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By Joseph White, Global Automotive Correspondent

Greetings from the Motor City!

Remember how some auto industry observers (like this newsletter) said the worst is over for the supply chain snafus that bedeviled automakers in 2022?

Nevermind. Supply chain pain is back! And Tesla is among the companies hurting the most as we’ll see below.

It’s also been a tough week for electric vehicles, thanks to Hertz. Plus, Lucid and Polestar fell short of their delivery goals.

But Detroit has something to look forward to: The Detroit Auto Show is moving back to January after a disappointing pandemic-era effort to make the show a fall event.

Once again, Motor Citizens will liven up the dark days after Christmas by skipping through the sleet and snow to promenade among shiny new cars and trucks at our municipal convention barn.

Keep your silly AI gadgets, CES! We’re having an old fashioned party in Motown!

Have a good weekend! Here we go –

Today –

• • Red Sea attacks shut down Tesla Berlin

  • Hertz dumps EVs

  • CES: The AI Horsepower race is on

A car carrier seized by Houthi fighters in the Red Sea. 

Tesla will halt production at its Berlin assembly plant for two weeks because its supply chain has been disrupted by attacks on shipping in the Red Sea, Reuters reported late Thursday.

Tesla shares fell in early trading Friday.

On Friday, Volvo said it would idle production at a factory in Belgium, and blamed Red Sea shipping delays.

So far, Volkswagen, Toyota and other automakers have not disclosed production cuts related to the Red Sea troubles. But companies are reopening those pandemic supply chain war rooms. Even if production lines keep moving, ocean shipping rates are spiking.

The risks for EV manufacturers are high. About two-thirds of EV batteries and battery components sent to Europe from Asia travel by sea, according to S&P Global. Many of the brake components, axles and windshields used in European-made vehicles also come from Asia on boats that normally journey through the Red Sea and the Suez Canal.

Now, shipping lines are re-routing some cargo carriers around Africa’s Cape of Good Hope.

During the pandemic and the ensuing semiconductor shortages, supply chain crisis management became a competitive arena for automakers, with some managing better than others.

The Red Sea disruption will be another test of how well companies have learned their lessons about hardening supply chains against black swan events.

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Maybe you could buy this one. REUTERS/Brendan McDermid 

Hertz will dump 20,000 electric vehicles, many of them Teslas, from its fleet and buy more gasoline cars instead, slamming the brakes on an electrification strategy that has proven more costly than management expected.

Hertz shares slumped on the news. The retreat will cost the company $245 million in writeoffs. Hertz said it expects to save a like amount over the next two years by avoiding high repair costs and rapid price depreciation it has experienced with EVs.

Most of the repair cost and depreciation problems related to Tesla models, which were 80% of Hertz’s EV fleet, company executives said during an October teleconference.

Hertz’s move promises to increase pressure on both new and used electric vehicle markets in the United States.

Used EV prices in the U.S. market were already dropping faster than overall used vehicle prices during 2023, according to data from used EV market tracker Recurrent and Cox Automotive. Price cutting by Tesla and other manufacturers has hammered EV resale values – and hurt Hertz’s bottom line.

Hertz said in an SEC filing that reducing its EV fleet by a third will “position the Company to eliminate a disproportionate number of lower margin rentals and reduce damage expense associated with EVs.”

That sort of talk won’t help new vehicle manufacturers convince consumers that EVs can be cheaper to own and operate than a petrol-fueled model.

“Seeing the problems the company is having related to collision, repair, other opex (operating expenses) and residual values is a warning across the EV space,” Morgan Stanley analysts told clients.

In 2022, Hertz announced plans to buy 100,000 Teslas and 65,000 electric vehicles from Geely-Volvo EV brand Polestar. The company touted EV rentals in ads starring U.S. football legend Tom Brady. Now, Tesla, Polestar and other EV marketers won’t be able to count on Hertz to buy in bulk to offset ups and downs in consumer demand.

Other rental car companies are retreating from electric vehicles.

Sixt, a European rental car company, stopped ordering Teslas in 2022 and said in December it would be phasing them out. Sixt says it still plans to electrify 70%-90% of its European fleet by 2030. “Electrify” is industry code for a mix of fully electric and gas-electric hybrid vehicles.

Guess how many FLOPS are under the hood. REUTERS/Steve Marcus

This week’s CES technology show in Las Vegas put a spotlight on one of the biggest challenges facing established automakers: Catching up to advances in artificial intelligence and advanced software.

The CES announcements about applications of ChatGPT in vehicle voice command systems may seem gimmicky. But grappling with emerging AI adds to the burdens on the 20th Century auto giants of Detroit, Europe, Japan, and South Korea.

