General Motors reported a much stronger than expected fourth-quarter profit, lifting full-year results to record levels for the second straight year.
The largest US automaker also said Tuesday it is buying a $650 million equity stake in Lithium Americas, which will give it access to the raw material needed to build batteries to power 1 million electric vehicles a year in the first phase of production.
For the quarter, GM earned adjusted earnings of $3 billion, or $2.12 a share, up from $1.35 a share a year earlier and far better than forecasts of $1.69 a share from analysts surveyed by Refinitiv. That lifted full-year adjusted income to $11 billion, up from the $10.4 billion it earned in 2021, which had been its previous record.
The company said it expects strong earnings in 2023, though it expects it to slip a bit from the just posted levels, coming in at between $8.7 billion to $10.1 billion. But company CFO Paul Jacobson said its automotive business is expected to remain strong, with much of the decline likely to be at GM Financial. That’s due to the hit it will take from higher interest rates and the sinking value of used cars, as well as the higher interest rates resulting in an accounting hit to pension earnings.
“Actually that [guidance] is a strong statement about where we see things going, stronger than others” he told journalists on a call Tuesday.
Jacobson told journalists that GM does not expect to follow Tesla and Ford in cutting the prices for its electric vehicles.
“I don’t think there’s any surprise there’s increasing competition in the EV space,” he said. “Our customers are saying we’re priced well based on the demand that we’re seeing.”
The company’s investment in Lithium Americas is part of the company’s efforts to lock-up the supply of raw materials it will need to convert from traditional gasoline powered cars to electric vehicles. The Lithium Americas deal will not supply any lithium to the company until 2026, but Jacobson told media that “we’ve already achieved all the lithium we need through 2025.”
GM expects to build 70,000 EVs this year, a small fraction of its overall vehicle output. It sold 5.9 million vehicles in 2022, down about 6% from 2021 due to the shortage of parts needed to build all the vehicles for which there was demand.
“We continue to face some supply chain and logistics issues, but overall, things remain trending in the right direction,” said Jacobson.
But the company expects to be rapidly increasing its EV supply and offerings, with a new battery plant that opened last year, two more under construction and a fourth planned soon. GM has a target to build 400,000 EVs through the middle of 2024, and 1 million annually by 2025.
CEO Mary Barra predicted there will be more deals like the Lithium Americas one to be announced soon.
“We continue to pursue strategic supply agreements and partnerships to further secure our long-term needs,” she told investors.
GM said it will reduce its staff in 2023, part of its effort to cut $2 billion in costs over the next two years. But unlike a number of major companies that have announced layoffs in recent months, company officials stressed GM would not be shrinking through layoffs. Instead the reduction would be handled through attrition.
GM did not disclose how many jobs might be trimmed, with Jacobson saying the company would end this year “slightly lower” in headcount.
GM has 167,000 employees globally, with 124,000 in North America. That includes more than 42,000 members of the United Auto Workers union. Those workers will get profit sharing bonuses of an average of $12,750 for the year, up nearly 25% from the $10,250 they received a year earlier.
Shares of GM
(GM) soared more than 5% in pre-market trading on the results.
Fordis boosting production of its popular Mustang Mach-E electric SUV and dropping its sticker price weeks after Tesla dropped prices of its vehicles. The move represents a substantial roll-back of price hikes Ford announced last summer on the 2023 models – but buyers may still be paying somewhat more than before the increases.
The Mustang Mach-E, a midsize electric family SUV, was the first serious electric effort for the Dearborn, Michigan-based automaker. Priced and aimed squarely at the Tesla Model Y, which has its own starting price of $53,490, the Mach-E is Ford’s bet to get new car buyers to dip their toes into the battery-powered future. it has since been joined in the electric Ford lineup by the workhorse Ford F-150 Lightning. But the company still considers the Mach-E a crucial step for the company’s electric-powered growth.
Late last year, Darren Palmer, Ford’s vice president of electric vehicle programs, told CNN Business that the Mach-E was completely sold out and the automaker was holding off on launching it in more global markets in order to catch up with US demand.
“We could sell it out at least two or three times over,” he said a the time.
The price cuts Ford announced Monday were biggest on the most expensive versions of the SUV, just as the increases had been biggest on those models. The base sticker of the Mustang Mach-E GT Extended Range, a high-performance version of the SUV, dropped to about $64,000 from $69,900 before, a decrease of $5,900. But that model had been about $62,000 before price increases last August.
When it announced those price bumps, Ford also said it was putting more standard features into the vehicles, including advanced driver assistance features.
The price of the least expensive Mach-E, the rear-wheel-drive standard range model, was cut $900, going from about $46,900 down to $46,000. The price of the extended range battery pack option, by itself, dropped from $8,600 down $7,000.
Tesla announced price cuts of as much as 20% on its electric vehicles earlier this month, after raising prices in 2022.
When Ford announced the price increases last summer, citing supply chain issues, the automakers indicated it would continue monitoring market conditions throughout the upcoming model year.
