Good morning! It’s Friday, November 15, 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.
1st Gear: Biden EV Tax Credit Will Die Under Trump
Masterful gambit, Trump voters. The President-elect’s transition team is planning to kill the very popular $7,500 consumer tax credit for electric vehicles because it checks two boxes: broader tax reform and sticking up the middle finger to people who buy EVs. Both are very important to the Republican party.
This could lead to some pretty disastrous ripple effects for the U.S. EV transition, which is already losing some steam. I know you might be thinking this will hurt “first buddy” Elon Musk, CEO of Tesla, but apparently representatives for the automaker have told the Trump-transition committee they support ending the subsidy as well. Bonkers. From Reuters:
Tesla CEO Elon Musk, one of Trump’s biggest backers and the world’s richest person, said in July that killing the subsidy might slightly hurt Tesla sales but would be “devastating” to its U.S. EV competitors, which include legacy automakers such as General Motors.
Shares of Tesla ended nearly 6% lower at $311.18, while shares of smaller EV rival Rivian, opens new tab closed down 14% at $10.31. Lucid, another EV maker, tumbled 5% to $2.08.
Repealing the subsidy, a signature measure of Democratic President Joe Biden‘s Inflation Reduction Act (IRA), is being discussed in meetings by an energy-policy transition team led by billionaire oilman Harold Hamm, founder of Continental Resources, and Republican North Dakota Governor Doug Burgum, the two sources said.
The group has met several times since Trump’s Nov. 5 election victory, including at his Florida Mar-a-Lago club, where Musk has also spent considerable time since the election.
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The Alliance for Automotive Innovation urged Congress in an Oct. 15 letter to retain the EV tax credits, calling them “critical to cementing the U.S. as a global leader” in future auto manufacturing.
The Trump transition team did not comment on the fate of the EV tax credit but said in a statement that the president-elect would deliver on “promises he made on the campaign trail.”
Trump campaigned on ending Biden’s “EV mandate,” without spelling out specific targeted policies. The energy-focused transition team has determined some of Biden’s clean-energy policies will be tough to end because they are popular and already funneling money to Republican-dominated states, the sources said.
The team views the consumer EV credit as an easy target, believing that eliminating it would get broad consensus in a Republican-controlled Congress.
Apparently, Trump could reallocate the funds saved by killing the credit to help pay for the extension of trillion of dollars in tax cuts from his first term that are set to expire soon. Congressional Republicans aim to take up the broader tax bill as one of their first actions.
On the campaign trail, Trump promised to boost U.S. oil production, which, for the record, is at record highs. He also wants to roll back Biden’s clean-energy initiatives, which include subsidies for wind and solar power as well as the mass production of hydrogen, something Trump doesn’t understand at all.
Here’s why this all could actually be good for Tesla. At least, here’s why Elon thinks it will, according to Reuters:
Tesla has historically been the biggest beneficiary of consumer EV subsidies passed by Biden and previous administrations. It now may stand to gain from killing the incentive because that could hurt rising EV competitors more than Tesla.
Musk himself pointed out as much in a July earnings call, saying losing the subsidy under Trump would “probably benefit Tesla” in the long term.
Tesla sold just under half of all U.S. EVs in the third quarter, according to data from Cox Automotive. Other automakers with notable EV sales such as GM, Ford and Hyundai, individually trail far behind. But Tesla’s U.S. EV rivals collectively have steadily eroded its market share, which exceeded 80% in the first quarter of 2020.
Nicholas Mersch, portfolio manager at Purpose Investments, a Tesla investor, said Tesla can withstand a potential sales hit from losing subsidies because the automaker’s “engineering and manufacturing prowess” lowers its costs.
“Getting rid of the subsidy means that competitors can’t catch up and won’t be able to compete on a cost basis,” Mersch said
Musk and Tesla also stand to gain hugely from Biden policies that Trump will likely leave in place or strengthen – like steep trade barriers blocking imports of Chinese EVs, including a 100% tariff.
Here’s why American companies really need those subsidies:
Automakers in the U.S. market have been bracing for automotive-policy changes under Trump. Some could provide greater flexibility to build more gas-powered SUVs and trucks that generate big profits for the Detroit Three – General Motors, Ford and Jeep parent Stellantis.
But other changes, like losing the EV tax credit, could cripple their nascent efforts to transition to electric vehicles.
Losing EV subsidies would make it tougher for Tesla’s struggling rivals to achieve profitability on those vehicles. GM, Ford, Hyundai and others are still ramping up EV production and scrambling to cut manufacturing costs.
Ford, which expects to record a $5 billion loss on its EV and software operations this year, has previously relied on EV tax credits to boost demand from price-conscious consumers.
