AAH #647 - The EV Transition: How Bad Will the Bloodbath Be?

I'll do online after hours. It brought to you by Bridge Stone Tires Solutions

for your Journey and by Borg Warner Propulsion Solutions that support a clean, energy efficient world. Gary, John Horrian, I'm doing well. Yeah. So

here we are living the classic Detroit environmental seasonal change where we're gonna go from furnace to air conditioning just like that. That's right, goodbye spring. That's

right. Hey, we got a great show today. We got who I

think are the two best automotive reporters in the business, So why don't we bring them in right now? We got Joe White from Reuters and David Welch

from Bloomberg and great having the both of you guys on the show right now, the two best journalists in the square fring is Yeah. Thanks are the

kind words. Hey, I mean it, you guys are the best.

I'm dead serious about that, better than me, and I would add that they're the smartest, so they'll make us look good. John. So that's

that's what I'm that's I'm hoping for high. You're setting the high bar.

Let's see how it goes. It's all downhill from here in the whole show.

You Yeah, unreasonable expectations. Yeah, the audience is going to think

what I say faces I think unreasonable expectations. It is a theme for the

show. Yeah yeah, Well okay, so so let's let's start to our

next subject. Yeah. So, so there were a bunch of earnings reports

that came out of the likes of of Fisker and Rivian and Lucid this week.

And since you guys are the business reporters, talk to us about how these new startup EV companies are doing. David, why don't you go first

on that one? And I'll oh up, yeah, Um, We'll start

with Rivian because they actually the stock was roaring because even though they lost a lot of money, yet again it was less than the street thought. And

they affirmed that they were going to make maybe fifty thousand vehicles this year, which you know, in the grand scheme of the auto industry is fifty thousand vehicles in a year is nothing. But they you know, GM's gonna make

eighty thousand or seventy thousand altium vehicles this year, eighty thousand bolts, but that's going away. So you know, that's not bad production, but you

know, looking ahead, that's also not enough to generate cash to build a huge lineup of vehicles and become a self sustaining car company, and they're going to have to raise money eventually during the corner, seez. I don't think

so. I just I think in this kind of market where it's very difficult

for companies to raise money startups, they have eleven billion in cash, they don't need to raise money. And that was one thing. They didn't burn

through much cash in the less they didn't. They CAx a lot and the

cabax is all. So they spent two hundred and forty million or so in

capex, but the budget for the year I think is over two billion dollars.

That means they're capex spending is backloaded second half of the year, and they also raised money. I think they also raised money that was then kind

of netted out. I mean, my feeling about Ribbon, with all due

respect, is that they're sort of like the Detroit Tigers. Right, they

have a losing record, but because everyone else in the division is so terrible, you know, they're in second place, and and I think, right David, I mean, it's the other companies in this space. Lucid Fisker

had much worse results and cut their forecasts, and I think that's the street did not like that, That's right, And I think in Fisker's case, they even delayed a launch of the pair I think, right, or one of the vehicles. So yeah, by a year. Yeah. So look,

this electrical this electric vehicle thing is hard, and I know it sounds maybe a little bit flipping, but think about it. I mean, the

GM multiam program is in terms of volume, way behind where we thought it would be, and they're finally getting that going, and Murray Barrus says this will be their breakout year, but it's behind Toyota. The Basy four X.

The wheels literally came off the car. And look, give Toyoto their

props. They're probably the best manufacturer in the world. Everybody copies the Toyota

manufacturing system, and the wheels fell off their EVD. So you have these

startups with far less experience, new plants or retrofitted old plants, not nearly as much money, and it's really tough to do. So I look at

these companies and they have delays, which means it's just that much further, that many more years out before they can generate their own cash at some point, all these companies need to be self sustaining it. And you know,

to Joe's point kind of talking about Riving maybe being the best ball Arena and Galveston, they have a lot of money and they you know, they're they're further along in production, so they have the best chance of making it, but all those other companies are are at much higher risk. LuSE, it's

kind of somewhere in the middle. They've got a decent sugged cash, but

not enough for them to not have to raise money in the next couple year.

No, they said they'll run out of money in a year's run money in a year. Now that's that that that that's right. Money manufacturing that's

causing trouble. I mean, look at Pollstar Involvo, I think today both

basically said they're going to delay the launches of their of respective electric vehicles that they've promised in because they can't get to software or Volvo can't get to software right on the on the common platform um Volkswagen is struggling with software. UM.

So in addition to sort of the kind of physical stuff that automakers are used to dealing with, you have the software challenges that a number of these companies are really are finding difficult to manage. Um, it's yeah, it's

very hard. I mean I remember, David, you probably do too.

A few years ago, there was this idea that, oh, building electric cars is simple, it's like putting together a smart phone, you know, any no barriers to entry whatsoever in the auto industry, it's gonna you know, well, you know what, we've learned a little bit that there still are barriers to entry. There may be different, but they're they're significant.

Well, speaking speaking of putting together cell phones, I mean we haven't mentioned um Largetown, which is operating in the Foxcon plant, and they're not doing particularly well either. No, they're not. Um they basically they used the

words chapter eleven and a sentence in a filing, which is not good.

Um and um. Look, you know, maybe they'll find the funding,

but it seems like Foxcon has decided that they're going to be better off without Lordstown as a partner, because it's Foxcon's refusal to come across with a promised investment to put them in the in the box that they appear to be in right now. Yeah, Lordstown Motors is their entire reason for being was the

Endurance pickup truck with the hub motors on each wheel. And they said even

before this this going concern, notice that Warren's about bankruptcy potential, they said they weren't going to make that without another partner besides Fox con a large automaker who could give them, you know, purchasing scale and that sort of thing.