Ford announced last summer that it was increasing production of the Mach-E as it added capacity for more battery production. The automaker also announced in late August that it was reopening order banks for the Mach-E which had been closed as the company worked to meet existing orders.
Customers who complete the transaction for their Mach-E after today’s announcement will pay the new lower price, Ford said. Ford will reach out directly to Mach-E customers with a sale date after January 1, 2023 who already have their vehicles,the automaker said.
At least some versions of both models are currently eligible for federal electric vehicle tax credits, according to the Internal Revenue Service, but both are treated as cars, not SUVs, under the tax rules, unless equipped with a third row of seats.
That means that tax credits are available for the two-row only Mach-E and two-row Model Y only if the sticker price is below $55,000. For versions of the Model Y with a third row of seats, a $4,000 option, buyers may get tax credits with a sticker price up to $80,000.For the Mustang Mach-E, a third row of seats isn’t offered.
The final amount of the tax credit may depend on when the vehicle is actually delivered to the customer and, also, whether the customers themselves meet annual income requirements.
Elon Musk is used to facing critics, haters and detractors.
He even likes these battles very much.
Sometimes he even tends to provoke his supposed enemies. The Techno King, as he’s known at Tesla (TSLA) – Get Free Report, likes to turn his opponents’ attacks into counterattacks. The serial entrepreneur is never as lethal as when he is on defense.
These adversaries he knows them. He knows their angles of attack. Certainly some of these criticisms annoy him but he always finds the line of response to repel the detractors.
He can also count on his legion of fans, many of whom are Tesla die-hard fans. They believe in his promises of transforming the world and beyond our civilization. They applaud his iconoclastic side and do not hesitate to cry genius when he announces a new product. The billionaire always knew he could count on these admirers.
The Revolt of the Retail Investor
But what he never anticipated was that some of these fans would come after him. He therefore never prepared for it because he always counted on their loyalty to him. It turns out that Musk was wrong.
For several weeks now, the CEO of Tesla has been the target of repeated criticism from some retail investors. Investor Leo KuGuan, who is the car maker’s third largest individual shareholder after Musk and Oracle (ORCL) – Get Free Report co-founder Larry Ellison, went so far as to sound a revolt against Musk.
“I am 100% in Tesla bc I believe in Elon Musk and Tesla,” KoGuan wrote on Twitter on Jan. 7. “But he is killing SH and Tesla. If I knew I wouldn’t invest in Tesla.”
“Elon invested ≈$200mm but took out $40B, Larry invested $1B, I invested over $3B, I have no choice but to act and speak out. I cry out to U for help!”
The criticisms of these investors are the consequence of Tesla’s stock market rout. In 2022, Tesla stock lost 65% of its value, translating to more than $600 billion in market capitalization evaporated in a year. Tesla’s market value is currently $357 billion, down from over $1 trillion at the start of 2022. Over the first four trading sessions of 2023, Tesla shares lost 8.2% to $113.06.
While Musk attributes this stock market disaster to macroeconomic factors like the Federal Reserve’s aggressive interest rate hike to fight inflation and the energy crisis in Europe, many Tesla shareholders believe that his acquisition of Twitter for $44 billion is the big problem.
They claim that when Musk set his sights on the social media platform, he completely left Tesla behind. Worse, he has alienated many Tesla buyers by attacking progressives and Democrats on Twitter regularly.
Tesla Outperforms Its Rivals
Retail investors together own 41.9% of Tesla shares as of Dec. 5, according to WallStreetZen. Institutional investors hold the biggest block with 43.01% of the shares. The balance is held by the company’s executives, ie 15%.
While Musk once responded to some criticism a while back, he’s been quiet lately. This is no doubt due to the fact that he must observe the quiet period until the publication of the company’s earnings on January 25. Until that date, the management team musk remain silent so as not to influence the share price to the benefit of certain shareholders or to the detriment of others.
But Musk has just found a subtle and striking way to respond to the criticism, which has turned violent in recent days. The entrepreneur has just retweeted a chart which shows that of all the major automakers present on the American market, only Tesla and General Motors (GM) – Get Free Report have managed to increase their sales of light vehicles in 2022 compared to 2021. All the rest of the vehicle manufacturers have seen their sales decrease compared to 2021.
Tesla saw its sales increase by 44% over one year while those of GM only increased by 3%.
The CEO of Tesla (TSLA) – Get Free Report, SpaceX and Twitter rarely admits a mea culpa.
Admitting his mistakes is not part of his repertoire. In a recent example, Musk retweeted an article from the Santa Monica Observer, which attributed a violent attack on Paul Pelosi, the husband of House speaker Nancy Pelosi, to a conspiracy theory.
The Santa Monica Observer has been known for publishing false information on a number of occasions, including a story about Hillary Clinton passing away and her body double being sent to debate Donald Trump in one of the 2016 presidential debates.
