Tesla May Be Especially Burned By the U.S.-China Trade War

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Tesla’s China strategy may be thrown into disarray by the trade war, Uber’s stock continues to plunge, questions about the electric vehicle supply chains in the U.S., all that and more for The Morning Shift of Tuesday, May 14, 2019.

1st Gear: So, About That China Strategy, Tesla

Yesterday, the Chinese government stepped up the trade war stakes with the U.S. and our mercantilist representatives finally admitted that yeah, you’re probably going to have to pay more for stuff now. A small price to pay for freedom, wouldn’t you say?


The news affected some companies more than others, and perhaps Tesla more than most. The electric car company has viewed China, and its growing EV market, as one of its key strategic focuses in the medium-term future for boosting sales. A major part of that strategy is a new Gigafactory in Shanghai, but the timeline on that building actually churning out cars is fuzzy at best. China is key to all automakers, but Tesla especially needs that boost.


Investors are worried about any company deeply tied to China at this point, and they expressed their concerns with Tesla in yesterday’s market. Here’s Bloomberg:

Tesla plunged as much as 6.3% to $224.50, the lowest intraday since January 2017, after China defied U.S. President Donald Trump by announcing plans to raise duties on $60 billion worth of American imports starting June 1.


It’s not so much that the existing tariffs affect Tesla more than anyone else—as of now, motor vehicles aren’t actually on the list of goods to be slammed with the higher rates—but given the hardheadedness on both sides nobody expects the trade war to de-escalate, and many fear cars could be next.

Still, Tesla is far from the only carmaker dealing with the tariff issue. Bloomberg notes that BMW and Daimler are the biggest importers of U.S.-built vehicles into China, and their stocks fell by 1.2 and 3.3 percent, respectively. But investors are probably less worried about how the tariffs will affect their much larger businesses that don’t have plummeting quarterly delivery rates.


In any event, surely a generational genius like Elon Musk can overcome a mere trade war in his quest for world domina—I mean, making a quality electric car at an affordable price.

2nd Gear: Electric Cars Don’t Just Grow on Trees

It is true that much of the automotive industry is, to varying degrees, working towards more EV production. It is also true that very few countries are currently capable of mass-producing EVs. The U.S. is not one of them. But a new Reuters report details how Congress is trying to change that.


One of the problems is that nobody really knows the extent of the country’s metal reserves we have to mine:

But just how much cobalt and other minerals used to make EVs are actually in the United States is anyone’s guess, as the nation has conducted little by way of a national survey.

Current estimates from the U.S. Geological Survey rely on corporate annual reports, historical data from the U.S. Bureau of Mines and other sources, according to USGS spokesman Alex Demas.

Finding out the mineral composition of a particular region requires sending staff into the field to take rock samples, a timely and expensive endeavor. Murkowski’s legislation would require a nationwide reserve analysis for all minerals used to make EVs.


This is why Lisa Murkowski, Republican senator from Alaska, is working on legislation to address this:

U.S. Senator Lisa Murkowski, chair of the Senate’s Energy and Natural Resources Committee, earlier this month introduced the American Mineral Security Act to help streamline regulation and permitting requirements for the development of mines for lithium, graphite and other EV minerals.

The bipartisan legislation, which seeks in part to codify a late 2017 executive order on U.S. mineral development by President Donald Trump, gets its first hearing before Murkowski’s committee on Tuesday.

“We have an opportunity here to move ourselves from this position of vulnerability in terms of reliance on others for our minerals, our EV supply chain,” said Murkowski, an Alaska Republican.


Of course, this whole issue is closely linked with the whole China trade kerfuffle, since they currently dominate the EV production market. Again from Reuters:

“China has a huge head start,” said Gavin Montgomery, a battery and mining analyst at the Wood Mackenzie consultancy. “They’ve just been at this a lot longer than the rest of the world.”


If you’re tired of this always coming back to China, too bad, because there’s going to be a whole lot more where that came from.

3rd Gear: Uber Stock Keeps Falling, Falling, Falling (No, This Is Not Like Amazon)

Investors continue to be suuuper unimpressed by Uber, as its stock fell yet again on its second day of trading. Pretty much every business publication covered this in some form or fashion, but here’s the Wall Street Journal’s report:

Uber’s stock slid $4.47, or 11%, to $37.10 on its second day as a public company, placing it 18% below the ride-hailing giant’s initial-public-offering price of $45. That is after Uber’s valuation expectations were dialed back in recent weeks and the company priced its IPO conservatively, in its view.


