Auto File: Can Tesla Deliver While Detroit Strikes?

Sept 29 - Joe White Global Autos Correspondent

Greetings from the Motor City!

Another Friday, another strike deadline for the United Auto Workers and the Detroit Three. This time General Motors and Ford will lose production of Explorer and Chevy Traverse SUVs. But their big trucks and large SUVs will keep printing money.

The UAW drama is about to get some strong counter-programming.

Sometime this weekend, Tesla is expected to drop its third quarter deliveries – Elon Musk’s factories have been working while Detroit’s factories go dark. But is Tesla supply outrunning demand? Wall Street is watching.

Then all eyes will turn to Washington, where Congress is careening toward a budget stalemate that could shut down the U.S. government.

Wouldn’t it be more fun to go to Paris and take a drive in one of the cars used in the “Fast and Furious” movies? You bet. But let’s dive in to the news first.

Today –

UAW targets GM and Ford SUV plants
Will Tesla’s deliveries fall short?
Volkswagen cancels an EV factory

More picket lines for GM and Ford United Auto Workers President Shawn Fain ordered new walkouts at the Ford Chicago plant that builds Explorer SUVs and General Motors’ Lansing Delta Township plant that builds Chevrolet Traverse SUVs, rivals to the Explorer.

But Fain said the UAW will not strike more Stellantis operations after the company put a new offer on the table moments before Fain was scheduled to start a video address. That offer moved closer to UAW demands on cost of living adjustments, outsourcing and the right to strike over plant shutdowns.

That last proposal could be significant if it means Stellantis will reverse a decision to shutter its Belvidere, Ill. Jeep assembly operations. Fain did not say.

It’s just as important what Fain did not do: Call strikes at GM, Ford and Stellantis large pickup truck plants such as Ford’s F-series Super Duty plant in Louisville, Ky. or GM’s Fort Wayne truck plant. When the UAW settles contracts – now or months from now – profits from those factories will be needed to pay higher wages and profit sharing.

The latest round of strikes followed a busy week in which U.S. President Joe Biden joined a picket line to endorse the UAW’s fight for a record contract, and his would-be replacement, Donald Trump, told a group gathered at a non-union Michigan vehicle parts maker that auto jobs will disappear because of Biden’s EV policies.

Amid all the politicking, there was little evident progress during most of the week toward agreements that could bring the walkouts to an end.

The flurry of activity Thursday and Friday at Stellantis left central issues unresolved – including how big raises will be and what additional retirement benefits UAW members will get.

Bets on when the UAW and the Detroit Three will get to a deal have a wide range, from months to potentially another week or so. On pay, the companies have dug in at 20% over a 4 ½ year agreement. The UAW’s stated demand is 40%.

What’s certain is that the Detroit Three’s U.S. labor costs will go up over the next four years at a faster pace than they rose during the last four. Labor is less than 10% of a vehicle’s cost. But it is a significant share of the cost difference among automakers since commodities such as steel and plastic cost everyone about the same.

Morgan Stanley analyst Adam Jonas in a note Friday asked the next question: Will rising labor costs and steep EV losses push GM, Ford and Stellantis to scale back the billions they’ve proposed investing in U.S. EV capacity? Ford on Monday hit the brakes on a $3.5 billion Michigan EV battery plant. Stay tuned.

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A hiccup for Tesla’s growth engine Wall Street is bracing for Tesla to disclose third quarter delivery numbers that fall 4-5% short of expectations. It’s not clear whether that will prompt investors to re-think Tesla’s $782 billion market cap in a serious way – especially in light of the narrative that Detroit’s automakers will ultimately sign labor agreements that make their costs even less competitive.

If Tesla deliveries do drop from Q2 levels, one explanation is that the automaker throttled back output at its plants during the third quarter to retool for production of updated versions of its best-selling vehicles.

The more important question for investors is whether demand slacked off even faster than production – and how much more price cutting will be required to turn that around. Tesla plans to add more capacity – and is scouting locations in India and Southeast Asia. Trouble selling out the existing mega-plants could call the timing and scope of more expansion into question.

Meanwhile, Tesla has more legal trouble. The federal Equal Employment Opportunity Commission (EEOC) sued Tesla, accusing the company’s management of tolerating severe harassment of Black employees at its Fremont, Calif. factory. The company already faces race discrimination claims by employees and a state agency. Tesla has denied accusations that it tolerates racial discrimination.

Separately, the first U.S. trial in a case involving a fatal accident linked to Tesla’s Autopilot partially automated driving system kicked off in a California state court. Tesla has said it makes clear to customers that they are responsible for controlling the vehicle while it is in Autopilot, and that Autopilot is not an autonomous driving system.

Volkswagen pulls the plug on a new EV plant Volkswagen CEO Oliver Blume has cancelled plans to build a new EV factory at the automaker’s Wolfsburg manufacturing city near Berlin.

The “Trinity” factory, originally proposed by ousted CEO Herbert Diess, was envisioned as VW’s answer to Tesla’s Berlin Gigafactory. Now, VW has too much EV capacity. With sales of its first generation EVs wilting under pressure from Tesla and Chinese rivals, Blume has decided to launch next-generation Trinity EVs at an existing, under-utilized EV plant in Zwickau.

Northolt chooses the Great White North

Swedish EV battery maker Northolt said it will build a $5.2 billion battery factory in Canada’s Quebec province. Canada’s federal and provincial governments will put in $1 billion each toward the total.

Quebec was chosen over sites in the United States – but batteries manufactured there could still qualify for U.S. Inflation Reduction Act subsidies. The province also has a well-developed hydro-power network to burnish green credentials.

Fast Laps Chinese EV startup Nio is looking for new investors. CEO William Li discussed an investment by Mercedes with the German automaker’s CEO, and offered access to Nio technology in return, Reuters reported. Mercedes said there are no plans to collaborate with Nio.

The UAW strike did not dent September U.S. vehicle sales, but October could be a different story, according to market research firm J.D. Power. Vehicles sold during the past month were mostly built before the UAW launched its limited, three-factory strikes Sept. 15. By October and November, however, dealers could be missing more vehicles, although inventories were building headed into Q4.

CarMax shares tanked after the used-car retailer reported weaker-than-forecast results and said wider strikes at the Detroit automakers could disrupt the vehicle market later in the year – though one impact of new vehicle scarcity could be higher prices for used cars and SUVs. Shares of used vehicle seller Carvana and dealer groups Lithia and AutoNation dropped as well.

A $1 billion battery metal deal has fallen apart. A plan by a blank-check acquisition group to buy a nickel mine and a copper mine in a deal backed by Stellantis, Volkswagen and global miner Glencore, among others, will not go through, the SPAC’s sponsor said. Nickel and copper prices have plunged as China’s economy has weakened. The investors wanted a new, lower price and couldn’t come to terms.

Lucid opened a factory in Saudi Arabia, home to its main shareholder, the Saudi kingdom’s sovereign wealth fund. Saudi Arabia has said it will purchase 100,000 Lucid vehicles over time.

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(Editing by Alexander Smith)