So Worsta doesn't really have anything. They do have some engineers and that

sort of thing, but they don't have a product that's coming. Uh,

They're they're hanging by a thread. And you know, if they can get

someone to be an angel or somehow, you know, Corus Fox cond to stay in, which I don't think is going to happen. So there's there.

Lord Times probably going to be the first casualty of that whole period of spack driven Uh you know what it's called the easy money era for for Auto Tech Day, I got a question for you. Fisker went after you guys

at Bloombird. He did not like you're reporting at all. In fact,

he the reporter who wrote the story about them, Sean o'cainey, he called.

He said it was another lie from Sean o'caine, you know, really went after Bloomberg. I'm just wondering what was the chatter inside Bloomberg about all

this. Uh, we were a bit amused by it. I mean he

didn't he didn't outright deny the facts. Sean actually reported, um, And

so what were they look for the audience that's not familiar with the story.

So I mean, let me pull it up for you if you want, like to really get into it. And I you know, what you guys

said was that the two cars that they've delivered have got to go back to the factory, which he denies vehemently. And you also reported that U they

had to have h software that ran the vehicle slower, and he denied, of course that the vehicle's running slower. Um. I don't think he denied

that exact fact. That think what he said was they weren't delaying their vehicle

for that reason, but he didn't deny that that was actually happening. I

mean, look, we didn't correct anything, we didn't retract anything. We

stuck by the reporting. And they're not getting their cars out of time.

So um, you know, they can bang the drum all way like, but they're they're simply not getting product out of time. You know, I

think there's one thing too that I think we had to There's a lot of moving price to all this. But just quickly, I'll say this, Um

it matters that these companies are not fielding the product because while they're not fielding product, Tesla is, and Tesla is resetting the price levels in the sort of the in the in the core of the EV market right now. They're

also and I'm going to credit Morgan Stanley for this, they had a report I think yesterday that looked at how much money Tesla stands to gain from the Afflation Reduction Acts subsidies, and it's it's it's a huge amount of money.

It's forty plus billion. I'm doing that off the top of my head,

but it's something, yeah, across twenty by twenty thirty. So you know,

you start piling you Tesla starts piling up that financial advantage, and Morgan Stanley focused on the um, oh what happened there? Okay, my screen

went. Morgan Stanley focused on the there I am. Morgan Stanley focused on

the threats to GM and Ford. Sure, but before GM and Ford get

run over by this, I think some of these startups might because they have less financial flexibility. Um. And so I think there's a real risk here

if if you're not out there, you know, harvesting this money that's on the table, and somebody else is. So you know, David, you

mentioned the the you know, the situation of Toyoto with the wheels literally falling off. Um. And if we look at the deliveries that that General Motors

basically hasn't made of the Hummer. If we look at you know, the

Ford's problem with the lightning. So here we have these traditional OEMs that are

having serious difficulties obviously in terms of producing vehicles at the cadence that we've become familiar with when it comes to internal combustion engine products. Um. Is this

something that is because they're just not familiar with with EV technology or is this possibly something else? And something else I'm thinking about is like trying to hurry

up and get things done. Okay, I think it's both. First off,

you look at like the Hummer has been grounded four weeks in the battery back right, the lightning was grounded because there was one fire. Um.

You know, there are you do see lots of carbecues along south Field Freeway in Detroit. You know, that are internal combustion vehicles, but those are

usually some you know, some guy's eighteen year old car with an oil week or something like that. It's you know, internal combustion vehicles don't brand new

or a couple of years old spontaneously catch on fire like some EV's head.

And those those fires are very rare, but the car companies take them seriously and they look for problems because the bolt was such an issue and Tessa's had fires too. Batteries are new to these guys. They you know, even

though their suppliers have been making batteries for cell phones, some of things.

These are much bigger batteries. They run a lot hotter must you know,

obviously, you know, a lot more power on board, and they're out there in an environment with potholes and snow and you know, hitting bumps and you know, all kinds of mayhem that your phone doesn't go through. So

I think there's a big learning curve there for everybody, including the battery meekers themselves. And then everybody is rushing this and you know they're they're rushing it

because for the longest time, if you didn't have a great DV story that was getting fully engaged, nobody wanted to buy your stack. Um. Now

it turns out that even if you have that, they didn't want to buy your stack itself. Autocompanies period. They like Teslam and they don't like the

rest of them. So this whole thing of trying to pan into a bunch

of investors to get them to like your legacy auto company stack is it's like the sign that the bar that says free beer tomorrow. It's just not going

to happen. Yeah, I'm gonna look at I think. I think last

time I looked, and maybe I'm wrong, but the last time I look, GM was below its IPO price m or very close to it despite everything, just I mean, despite an enormous amount of effort on the part of GM to obviously have it have the price be much higher. So David's right,

I mean, it seems like evs are alone aren't going to do it um for the in terms of the share price. UM. The one thing

I just would amplify on David's point about the production challenges, I do think also many of the problems we've seen have to do with and suppliers struggling, and not just chip suppliers, but suppliers of every kind of thing. I

mean, for I think the Walster Jurnal reported the sport had a problem getting door handles, you know, I mean, it's just all it takes is one part that has not changed, and I think some of the suppliers are really struggling with some of the technology as well. Yeah, they're just struggling.

I mean, volumes down so much, you know, production volumes down so much. Car companies have raised prices which protected them. Suppliers have not

really been able to raise price as much. I mean, the car companies

do their best effort possible to keep those prices down, right, right, That's absolutely true. It's a lot of pressure. So you know, so

far Forward is the only automaker with the guts to publish how much money it's losing on evs. So there's my question. I'll start with you, Joe.

How much longer can these guys afford to lose money on their evs.