Yet even with the credits, demand for Ford’s F-150 Lightning electric pickup has faltered, leading Ford to idle the truck’s production through the year-end.
The United Auto Workers labor union, which represents workers at the Detroit Three – but not Tesla – has supported Biden’s pro-EV policies, including the $7,500 incentive. Last month, UAW president Shawn Fain slammed Trump’s threats to repeal the policies, saying “hundreds of thousands” of auto-industry jobs were at stake.
GM, which touts plans to boost EV production, previously said it had received $800 million in separate EV manufacturing credits this year – also enacted in Biden’s IRA legislation – and expected that figure to grow.
GM recently said it planned to slash its annual EV losses next year by between $2 billion and $4 billion, which would be more difficult without the tax credit.
This is what America voted for. Sure, we’re all going down, but at least they’re going down too.
2nd Gear: $5.8 Billion Rivian, VW Joint Venture Begins
Volkswagen and Rivian have officially kicked off their new $5.8 billion joint venture. Initially, it was a $5 billion investment in Rivian by VW to develop new electrical architecture and vehicle software for future vehicles that are set to start launching in 2027. Now, that investment has been upped by $800 million.
Rivian software chief Wassym Bensaid and VW Group chief technology engineer Carsten Helbing are tasked with leading the “Rivian and VW Group Technology, LLC.” What an inspired name. Initially, teams will be based in Palo Alto, California, but three other sides in North America and Europe are in development. From the Verge:
Rivian also showed off a prototype vehicle to a small group of reporters at its Palo Alto office. According to Bloomberg, the vehicle was a VW test vehicle with Rivian software that was created by the joint venture’s engineering team over a 12-week period.
With the deal now closed, Rivian will receive an initial $1 billion loan from VW, followed by $1.3 billion in shares in Rivian, and an additional $3.5 billion over the next few years, VW Group CEO Oliver Blume said in a call with reporters Tuesday.
The technology that emerges from the joint venture will underpin vehicles from both companies, from Rivian’s more affordable R2 vehicle, which is set to go into production in 2026, to a variety of models from the VW Group, including Audi, Porsche, Scout, and VW.
“The positive aspect is that we will be scalable, from the very small segment up to luxury cars, [and] sports cars,” said Blume. “The electronic architecture… will be scalable and will be usable for a great volume of cars.”
The new partnership comes at a time when both Rivian and Volkswagen could use a serious boost.
At the time, the new venture was seen as a big win for Rivian, which has lost over $1 billion each quarter for the past year and is still struggling to find its financial footing since its public offering in 2021. The company recently said it expected to lose up to $2.88 billion in adjusted earnings for the year, up from the previous guidance of $2.7 billion in losses. And it has gone through several rounds of layoffs over the past two years.
Meanwhile, VW has been going through its own struggles around EVs. The company’s plug-in models are selling well, but its market share in North America is shrinking. Its financial struggles began to peak this year, forcing it to close at least three of its German factories and downsize its remaining plants. And its software has been plagued by bugs and customer complaints.
The new venture holds promise for both companies: VW gets access to Rivian’s software-first approach to auto manufacturing, which should help it compete better in the race to develop more software-defined vehicles that can receive updates over the air; and Rivian receives a much needed financial lifeline that will help it survive a more uncertain economic climate ahead.
Rivian CEO RJ Scaringe has said that the capital will help carry the company through the production ramp up of the R2 at its existing plant in Normal, Ill., as well as a midsized EV platform at a factory in Georgia, where Rivian paused construction earlier this year.
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“This partnership and this deal secures the capital for us to ensure that we can not only take Rivian through the launch of R2 in Normal, but secures the launch of and growth of R2 in our Georgia facility and through free cashflow positive for us as a business,” Scaringe added.
Time will tell how this whole partnership shakes out. Rivian has introduced some very compelling tech and software with its electric R1S and R1T, and Volkswagen is very good at making cars at scale. It seems like a recipe for success.
3rd Gear: Nissan Has Tons Of Debt And Not Enough Time
Nissan will have all of 2025 to figure out how to fix its finances, because after that it’ll hit a record bond maturity wall. The automaker has about $1.6 billion of debt due next year, which is somehow a slight decrease from 2024. However, that number jumps to $5.6 billion in 2026. That is… a lot. In fact, Bloomberg says its the highest debt bill it can find going back to 1996. From Bloomberg:
The deluge of bond repayments comes as the company’s debt-default insurance costs climb to peaks last reached in March 2023 and yield premiums on yen and dollar bonds have risen to the highest levels this year.