Musk deleted the tweet but never publicly apologized.
He’s sure of his influence and his power. The richest man in the world and boss of a multitude of companies never retreats even when he has made a mistake.
It is often the opposite. Musk likes to counter attack. He has followed this strategy since he took control of Twitter, the town square of our time.
Margin Loan
He hits hard against those he considers to be his enemies or adversaries: the Democrats, the woke culture supporters, the press, the giants of Silicon Valley. According to him, what these supposed enemies have in common is that they oppose free speech, of which he describes himself as an “absolutist” defender.
He also did not hesitate to mock the press coverage of his first actions as boss of Twitter. Musk is looking for new sources of revenue to make the platform profitable as soon as possible.
The problem he has now is that he went into debt to the tune of $13 billion to finance the acquisition of the platform. This was a margin loan, where he put up some of his Tesla shares as collateral.
The way a margin loan works is that, once the value of the collateral decreases vs. the borrowed amount, the borrower must provide additional collateral to make up for the difference.
‘Avoid Using Margin Loans’
As it took six months to complete the purchase of Twitter, it is not easy to pinpoint when the loan was finalized between May, in the early days of the Twitter acquisition negotiations, and October, when the acquisition was completed. During this period, the Tesla shares traded above $200, reaching as high as $317.54 on May 4. What is certain is that, with the share price closing at $179.05 on Dec. 9, the collateral shares have lost approximately between 10% and 40% of their value, possibly requiring Musk to post additional collateral to make up for the value decrease.
According to Bloomberg News, his advisers are reportedly pressuring him to use his Tesla shares as collateral for new loans to replace Twitter debt. Musk’s bankers are considering replacing some of the high-interest debt he layered on Twitter with new margin loans backed by Tesla stock that he would be personally responsible for re-paying. The discussions have so far focused on how to refinance $3 billion of unsecured debt on which Twitter pays an interest rate of 11.75%.
It is in this context that the tech mogul has just made a rare admission and expressed his regrets. Musk suggested that he should never have taken out a margin loan on his Tesla shares because, no matter what the group’s long-term potential is, in an uncertain economic environment the stock’s value is likely to go down in the short term.
“When there are macroeconomic risks, it is generally wise to avoid using margin loans on any company,” the billionaire posted on Twitter on Dec. 8. “As stocks may move in ways that are decoupled from their long-term potential.”
The tweet suggests that even companies with strong fundamentals like Tesla aren’t immune in times of economic uncertainty, as is the case today. Investors tend to give in to fear and panic, which results in a widespread stock sell-off, no matter how strong the company is.
Musk therefore seems to advise against taking a margin loan during such periods. In doing so, he seems to be expressing his regret for doing it himself.
Around two-thirds of Ford’s dealer network in the U.S. has signed up for the company’s electric-vehicle certification program, the price of batteries for electric cars is on the rise for the first time in over 10 years, and United Airlines is looking at Delta’s pilots’ contract as the template. These stories and more in The Morning Shift for Tuesday, December 6, 2022.
1st Gear: Most Ford Dealers are in on EV Certification
Ford says that nearly two-thirds of its U.S. dealer network are on board with the company’s pricy electric-vehicle certification program. The automaker’s CEO, Jim Farley, says 1,920 dealers have signed on.
He added that 1,659 went the “Certified Elite” route. That program requires investing as much as $1.2 million at the dealership. A further 261 dealers went with the cheaper “Certified” status. That program only requires dealers to spend up to $500,000 for EV enhancements. However, that level caps EV sales at 25 per year. From Automotive News:
Ford has about 3,000 dealerships in the U.S. The company said those that didn’t sign up by last week’s deadline will not be allowed to sell EVs beyond 2023 but will have another opportunity to do so in 2025.
Farley has said Ford’s retailer need to evolve to better compete with EV startups like Tesla and others that sell directly to customers.
“The future of the franchise system hangs in the balance here,” Farley said. “The No. 1 EV player in the U.S. bet against the dealers. We wanted to make the opposite choice.”
The announcement comes as opposition to the program grows. Last week, dealers in New York filed a lawsuit challenging the program as illegal, while a separate group of dealers in Illinois filed a protest with the state’s motor vehicle board. Also last week, U.S. Sen. Richard Blumenthal, D-Conn., and Connecticut state lawmakers voiced their displeasure over what they say are excessive costs that potentially violate state franchise laws.
Ford has consistently said it believes the program does not violate any state laws.
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“We want to work with our dealers, but there are certain things our customers want that are nonnegotiable,” Farley said to the crowd at the Automotive News Congress in Detroit.
He added that he does not regret rolling out the program.
“There’s always a better way,” Farley continued. “But I don’t think we made, really, any big mistakes.”