That's a great question, and I think, you know, I think the answer there's obviously not that much longer and not forever. And that explains,

among other things, that explains the pushback that the auto industry's lobbying group delivered in Washington to the Biden administration's proposals to go sixty seven effectively go sixty seven percent EV by twenty thirty two. And you saw the auto industry, the

Alliance for Automotive Innovation essentially say we're not on board with that. You know,

we think that's too much, too fast. And I there's probably a

million reasons why they would say that, but one of them is we're not making money on these EPs. As you said, Ford has projected a loss

of three billion. They say they're going to break even. I think it's

next year on some basis, on a contribution margin basis, that's still not earning your cost to capital. And in the meantime, you know, the

vehicles that make the money at all. Three of the Detroit companies are big

combustion pickup trucks and SUVs. And that just as a fact, and yes,

one must make Musk makes money on his electric cars, but as far as I can tell, he's the only one doing so well. By Dave

is doing it in China, but in North America. Among the North American

OEMs, I think he's the only one making any kind of real money, and he's now sub subborting his own pricing in order to gain market share.

So where does that leave everyone? Yeah, yeah, Look, I look

at what GM says, right, they say they can store make money on their EV programs mid decade, and they can match internal combustion profits. But

that's if you add in a bunch of incentives from the Inflation Production Act.

It's not the seventy five hundred that goes to consumers, it's the automaker's taken.

GM said, I think it's thirty five hundred, fifty five hundred, right, So that's the price bogie, that's the profit bogie. I should

say that that everybody has to make up. And you know, if GM

hits the targets they say they're going to hit by mid decade, they'll be producing more of these vehicles than probably everybody tesla. And they still, even

with that kind of scale, need government money to make up profits. So,

look, if it's going to be a while before everyone's making money on this, and I think that, I think there are a lot of reasons why a lot of these forecasts on EV sales and market penetration could come up short. I'm not sure the consumer demand is going to be there in the

in the mass market right now it's penetrating the luxury market and not the mass market. But the automakers themselves may pull back on some of these plans,

if you know, depending on where the economy isn't where their profits are from the rest of their business. Yeah, that's something that's definitely something to watch

and another thing to watch. And you know, I'm going to say the

word politics once. I hope in this, but I have to say I

do have to say it once. M All these incentives and subsidies are at

risk with each election cycle, and I mean again we see that there.

These subsidies are part of the discussion now in Washington the death ceiling as minorstand I mean, the whole Inflation Reduction Act. So it's difficult to make a

five to ten year CAPEX plan when a big part of the money is up for review every two years depending on who wins a political election. You know,

I think the money will still be there. And the reason I say

that is the auto industry has been so heavily on electrics, so heavily, and there's so much investment coming into the US right now because of the IRA.

You know, I call it to California gold rush or the Oklahoma land rush. It's it's astonishing how much money is getting invested in the EV sector.

And even though a lot of dealers don't like evs, a majority of them are investing in evs. And so for Congress to come in and rip

the rug out from under them, I think you're going to have a united front. Throw in labor too, So you're gonna have labor, the automakers,

and the dealers, I'll say, and don't touch that money. And

you know the most important of all those three groups are the dealers. Well

anyway, Yeah, that's that's a good that's a good point. So,

right, but I don't think there will be no fight over this. There

will know, there will be a big fight, right yeah. See.

But but but John, there's there's the issue. You knows, as has

been mentioned that there there's really no sense of what the actual consumer demand is for these vehicles. And if you're a dealer and you're able to you know,

sell every Mustang regular Mustang that you can possibly get delivered to your store, and you know you're having an iffy chance with um evs, then they're not going to push back. Well you know, look, you know right

now amongst the legacy automakers, there's very little choice and it's all expensive stuff, you know, and so as new models start to come out, it's it's going to be uh, you know, let's see what this Chevrolet Equinox does when it hits the market. And you know they're they're talking to thirty

thousand dollars base price. Uh, certainly you'll be able to buy it for

under forty. So then we'll start to set right there. Yeah, that's

as Mary Baris says, the you know, the EV market you have like you know, for a lot of current owners, they have three vehicles in the garage and only ones in EV so uh, and you know they're not going to solve climate change selling a third and fourth card to a bunch of rich guys. So you have to get the mass market involved, not only

for climate change, but to get scale in the business and start to drive down battery costs and cost of electric motors and the inverters and all that stuff.

And uh, you know, the Equinox, the first version out go for thirty thousand, but it will be under forty and the you know, the Blazer will be like forty five. You know, these are all let's

call it average new car price or lower. So people for whom this vehicle

is their only driver, do they sign up for electric? That's and GM's

not the only one, obviously, there are others with cheaper vehicles, cheaper evs coming. That's that's the big test right there. No, it's true.

And I would also add this in Europe, you're seeing this happened where the Chinese EV companies are are coming in with with you know, very very much lower priced dvs. And the argument in favor of letting them do that

is, well, if if we're going to ask everyone to drive an EV, you know, these are the affordable ones, the ones from China.

