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By Joseph White, Global Automotive Correspondent

Greetings from the Motor City!

There’s a joke that half the money spent on advertising is wasted – but no one knows which half. That line could now apply to electric vehicles.

Two years ago, Reuters reckoned that automakers were gearing up to spend $1.2 trillion by 2030 going all-in on electric vehicles. Catching up with Tesla was the prime directive in every automaker’s executive suite. Investments in combustion engines and hybrids were shoved to the side – with notable exceptions such as Toyota.

Today’s outlook is very different. Electric vehicle sales are growing in the United States, Europe and China, but not as fast as sales of various types of gas-electric hybrids.

“Where are the impairment charges” for unneeded EV factories? Morgan Stanley’s auto analysts asked in a note this week.

Big auto suppliers reporting Q1 results this week highlighted course corrections forced by slower-than-expected EV sales and unanticipated durability in demand for combustion and hybrid vehicles.

Even Tesla is jamming the brakes on spending as EV profits get squeezed.  As investors learn more about Elon Musk’s  “hardcore” re-set of Tesla’s priorities, some are concluding that he’s not kidding when he says it is time to stop thinking of Tesla as an electric car company.

We’ll look at all that and more. Happy Friday! And a festive Cinco de Mayo in advance. Let’s dive in…

Today –

• • Tesla’s Big Pivot

  • The hybrid surge rocks auto suppliers

  • Carvana beats the reaper

Maybe this is not Tesla’s future after all. Reuters/Lisi Niesner

Is Elon Musk steering Tesla away from the EV business it has dominated for more than a decade? It is starting to look that way to some analysts and investors.

Consider page 13 of Tesla’s Q1 earnings report: It is a graphic  showing EVs as just one product – not even the top product – of “The Tesla Ecosystem.” The headline adds: “More than just vehicles.” The product at the top of the page is the Optimus humanoid robot, hovering over a picture of a computer chip labeled “AI Compute.” Images of an EV and a Supercharger are consigned to the third row on the page.

Musk has said many times that Optimus and AI are the future of Tesla. He is now putting aggressive action behind those words.

Earlier this week, Musk abruptly dismissed the leader of Tesla’s EV charging business and 500 of its employees – jarring customers and rival automakers who are gearing up to equip new EVs to plug into the Tesla Supercharger network. Musk said on X.com that the Supercharger network will grow more slowly and consume less capital.

Reuters reported that Tesla is pulling back on ambitious investments in giga-casting, the process it pioneered to create large chunks of a car in one, complex casted piece.

Musk had already signaled a pause on new factory construction in India and Mexico, and a re-think of the strategy to develop a lower-priced Tesla model. Instead of an all-new architecture with an all-new assembly process, Tesla will adapt existing vehicles and factories.

Musk’s top priority for Tesla – dramatized by his surprise visit to China last weekend – is expanding the market for its “Full Self Driving” software. Spending on the physical Tesla cars is getting squeezed – to the delight of rivals who have fresher-looking EVs and hybrids to sell.

To appreciate the significance of Tesla’s new direction, carve out time to watch the presentations by 16 Tesla executives during the March 2023 investor day. Nearly a third of those executives are gone and many of the projects they touted are now delayed.

Tesla is not alone in slashing costs as EV sales slow and prices fall. The company was always bound to lose market share as more competitive EVs entered the field.

But as Chinese EV companies put more of their low-cost vehicles on ships for Europe, Asia and Latin America the EV business is starting to look less like a premium market driven by technology and brand image, and more of a low-margin war of attrition.

Among the “Magnificent Seven” technology companies Tesla considers peers, artificial intelligence is the new black. Musk wants Tesla to be a leading AI player – so long as shareholders give him 25% voting control of Tesla’s stock.

But in the AI arena, Tesla’s competition is not just the Motor City Three or a gaggle of Chinese EV companies. It’s Microsoft, Alphabet (Google) and Facebook (Meta) – which are spending more on AI-related capital investments in a single quarter than Tesla plans to spend on all its operations this year.

Combustion engines – They’re not dead yet! Reuters/Rebecca Cook

Not so long ago, big automotive hardware suppliers were scrambling to reshape their businesses for the “CASE” future: Connected Autonomous Shared Electric.

Someday that future will arrive, but not today.

