If Mercedes' EVs Take Off, It'll Have its Formula 1 Team to Thank

Mercedes-Benz says its future EVs will rely on tech that won it so many Formula 1 titles, the good news keeps on rolling for Hyundai and Uber and Toyota and Nissan have soul searching to do in China. All that and more in this edition of The Morning Shift for Tuesday, May 2, 2023.

1st Gear: Racetrack to Road

Automakers love to tell the public that the clever, cutting-edge engineering behind the cars they campaign in motorsport inform the vehicles regular folk like us can eventually buy. It’s an easy marketing story, but there’s a little more truth to it in Mercedes’ case, because the German automaker has been active in Formula 1 for more than a decade, and F1 has been using electric motors for most of that span. Also, Merc has won many championships. Here’s how the company’s learnings from competition helped it squeeze the maximum efficiency out of the EQXX’s energy system, courtesy Reuters:

[Mercedes AMG High Performance Powertrains (HPP)] director Adam Allsopp said he took the call from Mercedes headquarters in Stuttgart that kickstarted the EQXX project standing in a former cowshed while on holiday on the Isle of Wight in August 2020. It came with a clear, tough challenge – build an EV capable of driving 1,000 km on a single charge.

F1 fuel limits imposed in 2014 forced HPP to develop engines and cars that squeeze the most out of every drop and to “chase every single watt of loss” from two electric motors, Allsopp said. […]

Applying that racing mindset, F1 engineers in Brixworth and nearby Brackley worked with a team in Stuttgart to produce the EQXX – using a flexible approach that allowed the team to move forward with development before the EV’s batteries were ready and then adapt plans when they were.

The EQXX featured a battery pack half the size of Mercedes’ flagship EQS SUV, compact electronics hardware and new operating system. Coupled with sleek aerodynamics, that allowed it to drive more than 1,200 km from Stuttgart to Silverstone in England on a single charge, spending 8.3 kilowatt hours (kWh) of energy per 100 km.

Now, I don’t mean to dismiss Mercedes’ achievement here, but the EQXX is but still a concept, and the hard work the F1 powertrain crew put into it hasn’t made its way to any production Silver Arrows EVs yet. That could change as soon as next year, based on a statement CEO Ola Källenius made at a roundtable, quoted by The Drive in 2022. Chief Technology Officer Markus Schaefer doubled down on that timeline to Reuters, saying that the company is in the process of converting its global plants to the Mercedes Modular Architecture platform, which will incorporate aspects of the EQXX’s next-generation tech:

To maintain speed for bringing elements of the EQXX to mass production in 2024 on its new compact Mercedes Modular Architecture (MMA) vehicle platform, the German carmaker has developed a digital model of its plant in Rastatt – the same car will also be built in Hungary and China – to “simulate the assembly process,” and thus accelerate the physical changeover of the plant to build the new EVs, CTO Schaefer said.

Traditionally, carmakers have conducted “mid-life” upgrades on vehicle models after three or four years, but Schaefer said “updates to EVs will be way more frequent.”

Remember when Volkswagen made that plug-in turbodiesel two-seater than went 240 miles on a gallon of fuel and also cost approximately a billion dollars? It’d be really nice if these ultra-efficient testbeds were actually normal, reasonably priced cars people could buy.

2nd Gear: The Telluride Can’t Be Stopped

Automakers’ April U.S. sales results are starting to roll in, and Hyundai, Kia and even Genesis just had another solid one. Did you expect any different? By way of Automotive News:

Volume rose 15 percent at Hyundai and 16 percent at Kia last month, the companies said Tuesday.

Hyundai’s retail sales rose 5 percent to 64,895 in April, with fleet volume of 5,917, or 8 percent of total deliveries in the month.

Randy Parker, CEO of Hyundai Motor America, cited “high demand for Hyundai product” and “a diverse lineup” of crossovers, trucks and electrified vehicles for the latest results.

Hyundai said it had 49,045 cars and light trucks in U.S. stock at the end of April, down slightly from 53,119 at the close of March but up sharply from 15,809 at the end of April 2022.

Sales of Kia’s electrified vehicles rose 74 percent to 11,798 last month, while utility vehicles accounted for 71 percent of April deliveries.

Kia, with one of the industry’s lowest days supply of new vehicle, as well as a hot streak with retail buyers, continues to prioritize production for dealers while keeping fleet volumes “very modest.”

Genesis also saw sales rise by double digits with April volume of 5,857, up 16 percent and a record for the month, behind higher deliveries of the GV70 and GV80, as well as the new GV60 EV. Genesis sales have now advanced six consecutive months.

This marks the ninth-consecutive month of retail growth for Hyundai and Kia. In other news, the average incentive for a new car was 59 percent higher last month compared to the same period a year earlier, per data Auto News cited from TrueCar. Only Toyota and Honda have been stingier with the discounts over that span.

