EV Makers Losing Hundreds of Thousands of Dollars On Every Car

Photo: Steve DaSilva

EV startup costs are skyrocketing, Elon Musk is going to trial over Tesla pay, and the chip shortage may be starting to ease up. All that and more in The Morning Shift for Friday, November 11, 2022.

1st Gear: EV Startups Are Being Hit With High Costs

Who would’ve thought that precious metals, needed for building batteries, would be so dang precious? It’s that time of year again, when automakers trot out their Q3 balance sheets, but costs have spiked for 2022 — and small EV makers are hit the hardest. From Reuters:

Every time Lucid Group Inc (LCID.O) or Rivian Automotive Inc (RIVN.O) sells an electric car, they are losing hundreds of thousands of dollars due to staggering raw material and production costs, their latest earnings statements showed.

Quarterly reports from electric vehicle (EV) makers from the past two weeks show them struggling to hit delivery targets and rapidly burning through cash.

Lucid’s cost of revenue surged to $492.5 million in the July-September quarter from $3.3 million a year earlier, and its losses widened as customers canceled orders fearing long wait times.

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Canoo Inc (GOEV.O) said in May it had “substantial doubt” about remaining a going concern. At the end of September, it had $6.8 million in cash and equivalents, down sharply from $415 million a year earlier.

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Rivian, backed by Amazon.com (AMZN.O) and Ford Motor (F.N), had $13.8 billion cash on hand at the end of September. It also has a contract to supply 100,000 electric delivery vans to Amazon. But its cost of goods sold was about $220,000 per car versus an average selling price of $81,000 in the quarter, CFRA estimated.

According to Rivian’s most recent SEC filings, the company’s third-quarter costs jumped from $83 million in 2021 to nearly $1.5 billion in 2022. That’s an absurd jump in costs, but not an unbelievable one — lithium prices have blown up like an earthbound asteroid.

2nd Gear: Elon Musk Goes To Trial Over Tesla Pay

Elon Musk makes a lot of money from Tesla. Too much, according to at least one major investor — who’s asked a court to make Musk give the money back. Maybe the Twitter buyout raised questions about how Musk was really spending his time behind that CEO desk. From Reuters:

Tesla CEO Elon Musk is scheduled to take the stand this week to defend his $56 billion pay package against shareholder allegations it was rigged with easy performance targets and that investors were duped into approving it.

A Tesla (TSLA.O) shareholder hopes to prove during the five-day trial that Musk used his dominance over the electric vehicle maker’s board to dictate terms of the 2018 package, which did not even require him to work at Tesla full time.Tesla CEO Elon Musk is scheduled to take the stand this week to defend his $56 billion pay package against shareholder allegations it was rigged with easy performance targets and that investors were duped into approving it.

A Tesla (TSLA.O) shareholder hopes to prove during the five-day trial that Musk used his dominance over the electric vehicle maker’s board to dictate terms of the 2018 package, which did not even require him to work at Tesla full time.

The shareholder, Richard Tornetta, has asked the court in Wilmington, Delaware, to rescind the pay package, which is six times larger than the top 200 CEO salaries combined in 2021, according to Amit Batish of Equilar.

Musk and Tesla’s directors, who are also defendants, have denied the allegations. They argued the pay package did what it aimed to do — ensure the entrepreneur successfully guided Tesla through a critical period which helped drive the stock 10-fold higher.

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$56 billion is a truly incomprehensible amount of money. Yet, Musk needed loans and other backing to spend $44 billion on Twitter — what happened to all the billions he “earned?”

3rd Gear: The Chip Shortage May Be Improving, Ever So Slightly

Ah, microchips, our old friend. Supplies have been short for years, causing automakers to limit production and ration parts. Now, though, it seems like carmakers are cutting fewer models — showing an increase in chip supplies. From Automotive News:

The estimated number of vehicles axed from automakers’ production plans this year because of the microchip shortage fell slightly last week.

In its latest estimate, AutoForecast Solutions said 3.9 million vehicles have been cut by automakers worldwide this year, a slight improvement from the 3.93 million units it reported a week earlier.

The numbers are a welcome reprieve for the industry. Looking ahead, microchip availability could improve next year as demand in other sectors eases, said Sam Fiorani, AFS vice president of global vehicle forecasting.

Tracking the chip shortage by its result of “unproduced cars” is a little backwards, but maybe the best way to show its effects on the automotive market. Hopefully, this trend continues — and supplies start returning to normal.

4th Gear: Honda and Nissan See Blue Skies, Through the Tears in Their Eyes

The past couple years haven’t been perfect for carmakers. Production limits, constant lockdowns, and ever-shifting customer whims have made it difficult to just build and sell cars. But, through that pressure, Honda and Nissan claim to have become diamonds. From Automotive News:

Two big Japanese carmakers are sounding upbeat as they raise full-year earnings forecasts, citing progress in sorting out the semiconductor shortage and improved profitability.

Honda Motor Co. says the worst of the microchip crisis is over, while Nissan Motor Co. says a rush of new product has underpinned a healthier model mix and lower incentives.

Both companies delivered their assessments last week while announcing fiscal second-quarter earnings. Citing a brisk tail wind from favorable foreign exchange rates, the companies also lifted profit outlooks for the current fiscal year ending March 31, 2023, as revenue surges.

As chip supplies start to recover, it’s unlikely automakers will flood the market with pre-pandemic numbers of cars. But they may be able to start actually meeting customer demand — and getting enough supply out that dealers can no longer justify those markups.

5th Gear: GM Thinks EVs Will Be Profitable By 2025

EVs are the future of the automotive world, but so far they haven’t proven to be a profitable future. Costs are high, production is low, and customers still need to be sold on the idea of an EV over an ICE vehicle. But in the next few years, GM sees that all starting to change. From Automotive News:

General Motors plans to tell investors that the company expects its electric-vehicle program to be profitable in 2025, the same year it’s targeting sales of 1 million battery-powered cars, people familiar with the matter told Bloomberg.

CEO Mary Barra will outline a plan at GM’s Nov. 17 investor day to show how the automaker can cover investments for battery plants and assembly, and build the Ultium battery program’s margins.Executives also plan to detail GM’s push to go from selling just about 44,000 EVs this year in the US — at a loss — to profitably becoming one of the nation’s biggest EV producers, said the people, who asked not to be named because the presentation hasn’t been made public.

After years of development, GM is signaling it’s finally ready to start producing EVs in enough volume — with a new battery pack — to grow sales and start lowering costs. Its push into EVs is expected to get underway in earnest next year when its mass-market Chevrolet brand starts selling a battery-powered Silverado pickup and more-affordable Blazer and Equinox electric crossovers.

Last week, Volvo made a similar proclamation, eyeing 2025 as the point where EVs become price-competitive with ICE cars. When multiple automakers start agreeing, the signs start pointing to ‘Yes.’

Reverse: From Hell’s Heart I Stab at Thee

Neutral: Home for the Holidays

I’ll be heading out to visit family for Thanksgiving next week, but I’m still undecided about just how to do that. On the one hand, I could spend $20 on a train ticket. On the other, I could get a full set of heated motorcycle gear, and ride out on my dinky little GS in 50-degree weather. One of these is clearly safer and cheaper, but the other might make a better blog. Which option would you pick?

On The Radio: TV On The Radio – “Happy Idiot”

TV On The Radio – Happy Idiot (Official)