VW and Ford are worried about batteries, Volvo gets hit by a supply chain bottleneck, GM’s Mary Barra thinks next year will be much better, and things are looking up for Tesla. All that and more in The Morning Shift for July 21, 2020.
1st Gear: Why Ford And VW Are Deeply Worried About A Dispute Between Two Korean Battery Manufacturers
We’ve been hearing about a dispute between South Korean battery maker LG Chem and its rival SK Innovation for a while now. LG accuses SK Innovation of stealing trade secrets, and in February, a U.S. trade panel, in a preliminary ruling, supported LG, with Reuters writing:
The so-called default judgment by the U.S. International Trade Commission (ITC) could potentially mean SK Innovation, as sought by LG Chem, cannot import some battery products, components and materials it may need to supply its U.S. factories for Volkswagen and Ford.
Indeed, VW and Ford are getting tied up tight with SK Innovation, as Reuters explains:
SK Innovation is building a nearly $1.7 billion battery factory in Georgia to serve Volkswagen’s EV factory in neighboring Tennessee, with production set to begin in 2022. The battery maker is also considering another factory in Georgia possibly supplying Ford’s electric pickup trucks.
Naturally, Volkswagen and Ford aren’t thrilled that LG has drama with SK Innovation. VW has invested billions into its MEB electric car platform (which Ford is borrowing for its own vehicles), and Ford has an electric F-150 on the way. (The Mustang Mach-E, which will be for sale later this year, uses LG pouch cells, in case you were curious). The two automakers are worried that restricting SK Innovation’s battery operations could cause a huge disruption to Ford and VW’s EV plans.
Ford and VW want the International Trade Commission to let SK Innovation continue supplying batteries: From Reuters:
The two automakers asked the United States International Trade Commission (ITC) to allow SK Innovation to manufacture batteries at its proposed U.S. factory in Georgia for use in Ford’s fully electric F-150 and other electric cars, the statements seen by Reuters showed.
“Any remedial orders should seek to avoid collateral damage to SKI’s existing customers,” Volkswagen said in its public interest comments to the ITC in May.
VW calls the potential supply chain disruption “catastrophic,” and Ford makes it clear that it doesn’t think LG can pick up the slack if SK Innovation’s battery operations were restricted as a result of this dispute. From the story:
“To avoid a catastrophic supply disruption,” the commission should allow SK Innovation to manufacture EV batteries in the U.S. facility, Volkswagen said in the May statement.
Ford said that LG Chem’s assertion that it can replace SK Innovation as a supplier is not “credible” given EV battery supply shortages and the long development period required for EVs.
Ford makes it clear how big of a deal this is in a statement:
“The risk to such U.S. jobs is especially unacceptable in light of current economic conditions caused by COVID-19,” Ford said in its public interest comments to the ITC.
We’ll see a final ruling on the matter in October.
One of the trickiest elements that automakers have faced as they’ve attempted to get back on their feet following COVID-induced plant closures and reduced vehicle demand has been maintaining a steady supply chain.
Though automotive assembly happens at a centralized location, the parts funneled into the plants to build the cars come from a variety of states and countries, which may be at different stages in their COVID-19 crises. When you’re reliant upon parts from places with varying numbers of new COVID cases and with varying government rules on how to inhibit the spread of the disease, things can get messy.
One major bottleneck has been Mexico. Earlier this month, Automotive News reported that the state of Chihuahua limited automobile supplier facilities to only 50 percent of its usual worker capacity. This caused Ford a number of issues, with the news site quoting Ford’s President of the Americas and International Markets group Kumar Galhotra as saying “Due to COVID-19, the State of Chihuahua in Mexico has limited employee attendance to 50 percent, a region in which we have several suppliers... With our U.S. plants running at 100 percent, that is not sustainable.”
Volvo has it rough, too, with that same news outlet writing about Mexico supply chain issues in its new story “Volvo’s U.S. plant hit by Mexico parts shortage, weak sedan demand.” Specifically, the automaker’s Ridgeville, South Carolina plant has been sitting idle for quite a while. From Automotive News:
Volvo aims to have its U.S. plant running again “within some weeks,” said CEO Hakan Samuelsson, who attributed the prolonged shutdown to two key factors.
“First is the disturbances in the supply of parts from Mexico. But it also a supply-and-demand issue for the S60. There is definitely is a market trend toward SUVs,” Samuelsson told Automotive News Europe.
