Telsa Set to Lose Major Revenue Source that's Been Key to Profits

2021 AutoTeam America BUY/SELL SUMMIT & FORUM

The AutoTeam America Buy/Sell Summit & Forum is usually held in conjunction with the annual NADA Convention, this year it was held virtually over four weeks. The topics each week were:

• Buy/Sell Update and Industry Trends

• Economic Outlook for the Automotive Retail Industry

• Dealership Merger & Acquisition and SPACs

• New Strategies in Automotive Retailing

One of the discussions that caught my attention was the impact of developing trends on the dealership building of the future. Some of points discussed included:

• The Amazon impact, buying from home at any time of day or night

• The business models of Tesla and Carvanna, bringing the product to the customer. One participant commented that 50% of his 2020 sales were to customers who did not visit the dealership. In addition, the same Dealer revealed he had registered vehicles in all 48 lower states.

• Older dealerships will face a challenge to have sufficient electrical power to conduct business. The building not having the wired capacity for multiple chargers, or super chargers. Building not having the level of capacity needed due to local infrastructure limitations.

• In the longer term service work will increase, due to the increased weight of the vehicles and the impact on tires, brakes and other parts and systems.

• The higher weights of Electric vehicles may strain elevated parking areas or service hosts

• More money should be spent on service areas and less on showrooms

For more information on this and other Forum & Summit topics contact Crowe MacKay’s Lead Automotive Partner, Conven Tang ([email protected]). A recording of each event is also available at autoteamamerica.com.

TESLA SET TO LOSE MAJOR REVENUE SOURCE THAT'S BEEN KEY TO PROFITS

Sales of green credits and bitcoin earned Tesla more money than the sales of cars, now, Tesla is about to lose a major part of its green credit sales. For the first quarter of 2021, Tesla posted a pre-tax income of $533 million. Of which, $518 million came from the sale of green emissions credits to other manufacturers. Needless to say, this rather unpublicized side of Tesla's business is instrumental to its survival as a company.

But now, Tesla is about to lose a significant part of its regulatory credit revenue. Stellantis NV, formerly FCA, announced earlier today that it would be exiting an emissions-credit agreement with Tesla. In doing so, Stallantis will save roughly $360 million. $240 million of which will have gone to Tesla, Stellantis Chief Financial Officer Richard Palmer said. "Stellantis will be in a position to achieve CO2 targets in Europe for 2021 without open passenger-car pooling arrangements with other automakers," the company said in a written statement.

I have long maintained that Tesla's business model is not as it appears on the surface. Simply building and selling the Model S, X, 3, and Y has proven to be an unsustainable business model. As such, Tesla has been steadily increasing its sales of green credits to other manufacturers, credits which will eventually run out. Regardless of whether or not automakers begin pulling out of their agreements with Tesla.

Source: Drivetribe

CHIP SHORTAGE HAVING BIG IMPACTS

Global Chip Drought Hits Apple, BMW, Ford as Crisis Worsens

The global chip shortage is going from bad to worse with automakers on three continents joining tech giants Apple Inc. and Samsung Electronics Co. in flagging production cuts and lost revenue from the crisis. In a dizzying 12-hour stretch, Honda Motor Co. said it will halt production at three plants in Japan for around five to six days next month; BMW AG flagged it will pause production at its plants in Germany and England; and Ford Motor Co. reduced its full-year earnings forecast due to the debilitating chip shortage, which it sees extending into next year. Automakers are expected to lose tens of billions in revenue this year because of the crisis.

Source: Bloomberg

BMW Finally Buckles Under the Strain of Global Chip Shortage

BMW AG is giving way to the global shortage of semiconductors after months of managing to maintain output in the latest indication the auto industry’s supply-chain woes are only getting worse. The automaker will pause Mini car production at its Oxford, England, factory for three days starting April 30, according to a spokeswoman. It’s also reducing shifts at its plant in Regensburg, Germany, this week. BMW was one of the last remaining major automakers unscathed by a shortage of chips expected to cost the industry tens of billions of revenue this year.

Source: Bloomberg

Hyundai’s Record April Aided by Chip Strategy, COO Munoz Says

Hyundai Motor Co. and Toyota Motor Co. kept ordering semiconductors last year even after the pandemic crushed auto sales. Both were rewarded with record April deliveries. South Korea’s Hyundai sold 77,523 units last month, up 128% from a year ago. The Japanese auto giant’s U.S. sales grew 183% to 239,311 vehicles, including the Toyota and Lexus brands.

Source: Bloomberg

STELLANTIS MOBILITY SERVICE PLANS EXPANSION

Free2Move, Stellantis NV's mobility services brand, said Thursday it will expand its Car on Demand subscription service to the United States, starting with six states this year. Amid the COVID-19 pandemic, people have sought out more isolated forms of transportation instead of mass transit. Car on Demand will offer consumers a month-to-month rental option for a variety of vehicle options. It's pricier than a typical lease but includes insurance and maintenance.

Source: The Detroit News

A BIT OF HISTORY (May 3)

103 years ago today, General Motors acquired Chevrolet in a reverse-merger that began the process of GM’s becoming the world’s largest automaker. It’s one hell of a weird story, so if you haven’t heard it before, buckle up. Chevrolet was founded in 1911 by Louis Chevrolet, Arthur Chevrolet, and William Durant. Durant had also founded General Motors alongside Charles Stewart Mott back in 1908—which meant these two companies were strangely intermingled from the very start.

