Tesla’s big plans for China, some (bleak) third-quarter earnings updates, the latest on Carlos Ghosn and more await you in The Morning Shift for Thursday, Oct. 24, 2019.
1st Gear: Tesla’s Profit
Heyo, guess who scraped out a profit last quarter? Tesla! The profit was “modest” according to The Verge, but now that that’s in order, the next big hurdle is seeing how the electric automaker handles China, the world’s biggest market for electric cars.
But first, a quick recap. For Q3, Tesla claims it generated $6.3 billion of revenue (slightly below Q2's and down about $520 million from Q3 in 2018) and reported a net income of $143 million, per The Verge. The site also points out this marks the first year-over-year quarterly revenue decline for the automaker since 2012, “though the company attributes the drop to a tripling in the number of customers leasing its cars. (Tesla started leasing Model 3s in April of this year.)”
Tesla saw a slow start in 2019. To make up for it, Tesla’s Q4 numbers need to be stellar. The Verge reports the company would have to ship “between 360,000 and 400,000 cars” and to eventually bring itself out of the red, it has to focus on China. Now that the new, Shanghai Gigafactory is open, it should help boost sales.
Per The Verge:
This is where the new Gigafactory comes in. China is the biggest market for EVs and, despite a recent downturn in both the automotive market and overall economy, still represents a huge opportunity for Tesla. Until now, all of the cars Tesla sold in China were made in the US and shipped to China, making them subject to tariffs and the shifting winds of the trade war. Producing cars locally means Tesla should be able to sell more in China, even with a sagging Chinese economy.
Once years of lobbying and negotiating for the factory itself concluded when Tesla and China were finally able to come to an agreement in July 2018, the Shanghai Gigafactory was built in just 168 days. And it was apparently cheaper to build than the Fremont and Nevada Model 3 production systems here.
Will Tesla continue to profit in the face of a globally slowing automotive market? We’ll see.
2nd Gear: Q3 Profits
While we’re on the topic of third-quarter profits, let’s check in with a few other automakers. See how they’re doing.
First up is Daimler, which reported “a slight rise in third-quarter operating profit,” according to Reuters. This was helped along by Mercedes-Benz sales. At the same time, though, the company also said things like cost-cutting and legal provisions from diesel litigation could also increase.
From the story:
Daimler said it would review costs after the margin at Mercedes-Benz Cars dropped to 6%, down from 6.3% in the year-earlier period due to production problems with the Mercedes GLS and because cars were being fitted with costly anti-emissions filters.
God, I am so sorry that not killing our planet immediately means you have to spend a little more money on your big SUV. (I’m not actually sorry at all.)
Then we’ve got Ford, which reported at 57 percent drop in Q3 net income, according to Automotive News Europe. The company has lowered its full-year profit guidance and expects increased warranty and incentive costs, as well as falling sales in China.
From the story:
Chief Financial Officer Tim Stone said Ford now expects total 2019 earnings before interest and taxes of $6.5 billion to $7 billion, down from its earlier projection of $7 billion to $7.5 billion. That would represent a decline from the $7 billion earned in 2018.
“We think Q3 was a good quarter,” Stone told reporters at Ford’s headquarters in Dearborn, Michigan. “The progress we have made also indicates we have more work to do and more opportunity ahead. We think the trajectory is improving across the business.”
All the Ford Explorer manufacturing issues probably haven’t helped, either.
However! This lowered forecast might just be the last straw the S&P Global ratings needs to downgrade Ford this year, Bloomberg notes:
S&P assigned the company a negative outlook back in July, citing weakness in Ford’s overseas operations and the company’s ongoing restructuring. The outlook applies to a 12- to 24-month period, which could result in a cut to the BBB rating. A one-notch downgrade, which S&P analyst Nishit Madlani has said is likely, would leave Ford one level above junk.
Anyway, this is all just business. We get to sit on the side and watch it all happen.
3rd Gear: They’re Sticking With Collusion
Ousted former Nissan chairman Carlos Ghosn has spent the last year in and out of jail following misconduct accusations. He says he was the victim of a conspiracy. This is the story his lawyers are sticking with, bless them.
Ghosn’s lawyers have requested the Tokyo District Court to “dismiss all charges against” him because they believe “prosecutors colluded with government officials and Nissan executives to oust him from his post,” reports Reuters. From the story:
Ghosn’s legal team in a press release on Thursday said they had submitted two court filings ahead of a planned pre-trial meeting the same day that list cases of “misconduct” by prosecutors and “factual defences” that show Ghosn is innocent of financial wrongdoing.
“The prosecution against him resulted from unlawful collusion between the prosecutors, government officials at METI (Ministry of Economy, Trade and Industry), and executives at Nissan, who formed a secret task force to drum up allegations of wrongdoing,” the lawyers said in the release.
The rest of the story takes a turn for the darker. Apparently Ghosn, who is out on bail in Japan, isn’t permitted to contact his wife or use the internet without supervision (I mean, who isn’t?) and needs to “submit to surveillance of his movements.”
His first trial is believed to start in March. I can’t wait to see how that goes.
4th Gear: Noisy Brakes
You’re all familiar with Brembo from the brightly colored brake calipers sometimes found on sports and performance cars. It’s all been well and good for Brembo up until this point, but the Italian brake manufacturer has come across a slight complication when faced with electric cars.
It all comes down to noise. Electric cars, as you know, are (mostly) silent. There’s no screaming engine to drown out the brakes while they’re working, and the silence of EVs are largely an enjoyable feature for owners. Brembo is trying to develop new products to keep up with the electrified age, according to Reuters.
From the story:
Brembo is developing lighter, electrical brake-by-wire mechanisms used in electric cars to replace traditional hydraulic brakes and faces a threat to its business from so-called regenerative braking systems that capture energy lost when cars slow down and pump it back into the battery.
“Electric engines make no noise, so the braking system could eventually be annoying for the passengers,” said Brembo’s Executive Deputy Chairman Matteo Tiraboschi.
“They might even be watching a movie in the future while sitting in their cars, thanks to autonomous driving, so our aim is also to make braking increasingly quiet,” he told Reuters at Brembo’s headquarters in Bergamo.
I don’t think this necessarily means that performance brakes are going away anytime soon. I think there will always be a need for performance brakes because there will always be people who want to go fast. But the trick is making sure they work just as well but also more quietly than ever.
5th Gear: Nissan Could Sell European Plants
Nissan has some big decisions to make as car sales in Europe slow and things increasingly shift toward EVs. Now that we know Infiniti is pulling out of Europe, there’s the matter of what to do with the plants.
This all comes from Bloomberg, which reports:
The Japanese manufacturer, which in March said it’ll stop selling the upscale Infiniti brand in Western Europe, is is gauging interest from potential buyers for its factories in the U.K. and Spain, the people said, asking not to be identified because the discussions are private. Divesting one or both facilities is an option as Nissan’s market share in the region has plummeted. While no decisions have been made, potential buyers could include Chinese automakers, the people said.
“At this time, we have no plan to sell those two plants in Europe,” said Azusa Momose, a spokeswoman at Yokohama-based Nissan.
There’s a general push toward increasing EVs, which have fewer moving parts and require much smaller assembly teams and plants. That renders much of a traditional assembly plant and workforce redundant or useless.
This, paired with yesterday’s news that Nissan could axe brands like Datsun, does not paint a good picture of the goings-on at Nissan.
Reverse: Last Flight Of The Concorde
Neutral: Will China Save Tesla?
Will the projected increase in Chinese sales be exactly what Tesla needs to push itself into the black?