How gas-powered car purchases help keep Tesla going, Toyota’s warnings about the Trump administration’s proposed Mexican tariffs, more tariff news, the latest on the Fiat Chrysler-Renault relationship, and new electric-vehicle partnerships. All this and more in The Morning Shift for Wednesday, June 5, 2019.
1st Gear: Gas-Powered Subsidies for Tesla
The Detroit Free Press had an interesting take on electric automaker Tesla’s relationship with buyers of gas-powered vehicles this week, which those buyers likely don’t even know exists. Automakers like Fiat Chrysler and General Motors have admitted that they need to buy federal greenhouse-gas credits from Tesla in order to “meet” national emissions standards, with that money, of course, funded by the sales of FCA and GM’s cars—gas guzzlers included.
Jim Appleton, the president of the New Jersey Coalition of Automotive Retailers, talked to the Freep about what exactly all of that means.
(It should be noted that the coalition claims to serve franchised new-car and truck retailers in New Jersey, thus Appleton doesn’t seem to be super supportive of this Tesla deal, and in probably related news, Tesla’s business model is focused on manufacturer-owned dealerships, not franchised dealerships, and the franchised dealerships see Tesla as a threat. Just saying.
The coalition’s goal is to “protect and advance the public, government and industry interests” of those retailers, which seems to include telling people they’re subsidizing cars like Tesla’s. The coalition isn’t anti-EV, it just seems to be pro-not subsidizing certain companies just for emissions requirements, and the target of that ire just so happens to be Tesla. How rude of the government to have requirements, right? Nah. Seems normal. Emissions are bad.)
But the relationship is interesting nonetheless, and aside from the negative connotation Appleton gives it, via the Freep:
Selling those credits has been a key for Tesla’s revenue for years. But it’s the first time automakers have openly acknowledged they rely on Tesla to help them meet increasing U.S. environmental regulations. Tesla has reported almost $2 billion in revenue from the sale of regulatory credits since 2010, Bloomberg reported.
But this revelation should open consumers’ eyes that every gasoline-powered car they buy subsidizes Tesla’s existence, say industry observers.
“Last year, competing automakers paid Tesla $420 million to buy absolution because they were unable to meet the emissions mandate,” said Jim Appleton, president of the New Jersey Coalition of Automotive Retailers. “Every Tesla is sold at a loss, but that loss is subsidized by Chevy drivers and others by a couple thousand dollars.”
The Freep has more on the relationship here.
2nd Gear: Toyota Warns U.S. Dealers of How Bad Trump’s Proposed Tariffs on Mexican Imports Could Get
President Donald Trump has threatened to put tariffs on goods imported from Mexico unless the Mexican government stops undocumented immigrants from coming into the United States, beginning with 5 percent on June 10 and possibly reaching 25 percent by October if undocumented immigration hasn’t stopped. (Trump made the threats in two tweets, saying proposed tariffs will be removed when the “Illegal Immigration problem is remedied,” caps included.)
Bloomberg reports that in an email sent to American dealerships late Monday, Toyota’s executive vice president of sales for North America, Bob Carter, said the Trump administration’s proposed tariffs on imports from Mexico could increase parts costs by more than $1 billion and hurt truck sales.
The dealer letter said the proposed good tariffs could up Toyota’s expenses by between $215 million to more than $1 billion, depending on the percentage, Bloomberg noted, and that Tacoma sales could suffer because 65 percent of the ones sold in the U.S. are Mexican imports.
“This is not just an issue for our company. These tariffs will have an effect industry-wide,” Carter said in the letter, which noted General Motors Co. is the largest automotive importer from Mexico. He also said Toyota remains hopeful negotiations between the U.S. and Mexico on trade and immigration policy will lead to a deal that can be “resolved quickly.” [...
The notice to dealers comes as Toyota has taken an unusually public stand against the White House’s trade policy, saying last month that threatened tariffs against auto and car parts from Japan sent a message to the company that its billions of dollars of investments in the U.S. aren’t welcome.
Bloomberg says that Toyota, for example, plans to deliver 246,000 Tacomas this year, with 160,000 of them assembled in Tijuana, Mexico and the rest in San Antonio, Texas.
3rd Gear: Buick Won’t Get a Break in Trump’s Tariffs on China
Mexico isn’t the only country with U.S. tariffs looming over its production, as we all know. The Trump administration’s trade war with China includes 25-percent import tariffs, and Buick asked the U.S. government if it could please, pretty please, have an exclusion for its Chinese-built Envision SUV.
The government said no.
Bloomberg reports that Buick even pandered to what Trump seems to be all about—American goods—by saying in a July 2018 petition that tariff relief would help its brand against “foreign competitors” in the American car market, like Acura, Audi and Mercedes-Benz. The Trump administration didn’t buy that one, and, according to Bloomberg, will keep tariffs on the Envision at 25 percent:
In a letter dated May 29, the Office of the U.S. Trade Representative denied the requested tariff relief by saying the vehicle was “strategically important or related” to Chinese industrial programs such as “Made in China 2025,” which it views as a national security risk. That initiative issued by Chinese Premier Li Keqianq is designed to help the country produce higher-value products. [...]