2nd Gear: EV Battery Prices on the Rise
The price of lithium-ion batteries is on the rise for the first time in over 10 years. The increase comes from surging prices raw material costs, and it will ultimately have a negative impact on the automotive industry’s push for EVs to get cheaper. From Financial Times:
Soaring prices of battery metals such as lithium, cobalt and nickel and higher component costs pushed battery pack prices up to $151 per kilowatt hour, a 7 per cent rise compared with a year ago and the first increase since BloombergNEF began its annual survey in 2010.
The company expects prices to rise further to $152 per kWh next year. In 2010, prices were $1,160 per kWh on average.
That’s bad news for the automotive industry. FT reports the industry has viewed $100 per kWH battery pack as the number where EVs become competitive with ICE vehicles from a price perspective.
However, lithium prices have increased 10-fold since the start of 2021 and nickel is up 75 per cent, while cobalt prices have been more than double their 2020 average this year.
As a result, BloombergNEF forecasts that the $100 per kWh level will be reached by 2026, two years later than previously expected. This will “negatively impact the ability for automakers to produce and sell mass-market EVs in areas without subsidies”, it said.
It added that the higher costs could also be problematic for the economics of battery energy storage projects that are vital to stabilising the grid as intermittent renewable power grows.
The rise in battery pack prices would have been even higher if car companies and cell manufacturers in the Chinese market had not switched to cheaper lithium iron phosphate (LFP) batteries, which do not use cobalt and nickel but have a shorter range.
Right now, there’s a lot of uncertainty about whether or not battery material prices will actually ease. Skyrocketing demand and manufacturing issues are only exacerbating the problem for battery makers and consumers.
3rd Gear: United Looking to Delta’s Contract as a Blueprint
United Airlines’ CEO Scott Kirby says a possible deal between Delta and its pilots union could be used as a template for similar agreements. From Reuters:
“It’s a rich contract but I think the really good news is it means we’ll all get deals done essentially on the same terms and can move forward,” Kirby told Reuters on the sidelines of an event in Washington late Monday. Delta struck a tentative deal Friday to give pilots a 34% cumulative pay increase in a new four-year contract.
Kirby says the Delta agreement will push pilot wages up across carriers and be passed onto consumers in the form of higher airplane ticket prices.
“The biggest news for an investor perspective is cost convergence in the industry means that what is different now is all the low cost carriers are going to have come up to these much higher pay rates,” Kirby said. “This is going to wind up like oil prices — it’s going to be a pass through.”
Delta’s contract reportedly also offers a lump-sum one-time payment, reduced healthcare insurance premiums, better 401(k) parameters as well as improved paid time off.
Kirby added that demand is still very strong for flight tickets, which he says are cheaper today than they have been over the past 15 years.
Its union estimates the proposed deal represents more than $7.2 billion of cumulative value increases over the next four years.
American Airlines and United have promised “industry-leading” contracts to their pilots.
Reuters reports that last month American Airlines pilots turned down a proposed 19 percent pay hike over the next two years that would cost the company about $2 billion. United pilots had previously turned down an offer that would give them about a 14.5 percent wage cumulative increase.
4th Gear: Works Strike at Pennsylvania Auto Parts Supplier
About 270 workers at an Autoneum AG plant in Bloomsburg, Pennsylvania have gone on strike at the global automotive insulation supplier, and soon ripples could be felt throughout the rest of the automotive industry.
Workers walked off the job last Thursday after negotiations between the company and the union stalled after the latest contract offer was rejected by the workers. From Automotive News:
Autoneum, based in Winterthur, Switzerland, focuses on internal and external sound and heat insulation systems. The supplier works with almost every major automaker, including General Motors, Ford Motor Co. and Stellantis, according to its website.
For the Bloomsburg plant, its exact list of customers is unclear. However, the plant received awards from Toyota in 2011, Ford in 2014 and GM in 2021. Autoneum did not respond to calls from Automotive News’ seeking comment on the strike.
Brian Heverly, president of Local 1700 Workers United, told FOX 56 that the rank-and-file turned down Autoneum’s third and final contract offer.
Among worker complaints is the supplier’s insistence that workers pay 5 percent more of their healthcare costs outside of usual yearly increases.
Local 1700 Vice President Dave Schaffer, an employee at the plant 44 years, told FOX 56 that the workers didn’t want to strike, but felt compelled to given the circumstances.
The last strike at this plant was reportedly back in 1968, a year known for nothing else but that strike.
A spokesperson for General Motors told the outlet that the automaker is aware of what’s going on, but they don’t see the strike having an immediate impact on GM operations.
5th Gear: GM’s BrightDrop Starts Production in Canada
General Motors has started production of its BrightDrop electric delivery vehicle at its CAMI Assembly plant in Ontario. That makes it the first EV factory in Canada as a whole.
Last month, GM said the startup will be worth about $1 billion in revenue in 2023. The company is expected to hit $5 billion in revenue by the middle of the 2020s, and it could be as high as $10 billion by 2030.
