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.) It’s what lies ahead that matters.
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 slowdown in China) are cooling off demand.
The UAW strike threat. Granted, worries that the United Auto Workers will 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.
Elon Musk. Tesla has the ways and means to keep cutting prices and taking market share from legacy automakers – hurting 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.
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.
