The week has barely started and already the drama is starting, with Stellantis CEO Carlos Tavares talking dirt on someone’s name. But whose name is it? This is important.
Also important and not at all surprising is Ford’s announcement that it’s cutting back on Ford F-150 Lightning production to favor exactly the kind of vehicles you’d guess. Infiniti dealers would kill for something, anything, to fill their dealerships.
And, finally, a look at the employment market because this idea of a “soft” landing to this recession is predicated on a labor market that doesn’t collapse, which is itself important to the car market.
Who Is Carlos Tavares Talking About?
There’s that Internet truism that anytime you see a headline with a question the answer is always “yes.” I’m not sure it’s so true here. I think I know who Stellantis CEO Carlos Tavares is talking about, but it seems a little bold.
Let’s start with the quote. Tavares had an event in Milan wherein he introduced the new STLA Large EV platform that will underpin the Jeep Wagoneer S and all sorts of other vehicles as part of a cost-saving approach to EVs that Stellantis is making.
Here’s how Reuters described the meeting and quotes Tavares talking about a mystery company below:
Tavares said Stellantis, which is among the most profitable companies in the industry, was comparatively protected from a downtrend in prices that could put some rivals “in trouble”, with persistent losses and at risk of becoming takeover targets.
“If you go and cut pricing disregarding the reality of your costs, you will have a bloodbath. I am trying to avoid a race to the bottom,” he said.“I know a company that has brutally cut pricing and their profitability has brutally collapsed,” he said, without elaborating.
It’s easy to look at the huge inventories at Stellantis and think this is a company that’s doomed and this is big talk, though that’s hard to square with a Stellantis that took home $18 billion in profits in 2022. Carlos Tavares is, in many ways, an acolyte of his old boss Carlos Ghosn, who was called “Le Costcutter” (though those cuts never seemed to apply to Ghosn’s remuneration). There may be fewer, older products and no Stellantis EVs in America yet, but there are also relatively fewer giant cost centers (Stellantis has been slow to make new battery plants). We’ll see how 2023 went, but it’s probably good news for the automaker.
So, um, who is the company?
Theory #1: It’s Tesla. No one has cut prices more than Tesla and the company’s price cuts have impacted its margins. Reuters even uses the next paragraph to point out that Tesla again cut prices, which is a hint that maybe it’s what the reporter thinks.
That seems insane for Stellantis to boast about because its profit margin of 14.4% in the first half of 2023 is much lower than Tesla’s 18.8%. Also, Tesla is not a takeover target because Tesla is worth more than any other car company from a market cap perspective.
Theory #2: It’s Lucid. Lucid has been cutting costs, for sure, and could be a takeover target if the Saudi Arabian government decided to cut its losses on the company. But Lucid isn’t profitable, at all. In fact, it’s losing hundreds of thousands of dollars per vehicle sold. Gotta have profits to lose profits, amirite?
Theory #3: It’s a Chinese company. Chinese automakers have also engaged in price-cutting and numerous Chinese companies are on the edge of disappearing (including, potentially, HiPhi). This makes sense from the “takeover” perspective.
It’s possible that the “takeover risk” thing is not connected to the overall point, which would make Tesla (or Ford) a possibility and Tavares just means that he needs to keep profitability up so Stellantis doesn’t go the way of basically every other prior Chrysler/AMC regime.
Ford Cuts F-150 Lightning Production
I think we all saw this coming. The Ford F-150 Lightning was Ford’s attempt at beating most EV trucks to the market but, it seems, there’s only so much current appetite for them [Ed Note: Current. hehe. -DT].
Here’s how Ford leads a press release on the topic:
Ford Motor Company announced plans to create nearly 900 new jobs as part of a new third crew at Michigan Assembly Plant in Wayne to meet demand for the popular Bronco and Bronco Raptor and the all-new Ranger and Ranger Raptor.
More Broncos and Rangers makes sense, but, uh, what about the F-150 Lightning?
“We are taking advantage of our manufacturing flexibility to offer customers choices while balancing our growth and profitability. Customers love the F-150 Lightning, America’s best-selling EV pickup,” said Ford President and CEO Jim Farley. “We see a bright future for electric vehicles for specific consumers, especially with our upcoming digitally advanced EVs and access to Tesla’s charging network beginning this quarter.”
