Trump is threatening more tariffs, FCA-Renault makes more big promises they might not be able to keep, and Brexit continues to be astoundingly bad for the entire world. All this and more in The Morning Shift for Friday, May 31, 2019.
Tired of hearing about tariffs yet? If your answer is anything but a hearty “hell no,” then you’re not going to enjoy hearing that President Donald Trump has gone ahead and promise more tariffs on Mexico and the auto industry is already taking a hit. Shares of General Motors, Ford and Fiat Chrysler all dropped in trading this morning.
So, what are the tariffs actually for this time? Trump is imposing a five percent tariff on everything imported from Mexico until, uh, migrants stop coming into America.
Those tariffs could rise as high as 25 percent by October, Bloomberg reports. Exactly what metrics of “success” the president envisions here are, of course, unclear.
Does this potentially jeopardize a new North American trade agreement? Yes. Does it make any sense given Trump just removed steel tariffs on Mexico? No. Does it matter? Not to the government, apparently.
But waves of implications have already been crashing into the auto industry, given that the production of cars is an international affair these days.
From Automotive News:
For years carmakers have built vehicles in Mexico, taking advantage of its cheap labor, trade deals and proximity to the United States, the world’s largest auto market after China.
General Motors, with output of 834,414 vehicles and exports of 811,954 cars and light trucks in 2018, is the largest automaker in Mexico, with 14 manufacturing sites.
The move by the White House also looks also likely to backfire on U.S. consumers, driving up the prices of goods as varied as cars, refrigerators and television sets.
Ah, yes, just what everyone loves: paying a lot more money for the things we use on a daily basis because the government has a very absurd bone to pick! Here’s a particularly harrowing quote from Janet Lewis, analyst at Macquarie Securities:
Margins are so thin in the U.S. market right now that there’s no way that any automaker is not going to pass on these tariffs to their customers.
The unknown factor is the impact on suppliers, as components can move back and forth between Mexico, the United States and Canada up to 20 times before they make their way into assembled cars.
So, how’s the global economy doing as a result? If you guessed “not great,” you would be correct. More from Bloomberg:
European equities tumbled after U.S. President Donald Trump announced tariffs on Mexican products, with the White House’s latest attempt to stem immigration from the Latin American country risking jeopardizing a new North American trade agreement.
Companies with large exposure to Mexico fell, including Spanish banks BBVA and Banco Santander SA, carmakers like Fiat Chrysler Automobiles NV, and brewers such as Sol lager-producer Heineken NV. The Stoxx Europe 600 benchmark slipped 1.1% to bring its decline for the month to 5.9%, the worst such period this year.
It seems like too absurd a move from Trump to actually be allowed to be put into effect, but, hell—who even knows these days?
This is especially poor timing for BMW, which is set to open a new Mexican factory that produces the 3 Series (checks notes) next week! From Automotive News:
President Donald Trump’s vow to impose a 5 percent tariff on Mexican goods comes just in time to hit exports from a $1 billion BMW Group factory that opens in the country next week.
A swathe of the 3-Series sedans to be made at the plant in San Luis Potosi are destined for U.S. dealers. Higher duties mean a hard choice for the Bavarian automaker — raise sticker prices or take the hit to profits on its best-selling model.
It’s not the kind of calculation executives were expecting to make when they chose to build BMW’s first factory in Mexico, with its low labor costs and zero duties on exports to the world’s second-biggest car market. The tariffs will take effect on June 10, the U.S. President said in a Twitter post on Thursday night.
More bad news for BMW, which is dealing with the lowest profits it’s seen in a decade. From one analyst:
BMW is now expected to ramp up Mexico output slower than originally planned, said Juergen Pieper, head of automotive research at Bankhaus Metzler. In a research note Friday, Evercore ISI analyst Arndt Ellinghorst said the tariffs could be a “major blow” for BMW and other carmakers.“MAGA clearly does not stand for ‘Make Auto Great Again,”’ he wrote.
Just because Brexit has been delayed doesn’t mean its implications aren’t still kicking the auto industry’s ass. According to the Society of Motor Manufacturers and Traders, production is down 44.5 percent in the UK compared to a year ago. A scary percentage that translates into a lot fewer cars.
More from the BBC:
In what it called “an extraordinary month”, the SMMT said only 70,971 cars rolled off production lines.
That was 56,999 fewer than in April a year ago.
Production for both home and overseas markets fell by 43.7% and 44.7% respectively.
It said the shutting of factories was part of a raft of costly measures, including stockpiling, training for new customs procedures and rerouting of logistics. It said the factories would not be able to repeat the process for the new 31 October Brexit deadline set by the European Union.
When you add the UK’s production cuts to tensions between the US and China, tariff complications, and environmental controls, you’ve got a pretty thick stew of Bad Times for the Cars. In short: this is a pretty bad time to be turning to the auto industry for stability.
Steel is to cars what distressed wood is to a suburban white woman’s idea of a rustic home. It’s essential, and it’s been that way since cars started being a thing. But what if steel was, y’know, lighter?
Nippon Steel Corp. has come to answer that question, Bloomberg reports. The company opened a research department last April to find ways to make cars lighter while still using the steel base we all know and love . And, apparently, they’ve produced an all-steel car body that reduced the weight of the traditional car body by 30 percent. That would put it right up there to compete with aluminum in terms of weight savings.
More background from Bloomberg:
For years, cars have actually been gaining weight, not losing it, adding about 880 pounds (400 kg) in the last two decades alone, according to automotive consultancy A2Mac1. Beefier beams and pillars for added crash protection and more amenities like power seats have been the main culprits, along with popularity of behemoth pickup trucks and SUVs.
But now tighter emissions rules are forcing manufacturers to consider dieting. Even in North America, where fuel efficiency targets are less ambitious than in Europe and China, the curb weight of new vehicles will drop about 7%, or 270 pounds, between 2015 and 2025, according to market researcher Ducker Worldwide.
The pressure will only increase as automakers produce more electric cars because batteries aren’t powerful enough to carry extra weight and still propel cars for long distances.
Over time, this will mean more aluminum, more exotic materials like carbon fiber and magnesium — and less steel. By 2025, steel will account for only 62% of the weight of the average new vehicle, down from 70% in 2015, according to Akihito Fujita, a New York-based consultant at Nomura Research Institute America Inc. He says: “The move away from steel is inevitable.”
Despite the car world moving more toward aluminum, it still hasn’t been able to find a solid replacement for good ol’ steel in terms of its strength. Having a far lighter and stronger version of steel (said to withstand “the weight of 24 elephants bearing down on a tiny spot the size a postage stamp”) could keep the strength we all know and love without compromising on weight savings.
Chinese EV startup NIO Inc. is hunting for a new production base in Beijing, Reuters reports. Its current manufacturing base in the eastern province of Anhui just isn’t doing the company any favors anymore as NIO grows to meet a demand that exceeds the plants 100,000 units per year capacity.
The company is looking to seek a manufacturing partner to capitalize on the opportunity for growth. but NIO hasn’t ruled out doing it independently just yet.
That said, NIO hasn’t been doing so hot lately now that it has growing competition from other EV manufacturers. The hope is that expanding into a larger plant will provide more facilities to improve the product.
We have a feeling they’ll back off on this before this deadline. How do you see it going?