Auto File-Whither Tavares’ American Dream?
Oct 1 -
By Nick Carey, European Autos Correspondent
Greetings from London!
What a difference a week has made in the auto industry.
We knew traditional automakers were having a tough time of it. But a flurry of fresh profit warnings from some major players show just how much they are squeezed between falling demand in China, falling sales at home, and heavy investments in electric vehicles.
Even a niche player like British luxury automaker Aston Martin chimed in with a profit warning, blaming supply chain issues and ongoing weakness in China. That wiped close to a third off its market value just weeks after formerly Bentley CEO Adrian Hallmark took over the reins of James Bond’s favourite car company. Ouch!
These are trying times for traditional automakers and their CEOs, with plenty to fix and little investor patience to play with. Some, of course, face bigger problems than others.
Which brings us to today’s Auto File…
Stellantis’ U.S. cash cow gets sick
Volkswagen heads down a rough road
BYD nudges Mexico on tariffs
Tavares’ to-do list: fix America
Of all the recent profit warnings from Europe’s major automakers, the one from Stellantis this week stood out for several reasons.
First, it was a whopper, as the company slashed its forecast for 2024 operating profit margins and said that instead of positive cash flow it could end up with negative cash flow of up to 10 billion euros.
What is particularly jaw dropping about that is that Stellantis’ woes stem from slow sales because it misjudged the U.S. market, leading to an inventory backlog in the business that drives its profits.
Selling high-margin Jeeps and pickup trucks to U.S. consumers in the world’s richest car market was what made a merger with Fiat Chrysler an attractive prospect for PSA and its CEO Carlos Tavares in the first place.
So managing to end up stuck with too many vehicles that the automaker now has to discount to sell has been a stunning reversal for a company where investors had become used to profit margins that were the envy of other mainstream legacy automakers.
Analysts complain that Stellantis ignored the problem too long and had forgotten the first rule of holes: when you’re in one, stop digging.
There were also complaints from analysts on Monday that a call with them to explain how Stellantis had messed up was only attended by the automaker’s investor relations’ team.
When times were good, Tavares could be relied upon to pontificate on Stellantis’ success well into a second hour during analyst calls.
It will be interesting to see how Tavares’ no-show goes down with investors.
Recommended reading:
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U.S., India near critical minerals deal
Harris promises tax credits for U.S. union jobs
Volkswagen’s union battle kicks up a notch
Volkswagen kicked off talks last week with the IG Metall union to cut costs after the world’s No. 2 automaker warned that failure to do so could lead to plant closures in Germany.
As if to emphasize its point that it must cut or fade away, within two days of starting those talks Volkswagen cut its 2024 outlook for the second time in less than three months.
The German auto giant said it had to lower its financial targets because of a weak performance at its Volkswagen brand, which is where its talks with IG Metall are focused.
A close look at GlobalData’s European automotive car production capacity data with my Reuters colleague Victoria Waldersee here show that Volkswagen and its European peers have shifted production to cheaper markets on the continent, adding to the pressure to close plants in their high-cost home markets.
But no one said it would be easy. IG Metall is a powerful union, with a lot of clout on Volkswagen’s board.
As my Reuters colleague Chris Steitz reports here, there is a lot at stake for both Volkswagen executives and Daniela Cavallo, the first female head of the automaker’s works council.
BYD to Mexico: drop those tariffs, please
BYD has been working toward building a plant in Mexico, with grand plans for producing up to 500,000 cars a year.
The Chinese automaker has narrowed its choice down to three possible sites.
Having dangled that investment and the manufacturing jobs it would bring, the executive heading BYD’s Mexico business told a local newspaper the automaker is lobbying the government for an extension to a decree exempting EVs from tariffs if they’re imported from countries Mexico doesn’t have a trade agreement with.
BYD’s argument is that Mexico should extend the exemption while it builds a plant and has proposed having no tariff at all, a preferential tariff or quota-based tariffs.
The Chinese automaker is waiting for a response from former Mexico City Mayor Claudia Sheinbaum, who takes office as president today.
Tesla acts like automaker to sell cars
After two-consecutive quarters of falling sales, Tesla has resorted to a grab bag of traditional automaker incentives to help offset flagging Chinese economic growth and rising competition from domestic Chinese players like BYD .
As my Reuters colleagues Akash Sriram and Abhirup Roy report here, Tesla introduced a range of offers this spring that you could expect from a legacy rival of Elon Musk’s company, including insurance deals, discounts on certain paint choices and a zero-interest loan of up to five years.
Those measures appear to have moved the metal. Tesla is expected to report an 8% jump in third-quarter deliveries of its electric vehicles on Wednesday, Wall Street estimates show, driven by those extended incentives and lucrative financing plans in China, the world's largest auto market.
In other good news for Tesla, a judge in San Francisco dismissed a lawsuit accusing the company and Musk of defrauding shareholders by overstating the effectiveness and safety of its self-driving technology in order to boost its stock price. Read about it here.
U.S. District Judge Araceli Martinez-Olguin said shareholders failed to show Tesla and Musk should be liable for falsely promising they were close to delivering technology that would drive safer than humans, but which was actually "plagued with safety issues" and encouraged inattentiveness.
Fast Laps
The U.S. Commerce Department estimates U.S. auto sales could fall by up to 25,841 vehicles a year and prices rise if proposed rules go ahead banning connected Chinese vehiclesand key Chinese software and hardware.
Speaking of which, China has urged the United States to stop "unreasonable suppression" of its companies in response to the proposed ban on Chinese vehicle software and hardware.
Toyota's global car production fell 11% in August, the seventh straight month of declines, as a typhoon, a certification scandal in Japan and a production pause for two sport utility vehicles in the United States all weighed on output.
Thailand's $53 billion auto industry faces a grim future as indebted consumers struggle to finance purchases and overseas buyers of its mainstay traditional vehicles increasingly switch to electric alternatives.
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Editing by Mark Potter
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