Approximately 1,400 employees will be impacted as the Rouge Electric Vehicle Center transitions to one shift effective April 1. Roughly 700 will transfer to Michigan Assembly Plant and the others will be placed in roles at the Rouge Complex or other facilities in Southeast Michigan, or take advantage of the Special Retirement Incentive Program agreed to in the 2023 Ford-UAW contract.
This is part of Ford’s slowdown in EV development and shift towards more hybrids in the short term.
It Sucks To Be An Infiniti Dealer Right Now
Infiniti sales were up 39% last year to 64,699 total sales, compared to just 46,619 sales in 2022. Those numbers are not great. Infiniti managed to sell more than 100,000 vehicles a year from 2014 to 2019.
The problem? It’s the cars. Infiniti has long lacked a competitive mix, instead resting on selling old platforms like the Infiniti QX60, which is just a rework of the old J-Series platform.
I like this Automotive News interview with a big Infiniti dealer who talks about the issues:
“Product is king,” Steve Lapin, Infiniti National Dealer Advisory Board chairman, told Automotive News. “Infiniti doesn’t have the right products right now to compete in the marketplace.”
Absolutely. Infiniti, for its part, says new product is coming (see the new QX above). Here’s something else I thought was interesting:
Ok, that last part isn’t true, is it? I can’t think of a single PHEV that can go that long.
Either way, it’s a good interview, you should read it.
Is The Job Market Softening?
This idea that cars will be more affordable, we’ve avoided a recession, and inflation will bring down rates is all well and good for your 401k, but is it true? I’m lightly skeptical and I do not believe the Fed is going to actually bring down rates five times this year unless something goes super wrong with the economy, which contradicts the “soft landing” narrative.
A key early indicator for how the economy is doing is the labor market, which isn’t as weird as the major financial markets.
Here’s how Marketwatch summarizes the Fed’s look at the current labor market:
There were signs that the labor market was cooling in nearly all regions of the country, according to a Federal Reserve survey released Wednesday.
The survey, known as the Beige Book, is a collection of anecdotes from business contacts collected before Jan. 8.
The contacts spoke of larger applicant pools, lower turnover rates, more selective hiring by firms and easing wage pressures.
It’s in times like these that it’s smart to look not just at the official unemployment rate (the U3), which is at 50-year lows and currently sits at 3.5%, but also the U1 (long-term unemployment) and the U-2 (people who just lost jobs/temp jobs). These can tell you if something that might indicate a future recession is happening, i.e. if people are holding onto jobs.
I put the chart in at the top of the piece, but right now there aren’t any huge swings or indicators that this might be happening. If anything, the Fed is probably happier if the labor market cools a bit as a control for inflation.
Still, it’s something to keep your eyeballs on this quarter.
What I’m Listening To As I Write TMD
Good old Ted Leo and the Pharmacists and their mid-career quasi hit record “Hearts of Oak.” I always thought that Ted Leo always sounded like he should have been in a Fugazi spinoff instead of an alt-rock band.
The Big Question
Who, exactly, is Carlos Tavares talking about? Am I being dense? Is this mild corporate trash-talking or is he giving someone the business?
I think you’re misreading the Reuters article. It’s clear he’s talking about Tesla. He’s not saying that Tesla is going to be acquired because of their cost cutting, but that is a risk for other companies if they join in on the race to the bottom.
I think it’s wrong to only look at first half of 2023 for Tesla and comparing gross margin. Operating margin, for Q3, Tesla was at 7.6% including carbon credits, 5.3% without credits. Toyota’s operating margin was 12%+. Tesla’s operating margin as of Q3 was much more in line with the rest of the industry, and heavily reliant on carbon credit sales. There were even more price cuts in Q4. We’ll find out in a few days, but it’s likely even uglier in Q4.
And all this while underinvesting in R&D compared to the rest of the industry. The P/E of Tesla is 60x while the rest of the industry is <10x
I think theory two is the most likely to be correct.
Lucid is about to go bankrupt. Meanwhile, the Chinese companies are readying themselves to produce a new non-flammable sodium-ion battery that is less than half the price of conventional LiFePO4, and about 3/4 as energy dense. Tesla is the only EV manufacturer besides BYD that builds their batteries to reliably last significantly past the warrantee, although time will tell whether Hyundai is one of them also. The bulk of the remaining EV offerings from mainstream manufacturers available in the U.S. are outright scams designed entirely with planned obsolescence in mind, built to fail soon after the warrantee is up. Be careful what you buy. Tesla’s track record is proven and BYD isn’t available in the U.S.
