Good morning! It’s Tuesday, October 29, 2024, and this is The Morning Shift, your daily roundup of the top automotive headlines from around the world, in one place. Here are the important stories you need to know.
1st Gear: Polestar Is Worried Biden’s Plan Could Kill It
Polestar says the Biden administration’s rule that bars the use of Chinese vehicle hardware and software would “effectively prohibit” the Swiss-Chinese automaker from selling its vehicle in the United States. That includes the cars it makes on U.S. soil.
In comments filed with the U.S. Department of Commerce, Polestar said a proposed rule prohibiting Chinese-connected vehicles in the country because of national security concerns would actually bar the sale of cars Polestar is building in South Carolina, not just the ones it produces in China. From Automotive News:
Polestar said a substantial portion of its operations are outside China, while seven of its 10 directors are from Europe or the U.S. and its CEO is German. Polestar said it has around 2,800 employees globally, with 280 in China.
Commerce “should consider whether a rule that effectively shuts down the operations of a lawfully organized U.S. company with substantial U.S. investments and so many personnel and key decision-making units in friendly nations and the U.S. is appropriately tailored to address the stated national security concerns,” Polestar said.
[…]
Reuters reported in May that four Chinese vehicle models are sold in the U.S., including the Polestar 2 and Volvo’s S90 sedans.
It isn’t just Volvo and Polestar, though. Last month, the Commerce Department told Reuters that Ford and General Motors would have to stop importing cars from China to the U.S. under the administration’s proposed rule.
Ford told Commerce on Oct. 28 in comments that the rule could be interpreted “to prohibit the sale of completed connected vehicles by U.S. automakers if those vehicles were assembled within the jurisdiction of a foreign adversary such as by a foreign affiliate of a domestic U.S. automaker.”
Ford said Commerce should clarify that the vehicle import prohibition “does not turn on the place where a connected vehicle’s final assembly happens to occur,” but if it meets software and hardware requirements.
On one hand, I understand the security risks involved with Chinese cars in the U.S. However, that whole theory starts to fall apart the second you think about where 99 percent of the electronics (especially our phones) are built. I feel like if the Chinese wanted our data, they’ve already got it.
2nd Gear: Ford’s Q3 Net Income Tumbles 26 Percent
Ford said its third-quarter net income fell 26 percent, blaming a previously announced charge for delaying some of its electric vehicle plans. Because of this, Ford lowered its full-year earnings projection by billions, pointing the finger at concerns over cost.
Ford expects its full-year adjusted earnings before taxes and interest to be “around $10 billion,” according to CFO John Lawler. Previously, he said it could have been as high as $12 billion. He added that Ford has cut $2 billion in costs this year, but those reductions are being offset by inflation and high warranty expenses.
The automaker said its EBIT actually rose 16 percent in Q3 to $2.6. billion. Revenue also increased 5 percent to $46 billion. Lawler said was the automaker’s 10th consecutive quarter of year-over-year revenue growth. From Automotive News:
“It’s a good proof point of our product strategy and our overall Ford+ strategy,” Lawler said on a call with reporters Oct. 28. “We grew the top line, we grew the bottom line, our balance sheet’s in great shape, so it was a solid quarter.”
[…]
“We’ve got a great strategy, but cost is holding us back,” Lawler said. “It’s an opportunity for us to really unlock the full potential of Ford, and that’s why we’re focused on improving costs not only this focus but every quarter.”
Lawler, without specifying an exact dollar amount, said Ford’s warranty costs were slightly lower than at the same point a year earlier. That follows an $800 million year-over-year increase in the second quarter.
The automaker has changed its executive bonus structure to more closely tie financial rewards to cost and quality metrics. Ford says it’s starting to see signs of progress, especially on launches and vehicles in the first three months of service.
“Clearly our strategic advantages are not falling to the bottom line the way they should,” CEO Jim Farley said on a call with analysts. “Cost, especially warranty, has held back our earnings power. But as we bend that curve, there is significant financial upside for investors.”
Profits increased 9.7 percent to $1.8 billion for the Ford Pro commercial vehicle unit but declined 5.3 percent to $1.6 billion for the Ford Blue combustion vehicle business. The company’s EV unit, Model e, lost $1.2 billion, a 7.9 percent improvement from a year earlier.
Lawler said Ford dealt with some supplier-related headwinds in the quarter related to hurricane damage in the Southeastern U.S. that affected Ford Pro and Ford Blue.
Ford Credit earnings rose 52 percent to $544 million.
[…]
Ford’s adjusted free cash flow in the quarter rose $2 billion to $3.2 billion. The automaker retained its full-year guidance for adjusted free cash flow of $7.5 billion to $8.5 billion.