Volvo closed its factory in Ridgeville, S.C., near Charleston, March 26 and restarted production on May 11. The plant was closed again in June because of supply disruptions, the automaker said in it first-half financial report.
On Wednesday, Tesla will reveal its second quarter earnings report, and many folks are excited given that the company pulled off some impressive performance during the first quarter—especially given COVID-19 shutdowns. From the Wall Street Journal:
A positive earnings report would mark the first time that 17-year-old Tesla has reported four consecutive quarters of profit and would qualify it for consideration in the S&P 500. Inclusion in the prestigious benchmark gauge of U.S. equities would drive index funds to include the company’s shares in their holdings.
Some analysts think Tesla will end up seeing a quarterly loss, but it likely won’t be nearly as bad as it could have been:
The consensus estimate Monday was still for a quarterly loss, but it has narrowed in recent weeks and would represent a sharp year-over-year improvement. Analysts surveyed by FactSet, on average, predict Tesla will lose $228 million in the quarter; on an adjusted basis, they expect a 14-cent loss per share. In comparison, analysts were projecting a per-share adjusted loss of $1.43 in late May, after the company’s assembly factory in California had been shut for several weeks, and the company lost $408 million in the year-ago quarter.
Others think Tesla will indeed show profit, mostly because of tax credits:
Barclays PLC’s Brian Johnson is one of the analysts who now expects Tesla will eke out a profit for the second quarter. He told investors in a note that the money the company makes from selling regulatory tax credits, which it gets from the sale of electric vehicles, could contribute. Those credits helped the company turn a $16 million profit in the first quarter, when analysts expected a loss.
Thanks to its new assembly plant in Shanghai, the introduction of the Model Y SUV, and furloughs (in addition to other cost-cutting measures), Tesla has managed to weather this crisis better than most, it seems, selling a respectable number of vehicles during the trying times. From the news site:
Tesla said July 2 that it delivered 90,650 vehicles in the second quarter, a 4.9% decline from the year-earlier quarter that was much smaller than the 24% drop analysts anticipated because of the pandemic. The performance was helped by Mr. Musk pushing to resume California production in early May and the company getting as many cars delivered in the final weeks of June as possible.
The overall industry hasn’t fared as well. Global sales may have declined 34% in the period, according to an estimate by researcher LMC Automotive.
We’ll find out on Wednesday.
In a recent interview, Mary Barra told the Associated Press her prediction for the U.S. economy’s recovery. From the Detroit Free Press:
Q: Do you think auto sales are going to get back to normal anytime soon, in the U.S. and globally?
A: We are seeing a recovery. We think it’s going to be a relatively short-lived recession. But we have a long way to go because we went to a pretty low base. The new outbreaks do pose potential setbacks, but we’re hopeful that the U.S. economy will be back to 90% of pre-pandemic levels early next year. There’s a lot of uncertainty.
“Relatively short-lived” and “90 percent of pre-pandemic levels early next year” sound good.
In a fairly random story from Reuters (to be fair, it is filed to “commodities”), we learn that the prices of platinum and palladium—two elements found prominently in automotive exhaust systems, namely catalytic converters—have dropped markedly due to the reduction in vehicle demand resulting from COVID-19.
This isn’t a huge surprise, since a drop in car demand is naturally going to reduce the value of the ingredients that go into cars, but Reuters wants the world to know that these elements will be gaining value again soon, writing:
Years of undersupply pushed palladium to record highs above $2,800 an ounce this year, while surpluses have kept platinum near multi-year lows.
Prices plunged in March as the coronavirus choked economic activity but have since recouped some ground as China rebounds.
Palladium - which cost around $2,070 an ounce on Tuesday - will average $2,050 this year and $2,138 in 2021, according to the median result from a poll of 32 analysts and traders.
A similar poll in April forecast averages of $2,100 this year and $2,150 in 2021.
Platinum - currently around $840 an ounce - will average $832 this year and $913 in 2021. The poll three months ago predicted averages of $836 an ounce for 2020 and $945 for 2021.
So, for those of you planning to go out with a portable sawzall to cut off people’s catalytic converters, maybe wait a bit to get the most out of your time. (Please, don’t hack off people’s catalytic converters).
Louis Emile Rigolly (France), driving Gobron-Brillié (internal combustion engine), achieved a speed of 103.561 mi/h in Ostend, Belgium, on 21 July 1904.
The world is facing an economic crisis. Where do EVs fit in? They are expensive for automakers and consumers during a time when money is short. Will COVID-19 slow down EV adoption?