The Chinese are moving on up in supplier rankings while Elon Musk is again in the middle of some controversy. Also, there’s a new smaller Hummer (probably) coming. It’s 2005 all over again! 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.
The Chinese Are Ready For The Future
I start today with this clip from “The West Wing” to make two points:
1. A mea culpa. I really liked “The West Wing” and it sort of led me to believe that, in politics, a righteous speech in defense of the truth could persuade the population (or individuals) to do what’s right. Clearly, we do not live in that world.
2. This clip is espousing something like economic Liberalism (not to be confused with political liberalism) and how much of that speech feels true today?
We have fairly free trade, though it’s unequal (thus the rush to build EV battery plants in America). Do your prices for everything feel cheaper? Well, no, of course not, but is that trade’s fault? We built a highly interconnected system of global suppliers and just-in-time production built on the back of containerized shipping and labor wherever it was efficient (cheap, union-free, maybe child labor). This would lower prices and stop wars!
Not quite. We built a flat world instead of a tall one only to discover that the costs of putting our supplies so far away is that if anything went wrong we wouldn’t be able to get them here. The pandemic didn’t help, of course, but the fact that Taiwan makes 65% of the world’s microchips seems like it’s been an issue.
But hey, it stops wars, right! By building a lot of connections between Russia and Europe it brought cheap gas to the continent so they could make cars and Russia got money and McDonald’s and Nissans and it all worked out.
I say all this because Beryll, a large global automotive consulting firm made up of former auto execs, has put out its annual list of biggest automotive suppliers. “Biggest” in this case is determined by revenue and the list is the normal mix of the expected Germans and Japanese (Bosch, Denso, ZF). Tires are there from France (Michelin) and Germany (Continental) and Japan (Bridgestone). Tires make sense because all cars, EVs or otherwise, need tires. What’s interesting is #10.
CATL. You may not know who CATL is, but it’s an acronym for Contemporary Amperex Technology Co. Limited. It’s a Chinese company and it jumped 24 places to crack the top 10. What does it do? From CATL:
“CATL is a global leader of new energy innovative technologies, committed to providing premier solutions and services for new energy applications worldwide”
What that means is it makes batteries. They make more batteries for cars than anyone else and its clients include Tesla and Ford, two of the world’s biggest EV companies.
What’s the biggest American company on there, you ask? Cummins, at #11. It is, historically, an engine maker and more recently an emissions equipment developer (though it is rapidly trying to diversify by building battery packs).
What does the U.S. Managing Director of Beryll’s Martin French want us to take away from all this?
“We will see a shift towards Asian auto suppliers due to the growing importance of electric vehicle battery manufacturing, IT and Infotainment,” said French. “And, if the Chinese companies can consistently continue their recent success in battery production, they will take the lead in the supplier rankings by 2028. A truly unimaginable feat just a few years ago.”
Yup. Maybe that’ll keep us from going to war over that island that makes all the chips.
Tesla Says It Is Going To Miss Deliveries Because Of Supplies (Not Demand)
Hey, boy, what a coincidence that the next part of The Morning Dump is Elon Musk complaining that Tesla isn’t going to hit its estimates because of supply chain and logistics issues. Wow, who could have seen it coming?
Per Reuters, Musk doesn’t think this is a big deal:
Chief Executive Elon Musk told analysts on a conference call there was excellent demand in the fourth quarter, addressing investors’ concerns that buyers could be discouraged by the weak global economy and high prices for Tesla vehicles.
But Tesla said some logistics challenges would persist, with fourth-quarter deliveries growing by less than 50% while production rose 50%.
“I wouldn’t say we’re recession proof, but it’s certainly recession resilient,” Musk said.
Previously, Tesla had repeatedly said it was aiming for 50% growth this year from the 936,172 cars it delivered in 2021.
He’s probably not lying, though. It’s important to clarify that with Musk’s statements because he tends to stretch the truth a lot.
(Updated for some more context because there’s some debate online as to whether it’s really supply or demand, though the explanation seems reasonable enough and it’ll take at least another quarter to sort out what’s the reality – MH) Here’s the full transcript readout and here’s the key part:
We also continue to experience margin headwinds associated with macroeconomic conditions, as we’ve discussed at length on prior calls. In particular, raw materials, logistics, and foreign exchange was a big part of this past quarter. On energy profitability, we achieved our strongest gross profit yet for this business, driven primarily by record volumes of our Megapack and Powerwall products. Our free cash flows were also a record despite an increase in cars in transit at the end of the quarter, which has a negative impact on working capital.