Well again, sorry I said this twice. Try that out politically in the

United States, um um, I mean the minimal number of Chinese evs that are coming to the country under Western brands now GM Ford Volvo, um, you start having kind of a mass market influx of Chinese made evs. Let's

see what happens, right, So it's going to be a complicated a couple three, four, five years to see how all this evolves. But but

Joe to Ze get to the point that if if there is a vehicle with a low price point, that consumers will automatically flock to it, or will they basically say, you know what, you know, I think I'll go buy a Civic or an HRV or something like that instead. Well that's the

question, right, I mean, I think I do think that. I

mean, I've ebs, I've driven, I have come away thinking, wow, these are pretty great. You know, they're really nice. Of course

I haven't had to try to find charging for them because I'm running around here in Detroit, and but yeah, I think that's the test. If people

get in, If one if low price, genuinely sort of affordable for to sort of a middle class buyer, ebs start to come on the market in quantity and the charging kind of starts to develop. You know, does that

Does that get you to a point where you see it happening in China and some parts of Europe where all of a sudden it's twenty thirty forty percent of the market. That's the question, you know. I thought I thought it

was interesting, you know, talking about lower price vehicles that um So Ford reopened the books to start ordering the Lightning again. Okay, so they had

been closed the books and started working through the orders that they had. So

I went to the Ford consumer website today and looked, and the first thing that struck me was that the first vehicle that comes up as the Ford pro Lightning, which starts at fifty nine, nine hundred and seventy four dollars, that was the one that started below forty thousand dollars? How many months ago?

Was that? Okay, so there's an enormous thing. So then then

you read on to go to order one of these vehicles and it says that basically the Ford pro Lightning is not available for ordering XLT Lariat and Premium R.

So that's sixty four four seventy four seventy six nine hundred and seventy four or ninety eight thousand, seventy four bucks. I mean, it's just like,

Okay, we know that we can build these things, but if we build them for the higher price point, we're going to get better margins and perhaps lose less money. I mean, is this the mo that companies are

going to have? Well? Certainly is if you look at uh, look

at the Hummer and uh, it's grounding. But first versions out there were

pretty expensive, and the vehicle itself is not cheap but doesn't qualify for any of the IRA money because it's too expensive. So everyone has to start on

the high end. But that's not a unique thing, right, I mean,

the car started off in packards and Cadillacts because you couldn't get the price and a Chevy or a pontiac Um, you know, the high technology new gadgets always start off in luxury vehicles and work their way down because you can bury the cost and that in luxury margins. But the problem here is the

ramp up that the government wants and that the industry has told their shareholders are going to deliver, requires them to get electric drive pushed down the chain of consumer buying a lot faster. Yeah, and there's a couple of there's a

couple of so a couple of risks here for the industry, right, which is if you have a you know, if you go back to what nineteen oh five, where you know cars are low volume rich people's, you know, lifestyle vehicles for rich people, you have an industry that's not fifteen million or seventeen million. It's what eight million or nine million, it's it's a

lot smaller, and so all the factories and all the people suddenly you don't need. So that's a problem. One good thing going for the trade companies

and for Tesla right now is that against the IRA amounts to a sort of protectionist barrier, not only against the Chinese cars a menial, but also the Korean cars, the Hundai and Kia, which who do have low priced evs, quite attractive ones, I think, but they don't have they don't get the consumer incentives. So there's kind of a trade barrier there that's protecting the

domestic EV producers for the time being. Well, d price is high kind

of kinda because there's that big gaping leasing loophole. Well right, and we'll

see how that ramps up. I mean, I was looking at Hynday sales.

Mean, the sales of their evs are still down. They haven't but

right I'm sure that they've got people working over time trying to figure out how to get the leasing capacity to the point where they can get it get back in the game. Was it Unde or who who came out this week and

said they wanted to double their lease rate They're right. They're bumpling along fifteen

percent of their customers now least they want to get that to thirty and I'm sure that's going to be someone did I'm trying to remember who. I don't

remember who, but I'm not I'm not surprised, because you're absolutely right, there is leasing and commercial sales are a big loopholes um and and so to the extent that that these companies can exploit that, I expect they will.

Um. But for the moment, I mean, I've been watching, and

I think it's fair to say that Hyundai's electric vehicle sales have taken a pretty stiff hit since they lost the access to that consumer rebate. UM. So

you know that that's that's helpful, and I think it helps kind of provide cover for the sort of premium pricing that we've been talking about. Oh,

the same thing happened to the boat, right, I mean when when they lost the incentive, they dropped the price by six thousand dollars. And that's

the only thing that helps sales recover, because they were really sales really taken a hit before them, right, right, right, But unfortunately for us, GM just not published their EVY profit and loss as a separate number be fun to see. So um last week, Mercedes CEO Ola Colennius said that

he would he was pushing back the time when Mercedes would have fifty percent of full electrification, and he was talking about pehevs and evs, not just all evs, and they had said by mid twenty twenty five. Now he said

it's the end of twenty six. So you know, here here's an executive

who is like saying, this is what the reality is. Is he rare

in this industry? Or do the other people really think that their expectations are

going to be fulfilled in terms of the percentages of EV sales. You know,

I think I don't think he's going to be the last one to do that. I think he's the first, because his deadline comes up pretty soon.

You know, I don't think GM is going to give up on it yet. But and look, I have no reason to believe that anybody else

won't. But as we've seen with all the technologies that have been all the

rage in the auto industry for the last called three or four years, every bit of it's taking longer. Charging systems, self drive electric vehicles, it's

all taking longer to get into production. In cases of autonomy, it's taking

longer to work and much longer to find a business model for it. And

the whole chart. All these charge companies out there, you know, there's

a lot of slow work being done there too, and that's really important.

Um. You know, if you're going to get into the mass market,

you don't need a charge around every corner, but you do need them in places. You need them out on the highway. That may be an educase

the road trip, but people are going to buy any v as they're soul vehicle without that. So I think all of these factors, throw in interest

rates, threat of a recession, you're going to see more companies throttling back on those targets. Yeah, I agree, I agree with that. I

think I think all all of the things that David mentioned are obstacles as and I think that, Um, I think the technology, the technology is proving difficult. Um. You know, Mercedes is overhauling the entire software stack for

its next generation of vehicles, and you know that may be taking them longer than they thought to to get going. UM. BMW on BMW has you

know, has been very conservative and they're talking about fifty percent by twenty thirty.

