Things are good if you’re a Tesla investor, Renault is backing off its attempt to swallow Nissan, and Jaguar-Land Rover stumbles a bit. All that and more in the Morning Shift for January 30, 2020.
1st Gear: Congrats?
Tesla shares are up over 10 percent this morning after it posted its second quarterly profit in a row, which is good for people who have invested in Tesla, I suppose. Here’s Reuters with some of the numbers:
The results indicate that Tesla is controlling costs better, a metric that investors have questioned Musk on before and that he was quick to talk about on the call.
“In 2019, we managed to generate more than $1 billion of free cash flow while building a factory in Shanghai in record time and while building parts of Model Y production,” he said.
Tesla’s cash balance increased to $6.3 billion and total operating expenses rose less than 1% to $1.03 billion in the December quarter.
And while its revenue per unit delivered rose by only 3% in the fourth quarter, operating profits per vehicle rose by roughly 19%.
Who doesn’t love increased revenues! And operating profits! And cash balances! All of that stuff is wonderful, for Tesla, as a going concern.
But CEO Elon Musk said a few other things on the call that are the sort of “typical Elon” shit that drives me, a non-Tesla investor, up a wall. You know what I’m talking about—the big promises, the grand unveils, then a muted variant of “we’re still working on that” years later, on an earnings call.
We talked about this a bit already last night, but it bears a bit of repeating, as at this point the company’s promises are entering into the realm of the absurd. There’s the little things, like the robotic charging snake that never saw the light of day, but on the call last night, Musk brushed aside two long-ago promised products that are still in development but have yet to reach customer hands, the Tesla Semi and a true self-driving capability.
Tesla has been selling cars with “Full Self Driving Capability” for a while now, but that doesn’t really mean what it says. It means that in Tesla’s estimation, it is selling cars with the potential to one day drive themselves, but that day is not today. When is that day?
Well, it was supposed to be in the middle of 2018, and if my math is correct, today’s date is sometime in 2020, and we have yet to see a “coast to coast” self-driving demonstration from the company. And on the call last night, Musk sounded more pessimistic than ever.
“Feature complete just means like it has some chance of going from your home to work with no interventions,” he said. “So that’s, doesn’t mean features are working well.”
So, not great.
And then there’s the issue of the Semi, which we’ve seen driving around for quite a while, but which doesn’t even seem close to full-scale production. On the call, Musk attributed that to a battery production capacity issue, which I get, as the company seems to be devoting the majority of its battery production toward getting the mass-market Model 3 at the door. Sure, fine.
But it’s impossible to talk about Tesla’s share price without discussing these sort of promises, simply because they are so intertwined. When an investor buys into a company, they’re essentially making a bet on the company’s future growth. That bet is often informed by a lot of things, including profits and history and solid fundamentals, but it’s also a bet on what’s coming down the pipeline.
So if that bet is based on a promised pipeline that fails to materialize, it all feels a bit skeezy.
At this point, hopefully investors recognize that things like the new Roadster and the Cybertruck might be significantly delayed, if they ever make it to market at all.
But it’s hard not to be sucked in by the self-generated hype.
2nd Gear: Renault Backs Off Nissan A Bit
There’s tons of palace intrigue in the Carlos Ghosn saga, but an undercurrent running through it since the very beginning was that the Powers That Be at Nissan were no fans of Ghosn’s direction in general. But one thing that reportedly irked them quite a bit was that Ghosn was apparently intent on fully merging Renault and Nissan, with the smaller Renault swallowing up the much larger Nissan.
Perhaps wary of ending up in a Japanese jail themselves, Renault executives are now saying that they want to get back towards typical Alliance-y stuff, but definitely not any merger-y stuff, Reuters reports:
The comments from Jean-Dominique Senard point to an emphasis on more cooperation and operational efficiency as the automakers and junior partner Mitsubishi Motors Corp (7211.T) strive to rebuild profits, which have slumped in the wake of former chairman Carlos Ghosn’s arrest in 2018.
Renault and Nissan (7201.T) have struggled to repair a relationship badly strained after the arrest of Ghosn, who fled Japan to his childhood home of Lebanon at the end of last year. He has been charged with financial misconduct, which he denies.
“We all share a sense of urgency,” Senard told reporters in Yokohama, after he and the heads of the three automakers met. He said there was “no other option” but to change, but added reforms could be made without a shift in the capital structure.
