Tesla is putting its workers on hold and cutting salaries, car production is warily re-starting, airlines are cutting airplanes, and some ventilators. All that and more in the Morning Shift for April 8, 2020.
1st Gear: They Won’t Be Getting Paid
Tesla and its CEO, Elon Musk, tried to hold out against the global Coronavirus pandemic as long as it could. Musk even went so far as to downplay and dismiss the severity of the crisis, even as thousands died across the world. But COVID-19 doesn’t care about your profits. It doesn’t care about your “plans for growth.”
It is relentless. Faced with that reality, Tesla mostly shut down its Fremont assembly plant, and now, Reuters reports that it is cutting pay for salaried staff and furloughing workers:
Pay for salaried Tesla employees will be reduced beginning on April 13 and cuts will remain in place until the end of the second quarter, the email said.
In the United States, workers’ pay will be cut by 10%, directors’ salaries by 20% and vice presidents’ salaries by 30%. Comparable reductions will be implemented abroad.
Employees who cannot work from home and have not been assigned to critical work onsite factories will be furloughed, with workers maintaining their healthcare benefits until production resumes, the email said.
Just a few months ago, it looked like the only way for Tesla – and for much of the rest of the industry – was up. Now, who knows. This isn’t just a problem for Tesla, either. Last night, we noted that Honda and Nissan are also furloughing workers.
2nd Gear: But Maybe Car Sales Will Come Back?
The world at large still doesn’t know if it can trust China’s official government numbers on how devastating COVID-19 was across the country, let alone how hard it hit Wuhan, the epicenter of the outbreak.
But as the virus subsides in the wake of a massive suppression effort, car sales seem to be rebounding, according to Bloomberg:
A recovery in China’s car market is slowly gathering pace, with dealerships even in the initial virus epicenter of Wuhan seeing customers return.
Vehicle sales have been picking up since early February — albeit from a near-zero level — as showrooms gradually re-open their doors. In Wuhan, a city of 11 million, dealerships have been back in business for only a couple of weeks yet staff at some of them say daily sales have rebounded to pre-crisis levels.
“I was pretty shocked,”” said Zhang Jiaqi, a sales representative at an Audi dealer in the Wuchang district of Wuhan, which is now recording daily sales matching year-earlier levels. “It’s like a boom after a two-month dormancy. I thought sales would be frozen.”
Everyone in the automotive industry is probably hoping that fives years from now, all this will be a weird blip, and things will return to some semblance of normalcy.
It’s got to be a strange time to be a product planner, what with development timescales being on the order of years rather than months.
3rd Gear: The Airline Industry Will Take ‘Years’ To Recover
While automakers are hoping for a lightning-fast turnaround once the threat of the virus passes, airlines are warning that it could take years to return to the booming business they were formerly enjoying. Here’s CNN:
Lufthansa’ (DLAKY)s assessment is that “it will take months until the global travel restrictions are completely lifted and years until the worldwide demand for air travel returns to pre-crisis levels.” Based on this, it has decided on “extensive measures to reduce the capacity of flight operations and administration long term,” it said.
Lufthansa is, accordingly, getting rid of 40 of its planes permanently, including five Boeing 747s, and shutting down its Germanwings low-cost airline.
4th Gear: General Motors To Supply 30,000 Ventilators
GM, which started work on producing ventilators to battle the COVID-19 pandemic, and which was ordered weeks after the fact to also start work on producing ventilators by President Donald Trump, now has a contract in place to produce ventilators, the Detroit News says:
General Motors Co. is set to begin producing ventilators at its Kokomo Operations in Indiana as early as next week, as the U.S. Department of Health and Human Services announced the first contract for ventilator production under the Defense Production Act.
GM will supply 30,000 ventilators for $489.4 million for the Strategic National Stockpile by the end of August with some 6,132 being delivered by June 1.
The company says it will be capable of producing 10,000 of Ventec’s ventilators per month. Ford is also producing ventilators, as the News notes, and hopes to produce 50,000 of them by July.
5th Gear: GM Only Has 15 Weeks In A Worst Case Scenario, Analyst Says
Ventilator contracts alone can’t sustain GM, however. A Deutsche Bank analyst cut his rating for the company and issued a dire warning if things don’t recover quickly, Bloomberg reports:
Deutsche Bank’s Emmanuel Rosner downgraded General Motors Co. for the first time since he initiated coverage on the automaker more than a year ago, warning the carmaker will run low on cash if production shutdowns continue for months.
GM and Ford Motor Co. have only 15 to 17 weeks of liquidity to ride out current conditions before they hit the minimum levels of cash they need to run their business, Rosner said in a report Tuesday. He cut his rating on GM to hold and lowered his price target to $25 from $41.
In decades past, the notion of yet another Big Three bankruptcy sounded absurd. But here we are.
Reverse: Can We Still Call Them Explosion Motors?
1805 – Isaac de Rivaz applied for a French patent on his ‘explosion motor’, an important ancestor of the modern internal combustion engine.
Neutral: If You Were A Product Planner, What Would You Do?
Imagine you’re a product planner for a car company, and you’ve been given the time and budget to produce one (1) new car. Any car you want. But it has to be profitable. Your car goes on sale five years from now. What sort of car do you make?