Analysts are concerned about how much Rivian is spending, Tesla is lobbying for a factory in Ontario, and things are bad in Europe. All that and more in The Morning Shift for Thursday, August 11, 2022.
1st Gear: Rivian Is Burning Through Cash
Back in college, as both a student of Business and a viewer of HBO’s Silicon Valley, I learned all sorts of words that the average person has no business knowing. Runway. Lean Manufacturing. Product-Market Fit. Now, it seems Rivian is learning the meaning of Cash Burn. From Automotive News:
Rivian Automotive is facing scrutiny over its operating costs, capital expenditures and cash burn as part of second-quarter earnings after the market close Thursday, as the EV maker boosts production at its Illinois factory and plans for a second plant in Georgia.
...
Last month, Rivan [sic] announced a 6 percent reduction in its workforce, which was at about 14,000 before the announcement. Rivian said it wants to optimize spending on increasing its output and on developing its R2 platform for the Georgia plant.
Market analysts are focused on how much money Rivian is burning through because of its relatively limited deliveries and its rising costs due to current and future expansion.
It seems like every time Rivian comes up in The Morning Shift, I have to mention the company’s vertical integration strategy, which increases short-term costs through investment in upscaling capabilities to save in the long term and reduce reliance on outside suppliers. Shit, now I’m using the business words. Rivian is spending a lot of money upfront to save money later, but you know how investors are — every quarter has to have record returns.
2nd Gear: So Tesla Wants To Go To Canada, Eh?
Tesla has been building factories around the world, but it seems the company has a new locale in mind: Ontario. Tesla has apparently been lobbying the Ontario government for “reforms,” before setting up shop with a new plant in the area. From Automotive News:
Tesla is lobbying the Government of Ontario as part of an effort to set up an “advanced manufacturing facility” in Canada, a filing by the electric-vehicle maker to the province’s Office of the Integrity Commissioner showed.
The company’s Canadian unit is working with the government to “identify opportunities for industrial facility permitting reforms”, the amended filing from July 18 said.
Elon Musk claimed that the search in Canada was due to his being “half-Canadian,” and I cannot tell if this is a joke or actual Tesla business strategy. Maybe both.
3rd Gear: Things In Europe Are Bad For Automotive Companies
Volkswagen and BMW are seeing sales start to dip from their all-time highs. Continental has noticed increases in materials and energy costs. Russia is limiting the amount of energy it sends out to its Westerly neighbors. These, in combination, are what historians call The Cool Zone. From Bloomberg:
Europe’s economic headwinds are catching up with the region’s auto industry.
Volkswagen’s finance arm expects earnings to decline this year because rising interest rates and inflation are starting to weigh on car demand. Customers are debating whether to buy a vehicle or push the leasing contract ahead a month over concerns including surging energy prices, Frank Fiedler, the chief financial officer of VW Financial Services, said Monday. That follows warnings from BMW last week that new-vehicle orders are retreating from high levels, particularly in Europe.
While Continental confirmed its outlook for the year on Tuesday, the German parts maker said it has to shoulder some €3.5 billion ($3.6 billion) in additional costs for raw materials, energy and logistics, with prices for overseas shipping containers jumping eightfold in some cases. Continental CFO Katja Duerrfeld described conditions as “rather like a hurricane” and predicted these pressures “will not subside any time soon.”
...
Electricity prices have smashed records in recent weeks as Russia limits gas supplies to Europe. An ongoing heat wave is disrupting waterways that are needed to ship coal to power plants and factories. Germany has already said it would prioritize gas deliveries to private homes over factories if there’s a shortage when it gets colder in the coming months. Other European countries are likely take similar actions.
To be clear, prioritizing gas deliveries to homes over factories is an objective good. Having studied Maslow’s Hierarchy of Needs, I can confirm that heat and energy are far more important than BMWs. Still, with another global recession looming, all these factors piling together paint an ominous picture.
4th Gear: There May Be An End In Sight To The Shipping Shortage
Amidst the car shortage, the chip shortage, and the bike shortage, you didn’t forget about the shipping shortage, did you? Low supply of ships and containers, combined with record international orders, have made sending and receiving items abroad a struggle. But there’s hope on the horizon, according to Reuters:
Global growth in container fleets through new orders and building activity will outstrip shipping demand from next year and ease current market tightness, the chief executive of Hapag-Lloyd (HLAG.DE) said in an analyst call on Thursday.
“Over the upcoming 24 months, we clearly see that supply growth will outpace demand growth,” said CEO Rolf Habben Jansen after presenting figures for the first half of 2022.
Domestic delivery companies have largely been able to keep up with the increase in demand, though not without costs to their workers. I can confirm this anecdotally: Last night, I placed an apparel order that has by press time already arrived at my house, yet last weekend I placed a razor order from the UK that seemingly has yet to ship. I just want to be able to shave again.
5th Gear: Toyota Isn’t Backing Down From Production Estimates
Production, for Toyota, has not gone well this year. Yet the company still maintains, despite missing quarterly targets, that it can meet its original goal for the year: 9.7 million cars built. From Reuters:
Toyota Motor Corp (7203.T) said on Wednesday it would hold to its plan to produce 9.7 million vehicles globally this fiscal year, even as it announced another stoppage related to the spread of COVID-19.
The Japanese automaker is seeking to boost production in earnest after COVID lockdowns in China and a global chip shortage forced it to repeatedly scale back output in the April-June quarter.
The company said it will suspend production on three lines at its Motomachi plant in central Japan for some days in September. That follows suspensions at its Tsutsumi plant announced on Monday and Tuesday this week.
Saying “we’re not cutting our production goals, but we recently cut production and we’re doing it again soon” all in one statement is bold. It’s unclear how Toyota aims to make up for lost time, and how it will get the raw materials to pull this off — all those chips still need to come from somewhere.
Reverse: Someday I’ll Watch This, I Promise
Neutral: You May Ask Yourself, My God, What Have I Done?
Remember when I swore off buying vehicles sight unseen? I might be going back on that. I can see no issues with this path.