“Starting volume production is really important; this is a very important product for GM,” Sam Abuelsamid, principal research analyst leading Guidehouse Insights, told The Detroit News. “This finally starts to get them back into a more competitive offering in the van segment and with electrification, so … it has the potential to be a really strong business for GM.”
GM launched production this week of the larger Zevo 600 electric delivery vans at CAMI. The delivery vans were being manufactured at small scale at a Michigan supplier plant until the CAMI facility was ready for production. Production of the Zevo 400, a smaller model than the Zevo 600, will start in late 2023. BrightDrop expects to make 30,000 next year and scale to 50,000 by 2025.
[…]
GM formed BrightDrop in 2021. The business is focused on providing emissions-free products for delivery companies. Its products include the Zevo electric delivery vans, Trace eCarts for easier package delivery and the BrightDrop Core software platform.
The automaker invested more than $800 million to convert CAMI for high-volume EV production. The plant was revamped in just seven months — the quickest retooling of a GM plant ever.
[…]
BrightDrop also on Monday announced it’s entering the Canadian market with the addition of DHL Express Canada logistics company as a customer. DHL will add its first Zevo vans to its fleet early next year. The company is also piloting BrightDrop’s Trace eCarts and software platform in Toronto.
BrightDrop has also received requests for electric delivery vans from FedEx Corp., Walmart Inc., Hertz Global Holdings Inc. and Verizon Communications Inc.
All in all, BrightDrop has 25,000 production reservations and expressions of interest for its EV delivery vans. So far, the company has delivered 150 Zevo vans to FedEx out of the 2,500 the shipping company has ordered.
Reverse: Washington
Neutral: Boeing 747, Over and Out
On The Radio: Darlene Love – “Christmas (Baby Please Come Home)“
Darlene Love – Christmas (Baby Please Come Home) (Official Audio)
This is the best Christmas song, and I will not hear otherwise.
Jim Farley has made no secret of his desire to win.
The Ford (F) – Get Free Report CEO has made it clear that he wants his company to be the top gun in the electric vehicle sector.
In April, he threw down the gauntlet to Tesla (TSLA) – Get Free Report, the world’s largest EV company, and “all comers to become the top EV maker in the world.”
“That’s something that no one would have believed just two years ago from us,” Farley said;
The company announced on Nov. 30 that it had built the 150,000th Mustang Mach-E since production began almost two years ago despite supply chain challenges and a spike in raw material prices.
The accomplishment even impressed Tesla (TSLA) – Get Free Report CEO Elon Musk who tweeted to his congratulations to Farley and company.
“Thanks, @elonmusk,” Farley responded. “Lots of work ahead.”
And Ford said on Dec. 1 that it planned to invest another $153 million in its U.K. manufacturing plant to boost EV production.
Ford sold a total of 6,255 vehicles in November, soaring nearly 103% compared with a year ago, and “making Ford America’s second best-selling brand and manufacturer of electric vehicles behind Tesla.”
F-150 Lightning sales totaled 2,062 and since its first sale at the end of May, F-150 Lightning sales totaled 13,258 trucks.
“Ford’s sales of electric vehicles expanded at approximately twice the rate of the overall electric vehicle segment in November as Ford prepares to increase production next year to meet U.S. demand,” Ford said in a statement.
Ford beat out Hyundai-Kia to earn the No. 2 EV position, but it wasn’t all good news, as the company posted a 7.8% decline in total U.S. sales for the month. Retail sales fell 15.8%.
Ford
‘Tesla’s Position is Changing’
Truck sales were down 1.2% and SUV sales dropped 15% from a year ago.
And there is still a lot of work to do in the EV sector. Tesla reported global deliveries of more than 908,000 EVs through the third quarter.
But Tesla, which delivered the first its long-promised electric semi trucks on Dec. 1, can’t afford to rest on its laurels, according to the S&P Global Mobility Study.
The study said much of Tesla’s share loss is to EVs available in a more accessible Manufacturer Suggested Retail Price (MSRP) range – below $50,000, where Tesla does not yet truly compete.
“Tesla’s position is changing as new, more affordable options arrive, offering equal or better technology and production build,” the report said. “Given that consumer choice and consumer interest in EVs are growing, Tesla’s ability to retain a dominant market share will be challenged going forward.”
The study predicted that the number of battery-electric nameplates will grow from 48 at present to 159 by the end of 2025, “at a pace faster than Tesla will be able to add factories.”
Tesla currently holds a 65% share of the EV market, with Ford in second place with 7% market share, Kia next at 5% and Chevrolet and Hyundai tied for fourth with 4% each, according to S&P Global Mobility data. The remaining 15% share is split between all other EV makers.
Tesla Developing Lower-Cost EV
During a recent earnings call, Musk again confirmed that the company is working on a vehicle priced lower than the Model 3, “though market launch timing is unclear.”
“Tesla’s model range is expected to grow to include Cybertruck in 2023 and eventually a Roadster, but largely the Tesla model lineup in 2025 will be the same models it offers today,” the report said.