I think, Um, so some of these companies, and Toyota obviously is sort of in the same boat there, They're they're they're not. They've

been relatively conservative about this, So yeah, I think it's proving difficult for all these companies to kind of stick to the original aggressive timelines. Hey,

look, we've got to take a quick commercial break right now. Plenty more

to talk about. I got lots of questions for you guys, but we'll

be back in just a moment. How do you breach Stone tire stop shorter?

On what roads? Is there hydrotrack technology? But you don't have to

know how the science works, just where the brain is. What really matters

is they're bridgestone. The world is changing at an ever increasing pace. No

matter what the mode of transportation, there is always the need for an efficient propulsion system, and that's exactly what Borg Warner has been doing since the earliest days of the automotive industry. Well, thank you Bridgstone and borg Warner for

all that. Okay, back to the discussion. So I got a question

for all three of you right now. Why are the Detroit three reducing headcount

white collar and blue collar, depending on which company you're talking about. I

don't know if you saw it in the Detroit News this week, there was an op ed piece from Patrick Anderson. I think he's got Anderson Economic Consulting

or something like that. He's blaming evs. He's saying that evs have led

to this head count reduction. I just wanted to get your guys reaction.

What do you think, David, Yeah, I think that's part of it.

You're talking about companies that are in the middle or maybe at the beginning, massive capital spending on battery plants, ev assembly plants, mining deals, all that stuff. We also have higher interest rates are affecting vehicle pricing and

are actually should say, you know, they're affecting vehicle affordability, which puts pressure on what automakers can price because they may have to drop that. They're

already dropping prices a little bit, they may have to drop it more.

Everyone's profits are pretty good right now. But if I'm Farley or Mary bar

or I'm Carlos Tavarus, I'm looking at how much I need to spend and some potential shoppy waters with the economy and vehicle sales here, and I'm trying to get out ahead of the curve. But I mean, Varus has been

pretty open about the fact that the cutbacks they've made have been directly related to the profitability of EVS and how much he has to spend. And you know,

in in the word salad that GM uses and Turnings calls, they've kind of said the same thing. And Farley's pretty transparent about the profitability of forwards

EV program. So I don't think he's wrong. I don't think that's the

only thing going on. I think when people are when people don't like EVS

for political reasons, they blame everything on them. But you know, it's

a massive CAPEX bill capital spending and they're going to cut everywhere they can do it. There's one there's another dimension that that I agree with all that.

There's another dimension that I might add, which is that I think there's a there's a powerful concern at the top of all these companies um that they've got And again I think Jim Farley has been the most outspoken about this, that they that they need to get new people and new new types of talent, new generation of talent with different skills, software skills, electrical engineering skills, all that into their organizations and so you're seeing, um, I think for all the companies, but Ford and GM for sure, basically offering you know,

senior people. It's like, look, you know, take take a

package, leave, God love you. And then at some point I think

maybe when the economic outlook is a little a little brighter and clearer, they're going to hire people who are younger and have entirely different skill sets. And

again they've been reasonably explicit about that motivation. But that's I think part of

this, as well as take advantage of the opportunity that's presented by an uncertain economy and these other factors that David listed and to sort of roll the workforce and bringing the new a new look. See, I think they're kind of

using EVS as an excuse, you know, because when you look at the blue collar reduction at Stilantis, Stilantis hasn't even started to build EVS yet.

And you know, when you look at the idoling of the the g plant in velvet of You're Illinois, which makes the Cherokee. Take a look at

the sales of the Cherokee. I mean they absolutely collapsed last year. I

want to say they were down like seven, I would blame the Ford Bronco line before I blame what he's on all this. Yeah, John, I

agree with you about that. And again I think, I mean, each

of these companies just kind of got They're not all the same, right they have they have different drivers. I mean Carlos Debarras. So Jim Farley has

been probably the most outspoken about sort of the talent gap issue. Carlos Debarras

has been I think the most outspoken about a more fundamental issue, which is capacity where and he's he's been talking about over capacity in the industry for quite a while and well, yeah, it turns out in this particular case it's his but um, and it may not be the last. But he's not

wrong and to some to some extent, I think he's looking around saying, look, I got a very tough union negotiation to go into. Um,

I'm gonna I'm gonna, you know, I'm gonna set the table the way I wanted set and and and act on truths that he has said pretty explicitly he believes, which is there's too much capacity, some of it belongs to him and time to deal with it. But it's interesting, So Auto Forecast

Solutions UM had a recent chart of capacity utilization and John, you're the expert on this whole thing, and Toyota and Stilantis were near the top and the rest of them were, you know, bumping seventy percent or below. And

isn't it eighty percent that you need to have hum although you know, Stilantis North America claims it's breaking even as thirty percent, so which is an extraordinary number. But but basically, what this means that they have a whole bunch

of people that are not doing as much as they possibly could. I mean,

if you're operating in a plant at you know, sixty percent capacity.

So this gets back to you know, David, you you said early on about how there's this real focus on Wall Street that the traditional OEMs have trying to get themselves in a situation where they're perceived as being cool, hip and electric and so on. And you know, by cutting the number of workers,

they might argue, well, we're more efficient, we're more lean, we're more capable, therefore we're more valuable, so invest in us. Yeah.

Well, touch on John's point for a second, and the case of Stillantis, you know they're cutting factory workers that has nothing to do with evs.