They are still trying to catch up with the infinitely upgradeable infotainment and energy management software architectures developed by Tesla, Rivian, and the crop of new Chinese EV companies.

ChatGPT illustrates why it’s hard for legacy automakers to become software-first enterprises. The buzzy artificial intelligence system is a work in progress. 

Until Tesla started doing it, automakers usually did not test unfinished technology on consumers. Conditioned by years of dealing with safety regulators, warranty claims and unforgiving customers, automotive engineers are risk averse.

The worst-case scenario for a buggy phone app is that the customer deletes it. The worst-case scenario for software that distracts a driver or contributes to an accident is… very bad.

But industry executives agree that to avoid losing more market share, legacy automakers must narrow the gap between their traditional multi-year product cycles and tech industry cycles measured in months.

Even Mercedes is considering “beta” testing new software, the head of its software operations told Reuters. A sign of the times.

A senior Toyota executive said that in a couple of years, the Japanese automaker will begin offering solid-state batteries that could deliver 750-miles of driving range and recharge in just 10 minutes.

That would be a gamechanger. But it remains to be seen how rapidly Toyota and others pursuing solid-state EV batteries can scale up mass production.

Lucid and Polestar disappointed investors with underwhelming fourth quarter delivery numbers that showed an EV market that is not growing fast enough for all players to thrive.

The battle between Tesla and BYD for EV sales leadership is forcing smaller rivals to choose between slashing prices or accepting lower sales volumes.

Despite discounts of as much as $10,000 per vehicle, luxury EV maker Lucid’s Q4 deliveries were down 10% from a year earlier and shares of the Saudi-backed EV maker skidded to a new low.

Lucid’s stock price was headed down again Friday after the company announced a recall.

Tesla has attacked Lucid’s Air sedans with repeated price cuts for its competing Model S. Lucid’s production and delivery numbers suggest that Tesla’s strategy is working. Lucid produced 8,428 vehicles in 2023 – within a previously reduced target range – and delivered 6,001. The difference – 2,427 vehicles – is greater than the 1,734 vehicles Lucid delivered in Q4 alone.

Lucid’s Q4 results call is scheduled for Feb. 21, here.

Polestar CEO Thomas Ingenlath has said he prefers profit over volume. In the event, Polestar’s full year deliveries of 54,600 vehicles fell short of a 60,000-vehicle target that was a climbdown from more ambitious goals earlier in 2023.

Polestar announced it has appointed a new sales chief and a new CFO on the same day it announced the delivery miss.

German luxury brands keep on trucking. BMW delivered more vehicles than its German nemesis Mercedes-Benz in 2023, but Mercedes appears to have defended higher profit margins. Volkswagen’s Audi brand boosted worldwide deliveries by 17%, but still trails BMW and Mercedes overall, and in sales of EVs.

Tesla still looms over the German brands. The electric vehicle company had the lead in the U.S. luxury vehicle segment last year with a 25% share, according to Automotive News.

Tesla will raise pay for U.S. factory workers as the United Auto Workers steps up its campaign to organize them, Bloomberg reported. Other non-union U.S. automakers have also increased wages since October to counter the UAW’s organizing drive, a phenomenon UAW President Shawn Fain calls the “UAW Bump.”

European Union investigators are heading to China to probe whether several Chinese EV makers, including BYD, are achieving their cost advantages with improper government help. The EU has threatened new tariffs on Chinese EVs. China has in turn threatened to impose levies on French brandy.

SK On will launch a lithium-iron phosphate battery by 2026 to challenge lower-cost LFP batteries made by China’s CATL. Western automakers need LFP batteries to cut costs, and those selling in the United States need them to come from someplace besides China to meet domestic content requirements for subsidies.

The redesigned Tesla Model 3 is now available in the United States, with a redesigned interior, longer driving range and an unchanged price. The refreshed Model 3, code-named Highland, is already on sale in China and Europe.

Lidar startup Aeva said it landed a $1 billion deal to supply sensors to Daimler Trucks for automating semis.

Honda unveiled futuristic concepts at CES for a new line of electric vehicles called the “Honda 0 series.”

Stellantis invested in Tiamat, a European sodium-ion EV battery startup. Sodium-ion chemistry is the latest hope in the auto industry’s quest for lower-cost batteries with less Chinese content. Stellantis put in an undisclosed share of Tiamat’s 150 million euro funding round that the startup will use to build a factory.

Vinfast said it will float more shares, and unveiled a design for an electric pickup truck that might attract investor interest in the Vietnamese EV startup’s capital raising efforts.

Kia turned heads at CES with designs for a fleet of modular electric delivery vehicles – and a short glimpse of a compact electric pickup truck design.

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