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.
The Tesla Model 3 launched last month, and most everyone who’s driven it thinks it’s brilliant. That’s good, because about half a million people are still on the waiting list for Tesla’s new budget model, having thrown down $1,000 deposits.
But this huge demand is proving tough for Tesla to meet. The company cut pricing of the Model X minivan, arguably to lure people away from the Model 3, which Elon Musk admits he won’t be able to supply for some time.
On top of that, Tesla’s CEO Elon Musk told his employees to embrace for “production hell” for the next six months (or more), and we also know that Tesla’s going to sell its more expensive, better-equipped Model 3s first.
Clearly, this Model 3 launch is a challenge that requires significant capital up front for the Fremont-based EV company, and now Tesla says in a press release that it plans to sell $1.5 billion in “aggregate principal amount of its senior notes due 2025.”
In other words, these are bonds—debt obligations—that Tesla wants people to buy up in order to, as Tesla puts it, “further strengthen [Tesla’s] balance sheet during this period of rapid scaling with the launch of Model 3, and for general corporate purposes.”
Tesla needs more money. But I guess that’s not a surprise when a shit-ton of people put orders in for a car made by a small, niche automaker.
Update (11:25 A.M.): A spokesperson for Tesla reached out to mention that, in its shareholder letter “Tesla Second Quarter 2017 Update,” the company noted that it has more than $3 billion cash on-hand, and that capital expenditures for the second half of 2017 are expected to total about $2 billion.
The call for the additional funding, the Tesla spokesperson told me, can be explained by Musk’s quote in a recent conference call, in which he said:
There may be some wisdom in having a cash cushion for unexpected events. You just never know if there’s going to be some significant force majeure events in the world. It could be an earthquake in California, for example. And — but we’re not, at this point, considering an equity raise. We are thinking about debt, but we’re not thinking about an equity raise.
In other words, according to Tesla, this additional cash is just a safety cushion.
If you’re a big fan of boost, then it’s a damn good time to be alive, as Wards Auto says the U.S. market has reached peak turbocharger use. According to the auto-industry analysts, the snail-shaped air-squeezers found their way into 27.6 percent of cars and light trucks built in the first couple of months of 2017. That compares with 24.1 percent from the year prior.
Wards Auto says this is the sixth consecutive annual increase in turbocharger prominence, with only 10.7 percent of cars having turbos in 2011, and usually between 4.5 percent to 6.6 percent in years prior.
The site also says that 24.9 percent of all first-half 2017 models have turbocharged gasoline engines, 2.7 percent are turbodiesels, and 50 percent of light vehicles in 2017 come with direct-injected engines. It makes sense, as fuel economy regs have forced automakers to downsize engines and reach for every possible tenth of an MPG in fuel economy.
You can read more stats on just how far powertrain technology has shifted in recent years on Wards Auto.
3rd Gear: Don’t Expect Electric Vehicle Quotas In Europe
China’s strict electric vehicle quota—which Reuters wrote requires automakers to “sell enough electric or plug-in hybrid vehicles to generate ‘credits’ equivalent to 8 percent of sales by 2018"—has drawn protest from automakers around the world who find the targets too high, and some of whom think the quotas are a ploy to give Chinese automakers the upper hand.
The good thing for automakers is that this type of system isn’t likely to make its way into the EU, as Reuters says the European Union expressly declared that it has no plans for such quotas, despite the region’s recent diesel woes.
According to the news site, German newspaper Handelsblatt previously cited EU officials who implied that EV quotas could be a viable method to move away from internal combustion engines by 2025. But now, a spokesperson from European commission denies such a strategy, saying:
Generally speaking, the Commision is looking into ways to promote use of low carbon energy and transport, but none of them includes quotas for electric cars...We do not discriminate between different technologies.
It makes sense; tell automakers what emissions goals they need to meet, but don’t tell them how to do it.
4th Gear: The Genesis Brand Will Get Its Own Dealerships
Genesis started off as a Hyundai model, but then broke off into its own brand in an effort to do what Lexus and Infiniti did for Toyota and Nissan, respectively. The problem is, as my colleague Kristen pointed out in her review of the G80 Sport, most people still think “Hyundai” when they see the term “Genesis.” When you’re trying to make people perceive a brand as “upscale,” you don’t want that brand to elicit thoughts of economy cars.
The Genesis brand realizes this issue, which is why, according to Automotive News, it plans later this month to “announce a new retail strategy for the U.S. that will accelerate its separation from the Hyundai marque.” Part of that will include cutting the number of dealers who are allowed to sell Genesis models by opening up Genesis-specific stores.
As the news site points out, right now, any Hyundai dealership can sell the G80 sedan, and some of those (currently 352) can also sell the G80, as long as they create a Genesis brand “showroom-within-a-showroom.”
After Genesis spun off into its own brand last summer, the plan was to phase in “Genesis-only stores” (which could include dealers who shared service centers with Hyundai, but had separate Genesis showrooms) within two to three years, while keeping the “Showroom-within-a-showroom” concept going.
Now there’s a new plan, and that involves moving up the timeframe for separating Genesis from Hyundai, ridding of the “showroom-within-a-showroom” concept entirely, and shifting to a “distinct Genesis presence,” Automotive News writes.
This means Hyundai dealers will have to apply for Genesis franchises, and those who are granted permission will be given the sole responsibility of conducting warranty fixes for Genesis cars. Erwin Raphael, Genesis General Manager, told the news site why this all makes sense:
For this brand to really survive and thrive, and for us to develop the culture within ourselves and within our dealer network to support and take care of these customers, we do in fact have to expedite our process of separating our brands.
Separating a luxury marque from an economy car one is important. Infiniti has done it. Lexus has done it. Acura has done it. Cadillac has done it. We’ll see if Genesis can pull it off.
5th Gear: Renault Starts Joint Venture Company In Iran
The news site says Renault will be the primary stakeholder in the company, formed with Industrial Development & Renovation Organization of Iran and Parto Negin Naseh, an Iranian industrial conglomerate and a Renault importer, respectively.
Reuters says the joint venture will include an “engineering and purchasing center,” to support local suppliers and a plant with an initial production output of 150,000 cars. That’s on top of Renault’s current 200,000-car capacity for the Iranian market.
A member of Groupe Renault Executive Committee and Chief Competitive Officer, Thierry Bollore, told the news site why this deal makes sense, saying:
We are happy to sign this agreement with IDRO and Parto Negin Naseh Company. In a rapidly expanding Iranian market, it was vital to implement plants, engineering and purchasing center...This joint venture will enable an acceleration of our growth in this country.
Just a year ago, western companies couldn’t do business with Iran due to sanctions involving the country’s nuclear program. But now those sanctions are gone, and before you know it, there will be Dacia Dusters and Renault Symbols pouring out of a new plant in Iran.
On this day in 1944, under the threat of Allied bombing during World War II, the German car manufacturer Volkswagen halts production of the “Beetle,” as its small, insect-shaped automobile was dubbed in the international press.
Genesis wants people to try to forget about its Hyundai roots. What will it take for the division to pull that off?