Elon Musk Says Chinese EVs Could ‘Demolish’ Rivals If The Government Lets Them

Good morning! It’s Thursday, January 25, 2024, and this is The Morning Shift, your daily roundup of the top automotive headlines from around the world, in one place. Here are the important stories you need to know.

Walter Isaacson On Elon Musk(s)

Contents

1st Gear: Musk Knows Trade Barriers Are The Only Things Stopping Chinese EVs

Tesla CEO and disliker of government intervention Elon Musk said that Chinese EV automakers will “demolish” global rivals without trade barriers. Comments like these show the pressure U.S. electric vehicle makers face from Chinese automakers like BYD, the world’s top-selling EV brand. From Reuters:

Chinese car companies were the “most competitive” and “will have significant success outside of China, depending on what kind of tariffs or trade barriers are established,” Musk said on a post-earnings call with analysts on Wednesday.

“If there are no trade barriers established, they will pretty much demolish most other car companies in the world,” he said. “They’re extremely good.”

Asked about Musk’s comments, the Chinese foreign ministry said at a regular briefing on Thursday that it was unaware of the reports but advocated “maintaining a fair, just and open business environment”.

Musk has reason to be concerned.

He sparked a price war last year to woo consumers hit with high borrowing costs, in turn squeezing Tesla’s margins and worrying investors. On Wednesday, Musk warned Tesla was reaching “the natural limit of cost down” with its existing lineup.

[…]

But Chinese EV makers, adept at keeping costs in check with a stable supply chain, are moving fast. With rising competition and excess capacity in China, many are now working on rapidly expanding their foreign footprint after years of state subsidies helped boost domestic sales.

Regardless of all of this, brand awareness for Chinese car companies in the U.S. is extremely low, and Reuters reports that their reliability, durability and safety are less than great. Because of that, they’ve got a long way to go to win U.S. market share.

Both President Joe Biden and not-President Donald Trump have signaled that they will not make life easy for Chinese automakers that want to bring their cars to the U.S.

2nd Gear: FAA Limits Boeing 737 Output

The Federal Aviation Administration has given Boeing both some good news and some bad news. The good news is it has cleared the way for grounded 737 Max jets to resume flying after airlines finish their inspections. The bad news is the FAA is putting limits on production for Boeing’s jet.

737 Max 9s have been grounded since January 6 (a day of freedom) after a door plug famously ripped away from a plane’s fuselage at 16,000 feet. Not good. From the Wall Street Journal:

“We will not agree to any request from Boeing for an expansion in production or approve additional production lines for the 737 MAX until we are satisfied that the quality control issues uncovered during this process are resolved,” said FAA Administrator Mike Whitaker.

The FAA said its production limits affected Boeing’s 737 MAX, not other commercial aircraft it makes. The agency said it would freeze MAX production rates at current levels. Boeing has been producing about 30 of the jets a month at its Renton, Wash., factory.

The National Transportation Safety Board, which is leading the U.S. government’s main probe of the blowout, is still investigating what caused it and might not issue its conclusions for months.

Before they are allowed to fly again, the FAA said, MAX 9 jets will go through a more rigorous maintenance process that includes inspection of specific bolts, guide tracks and fittings and detailed visual inspection of both door plugs. Carriers will also need to tighten fasteners and fix any problems they find.

Whitaker said the “exhaustive, enhanced” review, which included scrutiny from a board of safety experts, has given the FAA confidence to allow the work to go forward.

“However, let me be clear: This won’t be back to business as usual for Boeing,” he said.

The groundings have hit both Alaska and United Airlines, two of the largest 737 Max 9 operators, very hard. United says the jet accounts for about 8 percent of its total capacity, and it said the groundings would likely add to first-quarter losses.

United says it is ready for the Max 9 to return to scheduled service on January 28. Alaska said its first planes will resume flying on the 26 after a 12-hour inspection is done on each plane.

3rd Gear: $50 Billion In Tesla Valuation Wiped Away

Tesla stock has dropped more than 8 percent since CEO Elon Musk warned sales growth would slow this year even though the Austin, Texas-based automaker has cut prices and hurt margins. Investors at the world’s most valuable automaker are, well, concerned. From Reuters:

Musk said growth would be “notably lower” as Tesla focuses on a cheaper, next-generation electric vehicle to be made at its Texas factory in the second half of 2025, which is expected to spark the next boom in deliveries.

But his remarks fell flat with investors, with Tesla set to lose more than $50 billion in market value, if premarket loss hold. Its stock was already down 16.4% this month, as of last close.

“The Tesla headlines have essentially gone from bad to worse,” said TD Cowen analysts, noting that the fourth-quarter revenue and profit were also below expectations.

Shares of other startup EV makers have also fallen between 1.2 and 2.4 percent. Not good, but not nearly as much as Tesla.

The EV industry has been grappling with a slowdown in demand for more than a year and the price cuts by Tesla will likely worsen the pressure on the startups and automakers such as Ford.

“The problem for Tesla is any significant attempt to boost sales from here on will probably need to be achieved at the cost of further falls in operating margin, due to having to compete with BYD in China, as well as increased competition elsewhere,” said Michael Hewson, chief market analyst at CMC Markets.

At least, nine brokerages downgraded the stock, while seven raised their ratings. The company, on average, has a “hold” rating with a median price target of $225, nearly 9% higher than the share’s last closing price.

Tesla short sellers have made $3.45 billion so far this year, making it the most profitable U.S. short trade, according to data and analytics firm Ortex.

Some analysts say Tesla’s valuation could become tougher to justify if its sales growth and margins continue to fall. One analyst threw a dagger at Tesla, saying it is “increasingly looking like a traditional auto company.” Rough words.

4th Gear: UAW Endorses Biden’s Presidential Reelection

The United Auto Workers union is endorsing President Joe Biden for reelection this year. It’s a big win for the guy who has called himself the “most pro-union” president in history. From Automotive News:

“This November, we can stand up and elect someone who stands with us and supports our cause, or we can elect someone who will divide us and fight us every step of the way,” UAW President Shawn Fain told a crowd of applauding members. “That’s what this choice is about. The question is: Who do we want in that office to give us the best shot at winning?”

The much anticipated endorsement comes two days after Fain criticized former President Donald Trump but said union leadership had not yet made the decision to endorse Biden.

“Everything we do is up to the boardroom. … When we decide to make a decision, we’ll make the announcement,” Fain told Automotive News on the sidelines of the UAW Community Action Program conference, held this week in the nation’s capital.

In 2023, Fain said the UAW would withhold endorsing Biden until corners over the automotive industry’s transition to electric vehicles were addressed. This all happened before the union’s strike against the Big Three automakers.

While the UAW has traditionally endorsed Democrats, Fain had created some mystery to the union’s decision, saying repeatedly since last year that endorsements must be earned, not freely given. He has said the union would back politicians who demonstrated support for its priorities.

The endorsement arrives at an opportune moment for Biden as he prepares for a potential rematch with Trump, the front-runner to receive the Republican presidential nomination.

Having the support of auto workers could play a big role in key battleground states such as Michigan and Pennsylvania, both of which voted for Trump in 2016 but narrowly supported Biden in 2020.

In September, Biden became the first sitting U.S. president in modern history to join a picket line when he stood with striking workers at a GM parts depot — an extraordinary show of support for the union’s demands for higher wages, better benefits and job security amid an industry shift toward EVs.

This election season is really getting spicy. Well, as spicy as it could be between two decrepit old men we already had to choose between four years ago. Eh, what does it matter? This is the last election anyway.