But all of these companies have cut whitecower Pool and that's that's leaning up the organization. I think Joe's right that some of that is getting rid of

older people with a different skill set than then. There were people you want

to bring in for the whole for this whole eving paradigm. Gary that the

markets thing is kind of funny. You know, they for the longest time

you had to have an EV story and investors didn't like conventional auto stocks because all these plants they have are dead capital. They're making vehicles that one day

will be completely irrelevant and nobody's going to want except that for the most part, all the plants that like g important stilantists have will just be repurposed and those workers will be retrained to make to assemble evs. The battery plants are

different. They'll have to get rid of some powertrain plants over the next probably

twenty years. But the dead capital that the street doesn't like will erode very

gradually. And actually, you know, here's one thing that I think Paul

Jacobs and the CFO General Motors is right about. I'd rather be GM and

forward and have this business that generates a whole bunch of cash selling SUVs and pickup trucks to fund my EV factories and EV changeover. Then be somebody like

Lucid or Fisker and have to go out and raise money in a market like this at very high interest rates or very high capital costs for the equity if you can get it. Who want to be in that position so that the

conversion will be I mean John said, oh, it'll be funded by all of this. But it's also like, not every factory, not every asset

that the car companies currently have, is just this totally irrelevant thing that will die. It will just do something so that we different. Right, Yeah,

the engine and transmission plants might be in trouble, but everything else is going to be needed well, and some of those will be converted to I mean you see you see the companies doing that already. I mean sort of.

You know, you have a machine shop, you switch it from you know, a combustion transmission to a electric vehicle drive you know, drive train.

Um, you can do that. I mean if you're if you're a

dedicated piston manufacturer, uh, you know, the funnel is going to start to narrow but yeah, I think that's right. A lot of these factories

are going to be converted, um, but they're they're not going to necessarily have the same number of people, um that they have had. And I

think that's the challenge that that's the challenge that's going to be coming up on these companies pretty much right away this year is reckoning with with that, Um, what do you do about sort of the employment levels and what do you do about the kind of the nature of the work and the compensation because all that is up for grabs again, Well, good time to bring up the topic of the UAW what do you guys all make of Sean Fained, you know, uh, withholding the union's endorsement of Joe Biden running for president unless

he does something about pay for these union jobs at the especially the ev battery plants. Yeah, you know, I've I've I've listened to a number of

I've listened to Sean Fain speaking person. He was at the APA not long

ago. I've listened to some of the videos he's put up on his Facebook

page when he um, yeah, there he is, when he when he was running. Um. He he is nothing if not consistent about this.

I mean, he has made it clear that the status quo is not going to stand as long as he has anything to do with it. And I

think that's going to be very challenging for the Detroit three. He's you know,

as I guess most of our listeners probably know. I mean, he's

he's committed to getting rid of the two tier wage system. UM, he's

committed to cost a living much larger share of of kind of the profits going to workers. And then most recently, UM, he has raised this issue

of the pay at these joint venture battery plants, you know, and said, look, when number one, they need to be organized. Number two,

they shouldn't making less money than the sort of you know, standard UAW assembly type jobs. They should be making more. And so, you know,

I think it's going to be a very interesting and I think possibly contentious round of talks. Look, in some ways, there are there's some similarities

here to the last go round when we had the long strike at GM.

You had at that time, he had Gary Jones, who was being investigated for stealing from his own union, and he had to prove that he was there bargaining for his people. GM thought the strike was a big distraction.

I don't quite agree with that, but I think it was related. I

think the framing was more that he was accused of basically, you know, feathering his own bed and not bargaining on behalf of the members. So he

had to prove he was tough, so he struck GM. I think if

if the Old Guard had won, they would have to prove that they're tough, but they didn't. They lost and shown faint. And he's got a

previous toff but he is there's something interesting not endorsing Biden, and what he has said he had a webcast on Facebook a week or two ago, is he wants to put pressure on the Biden administration to put pressure on the automakers to raise the way just in these battery plants. I mean, and he

specifically said these ev jobs they're paying for can't be lousy paying jobs. And

I see where he's coming from and that he wants to use the union's political cloud to do something. And look, this guy is going to be much

more active, I think than we've seen from the union in a very long time. Absolutely, and if he's going to really use that pressure, and

I think he will. You think about the UAW. I get you know,

Joe, you get them too. I'm sure you guys do too.

Get your job. You get these really wrote press releases that always come like

three days after some major political thing happened, like you know, the zeitgeist of that moment of that issue has already gone way the hell out the window.

And then you get this press release from the UAW with whoever was president saying the UAW officially condemns playoff spike caterpillar at a time when American families are struggling, and nobody uses it, nobody ever quotes these things. This guy

actually wants to apply pressure and make the union a politically involved organization. That's

very interesting, and I think he will use that cloud and and that kind of same m going up against the car companies. It's almost a you know,

we've done deal, that we're going to have a strike because unless the car companies just give him everything he wants, because he's going to have to show that he's powerful and that he's strong, and he's going to have to prove he didn't win by a very big margin. He's going to have to

prove to the like forty nine point nine percent of few AW members who didn't vote for him that that wasn't a miss day to go away from the old guard. A lot of factors here on the all point toward a very tough

round of talks and high probably I totally agree. I don't think he's gonna

take yes for an answer. He's got to show how tough he is.

He's gonna strike. Well, yeah, well we'll see. I mean I

was joking earlier that you know, I've called five out of the two actual UAW strikes in the last twenty years. Um, I've I've learned the hard

way to have some humility about how these things are going to play out.