The opening was bad enough that Uber’s CEO Dara Khosrowshahi sent an email to employees acknowledging the rough start, including this bit:

Remember that the Facebook and Amazon post-IPO trading was incredibly difficult for those companies. And look at how they have delivered since.


It’s slightly ironic that Uber, the company that spawned an entire life cycle of “Uber but for” jokes, is now resorting to comparing itself to other tech darlings.

Of course, Khosrowshahi’s comparison is just as ill-fitting as all the Uber But Fors. There’s a slight difference between Uber—a company that has never made money and nobody really understands how it could without a magic savior like autonomous vehicles—with Facebook, which was making hundreds of millions of dollars per quarter when it IPO’d in 2012.


And comparing Uber to Amazon, a common trope Khosrowshahi has not been shy to deploy for the obvious flattering reasons, is also misleading when it comes to IPO performance. Amazon IPO’d in 1997 when it basically only sold books. Even though Amazon did not operate at a profit at the time, that’s because sales were so strong it made the intentional decision to grow accordingly, which is not like Uber’s decision to enter new markets when it’s not profitable in the ones it is currently in because it needs to provide incentives to both driver and rider to get them in the car.

As TechCrunch noted when it looked back at Amazon’s IPO:

That Amazon was so not-unprofitable at its then-young age at that particular pace of growth is impressive. The company was certainly riding a secular shift in the economy toward digital commerce, but the company, at the time of its IPO, was in solid shape.


No one, not a single analyst, has said Uber’s business is in anything resembling solid shape, because unlike Amazon, Uber has not grown sales by 2,982 percent in the year prior to its IPO.

Also, a good take from a Wall Street Journal report:


4th Gear: GM Says Workhorse Is Just like Tesla so Lordstown Will Be Fine You Guys

Remember last week when Trump announced that GM is selling the Lordstown plant to a little-known EV truck startup called Workhorse that has very little money and it turns out is only in “roughly preliminary” talks about buying the plant?


And that Workhorse, as my colleague Jason Torchinsky summarized, “is a company that started making step van chassis, was bought by a company that converted ICE vehicles to EVs, and is now developing a not-too impressive EV pickup truck, and, oddly, an electric octocopter?”

In a follow-up report by the Detroit News about the skepticism surrounding the deal for many of the reasons cited above, GM defended the potential deal with very specious logic, comparing Workhorse to another EV manufacturer you may have heard of: Tesla.

“There was also once a little start-up called Tesla building a couple-hundred electric vehicles at a huge plant in Fremont, California,” GM spokesman Jim Cain said, referring to Elon Musk’s Tesla Inc. operating out of a plant once jointly operated by GM and Toyota Motor Corp. “Workhorse has defined a similar niche in (electric) commercial vehicles; they’re one of the finalists to build new trucks for the U.S. Postal Service — there is some substance there.”


Aside from the truly bizarre comparison here, floating the potential U.S. Postal Service contract is misleading. Tom Colton, who is representing Workhorse in the potential deal, told me last week that they’re not looking to build that USPS vehicle in Lordstown, should they win the contract. He made clear the two are completely separate ventures.

This makes sense considering the Lordstown plant would have to be acquired by a new entity because Workhorse doesn’t have the money, but the USPS contract would be Workhorse’s.


So, yeah, let’s pump the brakes just a little on the New Tesla bit there.

5th Gear: Nissan Preparing for Worst Year in A Decade

Let’s cut right to Nissan CEO Hiroto Saikawa on this one:

“Today we have hit rock bottom,” Saikawa told a news conference at the company’s headquarters in Yokohama on Tuesday. “We would like to recover to our original performance level in two to three years,” he added.


The company forecasts a 28 percent decrease in its annual operating profit. The main culprit is right here in the U.S., where sales have fallen 9.3 percent after ending costly incentives ushered in under former megaboss Carlos Ghosn to juice sales, especially on the Rogue.

Speaking of our friend Ghosn, the Wall Street Journal reports Tokyo prosecutors amended their charges against him to include $20 million in cash payments from “a Saudi friend,” Khaled Al Juffali. Hey, that’s what friends are for, right?


Reverse: Chrysler Bargain-Binned to Private Equity Firm


Neutral: What’s Next for Uber?

Sure, stock prices typically need a few months to level out, but investors have sent a clear signal that they don’t value Uber as much as Uber values Uber. What’s next for the ride-hailing giant?