Further, this economy is not what the news has been presenting it as. Sure, there are jobs hiring everywhere, but good luck getting hired for one when you need it. I was there when conditions were supposedly much better 4 years ago. All of these “Now Hiring!” signs, and I’d apply to literally thousands of places only to get rejected or told no one is needed, and the “Now Hiring!” sign would stay up. I’m so glad I have my current job… it was very difficult to get and my current employer sat on my application for the better part of a year.
Carlos Tavares is destroying Stellantis. This overpaid asshat needs to take his golden parachute retirement package and run before Stellantis ceases to exist thanks to his awful leadership. Where else can you be a totally worthless asshat CEO leader and still leave with big bucks long after you should have been fired, but in America? Corporations truly suck.
When the head of a major automaker speaks…
I change the channel.
Much like Alex Lifeson’s famous RRHOF speech, it’s all blah blah blah.
Ah, the good ol’ steal the IP and resources trick! Unfortunately business with China works a certain way. They steal your IP and in return, send back cheap imports built with mistreated labor. They hate it when countries try and reverse that flow.
Shh, don’t tell anyone, but the Chinese market is shrinking, slowly but surely. Given enough time, the only cars on the street will be Changlis driven by pensioners who managed to save enough money to survive 😉
Tavares is likely talking about Tesla under the (probably mistaken) assumption that the bubble is going to burst (or at least the assumption that some investors are going to be nervous hanging onto something overvalued). But Tesla has been overvalued for a long time, and it’s hard to call it a bubble any longer. For it to lose enough value to be a prime acquisition target is going to take a massive crash in value, and they could lose money on every car for some time without tanking at this point.
Alternatively, he is just talking in hypotheticals. A race to undercut each other on prices could allow a company to become a prime target for a takeover. Not any company in particular, but whoever ends up losing too much money in an attempt to capture market share.
Regardless, it’s just a lot of bluster to make Stellantis sound better than competitors while justifying high prices. If you imply that others are going to struggle because of lower prices, it may convince investors to push up your value and improve your overall position. And it might make consumers more likely to trust you, but that’s just a side benefit.
Which recession, exactly? The one that was supposed to happen in 2023? That businesses all used as an excuse to reduce bonuses and raises? The one that never happened because no one actually knows how to predict these things?
This is similar to referring to “these level 5 autonomous cars”. Just because someone predicted it doesn’t mean it will actually happen, or happen when they said it would.
I mean, we won’t really know if there was or wasn’t a recession for a few quarters.
Sure, one could happen. But right now we have (to my knowledge) no meaningful economic data to show that we are in a recession so referring to “this recession” is like referring to Jason’s “reliable car”. Theoretically possible, but there’s no evidence to support it at this time. 😉
We’re usually able to will recessions into existence by talking endlessly about the coming recession. Interesting that this one either didn’t happen, hasn’t happened yet, or maybe happened a little bit but we don’t realize it yet.
Ah, someone else who knows about Steve Jobs’ ‘Reality Distortion Field’!
Lately all I’ve heard about its use is to create a recession*… and even worse, shift basic realities about the American presidential candidates. Although I think the current use is the ‘MAGA Projection Media Attack Barrier’. Ugh I hate real life, because it’s not rational life.
*some indicators have been strong, but often just depending on learned experience hinders the use of current observations.
I generally get (with sadness) companies like BMW and Lexus spitting out overstyled monstrosities for the Chinese market. Why is Infiniti doing that? Aren’t they mostly focused on the NA market? Why don’t they make some styling choices that NA customers won’t be embarrassed to be seen in?
At one point, Infiniti’s “HQ” was moved to Hong Kong as a signal they wanted to compete in China.
I’ll give you one guess as to who was in charge when they did that.
What, you don’t want to drive around in a Baleen Whale?
Obligatory 80’s song incoming:
https://www.youtube.com/watch?v=ocRVFI4EggM
Probably, market cap of $72.9 billion, and you’d have to offer a premium to get a deal done. Would be difficult
Zero chance the CCP would let that happen. Though to be fair, zero chance ANY government would let a company like BYD be acquired by overseas concerns.
Well, the United States allowed its #3 automaker to be acquired by a foreign company twice, France allowed their #2 automaker to merge into a multinational conglomerate headquartered in the Netherlands, and Italy allowed their only volume automaker to merge into same, while the UK allowed their only publicly traded automaker to be acquired by Ford
I’d think a company so well-integrated with the lithium battery R&D and supply chain is far more strategically important than any plain-jane (and in many cases, bankrupt/”in administration”) automaker.