But but right, I mean again, I take Sean Fain at face value on a lot of this stuff because he's consistent and he seems to mean exactly what he says. And um so I don't think he's gonna be I don't

think he's going to be satisfied with a piece meal, Um, a piece or an incremental approach. Um. It is interesting, David, you mentioned

this, and I'm going to amplify it. Just really interesting to see him

conducting UAW. I remember I talked to called it a contract campaign, not

contract talks, but a contract campaign. I mean, he's he's putting videos

up about his tour of Capitol Hill the other day where you know, he visited with these Democratic leaders and talked about the battery plant wages. And yeah,

he's trying to do something we haven't seen in the uw a long time in a long time, which is obviously fight for a uaw contract that that improves the members situations and lives, but also to try to you know, kind of have the UAWB what it hasn't been in decades, which is kind of a leader for workers in general, you know, for for union and non union workers in general. And and that's something we haven't seen in this

union from this union in quite a long time. And I think he means

it when he was trying to do that. So there's a lot of stake

here. Also, I think the political environment is in his favor. Billionaires

have never been less hip. There's a lot of you know, just a

general feeling in this country that we've got this you know, bifurcated society of has and have that. Um and I think the same the same situation four

years ago. Um, you know, when when we had when Trump was

in office. Actually wouldn't notice when it was GM strike eighteen or nineteen.

Trump is in office. Mary Barr was closing down Lordstown and she closed you

know, a couple of small transmission plans in Baltimore and in Warren, Michigan, and she was threatening at the time ham Trammic and the union was was really livid about it. Trump was really livid about Lordstown, and that kind

of gave the union a lot of political cover to go on strike. And

I think on top of that, the union workers generally, I think still voted Democratic, but I think Trump got more union votes than pastor Republicans have.

This is a risk for the Democrats when the leader of the UAW says, yeah, you've got to actually show us something before we get on board, because the Democrats have taken the union vote for granted, for you know, really everyone since Clinton. Clinton's the only one who actually I think the

only Democrat who when he took on the Japanese with that threat of a trade war in tax in Japanese luxury cars. None of the other presidents, Republican

or Democrat, have actually tried to do much for the union since then.

And look Vein's gonna make sure he's gonna try to make sure that they actually do it and they don't just take the votes for granted and go on doing nothing for them. Yeah, I think that'll be I think that's right.

And you know, I think the pressure is going to come is going to intensify as we get toward the fall. You know, whose side are you

on? Kind of thing? So yeah, I let's put it this way.

I've figured out that I'm probably not taking a whole lot of vacation time in September and October. I like to take a vacation in the fall.

I have a feeling I'm not going to get one this year, not this here. So going forward, guys, I mean, do you think that,

Okay, if we looked at the auto industry five years from now, okay, and let's say all the bugs have been worked out in terms of the ability to make evs at volume, um, is it basically going to be the same auto industry as we've always known it? Or will it be

an industry wherein there are just fewer workers required to do the work and therefore, you know, the the UAW perhaps ought to be thinking about. You

know, what's what's what's next that next week or next month or next year, but you know, five years down the road, I think, so I'll take a stab with that. First of all, I think the UAW

is thinking about that, which is why Sean Fain says and does the things that he says and does. He's very worried about me and there people have

been worried about the electric vehicle trans transition for quite a while. I mean

that's just that they have very smart people working there and technical staffs who have been worried about this for a long long time. I do think the industry

will be different, and I think, barring a you know, it could happen that we see a repeat of the nineteen twenties where vehicle prices keep coming down as scale goes up, and we get a model T effect, you know, and we get back to you know what eighteen seventeen, eighteen million vehicles a year. Well, then great of lots of people work in the

auto industry. But if it stays at this level, I'm not so sure.

Um, I think we'll have I think there will be fewer people working in the industry, but I don't think it's going to be in five years from I don't think it's going to be you know, some twenty thirty percent cut as people have talked about where you know, we've all heard evs are much easier to produce, so they need fewer people. But I still think

in five years it will be majority internal combustion vehicles and we'll be making evs, some of them in the same plants, which is complexity. So I

don't I don't think you're gonna have a lot fewer workers. You'll still have

people making some transmissions, and you'll have people in battery plants. So an

you have people in mining processing in the US and in some of these mining ventures in Canada as well. So North America could actually see an increase in

jobs because all this mining stuff, minerals, processing production, it's not done here right now. We like other countries, it's coming on shore because of

the IRA or will do so why are we'll bring that stuff? Yeah,

so you could see more people. You may not call them auto workers,

but they will be working for this industry making you know, with them and you know coldball you name it for batteries. UM Vehicle pricing is an interesting

when Joe just brought up you know, right now we're still at record pricing or you know, close to it. It's softened a little bit, but

it's still very high. I do think something's got to give their The average

average monthly payment is well over seven hundred dactually closer to eight hundred a month.

New used vehicles, it's you know, five hundred a month, which I did a big story on this new car. Monthly payments pumped around four

hundred and four and ten dollars a month from most of the past decade pre pandemic. Pandemic stemic conductor shortage changed everything. I know the automakers love pricing,

but they do need volume, and they do need scale, and there are only so many used vehicles pumping out in the market, you know, in the one to three year range at some point there. First off,

I think they're gonna have to start leasing again because interest rates are so high to get monthly payments down. The leasing's been down for the past three years.

Once you do that, that increases the you know, the turnover rate of vehicles. I think they're gonna start building more and I think prices will

come down, not radically, but I don't think we're gonna get to the five thousand dollars rebate game anytime soon. But you're gonna have You're gonna have

to see price go down and value come up just because people want cars and people can you know, a lot of people can't afford with out there.

Okay, here's a good topic to probably to wrap up the show. Different

automakers are taking different strategy a different yeah, different strategies of how they're going to do evs. So you've got Ford, Renault, and Toyota, and

this is the one I really want to talk about. Toyota. You know,

Ford carved out model E business unit's only going to do EVS. Renaud

did the same thing, they call it amp fhear, and now just in the last week, Toyota came out we're going to do what they call the BEV Factory. And you know they announced this before, but now we know

who's running it in all. And Jerry, let's start with you. What

do you think of these different approaches that the automakers are taking. You think

one's better than the other. Well, I think that basically this is this

is something that no one knows the answer to, and therefore you're going to be trying different things, and you know, there's something to be said.