“The priority as clearly stated was to increase significantly the efficiency of the alliance,” he said.
Nissan’s preference at this point appears to be complete and total independence, but for the time being there are complicated ownership structures to work out. This is probably the best outcome possible for the company, at least in the short-term.
3rd Gear: Arrest Warrant Issued For Carlos Ghosn, Again
This may be sort of obvious, but let’s just say it for the people in the back: escaping from a country while you are set to stand trial for various alleged financial crimes can also be a crime. And that means that former Renault-Nissan Alliance chairman Carlos Ghosn has been issued yet another arrest warrant from Japanese prosecutors for skipping out on bail, Automotive News says:
Tokyo prosecutors have a new arrest warrant out for Carlos Ghosn, this time for jumping bail and leaving the country illegally, exacerbating the fallen auto titan’s legal woes.
Prosecutors said on Thursday that they also obtained a warrant for three Americans they say helped the indicted former Nissan chairman escape Japan at the end of December and flee to Lebanon.
Prosecutors are alleging Ghosn and the Americans departed the country illegally, under Japan’s Immigration Control Law, for failing to go through immigration control. They additionally charge the Americans with violating the law by conspiring to hide a suspect.
I am not a lawyer in any country, let alone Japan, but something about the whole music-box-private-jet thing didn’t smell like it was exactly on the up-and-up.
4th Gear: China Brings Bad News For Jaguar Land Rover
Jaguar Land Rover has been struggling a bit lately as it plays catch-up to much larger rivals like Volkswagen’s Audi and Mercedes-Benz, and China isn’t helping. Not only has the Chinese auto market slowed a bit, impacting virtually everyone, but now JLR anticipates trouble from the Coronavirus epidemic that originated in Wuhan. Here’s the Nikkei Asian Review:
Mumbai-based Tata Motors, which derives the bulk of its revenue from the marquee brand, is barely recovering from the throes of a prolonged slowdown in China, where a slowing economy and a trade dispute with the U.S. had wreaked havoc on vehicle demand. Jaguar Land Rover, which Tata acquired in 2008 from Ford Motor, last year announced a plan to cut about 10% of its workforce in a bid to pare costs and boost cash flows.
JLR continues to expect improved profitability and cash flow for the financial year ending March 31 with an operating margin of around 3%, Tata Motors said in a statement. “However, the developing situation with the coronavirus could have some impact on this,” it added.
A lot of that is almost certainly a result of people in China staying home and not running out to buy some sweet new Jaguars, but the company said that it was being hit by fears that workers on vacation for China’s new year celebrations may not be able to return to their jobs due to travel restrictions.
5th Gear: And JLR’s CEO Is Stepping Down
JLR head Ralf Speth has been at the company since 2010 and in that time he’s done a lot of things well. Land Rover’s lineup is pretty solid and there’s been some fun Jags here and there. But besides those fun Jags, the company’s lineup has remained somewhat stagnant, and Land Rover’s SUVs tend to be in similar price points with one another, cannibalizing sales. Perhaps unrelatedly, Speth is now stepping down from the day-to-day at JLR, and transitioning to a “non-executive chairman” role, the Financial Times reports:
Under his watch the business opened plants in Slovakia and Brazil and an engine plant in China, and built its first, fully electric car, the Jaguar I-Pace, which scooped a collection of international awards.
But as the group’s fortunes turned, many of its big profit pillars came unstuck, while the stern management style that helped Sir Ralf pull the business up during its growth years led to a stream of executive departures.
The company has been forced to lay off thousands of staff and announce a big overhaul of its business after sales slowed and the group plunged into losses, primarily because of the public rejection of the diesel technology that sits at the company’s technological heart. A slowdown in China, which affected JLR more than other premium brands such as BMW, also hit the group.
Although the same cannot be said for its laid-off workers, I’m sure Ralf will be fine.
Reverse: I’m Pretty Sure This Is What The First Yugo Was Like
Isaac de Rivaz was issued with a French patent for his explosion motor, an important ancestor of the modern internal combustion engine. The de Rivaz engine had no timing mechanism and the introduction of the fuel mixture and ignition were all under manual control.
Neutral: What’s The Automotive World’s Greatest Unfulfilled Promise?
And why is it the Bricklin SV-1?