Tesla's Aging Cars Aren't Selling So Elon's Making Promises About AI And New Models

Good morning! It’s Tuesday, July 23, 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.

Tesla Had A Very Interesting Week

Contents

1st Gear: Musk Is Prioritizing AI Over Electric Vehicles

If Tesla CEO Elon Musk is good at one thing, it’s getting his automaker’s share price to go up or down depending on his mood. Things like a battle for more control of the company, killing off a $25,000 electric vehicle and mass layoffs caused the stock to drop 43 percent as of late April

Since then, they’ve been on an absolute tear despite the fact there hasn’t actually been any really good news from the Austin, Texas-based automaker. Still, Tesla has been able to add over $386 billion to its market cap in just 11 weeks, thanks in large part to Musk and his pivot to artificial intelligence over electric cars. From Bloomberg:

The CEO managed to get investors to pay more mind to Tesla’s potential in a future dominated by artificial intelligence than its sluggish sales and earnings at present. His astute sense of what the market wants to hear and incessant salesmanship will be put to the test after the close, when the company is likely to post lower revenue for the second quarter in a row and a fourth-straight drop in profit.

“The real game-changer for Tesla’s valuation lies in Musk’s ability to convincingly position the company as a leader in AI and autonomous technology,” said Adam Sarhan, founder and chief executive officer at 50 Park Investments. “This narrative shift is critical for justifying Tesla’s premium valuation compared to traditional automakers.”

Tesla’s unpredictable shares have long been at the whims of the CEO’s charisma and controversy, and investors appear to be bracing for more of the same heading into another set of earnings.

Options trading implies the stock could be headed for an 8% move in either direction off the second-quarter results, with Musk likely to further address Bloomberg’s July 11 report that the company had postponed an unveiling of robotaxi prototypes that had been slated for August.

While Musk has confirmed that he asked for “an important design change” to the front of the vehicles, he didn’t elaborate on the alteration or say how much extra time the company needed to get the cars ready.

“Tesla’s Q2 print will likely be a tough call for investors given all the moving parts,” said Tom Narayan, an equities analyst at RBC Capital Markets who rates the shares the equivalent of a buy. “Some of this move is probably related to the upcoming robotaxi event. We expect it could help change the narrative on the stock and are big believers in the thesis, but wonder how much is already priced in.”

Musk got the stock rebound going by announcing the automaker would accelerate the introduction of new models as soon as late this year. He once again dangled the ideal of a cheaper Tesla in front of investors like a carrot. Still, he did not offer much detail.

The CEO was tight-lipped about details of those vehicles and also drew a line in the sand, telling investors they shouldn’t bet on Tesla’s stock unless they believe the company is going to “solve” autonomous-driving technology.

[…]

That said, Musk’s aggressive effort to tether Tesla’s fortunes to autonomy has had its drawbacks. When Bloomberg reported this month that the company’s robotaxi unveiling would be delayed to October, the stock fell 8.4%, its biggest one-day drop since January.

“The selloff that we saw when Musk delayed the event tells me that a lot of the recent rally has been AI-related,” said Seth Goldstein, equities strategist at Morningstar.

[…]

Analysts’ average estimate for Tesla’s second-quarter earnings is roughly half what it was a year ago, though projections did inch higher in the past month, likely as a result of better-than-anticipated vehicle sales reported on July 2. The company is now expected to report a profit of 58 cents a share and revenue of $24.1 billion, according to data compiled by Bloomberg.

While many analysts point to Tesla’s AI potential as the biggest support for the stock, investors still want Musk to revive growth at the EV business while engineers work on self-driving technology. Tuesday’s results will shed light on how the company is executing on these near and long-term objectives.

“Tesla has significant attributes to be valued as an AI beneficiary, but the company must see a stabilization in the negative earnings revisions within the auto business first,” said Morgan Stanley’s Adam Jonas, who has the equivalent of a buy rating on the stock.

In a lot of ways, Elon Musk has built a complete house of cards for his stock based on promises and ideas that’ll just get kicked further down the road. In the meantime, though, enjoy the meme possibilities.

2nd Gear: Porsche Could Idle Product Lines Because Of Flooding At Aluminum Alloy Supplier

Porsche has cut its sales and profit outlook because of an out-of-the-blue aluminum alloy supply shortage caused by flooding at a facility owned by an unnamed contractor. It’s impacting the production of all its models and could possibly lead to a shutdown for one or more model lines. From Reuters:

The supplier has declared force majeure in writing, Porsche said in a statement, which means it is unable to meet its contractual obligations due to events outside its control.

Body components made of aluminium are used in all vehicle series manufactured by Porsche, and reliance on the supplier has exposed Porsche to particular risk.

Bernstein analysts said the flooding occurred at a Swiss supplier, and would lead to the production loss of at least 10,000-17,400 vehicles in the second half of 2024, the latest in a string of challenges for Porsche.

“Whether self-inflicted or genuinely outside its control, these have significantly tarnished what had been an extremely successful IPO in September 2022,” Bernstein analysts said.

“Porsche will certainly be closely questioned over its cluster risk management that has left it so vulnerable to one critical supplier.”

