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: Tesla Burning Cash
Some good and bad news out of last week’s Tesla Motors Q2 earnings call: the company plans to unveil the Model X next month even as it scales back expected deliveries for 2015. But Reuters dug deeper into the company’s financials and determined they’re losing thousands on each car:
The Silicon Valley automaker is losing more than $4,000 on every Model S electric sedan it sells, using its reckoning of operating losses, and it burned $359 million in cash last quarter in a bull market for luxury vehicles. The company on Wednesday cut its production targets for this year and next. Chief Executive Elon Musk said he’s considering options to raise more capital, and didn’t rule out selling more stock.
[...] To be sure, GM sells more than 9 million vehicles a year, while Tesla plans to build between 50,000 and 55,000 cars this year. Tesla, most of whose cars are built to order directly, delivered 11,532 cars in the second period and said it had an operating loss of about $47 million, for an operating loss per car of about $4,000.
It’s true that some larger automakers do lose money on certain models, but due to Tesla’s tiny size their margin of error is smaller. A capital raise seems likely at some point, the story says. (It’s also likely more of a loss than just $4,000 if they used the same accounting practices other automakers used, although Tesla says that doesn’t account for profits gained from leases.)
There’s also this:
Tesla’s shares fell almost 9 percent on Thursday and slipped another 2 percent on Friday as investors and analysts weighed the risks of Musk’s ambitious plans for expanding Tesla’s auto and energy storage businesses. Tesla had just $1.15 billion on hand as of June 30, down from $2.67 billion a year earlier.
The latter is due to the launch of the Model X, which they’re going to need to be a big sales hit.
2nd Gear: The China Meltdown Is Good For Buyers
China’s car market is flying off a cliff. Who wins here? The buyers who are willing to pull the trigger on a new car, but are willing to wait for more and more discounts as automakers get desperate. From Bloomberg:
Facing the slowest growth in new car sales in four years, dealerships in China have chipped away at retail prices in the past several months. Now discounts of at least 30 percent are being offered in major cities on hundreds of models. Audi’s top- of-the-range A8L luxury sedan, originally listed for 1.97 million yuan ($317,000), is now going for 1.28 million yuan, according to Autohome, a popular car-pricing portal.
“Prices are getting lower all the time, even as cars are getting better,” said Shen, 37, who works for an auto parts company. “If it’s not urgent, one can wait.”
It’s all about the long game.
3rd Gear: Tata Takes A Hit Too
Luxury car companies are especially at risk in China as growth stalls. Tata Motors, owner of Jaguar Land Rover, is just one of them, reports Bloomberg:
Tata Motors Ltd. fell in Mumbai trading on concern its luxury unit Jaguar Land Rover will face more pressure in China. The stock declined 2 percent to 385.70 rupees at the close, compared with the 0.5 percent drop in the benchmark S&P BSE Sensex index.
Jaguar Land Rover has lowered prices in China after the automaker posted quarterly earnings that missed analyst estimates, amid what the company describes as a “normalization” of growth in the industry.
Years ago I asked an executive from that company if they were worried China’s bubble would burst at some point. Not at all, this executive said, saying that the rate at which the country was churning out millionaires each day shouldn’t be a cause for concern. Guess they overestimated things.
4th Gear: What Fiat Chrysler Is Doing Right
Sergio Marchionne’s company has taken a lot of hits on safety and its merger weirdness lately, but there’s a lot he’s getting right there too. One of them is profit margins, rising to levels that match rivals at Ford and GM, by cutting dealer discounts and selling a lot of trucks and SUVs. From The Detroit Free Press:
The company is continuing to sell more Jeep SUVs and Ram pickups, said Eric Lyman, vice president of industry insights for True Car. That helps drive the company’s average transaction prices higher because, on average, Jeep and Ram models sell for higher prices than Chrysler, Dodge and Fiat.
“Those two brands make up to 59% of their sales in the U.S. and that is up from 54% last year,” Lyman said. “So they are selling a richer mix of more profitable vehicles,”
FCA also is keeping its incentives under control. Lyman said the automaker’s incentives have crept up about 1.8% this year, but final sales prices have increased more.
5th Gear: The Golden Age Of American Performance Sells
Speaking of incentives, why do the American automakers keep cranking out crazy performance cars like the Corvette Z06, Hellcat and Ford GT350R? Because they happen to be selling really well right now, at prices that are far better than import competitors with similar power, and they do that without incentives. One more from the Freep:
Performance cars have become big fun and good business. The first muscle car boom died because of high fuel prices, insurance costs and strict emissions limits. The new generation is among the few classes of vehicles bucking the industry trend away from cars in favor of pickups and SUVs.
Performance cars have been among the three most-researched vehicle types on car-shopping website Autotrader for at least the last 10 months, alongside pickups and midsize SUVs.
“They’re the Detroit 3’s strongest vehicles,” Autotrader senior analyst Michelle Krebs said. “They sell fast, and they sell without big incentives.”
I’m certainly not one to argue with more horsepower.
Reverse: Why Everyone Remembers The Pinto
On this day in 1978, three teenage girls die after their 1973 Ford Pinto is rammed from behind by a van and bursts into flames on an Indiana highway. The fatal crash was one of a series of Pinto accidents that caused a national scandal during the 1970s.
Neutral: What Does Tesla Do From Here?
Will the Model X be enough to recoup those losses? When does the company become profitable from selling cars?
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