Winter isn’t coming to Detroit. It’s already here. Halloween trick or treaters were dodging snowflakes last night. Snow tires go on the Jeep Friday – not a moment too soon.
The World of Cars is entering a new season as well.
In Detroit, the crisis created by the United Auto Workers strikes is easing. General Motors, Ford and Stellantis all have tentative contract deals. Those must get ratified, but investors have shifted to worrying about the long-term health of Ford and GM as labor costs rise.
In Europe, luxury auto brands are bracing for slower demand as higher interest rates chill even wealthy shoppers.
But it’s an ill wind that blows no good. Executives at Toyota are celebrating a blowout quarter thanks to stronger sales and a weaker yen. Chairman Akio Toyoda delivered an “I told you so” speech at last week’s Tokyo auto show to investors who questioned his go-slow strategy on EVs.
Meanwhile, Elon Musk got a big win. We’ve got that and more.
Toyota delivered stunning financial results for the July to September quarter, blowing past investor expectations with an operating profit equivalent to $9.5 billion – more than General Motors earned in the past nine months.
The world’s No. 1 automaker by sales – though no longer by market value – appears to be back in black. That is bad news for Volkswagen and for the Detroit Three automakers, whose U.S. production cost disadvantage against Toyota is about to get even wider thanks to richer union contracts and the tumbling value of the Japanese currency – which makes dollar profits bigger when Toyota puts them in the bank back home.
One example of the threat a resurgent Toyota poses to the Detroit Three: Toyota’s announcement that it will invest $8 billion more to expand an EV/hybrid battery plant in North Carolina. This as GM and Ford are hitting the brakes on EV investments in response to slower sales and accelerating losses.
Just a year ago, Toyota and then-CEO Akio Toyoda were under fire for refusing to follow Tesla and legacy rivals such as Volkswagen and GM by going all in on EVs.
Inside the company, executives realized they had fallen behind Tesla’s advances in manufacturing technology – an alarming wake-up call for the automaker that invented modern “lean production” systems.
Toyota will have to offer more EVs to comply with climate regulations, and the results of its electrification strategy reboot won’t be clear for several years. Tesla and BYD remain formidable competitors. Volkswagen, Stellantis, GM and Ford could recover their footing – as they have in the past.
The blowout results of Nov. 1 could be the start of a long-term Toyota resurgence. They could also turn out to be a high-water mark.
A Tesla Model 3 driving on Autopilot. REUTERS/Mike Blake
Tesla’s Autopilot is a winner
A California jury rejected claims that defects in Tesla’s Autopilot assisted driving caused a gruesome, fatal accident. The verdict was a significant win for the company in the first Autopilot liability case to go to trial.
However, the California jury’s conclusion “shows Tesla’s arguments are gaining traction: when something goes wrong on the road, the ultimate responsibility rests with drivers,” Reuters colleagues Dan Levine and Hyunjoo Jin reported.
The verdict gives comfort to Mercedes,GM and other rival automakers and suppliers that are counting on assisted driving systems similar in function to Autopilot to power a new source of profits. Critics say partially automated driving systems are dangerous because they lure motorists to let attention wander.
Tesla has now scored a victory for the legal disclaimers warning that motorists remain responsible for operating their vehicle – the ones people click through on their screens, most often without a second thought.
Everything in this picture could cost more. REUTERS/Seth Herald
How Detroit could fund higher wages
GM and Ford have not offered specifics on how they will cut costs to offset the record wins for the UAW. That has investors worried. But the companies have options. Among them:
Raise prices by curtailing customer discount deals. GM CFO Paul Jacobson said last week the company is saving $1,500 a vehicle compared to 2021 because it has dialed back discount deals – “incentives” in industry speak. That’s more than the $850- to $900 per-vehicle cost for the UAW contract as estimated by Ford and outside analysts.
Cut slow-selling models and optional features that create complexity without adding value. Both GM and Ford are trying to simplify their product lines by cutting the number of buildable combinations of vehicles. Ford aims to reduce the new F-150 from 1.4 billion possible variations to just 1,000.
Cut advertising budgets. GM said last week it has already cut $200 million from ad budgets.
Reduce cash flows to shareholders. This is the idea UAW President Shawn Fain has suggested – one Wall Street won’t like: Put the brakes on share buybacks and dividend hikes.
Shares in both companies have skidded to three-year lows on fears about future competitiveness. But today some analysts, including Tim Owen of Barclays, said Ford and GM are now bargain buys.
Stellantis wants out of the “Detroit Three”
Stellantis CFO Natalie Knight told investors Tuesday the automaker will take a hit from the United Auto Workers strikes of the past seven weeks, but the company still expects to hit its full-year margin and profit targets.
An 11% EBIT margin for the year is a conservative estimate, Knight said. She promised the company will take rapid steps to cut expenses and offset higher labor costs as the new UAW contract with its record wage hikes and new restrictions on plant closings kicks in.
The upbeat outlook is one more way for Stellantis to amplify the message that it is not one of the “Detroit Three.” It is a different animal.
Stellantis earns a greater share of its profits outside North America than GM or Ford. It has a higher margin portfolio – in part because it sells fewer EVs. Stellantis also has levers yet to pull to reduce costs as it consolidates former Peugeot, Chrysler and Fiat operations. Knight said the group could rack up 8 billion euros in cumulative savings from the Peugeot-Fiat Chrysler merger through 2023.
As a bonus, the new UAW deal could help Stellantis get tax-funded subsidies to re-tool an Illinois factory for a new, mid-size pickup truck to attack a segment Toyota, Ford and GM are mining for profits.
Renault CEO Luca de Meo is looking for a valuation of as much as 10 billion euros for Ampere. That’s proving a tough sell to investors watching Chinese EV brands flood Europe, while mainstream consumers balk at the prices legacy brands are charging to make their EVs profitable.
Hyundai reported flat U.S. sales for October, despite strong gains for its electric and hybrid models. Hyundai is one of the few major automakers in the U.S. market that still reports monthly sales.
Chinese EV maker Xpeng reported record October deliveries. The company’s shares popped. Xpeng will try to ignite a new round of growth with its XPENG G9 model, “a starship-inspired, large 7-seater MPV.”
Aston Martin disappointed investors by cutting its production target for the year and admitting it has had trouble launching its newest sports car, the DB12. Shares fell as much as 12% despite Aston management’s assurances that demand remains strong.
Ford EV customers will get access to 15,000 Tesla Superchargers – not just 12,000 as announced previously. Ford said it aims to increase the Blue Oval Charge Network available to its EV buyers by 25% to 106,000 total chargers.
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