Auto File: Steep Curves Ahead for Legacy Automakers

Hong Kong Economic Times Holdings

24/07/2023 16:00

Joe White 
Global Autos Correspondent 
  
    
    Greetings from the Motor City! 
 
Welcome to Monday! I hope you got some rest over the weekend,
because this will be a busy week in the World of Cars. 
 
Never mind Barbenheimer! General Motors, Ford, Stellantis,
Volkswagen and Mercedes will share their second quarter results,
and more important, their outlooks for the rest of the year.  
 
The road ahead looks steeper and rougher than the highway in the
rearview mirror, certainly for the Detroit Three.  
 
We look into why, and much more. Today – 
 
    * Stellantis sets up a battery plant bidding war 
    *         Toyota cuts staff in China 
    *         Foxconn expands its car-making bet  

    
    * Sharp curves ahead 
 
Established automakers will roll out second quarter results this
week and next. For most investors, the numbers for the
April-June period are about as irrelevant as any set of figures
could be (though heaven help the company that falls short of
analysts’ guesstimates or backtracks on upbeat prior full-year
forecasts.) 
 
Tesla and some of the big auto retail chains have already set
the agenda: It’s going to be tough to improve during the rest of
this year on the profits of the past several quarters. 
 
Here are some of the reasons why: 
 
    *         The pandemic pricing power rave party is over.
U.S. auto
retail chain AutoNation and Tesla’s Elon Musk, among others,
told investors last week they expect vehicle prices to keep
heading down. No more charging thousands above sticker. In
Detroit, old-timey discount deals are back. The easing of supply
chain bottlenecks is allowing production to rise just as higher
U.S. interest rates (and the aforementioned slowdown in China)
are cooling off demand. 

 
    *         The UAW strike threat. Granted, worries that the
United
Auto Workers go on strike and derail financial forecasts at the
Detroit Three this September could be overdone. But the risk is
a long way from zero. The UAW would only need to walk out at a
few key engine assembly and metal stamping plants to shut down
production of the Detroit Three’s money makers - pickup trucks
and large SUVs.  

 
    *         Tesla. Elon Musk has the ways and means to keep
cutting
prices and taking market share from legacy automakers – and not
just their EVs. The Model Y may not really be the best-selling
car in the world, but it’s selling very well in a segment
(compact crossovers) that has been bread-and-butter for legacy
automakers. 

 
    *         China. For Volkswagen, Mercedes and BMW, the
biggest
second-half challenge is reckoning with a slowing economy in
China, the largest or second-largest market for all three. At
the same time, German automakers are under competitive pressure
in China, Europe and North America because of Tesla’s price
cutting.  

 
    *         EV launch struggles. General Motors, Ford and
Volkswagen
are all fighting challenges launching their new EVs – though
there are different issues at each company. Investors will be
watching for any sign that GM will delay a target of building
400,000 EVs from 2022 through the second half of 2024, after a
slow rollout of its new generation of Ultium EVs during the past
two quarters. The company has said it plans to build 100,000 EVs
during the second half of this year, roughly double the number
it assembled from January to June.  

 
    *         Bonus question: Will Mary Barra elaborate on her
hint
last month that the Chevy Bolt EV, due to be discontinued at the
end of this year, could get a second act? Bolt fans sure hope
so.  

    
    * Essential Reading 
 
    *         China dominates Southeast Asia’s EV market
    *         U.S. gasoline demand may never recover 
    * The climate news gets worse and worse  

    
    * Stellantis, Samsung tee up a battery bidding war 
 
Stellantis and South Korean battery maker Samsung SDI said they
have agreed to build a second joint-venture battery factory in
the United States – the better to harvest U.S. Inflation
Reduction Act subsidies. 
 
Stellantis and Samsung said the location of the factory, due to
open in 2027, is “under review.”  
 
Translated into plain speech, that means Stellantis and Samsung
will now be entertaining subsidy offers from U.S. states eager
to land the factory and its jobs.  
 
One of those states could be Illinois. Stellantis has a
UAW-represented Jeep factory in Belvidere, Ill. that is on track
to close. The decision is an obstacle in the way of Stellantis
and the union 
agreeing to a new contract without a strike. State officials
have acquired 170 acres of land next to the existing assembly
plant, and federal subsidies could be brought to bear as well.  
 
Don’t touch that dial.  
    
    * Toyota retreats in China 
 
    Toyota is cutting staff at one of its joint-venture auto
plants in China as sales tumble, Reuters reported Monday.
Toyota’s cuts follow retreats other by Japanese automakers. 
 
Toyota and other foreign automakers are reeling as their sales
in the world’s largest auto market plunge.  
    
    * Foxconn’s heavy metal deal 
 
Foxconn, best known as the assembler of iPhones, is now adding
some heavy metal to its portfolio via a joint venture with
German auto supplier ZF to build vehicle axles. 
 
Foxconn has been investing aggressively to build its
vehicle-making capability. The deal with ZF gives it 50% of ZF
Group’s axle assembly business. Vehicles powered by batteries
and sophisticated software still need axles, after all.  
    
    * A $24,000 Tesla for India? 
 
Tesla has outlined for Indian government officials a plan to use
a new factory in India to build a Tesla that could sell for the
equivalent of $24,000, Reuters reported, citing sources.  
 
Elon Musk told Indian leader Narendra Modi in June that he
intended to make a significant investment in India – which has
been for some time the auto industry’s market of tomorrow. 
 
India has blocked Chinese EV maker BYD’s proposal to build a $1
billion assembly plant, India’s Economic Times reported. If
true, that would be a solid favor to Tesla. 
 
It isn’t clear that a $24,000 Tesla would be cheap enough for
high volume sales within India, where EVs account for just 2% of
the market now. But India could be an export hub for lower-cost
Teslas and other EV brands.  
    
    * Fast Laps 
 
    - Auto supplier Plastic Omnium reported robust Q2 profits
but warned that the EV price wars and slowing demand in Europe
could result in more pressure on its pricing as automakers look
to cut costs. 
 
    - Russia’s auto industry is fast becoming an extension of
the Chinese auto industry, as Chinese manufacturers such as JAC
rush to fill the void left by the departure of Western
manufacturers. Chinese automakers are helping re-start Russian
auto factories, and shipping vehicles in from their home plants.
China’s exports of vehicles to Russia during the first half of
2023 were more than six times the value of the same period a
year earlier. 
 
    - A damaged Nikola truck 
    caught fire at the company’s offices in Phoenix, AZ. The
truck reignited after being damaged in a previous fire that is
under investigation, the company said.  
    
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 (Editing by Andrew Heavens)