The USTR also denied several other exclusion requests from GM for parts, including antenna assemblies, on grounds the company failed to show that the duty would cause “severe economic harm.” The company could still get an exclusion if a similar product from another company is granted relief, the trade representative’s office said.
Buick sold around 30,000 Envisions in 2018, with sales falling more than 25 percent, but that it wasn’t due to price increases. It’s possibly because we don’t really know of anyone who can pick a Buick Envision out from a Buick Encore or a Buick Encave, but who can say for sure.
Buick dropped the price of the Envision, which starts at just under $32,000, by $2,000 right before the tariff was enacted, the story said, and a spokesperson for the company told Bloomberg it hasn’t passed tariff costs onto customers.The spokesperson said the sales drop was instead due to more competition.
4th Gear: The Whole Renault-Fiat Merger May Provide Nissan With an Out
There’s a lot going on with Fiat Chrysler’s proposal to merge with Renault in order to save money while also jointly investing in electric vehicles and other new technologies, so let’s just take this day by day, shall we? Alright, good.
The Associated Press now reports that Renault has delayed its decision on the FCA merger, with its board saying after a Tuesday meeting that it would come back Wednesday to “continue to study with interest” the FCA offer. (If Renault says yes, the AP reports, negotiations would take about a year to complete.)
But Renault isn’t the only entity studying FCA’s offer—everybody is.
The AP reports that Nissan CEO Hiroto Saikawa said in a Tuesday statement that an FCA-Renault merger would “significantly alter” the alliance between Nissan, Renault and Mitsubishi, and that it would force a “review of their relationship.”
From the story:
Nissan CEO Hiroto Saikawa is casting doubt on whether his company will be involved if alliance partner Renault and Fiat Chrysler move forward with a merger proposal. [...]
The [Tuesday] statement says Nissan will analyze its contractual relationships from the standpoint of protecting the company’s interests.
He also says adding Fiat Chrysler to the alliance could create new opportunities for collaboration and synergies.
But Nissan isn’t the only interested party. There’s also the French government, which owns 15 percent of Renault, and thus holds a lot of sway over the automaker. France is, overall, welcoming of the deal, Reuters reports, so long as it keeps Renault’s French blue-collar jobs and plants.
It’s not quite that easy given recent General Electric layoffs in the country that went against an understanding from 2015, though. From Reuters:
Concerned about the enforceability of job guarantees, France has also been demanding its own seat on the new board and a veto on future CEO appointments. [...]
On Tuesday French officials approved a compromise allowing the government to occupy one of four board seats allocated to Renault, balanced by four FCA appointees, three sources said.
Renault would also cede one of its two seats on a four-member CEO appointment committee to the French state, they added. But FCA is resisting its demands for a unanimity rule.
Reuters has more on that drama here.
5th Gear: BMW and Jaguar Land Rover to Work Together on EVs
Because automotive innovation is no fun (and costs more money) without a buddy, BMW and Jaguar Land Rover are teaming up to build electric vehicles. It’s a good way to lower costs when developing EV platforms, and the Financial Times writes that both companies want to cut costs in response to falling sales, trade costs and the still-pressing need for investment in future technology like EVs.
JLR and BMW will work together on EV drive units, as well as pool some of their research-and-development resources and purchases, partly due to pressure from markets like Europe and China to meet tightening emissions regulations and EV sales mandates. They’ll manufacture their co-developed parts in their own plants, the story said:
JLR expects to make its electric drive units at its Wolverhampton engine plant, in time using batteries from its new Hams Hall battery facility. The I-Pace is currently made in Austria by a contract manufacturer, Magna Steyr.
“It was clear from discussions with BMW Group that both companies’ requirements for next-generation electric-drive units to support this transition have significant overlap making for a mutually beneficial collaboration,” said Nick Rogers, JLR engineering director.
“The pace of change and consumer interest in electrified vehicles is gathering real momentum and it’s essential we work across industry to advance the technologies required to deliver this exciting future.”
There aren’t a lot of details on the JLR-BMW plan out yet, but surely we’ll be hearing more soon.
Reverse: The First Woman to Sail Around the World Alone
It might not be cars, but this one sure is transportation related: On June 5, 1988, Australian Kay Cottee became the first woman to sail around the world “alone, without stopping, without assistance, by way of both hemispheres and the five southernmost capes,” according to the Australian National Maritime Museum.
Cottee spent 189 days on the ocean, according to the museum, and “navigated treacherous seas, ice and shipping lanes, fighting hallucinations and loneliness by talking to her first mate,” who was a teddy bear named Ted.
Neutral: What Do You Think Will Happen With FCA and Renault?
If there’s anything these folks have proved, it’s that anything can happen when merger talks begin.