Specifically on cars in transit, as noted in our press release on October 2, we’ve started to experience limits on outbound logistics capacity which we didn’t anticipate. This issue is particularly present for ships from Shanghai to Europe and local trucking within certain parts of the U.S. and Europe. Our historical operating pattern of batch building by delivery region leads to extreme concentrations of outbound logistics needs in the final weeks of each quarter.
Just to put this in perspective, roughly two-thirds of our Q3 deliveries occurred in September and one-third in the final two weeks. As a result, we have begun to smooth the regional builds throughout the quarter to reduce our peak needs for outbound logistics. We expect this to simplify our operations, reduce costs, and improve the experience of our customers. As we look ahead, our plans show that we’re on track for the 50% annual growth in production this year, although we are tracking supply chain risks which are beyond our control.
Whatever issues they have, Tesla makes great cars that are the most in-demand ones in the world, and the company is the most valuable brand in the world. It will deal with its logistical issues and it will continue to grow, pending anything super weird happening.
And it’s an American company and Elon Musk is nothing if not a great, patriotic American.
American Government Reportedly Considering A Security Review For Elon Musk Over Things
Welp. According to Bloomberg the White House is maybe gonna want to test my last theory:
US officials have grown uncomfortable over Musk’s recent threat to stop supplying the Starlink satellite service to Ukraine — he said it had cost him $80 million so far — and what they see as his increasingly Russia-friendly stance following a series of tweets that outlined peace proposals favorable to President Vladimir Putin. They are also concerned by his plans to buy Twitter with a group of foreign investors.
I’m hoping Elon Musk isn’t trying to speed run Henry Ford’s goodwill-for-building-an-awesome-American-company-to-boy-he-seems-real-friendly-with-fascist-invaders move.
I love Twitter and in some ways I worry about what Musk will do with it, and I’m reminded of the time I emailed Musk (long ago this was a thing that very occasionally happened) to invite him to a party on behalf of Gawker founder Nick Denton and, oh, I may have just compared him to Richard Nixon. Musk accepted the invite and signed the email “Nixon,” which was pretty funny. Musk sometimes acts like an 18-year-old boy who never grew up and sometimes it works because 18-year-old boys are occasionally funny.
I’m hopeful that if push-came-to-shove that Musk would actually do the right thing, as Henry Ford eventually did. And I’m not sure the Nixon comparison is fair anymore because, well, Nixon recognized the real threat Russia posed.
GM Might Build A Smaller Hummer EV
America is still going to build EVs with or without Musk! We’re going to build the most American EVs ever! We’re going to build some more Hummers! Just maybe ones that aren’t 9,000 pounds and $100k+.
This one comes from Automotive News and it’s really not much of a surprise:
A smaller, electric Hummer is still a design concept in GM’s California studio, but has a good chance of going into production and is seen as a priority project, said the people, who asked not to be identified because the plans are private. GM already builds the large electric Hummer pickup and will begin building a full-size SUV early next year.
Hummer is emerging as a key piece of GM’s electric-vehicle strategy. The company has said it’s spending $35 billion to build 30 EVs by 2025. It’s breaking into the market by appealing to high-end customers with pricey EVs from Hummer and Cadillac and offering lower-priced models to fleet buyers, allowing the automaker to build sales volume and manufacturing scale.
It’s a sound plan, as far as GM plans go. While Hummer was too weird and ill-timed for its introduction (though it was the perfect automotive consumer brand for the Bush era [Editor’s Note: And it would have been the perfect consumer brand to launch this decade to fight the new Jeep Gladiator, Wrangler, and Bronco. In fact, I once wrote that the “The Hummer H3T Is America’s Dream Truck but It Came Ten Years Too Early.” The Colorado ZR2 is remarkably similar if you look at the specs, except it is two cylinders worse. -DT]. their best product, in my mind, was the Hummer H3T. Sure, it was a dressed up Chevy Colorado, but a dressed up Chevy Colorado is a good thing! In particular, the H3T Alpha seems like it was a great truck.
Whelp, time to drop the lid on this issue of The Morning Dump. The one thing I didn’t get into above regarding free trade is NAFTA (the North American Free Trade Agreement). Ross Perot, a magical nymph who sounded like every East Texas Auntie combined, said it would be bad. Bill Clinton and George Bush said it would be good. Was it good? Was it bad? Good for whom? Bad for whom?
Photo credits: Top (CATL), Tesla, Tesla, GM