Inflation and a European energy crisis could make car parts more expensive, the EU isn’t happy about the Senate’s EV credit proposal, Mercedes-Benz reportedly kills the Metris. All this and more in today’s issue of The Morning Dump.
Welcome to The Morning Dump, bite-sized stories corralled into a single article for your morning perusal. If your morning coffee’s working a little too well, pull up a throne and have a gander at the best of the rest of yesterday.
Things Are Looking Bad For European Automakers And Parts Suppliers
Between inflation and an energy crisis, now seems to be a particularly rough time for European automakers and suppliers. Bloomberg reports that increased costs and decreased customer demand is creating choppy waters in Europe.
Customers are debating whether to buy a vehicle or push the leasing contract ahead a month over concerns including surging energy prices, Frank Fiedler, the chief financial officer of VW Financial Services, said on Monday. That follows warnings from BMW last week that new-vehicle orders are retreating from high levels, particularly in Europe.
While Continental confirmed its outlook for the year on Tuesday, the German parts maker said it has to shoulder some €3.5 billion ($3.6 billion) in additional costs for raw materials, energy and logistics, with prices for overseas shipping containers jumping eightfold in some cases.
Continental CFO Katja Duerrfeld described conditions as “rather like a hurricane” and predicted these pressures “will not subside any time soon.”
Well, there are two ways of looking at this situation. On a positive note, a lull in Europe could give European automakers the opportunity to build up inventory in undersupplied markets. Imagine actually seeing new Volkswagen GTIs and Golf Rs stay on dealer lots long enough to test drive. On a negative note, rough conditions for suppliers could have rippling effects throughout the automotive world. Not only would an increase in OEM parts prices drive up the cost of new cars, vehicle owners like you and I could soon be paying more money for OE replacement parts. Suppliers will need to find revenue somehow, and hiking the prices of replacement parts is one avenue they could pursue. Keep a close eye on the cost of quality car parts over the next few months, I have a feeling we’ll see some increases.
The EU Says U.S. EV Credit Proposal May Violate Trade Rules
Remember that recent Senate deal about tax credits for electric cars? The one with stipulations for U.S. origin of battery components? Well, a growing number of critics are unsurprisingly opposed to that protectionist measure. Reuters reports that the European Union thinks the tax credit proposal may breach World Trade Organization rules.
“We think it’s discriminatory, that it is discriminating against foreign producers in relation to U.S. producers,” said European Commission spokesperson Miriam Garcia Ferrer. “Of course this would mean that it would be incompatible with the WTO.”
Garcia Ferrer told a news briefing the EU agreed with Washington that tax credits are an important incentive to drive demand for EVs and promote the transition to sustainable transport and a reduction in greenhouse gas emissions.
“But we need to ensure that the measures introduced are fair and … non-discriminatory,” she said. “So we continue to urge the United States to remove these discriminatory elements from the bill and ensure that it is fully compliant with the WTO.”
While I’ve never been an elected official, “don’t piss off your trading partners” is likely a good rule to keep in mind when running a country. If the EU isn’t happy about this tax credit proposal, I have a feeling that America’s USMCA partners likely aren’t happy either. If the proposal is judged to violate trade agreements, that could represent a significant roadblock for EV tax credit expansion.
Mercedes Is Reportedly Killing The Metris
It’s a sad week for the commercial van community. Automotive News reports that an internal memo says Mercedes-Benz will kill the Metris towards the end of next year.
The automaker told dealers in a memo Thursday it will discontinue sales of the four-cylinder gasoline engine that powers the Metris and Sprinter commercial vans.
“As a result, the Mercedes-Benz Metris and gasoline Sprinter models will no longer be offered in the U.S. market after Q3 2023,” the brand’s U.S. vice president of commercial vehicles, Nicolette Lambrechts, said in the memo obtained by Automotive News.
While it’s a bit of a shame to see the Metris ride off into the sunset, I can’t say I’m terribly surprised to see it go. While the Metris was a wonderful size and generally quite practical, it’s been around since 2015 and businesses haven’t been especially receptive towards it. Plus, crankcase ventilation valve replacement calls for around 12 hours of billable work, an obscene amount of labor for a common replacement on these vehicles. The Metris may fit in parking garages and be fairly comfortable, but cost of ownership and downtime really matter to fleets.
I’m also not terribly surprised that the gasoline-powered Sprinter is being phased out. The M274 engine shared with the Metris has largely been superseded by the M264 across most of the Mercedes-Benz passenger car range. While the death of a Mercedes van may be sad, it precedes the birth of another. Expect an electric Sprinter to make its way over to North America in the next few years.
Rivian Sees A Larger Second-Quarter Loss Than Expected
It’s no secret that market downturns hit startups the hardest. While established automakers generally keep their balance sheets in the black, startups are burning tons of cash scaling up production. Case in point, Rivian. Reuters reports that Rivian’s financial performance through the second quarter is both better and worse than expected. Let’s start with the good news.
Revenue was $364 million in the second quarter, compared with the $337.5 million expected by analysts, according to IBES data from Refinitiv.
While an extra $26.5 million in revenue is good news, it doesn’t really offset the losses that Rivian expects to announce.
Rivian said it now expects to post an adjusted loss before interest, taxes, depreciation and amortization of $5.45 billion, compared with a previously projected loss of $4.75 billion.
Still, Rivian built fewer than 7,000 vehicles in the first half, but reaffirmed its full-year target of 25,000.
The Irvine, California-based company said it plans to add a shift to its Normal, Illinois, assembly plant by the end of the third quarter, but also noted that it expects higher raw material costs and other supply-chain challenges to continue.
So, not great news overall, then. An extra 700 million in losses doesn’t sound particularly promising, which is a bit of a shame. It sucks to see a startup in a tight spot, especially when it’s already delivering production vehicles to customers. Here’s hoping that Rivian eventually sees a tighter delta between revenues and losses because the R1T really does look brilliant.
Whelp, time to drop the lid on today’s edition of The Morning Dump. I’d love to be able to ask everyone a question related to the news and be able to read all your responses in a timely manner, but I’ll actually be in the air by the time you read this. So, in the free-for-all spirit, I’d love to know what your favorite thing is about your current daily driver.
Lead photo credit: Continental AG