United Auto Workers (UAW) members strike at a General Motors assembly plant that builds the U.S. automaker’s full-size sport utility vehicles, in another expansion of the strike in Arlington, Texas, October 24, 2023.
James Breeden | Reuters
DETROIT – General Motors plans to invest roughly $13 billion in U.S. facilities by April 2028, the United Auto Workers union said as part of its recent tentative agreement with the automaker.
GM has already announced some of the planned investments such as $4 billion at Orion Assembly in suburban Detroit and $2 billion in Spring Hill, Tennessee, for new electric vehicles. Others, such as $1.25 billion for a future electric vehicle plant at Lansing Grand River, are new.
Many of the new investments include hundreds of millions of dollars for assembly plants to support or add additional volume as well as engine and components plants.
Details of the tentative agreement were released Saturday after local UAW leaders with GM approved the pact, which must still be ratified by a simple majority of the union’s 46,000 members with the automaker. GM was the last Detroit automaker to reach a tentative agreement following Ford Motor and Chrysler-parent Stellantis.
GM’s U.S. investments through the terms of the 4 ½-tear tentative compared to $8.1 billion announced by the union at Ford and $18.9 billion at Stellantis, including $6.2 billion in previously announced parts plants in Kokomo, Indiana.
GM declined to comment on the released details, referring back to a statement by CEO Mary Barra when the tentative deal was initially announced: “GM is pleased to have reached a tentative agreement with the UAW that reflects the contributions of the team while enabling us to continue to invest in our future and provide good jobs in the U.S.,” she said. “We are looking forward to having everyone back to work across all of our operations, delivering great products for our customers, and winning as one team.”
The tentative labor agreement was announced Monday after roughly six weeks of targeted strikes by the union against GM, Stellantis and Ford, also known as the “Big Three” automakers. The work stoppages began on Sept. 15 after the sides failed to reach deals covering 146,000 UAW members with the automakers by a strike deadline.
“There’s a reason why the Big Three and their allies feel like they just got taken to the cleaners. This contract has wage increases and economic gains like nothing we’ve ever seen before, said UAW Vice President Mike Booth during an online broadcast Saturday. “The gains in this contract are worth more than four times the last contract.”
Like the UAW’s tentative agreement with Stellantis and Ford, the deal includes 25% pay increases, bonuses and other enhanced benefits for autoworkers, such as profit-sharing payments and a $5,000 ratification bonus.
The 25% raises include an 11% increase upon ratification, followed by a 3% bump-up in the next three years and then a 5% increase in September 2027.
At GM, the union also made major gains in cutting down different tiers, or levels, of workers to be paid the same or similar to their traditional colleagues at assembly plants. UAW President Shawn Fain said some workers will receive an immediate raise of 89% if ratified by members.
“One of our central goals in this round of negotiations was the elimination of tiers,” Fain said during the broadcast. “While we didn’t win everything, we made enormous strides at GM. We did more to eliminate wage tiers than any of the Big Three.”
New workers added to the agreement include employees at GM’s Ultium Cells joint venture for battery cells, Fain reconfirmed Saturday. The battery workers will receive a raise of between $6 and $8 an hour, he said.
Fain on Saturday reiterated the union’s plans to use the record contracts with GM, Ford and Stellantis as leverage to unionize other automakers.
“We aren’t bashful or quiet about what our plans are: Our goal is to spend the next few years organizing auto workers across this country,” Fain said. “The Big Three aren’t the only auto companies making record profits. Auto workers at Toyota, Honda, Volkswagen, Hyundai and Tesla, they deserve record contracts. too.”
Toyota Motor earlier this week announced plans to hike wages at its U.S. factories. The new rates would see hourly manufacturing employees at top rates in Kentucky receive roughly 9% pay increases to $34.80 an hour – still below the more than $40 an hour top rate under the UAW’s tentative agreements with the Detroit automakers.
UAW members at Ford have already started voting on that tentative agreement. Most notably, 82% of workers at Ford’s Michigan Assembly Plant voted in support of the pact this week. The suburban Detroit plant was among the first to strike alongside other assembly plants with GM and Stellantis.
UAW members with Stellantis and GM are expected to vote on the deals over the next couple of weeks.
United Auto Workers President Shawn Fain gestures in solidarity with striking workers during a rally at UAW Local 551 on Saturday, Oct. 7, 2023, in Chicago.
John J. Kim | Tribune News Service | Getty Images
DETROIT – United Auto Workers President Shawn Fain wants to expand the union’s battle from the Detroit automakers to Tesla, Toyota Motor and other non-unionized automakers operating in the U.S.
The outspoken leader plans to use record contracts recently won after contentious negotiations and U.S. labor strikes with General Motors, Ford Motor and Chrysler-parent Stellantis to assist in the union’s embattled organizing efforts elsewhere.
