Autos correspondent Pras Subramanian outlines Tesla’s EV production figures from its factory in China, Rivian’s recall, and analyst outlooks on Ford and General Motors amid inflation and supply chain concerns.
– Rivian shares sinking today. You could see the stock off just around 7% after voluntarily recalling more than 12,000 vehicles over concerns of a possible steering and suspension hazard. Yahoo Finance’s Senior Auto Reporter Pras Subramanian is here with more on this. Pras, looking at the stock reaction, Wall Street, obviously, very concerned about this recall. What’s your take on it?
PRAS SUBRAMANIAN: It’s just not a good look right now when they have this critical Q4 coming up. They’ve got to meet these deliveries to hit that goal of 25,000 cars a year. It’s a simple issue. It’s tightening a bolt on an arm in front of the steering knuckle. But if it fails, it’s a catastrophic steering failure, right?
So they have to do this. Safety is of utmost concern. It’s good they’re doing this now, but it’s just sort of– as one analyst said, it’s a black eye for them, right? Like there’s credibility issues already on the table for them, and now, you have this on top of their big goal in Q4. So I think it’s kind of, like, you see the analysts, the chart. It’s just a concern there right now for them to perform.
– It reads like a bit of an overreaction based on the fact there are no deaths, no real, serious accidents, a very small incident number as well.
PRAS SUBRAMANIAN: Seven trucks, yeah.
– This is a proactive company really getting ahead of it. I want to ask you about Tesla, as well, some massive numbers out of China, breaking a record.
PRAS SUBRAMANIAN: And the flip side, huge numbers out of China, the Giga, Shanghai, 83,000 vehicles delivered. It’s their biggest month ever. This after they sort of did these upgrades to that Shanghai facility over the summer. They shut down for a bit, and now, they’re really pumping out cars there. Tesla, in the latest quarter, said that they can produce around 750,000 vehicles per year there now. That’s their biggest factory, so huge install base there now in Giga, Shanghai.
– Now, we just got to couch that. There are new lockdowns already underway in China, not where the Tesla factory is yet, but their caseload tripled after the weekend. So new lockdowns in China could eventually impact Tesla as well. Rochelle?
– And, Pras, stick around, because I want to turn now to Ford and GM. We saw a UBS analyst Patrick Hummel downgrading both stocks, citing an expected weakened demand thanks to inflationary pressures, as well as some of these supply constraints we continue to hear about. Now, Hummel predicts “that it will take three to six months for the auto industry to end up in oversupply.” So, Pras, what’s your reaction to this? It does seem like one step forward, two steps back for some of these automakers right now.
PRAS SUBRAMANIAN: It’s a little surprising. Even in the last two and a half years, we’ve seen the supply be the problem for the automakers. They were able to command huge margins, extreme pricing power because of the fact they didn’t have enough supply, and now, we’re talking about demand actually turning down and its supply becoming a problem when you have more cars than are actually needed for the market probably by, I think, the analysts are saying next year. Although it’s interesting, they thought that Ford was actually in a worse place than GM because of their product portfolio and stuff like supply chain. But I’m curious what you guys think about that.
– Yeah, I mean, it’s interesting. I just think, just in terms of the demand destruction projection part of it, the fact that it’s falling apart and falling apart so quickly, I think that caught me a little bit off guard. Yes, we talked about the fact that the economy is weakening. People are going to be pulling back on spending, but I didn’t know– I didn’t necessarily, I guess, expect it to be to that degree so quickly. So that’s something that jumped out to me and then also just in terms of what he does like. UBS saying that they favor automakers with a luxury exposure, one of them being Mercedes, just given the fact that more the higher end consumer could potentially be more resilient if we do see a large economic downturn.
– Yeah, it is shocking, the U-turn. It was just a couple of weeks ago that Ford told us 40,000, 45,000 cars did not have the parts, and they’d have to park them until– and now, we’re talking about, again, oversupply in the next three to six months. It is hard to imagine us going into a world, where that is the situation. Dealers across the country, as you know, Pras, are wiped out.
They are still empty. So dramatic turnaround like that, I can’t quite imagine, but apparently, they’re seeing it. We’ve seen it only in the used car sector. CarMax got hit hard at earnings. The new car segment, we haven’t seen demand destruction yet.
PRAS SUBRAMANIAN: Because there hasn’t been supply, but really interesting point about the luxury demand side. Because we write a lot about that how this insatiable demand on Rolls-Royce, Bentley, Mercedes, those types of names, they can’t find enough buyers. I mean, they can’t find enough cars for their buyers, and on the flip side, Ford and GM, potentially, this analyst thinks that there’s a problem for them. Because these buyers are less able to weather the storm of a potential downturn.
– But, I guess, to me, it’s just interesting, because it’s coming out at a time when we’re still talking about the supply chain issues that a lot of these larger automakers make. So how is that going to be corrected so quickly that then would leave to this oversupply when we haven’t been able to get a better grasp of this now for over two years?
PRAS SUBRAMANIAN: I really can’t see this being a problem for the back half of next year if you really think about it. I think that’s what the analyst is kind of saying, but he’s kind of putting his marker on the table right now, like Ford. He said, Ford, we see absolute downside for Ford. That’s a direct quote. I mean, that’s crazy.
– Right now, they have very, very strong pricing power. I don’t know. Maybe UBS will have the last laugh on this one. It certainly looks like Wall Street’s worried about the downgrade here with Ford shares sinking today. Pras, thanks so much for that.