There are some clues as to what company it may be. Aluminum maker Constellium, which is headquartered in France, said earlier this month that facilities in Switzerland had been impacted by flooding. A U.S.-based aluminum maker, Novelis, also reportedly shut down a Swiss site because of floods.

3rd Gear: GM Had A Great Second Quarter

General Motors just put up some really strong numbers for the second quarter of 2024, easily beating expectations with Q2 net income up 14 percent year over year to $2.9 billion. Net revenue was also up 7 percent over last year to $47.9 billion. Those are some big boy numbers. From The Detroit News:

For the second consecutive quarter, GM increased its guidance for the year to adjusted earnings in the range of $13 billion to $15 billion, up from $12.5 billion to $14.5 billion. GM also increased its adjusted automotive free cash flow to a range of $9.5 billion to $11.5 billion, up from $8.5 billion to $10.5 billion. The financial guidance includes capital spending of $10.5 billion to $11.5 billion.

The automaker expects its net income for the year will be between $10 billion and $11.4 billion, slightly below the $10.1 billion to $11.5 billion previously forecasted.

GM reported adjusted earnings before interest and taxes of $4.4 billion, up 37% year-over-year. GM’s adjusted earnings per share of $3.06 was above the average Wall Street estimate of $2.72. GM’s revenue also beat the Street’s average estimate of $45.3 billion. GM’s net income margin for the quarter was 6.1%, up from 5.7%.

Pretax earnings in GM North America totaled $4.4 billion in the quarter. GM International’s pretax earnings were $50 million. GM reported a $104 million loss of equity income in China after the automaker and its partners reported a 29% drop in sales there in the second quarter. GM and other U.S. automakers are struggling in the country with increasing domestic competition and changing consumer behavior there.

Having such a strong second quarter helped GM to post a really robust first half of 2024. It’s nice to see a small automaker like General Motors winning every once in a while.

For the first half of 2024, GM’s net income of $5.9 billion was up 19% year over year on revenue of $90 billion, which was up 7%.

“It was truly a great first half,” GM CEO Mary Barra wrote in a letter to shareholders. “And we have the products, discipline and strategies to drive future success.”

The results come after GM in early July posted the best quarter for U.S. sales since the fourth quarter of 2020. GM’s U.S. dealers sold 696,086 new vehicles from April through June compared with 691,978 vehicles a year ago. In the first half of 2024, GM sold 1,290,319 vehicles, down 0.4% year-over-year.

GM’s second-quarter EV sales of 21,930 surpassed the previous record of 20,000 sold in the first quarter of 2023. It sold 38,355 EVs through June.

While prepping for multiple EV launches in the second half of the year, GM in June narrowed its 2024 EV production goal by at least 50,000 units to between 200,000 and 250,000, down from 300,000.

Jacobson said the move was “100% demand driven” since the automaker overcame issues it had with battery module supply and had been “on track” to produce 300,000 EVs this year.

GM expects by the fourth quarter that its EVs will be variable profit-positive, meaning it’s able to cover the cost of producing the vehicles, when about 200,000 are produced.

Ford is set to release its second-quarter earnings on July 24, and Stellantis will follow suit on July 25.

4th Gear: UAW Seat Supplier Strike Idles GM Truck Plant

General Motors had to stop production on July 22 at its Wentzville Assembly Plant in Missouri after union workers at a critical supplier went on strike on the evening of July 21. This plant, which employs about 4,600 people and builds midsize pickups, was one of the first hit by the United Auto Workers union strike last year. From the Detroit Free Press:

Earlier on Monday, GM spokesman told the Free Press that the automaker had sent third-shift workers home early due to a parts shortage and the company was continuing to monitor the situation. But later in the afternoon, spokesman Kevin Kelly said the automaker had idled the plant.

“We can confirm that GM Wentzville Assembly Plant was impacted by part shortages resulting from a labor dispute at one of our suppliers. We hope both sides work quickly to resolve their issues so we can resume our regular production schedule to support our customers,” Kelly said in a statement.

The supplier is a Lear seat plant in Wentzville with about 500 union-represented workers who build the parts for use in GM vehicles. It seems that no other GM plants are being impacted by the strike.

A spokesman for Lear sent the following statement to the Free Press, asking it be attributed to the company:

“We have negotiated in good faith with the UAW for some time to reach a new collective bargaining agreement for our Wentzville, Missouri, seating assembly plant. Despite progress in the negotiations, the union informed us late last night of their decision to strike. Lear Corporation stands firm in supporting our employees and the communities in which we operate. With over 100 years in the automotive industry, we pride ourselves on our successful relationships with our employees and union partners. We remain committed to reaching an agreement that will benefit all parties.”

The Lear spokesman did not provide further details. The UAW provided a statement to the Free Press from Region 4 Director Brandon Campbell blaming Lear for the Wentzville shutdown.

“Shame on Lear for failing to come to a fair agreement with the 500 members of UAW Local 282 who are now forced to strike for their fair share,” Campbell said. “The company has had plenty of time to make things right, but instead spent a billion dollars on stock buybacks and dividends last year. Now Wentzville Assembly is down thanks to Lear’s refusal to bargain a fair deal.”