“We’ve created the threat of a good example, and now we’re going to build on it,” Fain said Thursday night when discussing Stellantis’ tentative agreement. “We just went on strike like we’ve never been on strike before and won a historic contract as a result. Now we’re going to organize like we’ve never organized before.”
Doing so would greatly assist the union’s bargaining efforts and membership, which has been nearly halved from roughly 700,000 members in 2001 to 383,000 at the beginning of this year. UAW membership peaked at 1.5 million in 1979.
The UAW has previously failed to organize foreign-based automakers in the U.S. Most recently, plants with Volkswagen and Nissan Motor fell short of the support needed to unionize. The UAW has previously discussed organizing Tesla’s Fremont plant in California with little to no traction in those efforts.
It remains to be seen whether the recent efforts are gaining traction at any other automakers, but Fain has vowed to move beyond the “Big Three” — Ford, GM and Stellantis — and expand to the “Big Five or Big Six” by the time its 4½-year contracts with the Detroit automakers expire in April 2028.
The deals include 25% wage increases that would boost top pay to more than $40 an hour, reinstatement of cost-of-living adjustments, enhanced profit-sharing payments and other significant pay, healthcare and workplace benefits. The contracts must still be ratified.
The union has already received significant interest from non-union automakers in light of the tentative agreements, Fain said. And last month, he rejected comments from Ford Chair Bill Ford arguing the company and union should be working together to battle non-American automakers.
“Workers at Tesla, Toyota, Honda, and others are not the enemy — they’re the UAW members of the future,” Fain said.
Fain has taken particular aim at Toyota in recent days.
The automaker earlier this week confirmed plans to hike wages at its U.S. factories. The new rates would see hourly manufacturing employees at top rates in Kentucky receive roughly 9% pay increases to $34.80 an hour.
Fain on Thursday called that pay raise “the UAW bump,” joking that UAW stands for “U Are Welcome” to join the union’s movement.
UAW President Shawn Fain marches with UAW members through downtown Detroit after a rally in support of United Auto Workers members as they strike the Big Three auto makers on September 15, 2023 in Detroit, Michigan.
Bill Pugliano | Getty Images
“Toyota isn’t giving out raises out of the goodness of their heart,” Fain said. “They could have just as easily raised wages a month ago or a year ago. They did it now because the company knows we’re coming for ’em.”
Toyota, which has 49,000 hourly and salaried U.S. workers, said the “decision to unionize is ultimately made by our team members.”
“By engaging in honest, two-way communication about what’s happening in the company, we aim to foster positive morale which ultimately leads to increased productivity,” the company said Friday in an emailed statement. “Working together has provided a history of stable employment and income for our team members.”
The UAW has so far not been able to establish enough support to force an organizing vote at Tesla’s facilities, including its Fremont, California, plant where the union previously represented workers when it was a GM-Toyota joint venture.
Fain on Thursday told Bloomberg News he believes organizing Tesla and taking on CEO Elon Musk is “doable.”
“We can beat anybody,” Fain told Bloomberg. “It’s gonna come down to the people that work for him deciding if they want their fair share… or if they want him to fly himself to outer space at their expense.”
Still, Musk has historically clashed with union proponents.
As some workers sought to form a union at the company’s Fremont factory in in 2017 and 2018, Tesla was paying a consultancy named MWW PR to monitor employees in a Facebook group and on social media more broadly, as CNBC previously reported.
Elon Musk, CEO of Tesla and owner of X, arrives for the Inaugural AI Insight Forum in Russell Building on Capitol Hill, on Wednesday, September 13, 2023.
Tom Williams | Cq-roll Call, Inc. | Getty Images
Tesla also terminated the employment of a union activist named Richard Ortiz in 2017. And in 2018, Musk said in a tweet, “Nothing stopping Tesla team at our car plant from voting union. Could do so tmrw if they wanted. But why pay union dues & give up stock options for nothing?”
The tweet violated federal labor laws, the National Labor Relations Board later found.
An administrative court ordered Tesla to reinstate Ortiz and to have Musk delete his tweet, which it concluded had threatened workers’ compensation. Tesla appealed the ruling, and Musk’s offending post remains on the social media platform which Musk now owns, has rebranded as X and runs as CTO and executive chairman.
In February, a different group of organizers filed a complaint with the NLRB claiming that Tesla had fired more than 30 employees at its Buffalo facility in retaliation for a union push there by Tesla Workers United. Tesla called the workers’ allegations false, saying 4% of its Autopilot data labeling team in Buffalo had been terminated due to performance issues.
The Equal Employment Opportunity Commission, the federal agency responsible for enforcing civil rights laws against workplace discrimination, sued Tesla in September, alleging widespread racist harassment of Black workers, and retaliation against those who spoke out.
