Congratulations to Chevy for their pickup truck emoji application. In other news, Chile’s really blowing their chance to be a lithium ion battery leader, European car sales are very bad no good, and alliances, so many alliances. All this and more in The Morning Shift for Wednesday, July 17, 2019.
1st Gear: Musk Really Believes Teslas Will Be Appreciating Assets, Huh?
Back in April, Elon Musk made the specious argument that Teslas are great investments because they’ll be worth more in the future once they’re capable of full self-driving, which he believes can be achieved with nothing more than a software update.
Yesterday, Musk doubled down on this argument in a Twitter back-and-forth with a customer who bought a Model 3 for $74,000 eight months ago when the exact same car can now be purchased for a hair over $60,000:
With the very narrow exception of classic/collectors items, cars are the token example of a depreciating asset. Model 3s are not, and will never be, those types of cars, as Tesla currently churns out some 60,000 of them every quarter.
Musk doesn’t seem to grasp why cars lose value in the first place. It has nothing to do with how often one drives them. Cars lose value the second you drive them off the lot because the seller knows what the car’s been through; the buyer doesn’t. It is the literal textbook case of information asymmetry, the one used by economists around the world to explain the concept.
Musk’s hypothetical ignores that, in this fantasy world where every Tesla becomes a capable robotaxi, other cars will probably be capable of autonomous driving, too. But, It’s highly improbable—and the height of hubris—to assume Tesla will be the only company capable of full self-driving for any appreciable amount of time.
In general, his appreciating asset argument ignores the vast, almost unpredictable impact fully self-driving cars would have on vehicular demand. He has predicted one possible result and assumed it would be the only change in what determines a vehicle’s worth. That is grossly, fundamentally incorrect. If anything, the information asymmetry associated with used car sales will become even more extreme in Musk’s robotaxi fever dream precisely because such extreme utilization rates will make some used Teslas even less desirable.
Anyways, in what is likely a total, random coincidence, Musk announced less than an hour later a $1,000 price hike for Autopilot. But hey, Autopilot will be worth **spins wheel** $18,000 by 2021, so you’d be stupid not to buy it.
2nd Gear: Sales Are Tanking in Europe, Too
Registrations fell to 1.49 million cars last month from 1.62 million a year earlier across the European Union and EFTA countries, the Brussels-based Association of European Carmakers said in a statement. Calendar effects resulted in two fewer sales days in most markets, accentuating the decline.
You know the deal by now: cars are more expensive and sales are down, which is more or less fine for now because the two even out, but come the next recession when people don’t want to buy expensive cars it will be big trouble.
3rd Gear: Toyota Forms Battery Partnership With Chinese Energy Company
Toyota, an early leader in hybrids, has been slow to adopt to full electrification. That seemed to finally change last month when it spasmed into 2019 by declaring it wants half of sales to be electric by 2025.
In an important step towards that goal, it has reached a deal with Chinese energy company CATL for battery supply. From Reuters:
The Japanese automaker said on Wednesday that the firms had also started talks covering a range of areas including new technology development and the reuse and recycling of batteries.
CATL is also a supplier for Honda and Volvo, while Toyota also had a procurement deal with another Chinese firm, BYD.
4th Gear: Alliance For You, Alliance For You, Alliance For You
We’re proud to bring you another edition of This Week in Alliances, featuring Renault and Jiangling. Here’s Reuters with more:
Renault (RENA.PA) has formed a joint venture partnership with Jiangling Motors Corporation Group (JMCG) to target the Chinese electric vehicles (EV) market, in a deal which will also see Renault take a 50% stake in the new venture.
Renault said it would increase its share capital by around 1 billion Chinese RMB, or roughly 128.5 million euros ($144 million), to acquire its 50% stake in the new venture.
Again, you probably know the deal by now: EVs and AVs require a ton of capital to research and develop, and most car companies do not have the resources on their own, and even those that do don’t especially want to foot the bill themselves. Hence all the partnerships and alliances.
5th Gear: Keep Your Eye on Chile
One of the biggest questions facing the auto industry is how the global supply chain for lithium will provide for the demand for batteries to come. Right now, China is in poll position.
But Chile has the world’s largest lithium reserves. The problem is, they aren’t taking advantage of this tremendous asset. From a Reuters deep dive:
Chile’s government has failed to deliver the bountiful, bargain-priced lithium it had promised in a fast-changing market, according to a Reuters review of regulatory filings and internal documents from a state development agency.
Chilean chemical company Molymet, which had planned to build one of the battery parts factories, last week announced it is scrapping that effort; it declined to say why. That follows a similar defection by South Korea’s POSCO. The steelmaker in June said it was pulling out of a joint venture to build a Chilean plant with Samsung’s battery unit, citing worries about lithium supplies. Samsung told Reuters it is now reviewing the project.
China’s Sichuan Fulin Transportation Group Co, meanwhile, has yet to get its planned Chilean factory off the ground. Fulin did not respond to requests for comment.
The whole article is worth a read, but here’s the money quote:
“It’s a big reality check,” [Emily Hersh, a managing partner with the Washington, D.C.-based consultancy DCDB group] said. “Chile is a powerhouse in the production of battery chemicals. If they can’t do this, everybody needs to pay attention and figure out why.”
I, for one, am simply assuming everyone will figure this out because there’s too much money on the table.
Reverse: Not One But Two Airline Disasters
Neutral: Any Chance Musk Is Right?
Have you rushed to “invest” in a Tesla yet?