Source: Jalopnik

BMW AND FORD INVEST IN SOLID-STATE BATTERY STARTUP FOR FUTURE EVS

The two automakers will use startup Solid Power's battery technology in upcoming electric vehicles that will arrive by 2030.

Ford and BMW are investing $130 million in solid-state battery startup Solid Power in a push to reduce the cost and increase the range of their future electric vehicles. Ford initially contributed to an earlier investment round in 2019, and both automakers have joint agreements to use the technology in upcoming electric vehicles that will arrive by 2030.

Solid-state batteries, which are not yet being used in mass-market cars, promise to offer greater energy density compared to the lithium-ion batteries typically used in today’s electric vehicles. Solid Power uses sulfide-based cells and promises that its solid electrolyte is not flammable, and it says they deliver more than 50 percent more energy density. The startup produces them using a manufacturing infrastructure similar to that used for lithium-ion battery production.

A BloombergNEF (New Energy Finance) report from December 2020 said that the production costs of manufacturing solid-state batteries could be 40 percent that of current lithium-ion batteries when they reach full-scale production. However, Ford's chief product platform and operations officer told CNBC that its investment in solid-state batteries is currently "significantly smaller" than for lithium-ion.

Solid Power will begin production of the automotive batteries early next year, according to Doug Campbell, CEO and co-founder of Solid Power. They'll be used for the testing and development of upcoming Ford and BMW vehicles starting then, too. Ford announced last week that it's opening a $185 million lab called "Ford Ion Park" next year to develop new processes for producing these solid-state battery packs in house.

Ford just launched the Mustang Mach-E electric crossover, of which it has sold 6614 so far this year, and the electric F-150 Lightning will arrive next year. BMW currently has the electric i3 on sale in the U.S. and the i4 sedan and iX crossover will arrive soon. It says that its new generation of electric vehicles will launch in the middle of the decade. A prototype car with the technology will be on the road by 2025, BMW says.

Source: Car and Driver

‘PEOPLE STILL WANT TO GO TO THE CAR DEALERSHIP’

Many car dealers now regularly home deliver newly purchased vehicles to customers who ask for that service, but is a higher next-level on the digital horizon? The issue comes up at a Reuters’ online event at which moderator Tanya Gazdik of MediaPost asks: “Will automakers be like Amazon Prime, where you order a car and it shows up in your driveway a day or two later?” Online retail giant Amazon is an example of a company that offers great customer experiences, says panelist Laura Rathai, a Hyundai marketing director. But she adds that most consumers aren’t interested in completely bypassing the dealership experience.

Source: WardsAuto

AUTO MAKERS RETREAT FROM 50 YEARS OF ‘JUST IN TIME’ MANUFACTURING

Toyota Motor Corp. is stockpiling up to four months of some parts. Volkswagen AG is building six factories so it can get its own batteries. And, in shades of Henry Ford, Tesla Inc. is trying to lock up access to raw materials. The hyper efficient auto supply chain symbolized by the words “just in time” is undergoing its biggest transformation in more than half a century, accelerated by the troubles car makers have suffered during the pandemic. After sudden swings in demand, freak weather and a series of accidents, they are reassessing their basic assumption that they could always get the parts they needed when they needed them.

Source: The Wall Street Journal

CHIP SHORTAGE FORCES CARMAKERS TO LEAVE OUT SOME HIGH-END FEATURES

When automakers were first hit with chip shortages at the end of last year, they tried idling factories until the troubles blew over. But with the crisis stretching into its fifth month and getting worse, they’re getting creative to keep at least some production moving forward. Nissan is leaving navigation systems out of thousands of vehicles that typically would have them because of the shortages. Ram no longer offers its 1500 pickups with a standard “intelligent” rearview mirror that monitors for blind spots.

Source: Bloomberg

ASTON MARTIN POSTS SMALLER LOSS AS SALES MORE THAN DOUBLE

Carmaker Aston Martin posted a smaller first quarter loss in 2021 of 42.2 million pounds ($59 million) and said it continued to take steps towards profitability, as its sales to dealers more than doubled. That compared with the 110.1 million pound loss the luxury brand posted in the same period last year, when it brought in fresh investment from billionaire Executive Chairman Lawrence Stroll to shore up its finances.

Source: Reuters

GM TOPS PROFIT ESTIMATES, KEEPS 2021 FORECAST DESPITE CHIP WOES

General Motors Co. reported stronger-than-expected profit growth in the first quarter on robust vehicle demand in the U.S. and China even as a shortage of semiconductors curtailed production. The Detroit-based automaker posted adjusted profit of $2.25 a share Wednesday, beating a consensus estimate of $1.08. GM attributed the healthy performance to booming sales of full-size and higher-margin sport utility vehicles and pickup trucks. GM left its full-year earnings forecast unchanged despite the chip-procurement issues bedeviling the industry. It now expects earnings to be “at the higher end” of its earlier projection adjusted Ebit of $10 billion to $11 billion, or $4.50 to $5.25 per share.

Source: Bloomberg

It should be noted that Stellantis and Volkswagen have also posted similar results. Higher margins and even with continued exposure to chip shortages. The second quarter of 2021 will be interesting.