“Before you feel too badly for Tesla, however, remember that the brand will continue to see unit sales grow, even as share declines,” said Stephanie Brinley, associate director, AutoIntelligence for S&P Global Mobility.
“The EV market in 2022 is a Tesla market, and it will continue to be, so long as its competitors are bound by production capacity,” Brinley said.
On the contrary, big clouds continue to gather over the company which was one of the big winners of the covid-19 pandemic, with a massive growth.
Since announcing its quarterly results on Nov. 3, Carvana (CVNA) – Get Free Report shares have lost 44% of their value and are currently trading at $8.06 versus $14.35 on that day. This translates into a decline in market capitalization of approximately $1.1 billion in two weeks. Carvana currently has a market value of $1.43 billion.
The company, founded in 2012 and based in Arizona, took advantage of favorable conditions to market its new way of buying a car. The group’s car vending machines stuck well with the pandemic, a period during which consumers wanted to avoid contact as much as possible, to limit their exposure to the virus.
The federal government had also flooded consumers with money via stimulus programs. Interest rates were almost zero, which meant that financing the purchase of a vehicle cost practically nothing.
Added to this, the supply chains of car manufacturers were disrupted, which made the production of new vehicles difficult. Faced with these challenges, consumers turned to the second-hand market as the waiting times for new vehicles were long. Used car prices therefore jumped, making it a good deal for Carvana.
Basically, all the winds were blowing in the right direction for the company.
New Car or Used Car?
But coming out of the pandemic, Carvana’s fortunes seem to have turned completely. The used car market remains hot. But all the other factors have reversed. There is no more stimulus money. The central bank is aggressively raising interest rates and inflation is at its highest in 40 years. The economy is also close to a recession more than ever, and the waves of job cuts follow one another. Used car prices remain high but financing the transaction has become very expensive for consumers. Supply chains have improved significantly, facilitating the production of new vehicles.
This was felt in the latest quarterly results from Carvana: In the third quarter, Carvana’s revenue fell 2.7% year-on-year to $3.4 billion, while net loss jumped to $283 million from just $32 million in the third quarter of 2021, the company said in a letter to shareholders.
Used car sales in the U.S. fell almost 13% year-on-year, in the third quarter of 2022.
“If you’re looking at newer used cars — models in the 1 to 3-year-old range, you may find that prices are still relatively close to what they sold for new,” Consumer Reports said. “If you have to borrow money to buy the car, it may be better to find a new car that can qualify you for a lower interest rate, to say nothing of the benefit of a fresh factory warranty. Many manufacturers subsidize financing and may offer interest rates that are much lower than normal to qualified buyers.”
All this complicates the affairs of Carvana, which had to go into $3.3 billion of debt to finance the acquisition of auctioneer Adesa’s physical auction business this year.
Carvana
Elimination of 1,500 Additional Jobs
The group is therefore under enormous financial pressure.
“Significant nearer-term operational and financial risks for Carvana have emerged and are likely to cloud the CVNA investment story for the foreseeable future,” Oppenheimer analyst Brian Nagel said in a note on Nov. 15, downgrading the stock.
He added that “we do not envision investors bidding CVNA meaningfully higher until prospects for a manageable and sustained capital base become clearer.”
Nagel seems to confirm that Carvana has a liquidity problem which the group must address fairly quickly if it wants to stop the collapse. The company has between $6 billion and $7 billion in debt net of the cash on the balance sheet, according to FactSet.
But Carvana is not profitable: its adjusted EBITDA margin loss increased by 6.2% in the third quarter. EBITDA refers to earnings before interest, taxes, depreciation and amortization, which helps investors to gauge the financial health of a company.
The company is struggling to try to change things and delay as much as possible raising equity capital or adding more debt. Carvana, for example, is determined to drastically reduce costs. After cutting 2,500 jobs in May, the company has just announced an additional wave of layoffs which affects 8% of its workforce, or 1,500 employees.
“It is fair to ask why this is happening again, and yet I am not sure I can answer it as clearly as you deserve,” Chief Executive Officer Ernie Garcia told employees in an email on Nov. 18. “I think there are at least a couple of factors. The first is that the economic environment continues to face strong headwinds and the near future is uncertain. This is especially true for fast-growing companies and for businesses that sell expensive, often financed products where the purchase decision can be easily delayed like cars.”
In addition, “we failed to accurately predict how this would all play out and the impact it would have on our business. As a result, we find ourselves here.”
The new cuts will affect “many corporate and technology teams as well as some operations teams where we are eliminating roles, locations or shifts to match our size with the current environment,” Garcia wrote.
Reached by TheStreet, Carvana didn’t comment.
Legal Issues
The new job cuts come after ratings agency S&P Global Ratings warned it was likely to downgrade Carvana in the near term, changing the outlook from stable to negative.