And in late October, just over 100 of Tesla’s service employees in Sweden, members of the industrial labor group IF Metall, walked off the job for a short strike. Hundreds of mechanics and technicians at non-Tesla shops also agreed not to repair any of the EV makers’ cars in solidarity. However, Tesla has so far refused to negotiate with IF Metall.
Tesla did not immediately respond to a request for comment.
Xpeng reveals its G6 SUV at a major auto show in Shanghai on April 18, 2023.
Vcg | Visual China Group | Getty Images
BEIJING — Chinese electric car companies Xpeng and Li Auto each delivered a record number of cars in October, according to company releases late Wednesday.
Xpeng said it delivered 20,002 cars last month. That’s a marked pickup from lackluster figures earlier in the year. Just under half of deliveries in October were of Xpeng’s G6 coupe SUV, launched in late June.
The G6 sells in the roughly the 200,000 yuan 250,000 yuan ($27,340 to $34,170) price range, while Li Auto’s SUVs sell for more than 300,000 yuan.
Li Auto’s monthly deliveries remained far ahead of its immediate peers at 40,422 cars in October. The company’s currently available cars are not purely battery-powered since they come with a fuel tank for extending the battery’s driving range.
All three companies are listed in the U.S. and saw shares rise overnight. Xpeng climbed the most, up by 7%.
Other Chinese electric car brands also saw deliveries tick higher in October, amid stiff competition.
Geely’s electric car brand Zeekr said it delivered a record 13,077 cars last month. Zeekr on Friday revealed an ultra-fast model, the 001 FR, which rivals Tesla’s Model S Plaid in specs — at a lower price.
Aito, the Huawei-backed new energy vehicle brand, claimed 12,700 deliveries for last month.
EV stock performance YTD
Aion, an electric car brand from state-owned GAC Motor, said it sold 41,503 vehicles in October.
BYD remained by far the giant in the market. The company said it sold 165,505 pure battery-powered passenger cars in October, and nearly just as many hybrid-powered vehicles.
Telsa figures for October were not yet available as of Thursday morning. Previously released industry data had indicated a decline in sales in China from August to September.
In the U.S., 516 publicly listed firms have filed for bankruptcy from January through September 2023. Many of these firms have survived for several years with surging debt and lagging sales.
“The share of zombie firms has been increasing over time,” said Bruno Albuquerque, an economist at the International Monetary Fund. “This has detrimental effects on healthy firms who compete in the same sector.”
“A really healthy, well-capitalized banking system and financial sector is one of the most important factors in ensuring that unhealthy firms are wound down in a timely way rather than being propped up,” said Kathryn Judge, a professor of law at Columbia University.
Economists say that zombie firms may become more prevalent when banks or governments bail out unviable firms. But the Federal Reserve says the share of firms that are zombies fell after the Covid-19 emergency stimulus measures were implemented. The Fed says banks are refusing to keep weak firms in business with favorable extensions of credit.
The Fed economists point to healthy balance sheets at U.S. firms, despite the increasing weight of interest rate hikes. The effective federal funds rate was 5.33% in October 2023, up from 0.08% in October 2021.
“The biggest implication of the rapid rise in interest rates that we’ve seen the last five or six quarters, actually, is that it reestablished cash,” said Lotfi Karoui, chief credit strategist at Goldman Sachs. “That actually puts some constraints on risk assets.”
The Fed says it thinks interest rates will remain higher for longer. “Given the fast pace of tightening, there may still be meaningful tightening in the pipeline,” Fed Chair Jerome Powell said at an Economic Club of New York speech Oct. 19.
Watch the video above to learn more about the Fed’s battle with unviable zombie firms in the U.S.
Lana Payne celebrates on stage as Unifor, Canada’s largest private sector union, announce Lana Payne as their new president to replace outgoing leader Jerry Dias in Toronto, Ontario, Canada August 10, 2022.
Cole Burston | Reuters
DETROIT – After reaching a tentative agreement Saturday with the United Auto Workers union, Chrysler-parent Stellantis is now facing a national labor strike in Canada.
Canadian union Unifor called a national strike of more than 8,200 autoworkers early Monday morning after the sides failed to reach a new agreement by 11:59 p.m. Sunday.
The Canadian work stoppage comes two days after the Stellantis reached a tentative deal for roughly 43,000 U.S. autoworkers with the UAW after roughly six weeks of targeted strikes that began Sept. 16.
The new strikes in the Canadian province of Ontario affect two large assembly plants that produce the Chrysler 300 sedan and Pacifica minivan and Dodge Challenger and Charger muscle cars.
The latter vehicles, produced at Stellantis’ Brampton Assembly, are specifically notable, as the company is producing the final traditional V-8 models of the Dodge muscle cars ahead of production stopping at year’s end.
The Canadian work stoppage comes nearly three weeks after Unifor launched a roughly 12-hour national strike against General Motors after the sides failed to reach a tentative agreement by a union-set deadline.
