The Week The Global Auto Market Went Over A Cliff

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Many CleanTechnica readers have been predicting a major upheaval in the global auto market for years now, precipitated primarily by the success of the EV revolution. It’s not easy building traditional cars and trucks while also building the battery powered vehicles that will replace them. This week may mark the beginning of the end so many have been predicting for years. (Or not. Predicting the future is a damnably difficult proposition.) To the casual observer, it may seem like the coven of witches from Macbeth are standing around, muttering incantations about the car business like this one — “Double, double toil and trouble; fire burn and cauldron bubble.”

Stellantis May Prune Its Lineup

Stellantis was formed in 2021 when it smooshed together Fiat Chrysler with France’s PSA Group. At that time, CEO Carlos Tavares insisted all the brands brought together under the Stellantis umbrella would continue in business. Now, that pledge is on shaky ground. This week, Tavares told the press that he will not hesitate to put under-performing brands on the chopping block in an effort to stem the financial losses the company has been experiencing lately.

“If they don’t make money, we’ll shut them down,” Carlos Tavares told reporters after the world’s 4th largest automaker delivered worse than expected financial result for the first half of 2024. “We cannot afford to have brands that do not make money.” Stellantis does not release figures for individual brands, except for Maserati, which reported an 82 million euro adjusted operating loss in the first half of this year. Some analysts think Maserati could possibly be a target for a sale by Stellantis, while other brands such as Lancia or DS might be at risk of being scrapped also, given their marginal contribution to the group’s overall sales.

Stellantis’ shares were down on the Milan stock exchange by as much as 12.5% on July 25, hitting their lowest since August 2023. That brings the loss for the year so far to 22%, which makes Stellantis the worst performer among the major European automakers.

Nissan, GM, & Ford Take A Nose Dive

Global automakers are facing a weakening outlook for sales across major markets such as the US, while also juggling an expensive transition to electric vehicles and growing competition from cheaper Chinese rivals, according to Reuters. Nissan was hit hard by higher inventories, as its fiscal first quarter profits were virtually wiped out and it slashed its annual outlook due to deep discounting in the US market to get cars off dealer lots. Dealer oversupply is becoming a problem for several companies who sell cars in the US, a situation made worse by the CrowdStrike software debacle that made it impossible for some dealers to complete sales in the regular course of business for up to a week.

Nissan says it plans to bolster sales from new and refreshed models in the second half of 2024, including its Armada and Murano SUVs. “It’s totally unclear what vehicles that Nissan is selling in the United States are popular,” said Seiji Sugiura, an analyst at Tokai Tokyo Intelligence Laboratory. “As the competitiveness of the models in their lineup is falling, they have no other choice but to make new vehicles, sell those, and hope that they will be popular.” That hardly seems like a winning strategy for what is one of the world’s larger automakers.

Ford led a decline in major US automotive stocks this week amid disappointing results and investor skepticism around future performance, reports CNBC. Shares of Ford closed Thursday at $11.16, down by 18.4% — the stock’s worst daily decline since 2008 and the second worst performer of S&P 500 companies. Earlier this week, the company missed Wall Street’s bottom line earnings expectations due to warranty problems — a recurring issue for Ford — and continued losses from Ford Model e, its electric vehicle division.

GM beat analysts’ estimates for the second quarter of 2024 and increased its guidance for the rest of the year, but its stock was still off 8.6% this week. Wall Street was impressed with the quarter but investors balked at pullbacks in growth businesses, waning upside during the second half of the year, and fear that the automaker’s earnings power has peaked. GM has been delaying the introduction of its full size electric pickup truck, the Silverado EV, and slow walking the introduction of other electric models.

Tesla Mexico On Hold

Elon Musk told the media this week that he will not invest in the factory in Mexico for the time being, primarily because if Donald Trump wins the US election in November, he could impose tariffs on manufactured goods made in Mexico. “Trump has said that he’ll put heavy tariffs on vehicles produced in Mexico,” he told Tesla investors and analysts during the earnings call following the presentation of the Q2 financial report. “So it doesn’t make sense to invest a lot in Mexico if that is going to be the case. We kind of need to see where things play out politically. We’re currently on pause on Giga Mexico,” Musk said. “I think we need to see just where things stand after the election.”

It doesn’t seem as though Musk is in a hurry to finish the Mexican factory, which will be based in the Mexican state of Nuevo León, Electrive says. In February 2024, there were reports that the start of construction was imminent, which was already a year after it was announced. Waiting to kick off construction could be a problem. In September 2023, Tesla received the first environmental permits for the plant. However, those are based on the condition that the manufacturer has 26 months to prepare the site and start building the factory. So far, there have been no reports that construction has actually begun.

The planned investment in the factory is said to be around five billion dollars, while the production capacity would be up to one million electric cars per year. It is not clear which models Tesla was or is planning to build in Mexico. There have been reports that production would not kick off until 2026 or 2027. “However, we are increasing capacity at our existing factories quite significantly, and I should say that the robotaxi will get produced here at our headquarters at Giga Texas, as will Optimus towards the end of next year for Optimus production version two — the high-volume version of Optimus will also be produced here in Texas,” Musk added.

Musk’s announcement about the factory in Mexico came even though he endorsed Trump earlier this month. There were even rumors that he could donate up to 45 million dollars per month to the Trump campaign. However, Musk denied these rumors and said he has donated to the America PAC. Whether that money benefits Trump won’t be known until the PAC files with the Federal Election Commission in October. Why Elon would endorse anyone who intends to harm Tesla’s core business is a mystery, but we have come to expect such things from the world’s second most stable genius.

But We Do Have Good News

In the midst of all this turmoil in the auto industry, there is one bright spot. Hyundai reported record quarterly profits and revenue this week on strong sales of high-margin cars. The company said it would expand its hybrid offerings to brace for possible changes in US electric vehicle (EV) policies following the election in November. Its Q2 performance helped ease mounting investor concerns over slowing consumer demand for cars that have battered some of its rivals.

But Hyundai also warned of an uncertain outlook due to intensifying price competition as inflation and high interest rates squeeze consumers. “As consumer demand for autos is weakening, we expect there will be more competition and the amount of incentives is also likely to increase … creating a tougher business outlook,” the company said. Sales in its home market were off 10% in the second quarter.

“Even if Trump wins the election, we don’t expect the Inflation Reduction Act (IRA) to be scrapped,” Hyundai Chief Financial Officer Lee Seung Jo told analysts on an earnings call. Lee said the company continues to monitor possibilities and plans to increase hybrid lineups “to prepare for possible shrinking of the IRA package.” Hyundai said profitability of its hybrid models was similar to that of gasoline cars, highlighting the segment’s growing contribution to the bottom line as sales of pure EVs dropped almost by a quarter.

Hyundai’s vehicle sales in the US edged up 2.2% in the second quarter. High-margin SUV sales accounted for about 80% of the total while hybrid vehicle sales jumped 42% from the same period a year ago, Hyundai said.

The Takeaway

The car business is not for the faint of heart. If it’s not Covid or supply chain issues, it’s some software bug or a seismic shift in national policy. Clearly, the automotive sector is going to be chaotic for the foreseeable future, especially as more lower-priced electric cars from Chinese companies come to world markets. The conventional wisdom around the water cooler at CleanTechnica is that some well known automakers may disappear between now and 2030. Which ones will pass from the scene we cannot say with certainty, but the earnings reports so far this week may offer some clues.

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