“GPU [gross profit per unit] is expected to remain weak due to higher used car depreciation rates and lower returns from selling loans and other products,” said the rating agency. “Carvana generates over 50% of its GPU from selling loans and other products. With rising interest rates, it is more difficult for Carvana to compete with the large banks that can keep loan rates low, which will reduce the number of loans allocated to Carvana.”
Garcia ruled out the option of raising capital on Nov. 3.
“Our goals are going to be on driving down expenses and trying to get positive EBITDA as quickly as we can,” he told analysts. “We’ve got a bunch of committed liquidity. We’ve got a bunch of real estate. And I think that we feel like that puts us in a good position to ride out this storm. And we’re making great moves inside the company.”
But apart from these financial difficulties, Carvana also faces legal challenges. The company is facing lawsuits from customers in multiple states involving alleged issues over titles and registration and over purchasing vehicles.
Michigan Secretary of State Jocelyn Benson also suspended the retailer’s license, with Carvana suing in return.
Carvana has said the lawsuits are without merit and called the decision in Michigan “arbitrary.”
A charging port is seen on a Mercedes Benz EQC 400 4Matic electric vehicle at the Canadian International AutoShow in Toronto, Ontario, Canada, February 13, 2019.
Mark Blinch | Reuters
An updated version of Google Maps for Android and iPhone is rolling out with several new features, such as the option to search for electric vehicle stations with fast chargers and an augmented reality feature that overlays more information about local points of interest on top of the real world around you.
Here’s what’s new.
Find fast chargers for your electric car
If you drive an EV, you’ll be able to filter charging stations to find the most time-efficient option. So, if you search for a “charging station” in Google Maps, for example, a new option appears that allows you to filter out to show only “fast charge” stations that are compatible with the plug your car uses. It builds on an earlier update that allows users to search for stations by plug compatibility.
Find stations with fast chargers (left) and plugs compatible with your EV (right).
Google
Fast charging includes stations with chargers 50kW or higher. The update is available in countries where EV charging stations are available, according to Google.
New AR feature coming to Google Maps
Search with Live View starts rolling out in 6 cities next week.
Google
Google Maps is also getting an update to its augmented reality tool. Starting next week, a feature called “Search with Live View” will let you use your phone camera to find out what’s around you.
When you hold up your phone, for example, and tap the camera icon in Maps, you’ll see nearby landmarks, parks, hotels, restaurants, bars, banks and ATMs. You’ll also see info such as how busy the location is, whether it’s open, what the price range is and how it’s rated by Google Maps users.
The feature will first launch in six major cities: New York, London, Los Angeles, San Francisco, Tokyo and Paris.
Google adds wheelchair accessibility info to global maps
The ability to see wheelchair accessibility places is now available globally on Android and iOS.
Google
Google has expanded its Accessible Places feature, which shows an icon on a business profile to indicate that it’s wheelchair accessible, to all global markets. The option has been available in the U.S., Australia, the U.K. and Japan since 2020. Google highlighted that the feature can be useful for people who are walking with a stroller or a cart, too, since they may want to know if a ramp is available before visiting a specific location. The accessibility indicator is powered by business owners and people who use Google Maps.
Renault sees the internal combustion engine continuing to play a crucial role in its business over the coming years, according to a top executive at the French automotive giant.
On Tuesday, it was announced that the Renault Group and Chinese firm Geely had signed a non-binding framework agreement to establish a company focused on the development, production and supply of “hybrid powertrains and highly efficient ICE [internal combustion engine] powertrains.”
According to Renault, both itself and Geely will have a 50% stake in the business, which will consist of 17 powertrain facilities and five research and development centers.
Speaking to CNBC’s Charlotte Reed on Tuesday, Renault Chief Financial Officer Thierry Pieton sought to explain some of the reasoning behind the planned partnership with Geely.
“In our view, and according to all the studies that we’ve got, there is no scenario where ICE and hybrid engines represent less than 40% of the market with a horizon of 2040,” he said. “So it’s actually … a market that’s going to continue to grow.”
Read more about electric vehicles from CNBC Pro
The tie-up with Geely comes as Renault fleshes out plans to establish an EV spin-off called Ampere.
According to Renault, France-based Ampere “will develop, manufacture, and sell full EV passenger cars.” It’s eyeing an initial public offering on the Euronext Paris, which would take place in the second half of 2023 at the earliest, subject to market conditions.
During his interview with CNBC, Pieton touched upon the need, as he saw it, for different types of vehicles. “It’s very important to have, at the same time, the development of our electric vehicle business on one side — with Ampere — and to build a sustainable source of ICE and hybrid powertrains.”
This was why Renault was going into a partnership with Geely, he added, explaining the move represented “an absolute slam dunk” from a business and financial perspective.
This was because, Pieton argued, it created “a world-leading supplier of ICE and hybrid powertrains with around 19,000 employees in the world, covering 130 countries.”
Read more about energy from CNBC Pro
In comments sent to CNBC via email, David Leggett, an analyst at GlobalData, noted that automotive manufacturers could still enjoy profits from the sale of vehicles that used internal combustion engines.
