Tesla Forced to Raise Over $2 Billion Amid Profitability Struggle

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Tesla is looking to raise $2 billion, Ford is scaling back V8 production, electric vehicles have to fight solar companies for supplies, and Jaguar has a plan in these trying times. It’s all here in The Morning Shift for Friday, May 3, 2019.

1st Gear: Tesla’s Raising Money Again Just a Year After Musk Said It Wouldn’t

Just a year ago, Tesla CEO Elon Musk was proudly proclaiming his company’s drive to profitability meant it would no longer have to keep going through the rounds of massive capital raises that had kept it afloat up to that point.

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But now, with Tesla’s stock value dropping 30 percent this year, and original projections of cash flow from the Tesla Model 3 falling short, the company plans to raise over $2 billion through debt and stock offerings, Bloomberg reports:

Tesla’s chief executive officer said on several occasions last year that Tesla would no longer need to raise capital as its first mass-manufactured car ramped up. Musk changed his tune after the first quarter, when a record decline in vehicle deliveries and the company’s biggest-ever debt payment depleted its cash balance to a three-year low of $2.2 billion.

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It’s not yet known how many shares the banks plan to purchase. Tesla said the total proceeds of the offerings could be about $2.3 billion if underwriters fully exercise their option to purchase additional securities. The offering is expected to price after the market close.

Tesla’s first quarter earnings report this year was a rough one, reporting a loss per share that was double what was projected and forcing Musk to tease a capital raise, going back on his promise from a year ago.

The estimated $2.3 billion will go a long way in keeping Tesla afloat and investors satisfied for the year, but Bloomberg reports the company is also expected to spend about $2.5 billion as it further develops the recently announced Model Y crossover and previously announced Tesla Roadster and Semi.

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Musk has promised the company will return to profitability by the third quarter this year, and now more than ever it looks like he’s going to need to find a way to make sure that’s actually a sustainable promise.

2nd Gear: Audi All-Star Resigns Rather Abruptly

Mark Del Rosso, the recently appointed President of Audi of America, has suddenly stepped down from the role for unknown reasons despite an excellent track record at the company, Automotive News reports:

After less than half a year at the helm of Audi of America, President Mark Del Rosso has stepped down, effective immediately.

He will be replaced on an interim basis by COO Cian O’Brien. In a news release announcing the executive changes, Audi did not elaborate on Del Rosso’s departure.

Audi said that during Del Rosso’s nearly nine years leading its U.S. sales operation, the company recorded seven consecutive years of record sales, strengthened the financial health of the dealer network and managed profitable growth to ensure greater franchise value.

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It’s not clear whether the resignation was Del Rosso’s decision, or Audis, and no further details have emerged. It’s just a little mysterious that somebody with such a successful run at a company as big as Audi would suddenly walk out of the door.

It’s fairly unrelated, but the last time an executive of this level left so abruptly, it was Ford’s North American president Raj Nair, who left the automaker last year for unspecified “inappropriate behavior.”

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Then again, in this age of startups scooping up traditional automaker talent, it’s possible Del Rosso’s departure isn’t as suspicious as it seems on the surface. We’ll just have to wait for more details to see what exactly went down.

3rd Gear: Ford Scaling Back V8 Production Is a Sign of the Times

Demand for Ford’s 5.0-liter V8 engine in its F-Series of pickup trucks is declining, which is a little disappointing. But now that also means that the engine’s productions lines are being shaken up, according to Automotive News:

Ford Motor Co. is dropping one of three production shifts at its Essex engine plant in Windsor, Ontario, in October because of waning demand for 5.0-liter V-8 engines in the automaker’s F-series trucks.

The move was made “to better align with consumer demand,” a Ford Canada spokesman told Automotive News Canada in an email.

John D’Agnolo, president of Unifor Local 200, which represents workers at the plant, said elimination of the third shift is the result of Ford offering a growing number of engine sizes.

F-series truck buyers can choose among 2.7-, 3.3-, 3.5- and 5.0-liter engines — as well as a diesel variant — and many are opting for smaller engines, D’Agnolo said. 