I don’t know, Fiat is over 8% of Italy’s GDP, BYD isn’t even the biggest automaker in China
8% of a buck fifty is, what, 20 cents? 🙂
Buying a large share in BYD with board representation would be fine, I’d expect the CCP to block a complete takeover by a non-Chinese company. Though they’d probably be fine, even supportive, of a takeover by, or merger with, another big Chinese company.
Only partially tongue in cheek take: Tavares is talking about future-Stellantis. When they find that they can’t sell their bloated, overpriced EVs like the Wagoneer-o, they’ll have to slash prices and then they’ll lose profitability and be a takeover target. So basically he’s stealth-shopping for a future sugar-daddy to bail out Stellantis and provide him with a Ghosn-level Platinum parachute.
Yeah with ICE Wagoneers being $80-100k+ the EV version is going to be what $100-120k if it really comes out this year. Even with the 10-20% disc you can get on any Stellanitis vehicle it will still be priced well above almost everything else. Can’t believe it’s coming out before the Ram EV truck, not like that will be priced reasonably or sell well unless the range extender version is amazing and doesn’t push the truck price over the mountain.
Lololol
Hearts of Oak, what a great album!
Counterpoint: Betteridge’s law of headlines says, “Any headline that ends in a question mark can be answered by the word no.
As for my take and NPR’s? It depends.
I guess I can hear a bit of the MacKaye bark in Ted Leo, but say what you will about Guy, I feel like there’s no falsetto in Fugazi.
What exactly is Tesla’s profit margin these days? Even when it was insanely high, wasn’t it ~$15k/vehicle? That’s when they were selling Model Ys for Model S prices.
I’ll say it: The only good current US market Hybrid Ford has is the Maverick Hybrid. The F-150 Hybrid was in Consumer Reports Top 10 least reliable vehicles of 2023.
Ford should Team up with Toyota so they can build heavy duty e-CVTs for commercial usage. Toyota has the best e-CVT yet they can’t figure out how to put in in a Hybrid Truck like they Tundra or the new Tacoma. The Maverick hybrid already uses a licensed Toyota e-CVT. Also neither one would really take away from the other’s market share much as Toyota has almost no commercial market share for HD Trucks in the US and Ford has almost no commercial market share abroad for HD Trucks.
Stellantis not wanting to lower prices means they’re okay with their vehicles to be sitting on lots for months without being touched.
I continue to be in awe of their complete disregard for what most would consider supply and demand.
What I don’t get is Stellantis, now encompassing Fiat, Chrysler, Jeep, Peugeot, Citroen, Opel/Vauxhaul, and all their other brands, why they can’t use this world-wide company to fill the massive gaps in product they each have.
They must be pretty happy with how money is currently coming in the door to do near-nothing.
Since regulations are different in the US and EU is still costs quite a bit to get those vehicles here. Those vehicles also have not historically sold well in the US compared to their sales in the EU.
well, maybe they can use some of those profits to lobby for harmonized standards, for the US to accept UNECE standards, etc.
Agreed.
I haven’t looked at the information, but what about inventory and sales of their brands outside the US? CJDR might look awful in the US, but perhaps the other brands, and the Jeep Avenger are doing fine. Although… such a statement is awkward at an event where the Wagoneer S is one of the vehicles on the new platform being promoted. Led Zeppelin was a band, not a brand. Stop trying to float lead balloons.
LOL Stellantis and Tesla are both known for making shitty cars 😛
What I’m listening to while reading this:
https://www.youtube.com/watch?v=xALb75mMnJ0
I don’t know who Tavares is talking about but my brain kept switching to that “Tavarish” and if anybody knows anything about making/losing money on cars…
I guess Tesla is the only automaker that introduces new products as infrequently as Stellantis and has almost as long of a product cycle, so that’s probably the only one he feels at all confident in trash talking
Jaguar. Even when they are developing new product are really sloooooow.
Toyota? Nissan? Toyota platforms are old as hell. Its how you get reliable cars. You make something and then keep improving versus all new.
As for Tesla they have updated and modified nearly all the components of the vehicles, but they look like the old ones on the outside, does that mean they are stale? It seems that nobody except car blogs seem to care because all of these old platforms from Toyota, Tesla, Dodge sell like crazy.