“Margins are generally higher than on electric vehicles, which are relatively costly to manufacture,” he said.
“The gap will eventually narrow as EV volumes rise sharply and unit costs on major EV components fall significantly, but there is still much profitable business to be done on ICEs and hybrids and will be for some time to come,” he added.
“Manufacturers need to be flexible in their powertrain offerings according to market needs — which differ across the world.”
Renault’s continued focus on the internal combustion engine comes at a time when some big economies are looking to move away from vehicles that use fossil fuels.
The U.K., for example, wants to stop the sale of new diesel and gasoline cars and vans by 2030. It will require, from 2035, all new cars and vans to have zero tailpipe emissions.
The European Union, which the U.K. left on Jan. 31, 2020, is pursuing similar targets. Over in the United States, California is banning the sale of new gasoline-powered vehicles starting in 2035.
Such targets have become a major talking point within the automotive industry.
During a recent interview with CNBC, the CEO of Stellantis was asked about the EU’s plans to phase out the sale of new ICE cars and vans by 2035.
In response, Carlos Tavares said it was “clear that the decision to ban pure ICEs is a purely dogmatic decision.”
Expanding on his point, the Stellantis chief said he would recommend that Europe’s political leaders “be more pragmatic and less dogmatic.”
“I think there is the possibility — and the need — for a more pragmatic approach to manage the transition.”
He is in charge of several companies at the same time.
He is involved in The Boring Company, known for its tunnels, and in the company specializing in artificial intelligence Neuralink. He revived the dream of humans living on Mars in the near future with his aerospace company SpaceX, one of whose products has become very popular. This is Starlink, the satellite internet access service, which has become the unique communication system of the Ukrainian armed forces on the front line in the war against Russia.
Musk has also just acquired Twitter (TWTR) , the social network he considers the de facto Town Square of our time, for $44 billion. This platform has kept him busy for several weeks.
The billionaire wants to use it to create a Super App offering multiple varied services such as ordering a car, shopping, buying a plane ticket, etc. But if the influence of Twitter is undeniable in the public debate, the firm is struggling to generate revenue and profits.
Twitter Is the New Darling
Musk has therefore been working for a few days to find new sources of income. He took controversial measures such as eliminating half of the group’s workforce and increasing the price of Blue, the service subscription by including the option to authenticate an account.
Musk is also currently trying to retain advertisers who are suspending their ads on the platform because they fear it will become a venue for hateful, racist and anti-Semitic speech. These fears are due to the fact that Musk defines himself as a “free speech absolutist.” In other words, he feels that everything should be said as long as the law is not violated.
So he only has it for Twitter, to the point of making people forget that Musk’s real baby is Tesla. The electric vehicle manufacturer is the first pawn with which Musk established himself as a visionary.
The Technoking — his title at Tesla — has pushed the automotive industry away from polluting vehicles in favor of clean vehicles and autonomous technologies that are turning the car into a living room on four wheels.
But Twitter’s attention has raised concerns that CEO Musk is focusing less time on Tesla at a crucial time for the Austin, Texas-based group. The electric vehicle maker faces stiff competition from Chinese groups and legacy carmakers who have all announced billions of dollars of investment in electric vehicles.
To maintain its leadership, Tesla has a packed product roadmap. The company is due to start production of its Semi truck on Dec. 1 and mid-2023 the start of production of the long-awaited Cybertruck is scheduled.
‘I Still Do a Lot of Work’
Since Musk made his $44 billion bid to take over Twitter on April 25, Tesla shares lost 38% of their value to $207.47. The company which started the year with a market value of $1.12 trillion saw it melt by more than $450 billion. Tesla’s market cap is currently at $655.2 billion.
Musk is an important part of Tesla’s success. Investors are convinced that without him, the manufacturer of electric vehicles would not have such an important cachet. They therefore identify Tesla with Musk. It’s the entrepreneur’s wild promises that justify much of the valuation of Tesla, which produced barely a million vehicles in 2021, compared to several million for its rivals. But the latter are stock market dwarfs compared to Tesla.
The billionaire is aware of investors’ fears and has therefore just sent them a message aimed at reassuring them. It all started with a post from a Tesla fan account on Twitter.
“It’s strongly bullish that while Elon is focused on restructuring Twitter, Tesla is executing perfectly without him $tsla,” the Twitter user posted.
Musk was quick to respond: “I still do a lot of work at Tesla! Was at our Palo Alto engineering office until late Thursday night when I had to redeye to NY,” he said.
The message achieved the intended goal of reassuring fans of the premium electric vehicle manufacturer.
“Elon, @elonmusk please send some pictures/tweets about $TSLA next time you at any Gaga Factory. Tesla investors love to hear you bragging & being involved with Tesla. ♥️” said one Twitter user.
“Tesla running w/o Elon is intangible. Whether in foreground or in quiet, he’s working the machine,” added another user.