Case in point, the contrasting Q1 results this week of Aptiv, a leading supplier of hardware and software for electrification and automated driving – Tesla is a prime customer, and BorgWarner, which sells a wide range of products for combustion and hybrid vehicles as well as EVs.

Aptiv on Thursday backed further away from autonomous vehicles, saying it will cut to 15% its share of the Motional self-driving car venture with Hyundai.

Aptiv also cut its annual sales forecast, blaming a slower-than-expected pace of electrification. The company said it will slice $50 million out of budgets to offset the impact of slower EV production.

But the company’s shares rose 12% as it doubled the budget for share buybacks.

On the same day, BorgWarner raised its full year profit outlook, crediting sustained demand for exhaust systems, turbo hardware and emission control gear for combustion vehicles. A large share of BorgWarner’s combustion tech business, the former Delphi Technolgies, used to be owned by what is now Aptiv.

BorgWarner CEO Frederic Lissalde told analysts he sees sales of hybrids growing faster than EVs in China and Europe. “In North America, it’s too early to say,” he said. But strong U.S. sales of hybrids at Ford and Toyota last month suggest the hybrid bump is coming to America.

On Friday, Canadian auto supplier Magna reported worse than expected results – including a $316 million writedown of investments made to manufacture vehicles for Fisker, the EV startup that now skidding toward bankruptcy.

Magna executives said they are “assessing the impacts” of “evolving OEM electrification strategies.”  

Carvana CEO Ernest Garcia III – Reuters/ Brendan McDermid

Carvana shares soared Thursday after the company reported better than expected Q1 profit, solidly expanding unit sales and revenue and an upbeat outlook – all in contrast to the glum results from CarMax and some other auto retailers.

Carvana has taken a wild ride over the past two years. Its innovative combination of online selling and “touch free” home delivery was a pandemic-era home run. Then the company flipped over its skis with ill-timed acquisitions and investments in growth that jacked up costs just as used car prices fell.

The latest results show that CEO Ernie Garcia III’s turnaround effort is working – adding $11 billion to the value of shares he and his father own since late 2022, according to Bloomberg. Carvana shares have risen from a 52-week low of $6.92 last May to $116.50 at Thursday’s close.

A financially stable Carvana could turn up the pressure on more traditional used and new auto dealers to up their online sales and delivery game.

Ford CEO Jim Farley’s decision to double down on hybrids and delay new EV investments got validation from the automaker’s April U.S. sales.

Sales of Ford hybrids, including gas-electric versions of the redesigned F-150 pickup and Maverick small truck, jumped 60% in April from a year ago. F-150 hybrid sales nearly doubled – and accounted for 22% of total F-150 sales. Ford’s target for hybrid F-150s was 20%.

More good news for Ford: Buyers of the 2024 F-150 hybrids are “overwhelmingly” choosing to upgrade to the extra-cost, optional 7.2 kW Pro Power Onboard system that can provide backup power when the grid goes down, Ford said.

U.S. automakers got a break on Friday from the Biden Administration. New rules give automakers more time to reduce the use of Chinese-produced minerals such as graphite, allowing more EVs to qualify for federal Inflation Reduction Act tax subsidies. IRA architect U.S. Sen. Joe Manchin blasted the White House decision.

Rivian shares popped on Thursday after the State of Illinois said it would give the EV startup a package of incentives worth $827 million to subsidize expansion of its assembly plant in Normal, Ill. to produce R2 mid-size electric SUVs.

Aston-Martin reported wider losses as it gears up to launch new models. The storied British premium brand promised cash flow would turn positive in the second half of 2024 and 2025, but Aston shares slumped to their lowest level since November 2022. “Tomorrow” is a fun show tune, but it plays poorly with investors who’ve been waiting years for Aston’s restructuring efforts to turn the corner.

U.S. auto sales declined 3.9% in April, the first year-over-year monthly decline in 20 months, according to new figures from GlobalData. Worldwide sales of light vehicles are on track to rise in 2024 by 3% to 89.2 million vehicles as production recovers from supply chain bottlenecks.

Ferrari revealed two new models powered by V12 engines. And there was much rejoicing among the Ferrari faithful.

Chinese EVs lost ground in France after the French government made them  ineligible for EV tax breaks.

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