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Auto File: The Deflating EV Technology Bubble  

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Nov 17 -Joe White

Global Autos Correspondent

Greetings from the Motor City!

The end of the year is a festive season, but it’s also a time when auto industry executives take stock of how bold plans they made when the year was new have played out. Reality check season – like Black Friday sales – is starting early this year. It’s no time to be a turkey – especially one that is losing money.

There’s good news, too. Just in time for Christmas, United Auto Workers union members at GM, Ford and Stellantis are on the verge of ratifying new contracts that will deliver double-digit pay raises and $5,000 ratification bonuses. (Ho! Ho! Ho!)

And for the first time in a long time, new vehicle prices are going down. Well, just a little.

Have a great weekend!

Today –

  • GM, Geely re-think big bets on EVs and tech

  • What comes after the UAW contracts get ratified

  • Tesla’s union troubles

Crunch time for high-tech EV dreams

General Motors warned Thursday that it may have to slash the value of its Cruise robo-taxi operation now that ambitious revenue and service expansion timelines have become inoperative.

GM also announced it is abandoning an effort to stand up its BrightDrop electric commercial van operation as a separate entity (with Silicon Valley startup IPO dreams.) The tech entrepreneur hired to run the business is leaving.

Chinese automaker Geely on Thursday sold some of its stake in Sweden’s Volvo Cars at a below-market price. The move came three weeks after Volvo Cars CEO Jim Rowan tried, and spectacularly failed, to persuade investors that margins on Volvo EVs would rise.

Rivals – including the Polestar EV brand which is part-owned by Volvo and uses its technology – were saying the opposite. Volvo Cars shares have lost 12% of their value in two days.

These events are more signs of the collapse of automakers’ efforts to convince investors that the EV revolution will transform them into high-growth technology companies.

Two years ago, GM CEO Mary Barra and other top executives told investors the automaker was transforming itself into a “platform innovator” with a goal generating $80 billion a year revenue from new, non-traditional businesses by 2030.

Investors have concluded instead that automakers are incinerating value with forays into robo-taxis, Silicon Valley-inspired concepts such as BrightDrop and “all-in” electrification strategies that eclipse profit-making combustion vehicles.

GM shares are now hovering at three-year lows and are roughly 15% below the $33 a share 2010 post-bankruptcy IPO price. This is not just a GM issue. Ford, Volkswagen, Mercedes – it’s been a rough year for all of them.

As always, what happens next is the most important thing.

Cruise CEO Kyle Vogt told employees the company had to stop buying virtual shares granted in lieu of an IPO. The regulatory and political backlash following accidents involving Cruise robo-taxis, and the suspension of Cruise operations, has "materially changed the situation that existed at the time of the last valuation."

Cruise has less than nine months of cash left. GM has said it has plans to continue funding the business. GM has yet to map out in detail what Cruise’s future will be, its new valuation and what impact that revaluation will have on GM’s finances.

As for BrightDrop, GM said it will retain the brand, but the vans and the software services will now be sold through its mainstream commercial vehicle operations. This allows for cost-cutting. For example, outgoing BrightDrop CEO Travis Katz had a vision of a stand-alone company with its own dealer network. The expenses related to that concept are no longer required.

Essential Reading

  • U.S. CEOs give Xi Jinping a standing ovation

  • Company lobbying undermines climate pledges

  • A look under the hood of U.S.-China ties

UAW clinches record deals. Now comes cost-cutting

United Auto Workers President Shawn Fain has powered past the doubters once again, clinching ratification of new contracts negotiated with General Motors, Ford and on Friday, Stellantis.

That’s good news for 150,000 UAW workers at the Detroit Three who will get big pay raises and holiday-season signing bonuses. But the UAW contract drama is not over.

Look for the Detroit Three to start outlining plans to cut costs to offset the 25% + wage increases negotiated in the new contracts. Stellantis has already got that ball rolling with a salaried staff buyout.

Part of the cost-cutting will likely involve redoubled efforts to push back expensive climate emissions mandates proposed by the Biden Administration.

As for Fain, he’s already begun the campaign to organize non-union auto factories run by Tesla, Toyota and other Asian and European manufacturers.

Underestimating Fain has been a good way to lose bets during the past six months. But don’t underestimate the determination of Elon Musk or less openly pugnacious employers such as Hyundai to keep the UAW out by any means necessary.

The LA Auto Show and look-alike SUVs

The Los Angeles Auto Show starts today and judging from the pre-show new model unveilings this week, show-goers are going to face a challenge: Remembering which of the multiple SUVs on display is which.

This is an industry challenge. Kia to Toyota to Lucid, the Los Angeles show debuts illustrate how hard it is for automakers to fight the tyranny of aerodynamics – crucial to EV efficiency – to create distinctive vehicles.

Quick take on the EQE: The pillar-to-pillar dashboard screen array is remarkable and so immersive that the “don’t be distracted” disclaimer that pops up when you hit the start button makes me laugh. My friends dissolved in laughter when they heard the “Death Star” whale sounds the vehicle makes when you use the remote key to shut down or unlock the vehicle.

The EQE AMG is extremely fast – but it does not deliver the visceral sensations of an AMG combustion engine.

But this vehicle has one other issue: In chilly Michigan late fall weather, the battery range after hours on a Level 2 charger was just 232 miles.

Will your next car be Prime?

Amazon will start offering Hyundai vehicles for sale on its website starting early next year. Investors dumped shares in AutoNation, Carvana and Carmax after the announcement.

Customers will still have to take delivery from a Hyundai store. But allowing consumers to configure and finance a car on Amazon’s website threatens the opportunity for dealers to take profits on financing and add-ons. (Dealers still get fat service profits.)

Against that backdrop, dealers are flexing their muscles in Washington. A House committee convened a hearing to beat up on the Federal Trade Commission for proposing limits on what the regulators call “junk fees” imposed by dealers.

Fast Laps

Tesla is having union problems – in Sweden. Swedish port workers are refusing to process Tesla vehicles in support of a strike by unionized Tesla mechanics.

China’s automated vehicles are under fire from U.S. lawmakers concerned about the sensitive data that Chinese AV startups could be collecting as they test vehicles in the United States.

Hyundai and Kia must deal with lawsuits filed by insurers who want the affiliated automakers to pay them $1 billion for losses blamed on inadequate anti-theft systems. A judge refused the automakers’ plea to dismiss the cases.

The Biden administration is offering $3.5 billion to subsidize U.S. production of EV batteries and battery materials.

Panasonic wants to unload a stake in its automotive cockpit systems business to private equity firm Apollo.

Auto File is published on Mondays, Wednesdays and Fridays. Think your friend or colleague should know about us? Forward this newsletter to them. They can also subscribe here.

Editing by Alexander Smith


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