3rd Gear: A Rising Uber Lifts All Ride Sharing

Uber outperformed its first quarter revenue estimates by $100 million, driving up shares 8 percent Tuesday morning and even lifting the stock prices of its competitors, Lyft and DoorDash. From Reuters:

Uber is benefiting from its dominant position in key global markets as travel rebounds from a pandemic-induced lull. A jump in the number of people looking to gain additional income is also helping platforms such as Uber squeeze out higher profit by offering lower incentives to gig workers, analysts have said.

“Our clear lead on driver preference has allowed us to better serve this growing demand: 5.7 million drivers and couriers earned $13.7 billion (including tips) on Uber during the quarter, both all-time highs,” CEO Dara Khosrowshahi said.

After a tepid performance in the last two years, “the rideshare category in the United States and Canada is now growing faster in 2023,” he said.

Uber expects adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) – one of its closely watched financial metrics – between $800 million and $850 million for the June quarter. That was higher than analysts’ projection of $749.1 million, according to Refinitiv.

The company also forecast gross bookings, the total dollar value from its services, of between $33 billion and $34 billion, compared with the expectations of $33 billion.

The ride-hailing portion of the business grew by 72 percent alone, and Uber Eats rose by 23 percent in kind, helping the company to a record first-quarter profit. It’s a very different story from the one Uber was telling nearly a year ago, when it raked in $8.1 billion and yet still lost money.

4th Gear: To Be a Japanese Automaker in China

We’ve talked at length about how foreign makes are struggling in China by and large, even if Mercedes isn’t. The Japanese contingent of Toyota and Nissan, which used to be so well-represented in the country, are feeling the pinch the worst due in part to a lack of electric offerings. From Reuters:

Total sales of Japanese auto brands in China were down 32% year-on-year in the first quarter, more than double the pace of the overall market contraction, industry data analysed by Reuters showed.

While other automakers like Volkswagen AG have also been caught out by the sharp shift in China, Japanese automakers stand out because of their limited showing in the fast-growing category of electric and plug-in hybrid sales.

Production and margins will come under pressure in China as automakers cut output and prices of gasoline-powered cars to keep inventories in check, analysts say, in a worrying sign of the competition Japanese automakers could increasingly face outside their home market.

“Especially Japanese automakers face a little bit more inventory of new cars,” in China, Yasushi Matsui, chief financial officer at parts supplier Denso Corp, said last week. “They are making adjustments.”

Mitsubishi Motors Corp said last week it had suspended production of its Outlander SUV in China for three months and would take a charge of $77 million for slowing sales at its joint venture with state-owned GAC Group.

Mitsubishi, like some other Japanese automakers, does not break out China sales figures. Industry data analysed by Reuters showed its first-quarter sales in China fell by 58% from a year earlier.

In another shift, Nissan’s Sylphy, a sedan that had been China’s top-selling vehicle for three years, was edged out last year by the BYD Song, a plug-in hybrid made by BYD, China’s top automaker.

The other half of this story is that at least Mercedes, for example, can count on big margins. But when China’s domestic brands have particular strength in volume, and margins are already tight on economy cars as it is, brands like Nissan surviving on cars like the Sylphy — China’s version of the Sentra — simply isn’t tenable. It’s hard to see how Japanese makes get out of this rut, unless they can swing a convincing move upmarket or catch up in tech and economies of scale real, real fast. Neither seems realistic.

5th Gear: Huawei or the High Way

Chinese tech juggernauts like Huawei hold a wealth of standard essential patents on telecom technology. Automakers need access to these patents as cars become ever-more connected, and the European Commission is starting to get nervous about that. From Financial Times:

Companies from Asia’s biggest economy, led by Huawei, have filed a deluge of patents around the essential technology that allows products, from cars to mobile devices, to access 4G, 5G and WiFi networks. Anything that connects to the internet must secure a licence for these so-called standard essential patents (SEPs) from technology creators.

Chinese companies were behind 65 per cent of filings of SEPs last year to standards body ETSI, according to data collected by Clarivate, up from 37 per cent in 2019. EU commissioner Thierry Breton this week noted that since 2014, the share of SEPs globally held by European companies dropped from 22 to 15 per cent, while Chinese companies’ doubled.

“I’m strongly urging and encouraging companies to file and file and file patents . . . Chinese companies are doing it a lot,” he said.

Breton was setting out new European Commission proposals to increase transparency and reduce litigation in the patent market, led in part by fears that competitiveness in the bloc was under threat. Under the new rules, companies would have to register their patents with the EU Intellectual Property Office, which would in turn help set licensing and royalty rates.

The move has sparked controversy among leading patent holders who fear it will create even more onerous procedures, such as registering every single patent with the new body, and reduce their access to the courts for infringement cases. This could ultimately hit their global competitiveness, they worry.

Remember when the U.S. government blacklisted Huawei from working with American firms? Or how pretty much the same thing is unfolding now with TikTok, out of an entangled mire of xenophobia and national security fearmongering? This is the other shoe falling.

Reverse: Chevrolet, A GM Company

On this day in 1918 — 105 years ago — the bowtie fell under new ownership. From History.com:

Neutral: Where Is This Wacky Old Scot Now?

This damn commercial has been mooching off my brain for almost 15 years. It’s criminal.