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 Is Burning Through Cash. Fast.
Yesterday Bloomberg reported that, over the past year, Tesla has been burning through cash at a rate of about $480,000 per hour, or approximately $8,000 per minute—a rate that, the news site says, would deplete the company’s cash reserves by Monday, Aug. 6, 2018.
Tesla is in the process of ramping up production for the Model 3, so the fact that the company is spending money isn’t exactly surprising, nor was the recent $619 million quarterly loss, Tesla’s biggest ever after spending $1 billion (Markets Inside points out that General Motors also spent around $1 billion that quarter, but it was able to rake in $33 billion in revenue). Still, the $480,000 per hour figure gives us better idea of just how deep Tesla really is stuck in “production hell.”
And with the introduction last week of Tesla’s semi truck and Roadster (which are slated for production in 2019 and 2020, respectively), there’s a decent chance the company will likely continue its cash-burning “production hell” as it spends on tooling and other manufacturing operations for new products.
Bloomberg senior analyst Kevin Tynan warns that this extreme cash drain could pose real problems for the California automaker, saying Tesla will have to raise at least $2 billion by the middle of 2018, and declaring: “Whether they can last another 10 months or a year, he needs money, and quickly.”
The good thing for Tesla is that its shares rose 3 percent on Tuesday, and the market value of its shares—at $53 billion—continues to eclipse those of juggernauts like Ford. Plus, Bloomberg says Tesla is confident it will have enough money to meet its goal of making 5,000 Model 3s by April, after which the company says it will start to bring in “significant cash flows.”
Right now, Tesla is going through “production hell,” missing its production goals, and generating cash from pre-orders of cars that aren’t built yet. Plus, the CEO is yelling at journalists, and warning of months-long Model 3 production delays after the company “dropped the ball.”
They’re facing an uphill battle, but they’ve got lots of supporters cheering them on.
2nd Gear: The Cases For Alabama and North Carolina To Win Toyota-Mazda’s New Factory
States around the U.S. have been in an all-out “bidding war” to try to coax in Toyota and Mazda, who announced in August a plan to build a $1.6 billion, 4,000-job joint venture plant somewhere in the United States. After Illinois lost out (possibly because of a lack of “Right to Work” laws), that left North Carolina and Alabama as the final contestants.
We don’t know who Toyota and Mazda will choose, but Automotive News has a story outlining the advantages of each location. According to the news site, Alabama’s main advantage is its history of providing incentives that have turned the state into a “production hub” (Honda, Hyundai, Mercedes and Toyota have plants there), and the fact that more than 150 automotive suppliers have a presence in the state. Automotive News quotes site-selection consultant Gregg Wassmansdorf as saying:
From a production cost point of view, the advantage would go to Alabama...The other advantage that they would likely have, just based on historical precedent, is their ability to provide economic incentive. They have historically been very aggressive when it comes to incentives for automotive.
As for cons, the article points out that the Tier 1 and Tier 2 suppliers, as well as the other assembly plants in Alabama, could be stiff competition for employee talent.
Advantages for North Carolina are political and labor-related, with another site-selection consultant, John Boyd, telling Automotive News about the benefits North Carolina’s larger congressional delegation:
This new joint manufacturing facility will be producing some very sophisticated, highly regulated electronic vehicles...There will be a myriad of legislative priorities and lobbying efforts, so clout in Washington, D.C., I think, is a site-selection driver.
According to the Bureau of Labor Statistics another advantage of North Carolina is that the state “has the second-lowest union membership rate among all 50 states” at only 3 percent. Considering rumors that a lack of Right to Work laws may have lost Illinois the bidding war, this lack of a unionized workforce might be a big deal to Toyota and Mazda.
3rd Gear: Electric Car Sales Are At An All-Time High
In an effort to reduce pollution, especially in highly populated areas, China’s been pushing hard for electric vehicles, requiring automakers to reach a “new-energy vehicle score” (which, according to Bloomberg, is “linked to the production of various types of zero- and low-emission vehicles”) of above 10 percent beginning in 2019.
So it’s no surprise that China’s electric vehicle and plug-in hybrid market accounted for half of global vehicle demand in the third quarter, according to Bloomberg. That global demand, the news site says, is now at a record high, with 287,000 plug-ins and EVs sold between June and September of this year, a 23 percent increase from the previous quarter, and a whopping 63 percent jump from the same period last year.
Demand doesn’t seem to be slowing down, either, with Bloomberg reporting that sales could eclipse 1 million this year:
[Bloomberg New Energy Finance] expects global EV sales to surpass 1 million units this year for the first time. The market for electrified transport is starting to pick up speed as charging infrastructure becomes more accessible and manufacturers roll out models with longer driving ranges.
Clearly, this EV thing is here to stay.
4th Gear: Will Ford Pull Out Of Certain South American Markets?
Ford has had a presence in South America for well over 100 years, and while that’s not likely to change, there is a chance that the company could be tempted to leave certain markets in the region due to enormous losses, The Detroit News reports.
The news site quotes a J.P. Morgan analyst who had this to say about Ford’s strategy to combat the heavy financial drain of South America:
[Ford is considering] an out-of-the-box transformational plan to stanch what it deems as unacceptable losses in South America which we expect could be announced over the short-term. Ford is evaluating strategies in relation to doing business in emerging markets overall. ... It could also entail selective exits from certain markets.”
The news site says The Blue Oval has lost $2.6 billion in South America since 2011, including a $1.1 billion drain last year. This year’s third quarter results also weren’t stellar, with Ford losing $158 million.
Down the street, General Motors has been actively reducing its international footprint (including pulling out of Europe after over 100 years), with Automotive News quoting CEO Marry Barra as saying this earlier this year:
Our overall philosophy is that every country, every market segment has to earn its cost of capital.
Whether Ford will do anything of the sort remains uncertain, especially since the Chief Financial Officer seemed so optimistic at the start of this year. The Detroit News’ statement from Ford also didn’t hint at any plan to leave South American markets, reading:
South America remains important to our overall business operations and we continue to focus to make it operationally fit.
Recent economic struggles have made it hard for automakers to turn a profit South America; we’ll have to wait and see if Ford decides to stick it out, or if that J.P. Morgan will end up being right.
5th Gear: Subaru To Celebrate 50 Years In America With Limited Edition Cars
Yesterday, Subaru of America’s vice president of sales, Jeff Walters, announced plans to launch 50th anniversary editions for all models when the company turns 50 next year. Subaru’s press release says the cars will be based on high trim levels, and will feature a common color and special badging.
Subaru of America’s was born on Feb. 15, 1968, initially operating out of Balboa Park in California before moving to various parts of the Delaware Valley (starting in Bala Cynwyd, Pennsylvania, then moving Pennsauken, New Jersey, then to Cherry Hill, New Jersey, and soon to Camden, New Jersey).
The company has been doing quite well in the U.S., and expects to sell over 650,000 vehicles this year. Limited edition models will debut at the Chicago Auto Show in February. Here’s to hoping they offer a little bit more than just a paint sticker package.
Reverse: The First-Ever Mercedes Goes On Its Inaugural Drive
Neutral: How Long Will The EV Onslaught Continue?
EVs are at an all-time high, and only gaining more and more traction as governments mandate cleaner cars for their cities. How much bigger will the EV market continue to grow?