It sounds like if Ford really wants to get the ball rolling on income, it needs to figure out how to get its EV plans going AND how to stop spending so much on warranty work. It’s hard to make money if you’ve got to spend a ton just to keep your new cars on the road.
3rd Gear: UAW To Vote On Strike At GM Truck Plant
A local United Auto Workers union shop representing workers at General Motors’ Fort Wayne Assembly truck plant in Indiana is set to hold a strike authorization vote at some point this week. Leaders say the automaker is violating the national contract it signed by having managers work on the assembly line, including performing repairs and inspections. Not good. From the Detroit News:
The Detroit automaker cut overtime at the plant building profit-rich Chevrolet Silverado and GMC Sierra pickups a few months ago and last month laid off part-time temporary workers after the union and company failed to come up with an agreement to extend their employment, Local 2209 President Rich LeTourneau said. Those events have resulted in managers stepping in to do work reserved for UAW-represented employees, he said. The local on Wednesday is holding a strike authorization among its roughly 3,800 members at the plant.
“They are not to touch our trucks,” LeTourneau told The Detroit News. “They have continued to cut jobs, and we know some of the work is going to be taken over by artificial intelligence. That is the polar opposite of artificial intelligence. Until that day comes, they need to worry about doing their own jobs, not ours
“As long as they keep getting away with it, our jobs are never going to come back.”
Paragraph 215 of the national contract states, according to an excerpt provided to The News: “Supervisory employees shall not be permitted to perform work on any hourly-rated job” except in emergencies to avoid interruption and in the instruction or training of employees.
At least five or six managers work on the line a day, LeTourneau said. In an update on Monday, he said he was challenging GM to allow UAW members to stop the lines at each plant whenever management touches the vehicles. The vote on Wednesday gives the union permission to call a strike but doesn’t guarantee one will happen.
“The restricted output of these products will be mind-boggling for GM,” he wrote, “but will soon understand exactly what I’m talking about, and it won’t take but a couple weeks.”On Monday, LeTourneau met with Doneen McDowell, GM’s manufacturing executive director of truck and large SUV assembly and components operations.
The vote is currently set to run Wednesday, October 30 from 5 a.m. through 5 p.m. A spokesperson for GM told the paper that it is abiding by its national and local agreements, and there’s no legal basis for a strike at the plant.
4th Gear: Chinese EVs Look To Strong End Of Year
It’s shaping up to be a banner end of 2024 for China’s electric vehicle makers. They’re currently on track to hit some really ambitious sales targets thanks to an intense price war that severely damaged foreign legacy automakers in the world’s biggest car market. From Bloomberg:
The picture for major Chinese EV players at the end of the third quarter is improved compared to the same time last year, with robust deliveries pointing to less need for further discounting. Analysts also are forecasting a sales bonanza in the final three months of this year.
EV and hybrid vehicle sales more broadly are surging — along with the companies’ stock prices — fueled by expanded national and local subsidies to encourage consumers to trade in older cars. The policy contributed to Tesla Inc.’s best quarter yet for Chinese shipments, while EVs and hybrids reached around 53% of total new monthly car sales in September.
Chinese EV sales are set for an even bigger lift on a reported directive earlier this week instructing central government agencies to increase purchases of so-called new energy vehicles.
“Industry demand has been better than expected since the third quarter following China’s beefed-up subsidies but many automakers still need a major push in the fourth quarter to hit their annual sales targets,” Bloomberg Intelligence analyst Joanna Chen said. “The first nine months usually contribute 70% of annual car sales and automakers below that threshold are under greater pressure to step up discounts in the quarter.”
The likes of Zhejiang Leapmotor Technology Co., Nio Inc. and Zeekr Intelligent Technology Holding Ltd. are enjoying banner years off the back of transformational deals, going public or adding brands.
Top-sellers BYD Co. and Geely Automotive Holdings Ltd. are also on track to meet their increased targets. The pair are targeting 4 million and 2 million in annual sales, respectively. BYD’s pricing moves earlier this year rocked the market into months of discounting.
“I do not see a need to launch another price war,” Yale Zhang, managing director at Shanghai-based consultancy AutoForesight said. “Most of them are in pretty good shape. The majority of these NEV or carmakers will reach their volumes.”
It’s still possible that non-Chinese automakers could keep steep discounts in order to maintain some level of sales in China. One of those automakers that plans to stick around is Tesla.
The Elon Musk-led company will have to deliver a record number of EVs globally in the quarter — at least 515,000 — to make good on its guidance for “slight growth” in annual sales. This will likely require Tesla to rely heavily on China, a market large enough to pick up any slack in other parts of the world.
This means Tesla and other EV brands could still cut prices again during the industry’s peak sales season, Citibank’s Jeff Chung wrote in a note earlier this month.
I know there are some risks involved, but I really feel the U.S. EV market could benefit from some competition from China. A lot of the stuff they make is just so good.
