around one million electrified vehicles for the first time, and are confident that we will meet the fleet targets for CO2 emissions in Europe.”
The 1 million target refers to both BEVs as well as plug in hybrid electric vehicles (PHEVs). Volkswagen has not provided an annual target just for BEVs.
5th Gear: AutoNation Is Soaking Up Profits Because Of The Overheated Car Market
The new and used retailer expects the market to stay more or less the same into 2022, which is a grim forecast for consumers. I think that is a little too pessimistic (or optimistic, from AutoNation’s perspective), given that the housing market, once as overheated as the car market, has been showing signs of slowing in recent days. But the thing about the pandemic is that things have proven impossible to predict.
From Reuters:
The company said on Monday sales of new and used vehicles surged 42% and 37%, respectively, in the second quarter.
“Consumers are buying vehicles before they even arrive at our stores. We expect the current environment of demand exceeding supply to continue into 2022,” Chief Executive Officer Mike Jackson said in a statement.
[...]
Fort Lauderdale, Florida-based AutoNation’s gross profit per new vehicle jumped 89% to $4,157 in the quarter ended June 30, while the gross profit per used vehicle rose 24% to $2,240.
The company had 14 days of supply for new vehicles in the quarter, compared with 49 a year earlier.
Adjusted net income from continuing operations came in at a record $4.83 per share, easily beating a Refinitiv IBES estimate of $2.81. Record revenue of $6.98 billion was also higher than expectations.
I wouldn’t have guessed it back then, but I’ll remember the 2010s as a calm, boring decade.
Reverse: To The Moon
Jeff Bezos’s Blue Origin launched today, intentionally tied to this anniversary. I have a simple proposal, which is that we launch every billionaire into space and leave them there.
Neutral: How Are You?
GEICO raised my car insurance premium by $50 for my next six-month bill, making it close to $700. It is not clear why, exactly, since they haven’t sent me the full bill yet, but that was still enough for me to get mad and get a quote from a different insurance company. The one I chose was the highest-rated auto insurance company (via Consumer Reports) that offers car insurance in New York City, which is something called Amica. Well, I jumped through all the hoops and their quote for a policy similar to what I get from GEICO was almost double the premium. GEICO it is, then, as I don’t have any complaints about the coverage itself. It is impossible when buying car insurance to not feel that you are being had.