I mean, you know, Mark Royce said on this show last year that you know, he thought that there was good synergies that existed between the different types of people. Now if we if we look further, you know,

and as as as Joe and David have mentioned, I mean, the type of people in within organizations that are important to electric vehicles are not necessarily the same types of people who have long been making you know, transmissions and small block engines. But but that said, I mean I think that the only

example that people could point to is say, oh, look, Tesla is completely dedicated to making evs. That's the way we got to go. Well,

but you know, if you think about it, they really didn't have, you know, an installed base. They didn't have a structure that they

had to deal with. And so I think this needs to be worked out

with time. I'm not sure that we're necessarily going to say that one is

doing it correctly and the others not. Yeah, I think that's right.

I mean, I think that's right, and it kind of reflects the differences in the views of the CEOs and the people around the CEOs as to how to kind of get quickly to this to the goal of building evs and they can match Tesla. Um. You know they've did Ford. They've decided we

can't wait for our traditional ice organization to figure out how to develop a cooling system that's appropriate to an EV and as opposed to an F one fifty.

Um. You know, GM has taken a very different view, which,

as you said, I mean, which is like, we don't want to separate our team's of engineers. We want to be able to deploy people and

to whatever's the best the best target. Um. And by the way,

I mean, these companies have all operated differently for what a hundred years, so they probably will continue to operate differently and manage themselves differently. UM.

I'm not sure if it's if there is any one right approach. I think

subplchen is going to play a big role in that too, right And I mean as they you know right now it's so new. How much of the

battery, how much of motors and verters, all of those systems the suppliers do versus in house. I mean test was compared to the rest of the

automence you very vertically integrated. Do they start to send stuff out as they

lower their prices and need to lower costs, We'll see does everyone else copy them or do they train their suppliers and find new suppliers to do a lot of this. I think that's a big piece. I just don't think we

know right now. I don't think we're we're near knowing because other than Tesla,

nobody has scale. How many of those are going to be built?

Right? What do you think, John? I look, and I've said

this on the show many times. I think the right way to do it

is start with a clean sheet and a whole new team, a whole new team of non legacy people. Better off try to get them out of Silicon

Valley if you can, because we're in the era of the software defined car, and I don't think the legacies have quite figured this out how to do it just yet. They're all working on it, but none of them have

come out with a software defined car yet. Tesla started that way, and

I think that Ford, Renault and Toyota have guys the old way, the old processes, the old structure, you know, structure of the organization.

It's not going to get this done. I mean, I was stunned to

see Toyota doing this. They're even more conservative than General Motors is, and

you know they're they're very process driven, like GM is, very methodical and how they go about doing things, and yet they've decided they have to carve out an entirely new BEV dedicated business unit. I think those are the companies

that are are probably going to rise to the top, the ones that approach this like Tesla has done with the first principles mindset. And we'll see if

the others keep up. I mean, I'm not going to write them off.

I think, you know, what GM is doing is extremely intelligent.

But I'm I'm in the camp are the ones who say, no, we got to bite the bullet and do it different. So didn't Sandy Monrosa in

the show that he thought that Tesla would outsell General Motors? What was in

twenty twenty eight or even sooner than that, I mean it was, it was. I mean, so, so, Joe, David, what do

you guys think about? That? Got David? You first at all?

If I agree with when it comes to EV market penetration, market share tables, EV sales like where's my dark board? You know? Um? But

uh, look, I've got a ton of respect for Sandy. He's when

he starts to veer into marketing and and and pricing and market commentary. Uh,

he's a manufacturing costume quality guy and he's awesomeated. I don't I don't

think you know, he loves loves, loves Tesla and he hates the Big Three. Um. You know for Tesla the past GM in five years,

you know, they make a million evs a year and a little more than half or sold in the US, So they basically have to like five x their sales and GM has to to sink more. Uh. I don't see

that happening. Could it happened one day? Uh? Look, that's a

long way away if it does. Because Tesla's got four vehicles and they're gonna

launch a fifth cybertruck at the end of this year, five models, and they're having their their inventories are creeping up, their pricings coming down. Um,

they're still growing, but you know there are cracks in the armor here in terms of their whole growth model. Question. Yeah, I agree with

that. And the question i'd ask is, you know, forget about GM

and Tesla, Um, who's going to catch by d Yeah? Right,

I mean the Chinese automakers and BYD is the leading the leader to BYD is the biggest selling vehicle or fickle brand in China right now. And that that

happened fairly rapidly. And there they've got Volkswagen and GM and the rest of

the legacies on the run. Um in China. Um, you know that

watch that space because I think what's happening in China it's pretty substantial and significant.

Um. And you know, I don't right, I kind of agree

with David. I don't know if you if GM's volumes are going to be

surpassed by Tussa by twenty twenty eight, but I do know that, um, the Chinese companies, if they have their way, are going to reorder the league tables pretty quickly. Absolutely right. Hey, look, and that's

probably the perfect note to wrap their show up on. But David Welch from

Bloomberg, Joe White from Reuters, who love having you guys on the show.

Great discussion, great to be on. Good to see you all.

That's right, See you later, Gary, Okay, take care and thanks everybody for having tuned in. I'll donline. After Hours is brought to you

by Bridgetone tires, solutions for your journey and by Borg Warner propulsion solutions that support a clean, energy efficient world. If you liked this program, I

would like to learn more about the automotive industry. Check out our website at

Autoline dot tv, or look for us on YouTube on the Autoline channel.

AAH #647 - The EV Transition: How Bad Will the Bloodbath Be?

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