Nissan’s shares have swung wildly in recent days, tumbling after it slashed profit forecasts and 9,000 jobs, but jumping after one of the most influential activist investors in Japan took a stake in the company. In credit markets, speculation that the automaker may be cut to junk grade by more ratings firms has damaged investor sentiment. The election of Donald Trump as president also boosts the danger of the US increasing tariffs for exporters.
“Under current conditions, Nissan may become a fallen angel, and when markets are aware of such a downgrade risk, investors may require spreads pricing in such risks,” said Kentaro Harada, chief credit analyst at SMBC Nikko Securities Inc. Debt rating cuts may force Nissan out of investment-grade bond indexes, taking away funds from investors who only put their money in debt that’s included in those indices, he said.
Nissan has sufficient liquidity, with over ¥1.3 trillion ($8.3 billion) in cash on a net basis in its automobile business at the end of September, said Shiro Nagai, a company spokesman. It also has committed credit facilities with major international banks to fund both automobile and sales finance businesses, with more than ¥1.9 trillion available at the end of September, Nagai said.
I really cannot think of many automakers that would switch place with Nissan right now. At least it says it has “many sources” of funds to repay debt over the next five years. Those sources include available liquidity, automotive cash flows, dividends from its profitable auto financing business and new debt insurance.
Nissan has a Baa3 rating from Moody’s and BBB- from Fitch Ratings, both the lowest investment grade, while S&P ranks it BB+, the highest junk score, Bloomberg-compiled data show. All of those ratings have a stable outlook, suggesting that changes aren’t imminent.
One concern is that the company’s automotive division fell into a deficit in the April-September period in terms of cash flow that can be freely used for investments or to boost shareholder returns. The deficit of more than ¥440 billion in the six-month period was due to a decline in earnings and an increased investment burden, and the company will still need to develop next-generation technologies such as electric vehicles and autonomous driving in the coming years, the rating firm said.
Nissan also has by far the biggest borrowings relative to its earnings among Japanese automakers. Its debt-to-earnings ratio before interest, taxes, depreciation and amortization, or Ebitda, was 8 last quarter, according to Bloomberg-compiled data. That compares with 4.9 for Toyota Motor Corp., 4.7 for Honda Motor Co., and the average of 3.3 for companies in the Nikkei 225 Stock Average.
The cost to insure against debt nonpayment by Nissan rose to about 178 basis points earlier this month, the highest since March 2023, CMA data show. Only three other major Japanese companies have riskier debt in CDS terms.
Something else Nissan will have to contend with is the fact President-elect Trump wants to crack down on automakers building cars in Mexico by imposing tariffs over 200 percent on vehicles imported from the country. Mexico is, of course, a key manufacturing hub and market for Nissan.
4th Gear: Hyundai Has A New CEO
Hyundai has appointed Jose Munoz as its new president at chief executive officer. The move makes him the first foreign leader to ever head the Korean automaker as it looks to expand operations in the United States. Munoz, who currently heads the automaker’s U.S. operations, will replace Jaehoon Chang. He’ll become Hyundai’s vice chairman, effective January 1, 2025. From the Wall Street Journal:
The reshuffle comes as the carmaker pushes into the U.S. market and grows its electric-vehicle business globally, even as some of its rivals scale back their EV efforts because of sluggish demand.
Some market analysts caution that the carmaker’s ongoing EV efforts in the U.S., backed by the Biden administration’s clean energy policy, could be challenged by the incoming Trump administration, which campaigned against U.S. tax credits and subsidies for the EV industry.
Hyundai is investing $12.6 billion in Georgia to produce more EVs and HEVs in the U.S. while also continuing to invest in new battery and hydrogen technology.
North America was a rare bright spot in Hyundai’s third-quarter results. Wholesale car sales there rose 9.3% compared with the same period a year earlier. In contrast, global sales fell 3.2% amid sluggish vehicle demand in most major markets.
Hyundai Motor said Munoz is “the ideal fit to further enhance the company’s performance thanks to his merit-based management philosophy and his commitment to recruiting top global talent.” Munoz, 59, a native of Spain and a U.S. citizen, first joined Hyundai Motor’s North America operations as its global chief operating officer in 2019. He was previously a chief performance officer at Japanese carmaker Nissan 7201 4.46%increase; green up pointing triangle Motor.
“Through strengthening dealer competitiveness and driving profitability-focused management, he has continuously set record performance milestones for Hyundai Motor in North America,” the company said.
Right now, Hyundai and Kia have captured about 10 percent of the U.S. EV market, which puts it only behind Tesla, the company says. It’s aim is to bring 21 different EVs to market and sell about 2 million of them annually by 2030. At the same time, it plans to double the number of hybrids it has to 14.