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Ford also announced that workers impacted by the shift change will be offered a move to Ford’s Windsor Engine Plant Annex, which produces its 7.3-liter pushrod V8 production, and that there would be no job cuts as a result of the shuffling, so at least that’s good.

4th Gear: Electric Vehicle and Solar Power Industries Are Fighting for Supplies

Alternative energy industries are quickly growing, but part of the growing pain is the ever-increasing demand on supply lines that have to try to keep up. That’s becoming quite the competition for two growing industries—solar power and electric cars.

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Not only is it a competition over electric components now, but it seems the cars have an unfair advantage, from Bloomberg:

The parts, electric transistors, are key for both EVs and solar panels to convert power between direct and alternating current for use in light bulbs, appliances and, yes, cars. As EV production has boomed, solar-component companies are being forced to wait nearly a year for the parts.

“It surprised a lot of people,” said Brad Meikle, a solar analyst at Williams Trading LLC. He estimated wait times have surged from as few as eight weeks to more than 50 weeks.

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According to the companies waiting on supplies, the suppliers have seemingly been ignoring the increasing demand and slow to increase capacity. Now that orders are hitting two-year wait times in some cases, and with more long-term supplier deals on the table, the suppliers are finally starting to ramp it up.

Analysts seem convinced the issue will quickly clear up, but now we have to fear the solar industry seeking revenge by, uh, I don’t know, maybe blocking out the sun? Sounds cool, to be honest.

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5th Gear: Jag Is Sticking to Diesel and Gas Engines for Now

Jaguar has been in a bit of a pinch lately, with its big push in China pushing back, the worldwide market running away from diesel powertrains, and with the threat of a no-deal Brexit still looming over everybody’s head.

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But if it’s one thing companies always have, it’s plans, and interestingly enough, Jaguar’s seems to be pretty committed to diesel and bigger engines.

Here’s are some details from an Automotive News interview with Jaguar Land Rover CEO Ralf Speth:

In February, Tata’s share price fell 30 percent after the automaker reported a quarterly loss. Tata had to reduce the value of its British subsidiary by nearly $4 billion. There is speculation that Tata is looking into strategic options, including a sale of the British brands, and PSA CEO Carlos Tavares has expressed interest.

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What problems are you facing?

First of all, we are investing massively in autonomous driving, networking and shared mobility. Secondly, we are renewing and expanding our product portfolio. Thirdly, we are optimizing all our internal combustion engines so we can continue to offer our customers outstanding products. Given the current challenges, that’s not easy. We would have liked to be in a different place at this point.

As demand for diesels and V-8 gasoline engines decline do you ever question your powertrain strategy?

No, definitely not. I believe we will continue to need this mix. According to industry forecasters, a global share of 20 percent to 30 percent for electrified vehicles is expected by 2025. When you turn this around, it means that 70 percent to 80 percent of all vehicles around the world will have conventional engines. Let me add that today’s diesels, which are absolutely CO2-efficient and clean.

Why is electric mobility still not important to consumers?

On one hand, the products are still too expensive. On the other hand, the infrastructure is still too inconvenient and unreliable, so electric cars tend to be for people with deep pockets.

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While we’re used to automotive executives talking about the future like it has to be all electric, in the near-term there still just isn’t a rational business case for that to happen. It’s really refreshing to hear Speth speak some truth in that regard.

The unfortunate thing is Jaguar Land Rover needs to figure something out, because it is struggling, having laid off 2,500 temporary workers and offered voluntary leave to 2,500 full-timers earlier this year. The company’s struggles likely can’t be mended forever with a new Defender and devotion to diesel, so here’s hoping they work it out.

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Reverse: Mothers Against Drunk Driving

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Neutral: Will the Model Y Have Model 3 Problems?

The Tesla Model 3 was supposed to be the company’s key to profitability, and it seemingly only worked for about a month. With serious concerns over demand for the 3, do you think the Model Y crossover can actually solve the problem for good? Or does Tesla have more financing rounds ahead in its future?

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