Unifor, which represents 18,000 Canadian workers at the Detroit automakers, took a more traditional approach to its negotiations than its U.S. counterpart. The Canadian union is negotiating with each automaker separately and using a deal first reached last month with Ford as a “pattern” for GM and Stellantis.
That traditional patterned-bargaining approach runs counter to the UAW’s new strategy of bargaining with all three automakers at once.
The UAW has been gradually increasing the strikes since the work stoppages began after the sides failed to reach tentative agreements by Sept 14. The targeted, or “stand-up,” strikes are taking place instead of national walkouts.
However, once the UAW reached a tentative agreement, which must still be ratified by members, Wednesday with Ford Motor, it has used that deal as a template for proposals with Stellantis and GM.
An Amazon.com Inc worker prepares an order in which the buyer asked for an item to be gift wrapped at a fulfillment center in Shakopee, Minnesota, U.S., November 12, 2020.
Amazon.com Inc | Reuters
The initial third-quarter report on gross domestic product showed consumer spending zooming higher by 4% percent a year, after inflation, the best in almost two years. September’s retail sales report showed spending climbing almost twice as fast as the average for the last year. And yet, bears like hedge-fund trader Bill Ackman argue that a recession is coming as soon as this quarter and the market has entered correction territory.
For an economy that rises or falls on the state of the consumer, third-quarter earnings data supports a view of spending that remains mostly good. S&P 500 consumer-discretionary companies that have reported through Oct. 25 saw an average profit gain of 15%, according to CFRA — the biggest revenue gain of the stock market’s 11 sectors.
“People are kind of scratching their heads and saying, ‘The consumer is holding up better than expected,’” said CFRA Research strategist Sam Stovall said. “Consumers are employed. They continue to buy goods as well as pursue experiences. And they don’t seem worried about debt levels.”
How is this possible with interest rates on everything from credit cards to cars and homes soaring?
It’s the anecdotes from bellwether companies across key industries that tell the real story: Delta Air Lines and United Airlines sharing how their most expensive seats are selling fastest. Homeowners using high-interest-rate-fighting mortgage buydowns. Amazon saying it’s hiring 250,000 seasonal workers. A Thursday report from Deckers Outdoor blew some minds — in what has been a tepid clothing sales environment — by disclosing that embedded in a 79% profit gain that sent shares up 19% was sales of Uggs, a mature line anchored by fuzzy boots, rising 28%.
The picture they paint largely matches the economic data — generally positive, but with some warts. Here is some of the key evidence from from the biggest company earnings reports across the market that help explain how companies and the American consumer are making the best of a tough rate environment.
How homebuilders are solving for mortgages rates
No industry is more central to the market’s notion that the consumer is falling from the sky than housing, because the number of existing home sales have dropped almost 40% from Covid-era peaks. But while Coldwell Banker owner Anywhere Real Estate saw profit fall by half, news from builders of new homes has been pretty good.
Most consumers have mortgages below 5%, but for new homebuyers, one reason that rates are not biting quite as sharply as they should is that builders have figured out ways around the 8% interest rates that are bedeviling existing home sellers. That helps explains why new home sales are up this year. Homebuilders are dipping into money that previously paid for other incentives to pay for offering mortgages at 5.75% rather than the 8% level other mortgages have hit. At PulteGroup, the nation’s third-biggest builder, that helped drive an 8% third-quarter profit jump and 43% climb in new home orders for delivery later, much better than the government-reported 4.5% gain in new home sales year-to-date.
“What we’ve done is simply redistribute incentives we’ve historically offered toward cabinets and countertops, and redirected those to interest rate incentives,” PulteGroup CEO Ryan Marshall said. “And that has been the most powerful thing.”
The mechanics are complex, but work out to this: Pulte sets aside about $35,000 for incentives to get each home to sell, or about 6% of its price, the company said on its earnings conference call. Part of that is paying for a mortgage buydown. About 80% to 85% of buyers are taking advantage of the buydown offer. But many are splitting the funds, mixing a smaller rate buydown and keeping some goodies for the house, the company said.
Wells Fargo economist Jackie Benson said in a report that builders may struggle to keep this strategy going if mortgage rates stay near 8%, but new-home prices have dropped 12% in the last year. In her view, incentives plus bigger price cuts than most existing homes’ owners will offer is giving builders an edge.
At auto companies, price cuts are in, and more are coming
Car sales picked up notably in September, rising 24% year-over-year, more than twice the year-to-date gain in unit sales. But they were below expectations at electric-vehicle leader Tesla, which blamed high interest rates, and at Ford.
“I just can’t emphasize this enough, that for the vast majority of people buying a car it’s about the monthly payment,” Tesla CEO Elon Musk said on its earnings call. “And as interest rates rise, the proportion of that monthly payment that is interest increases.”
Maybe, but that’s not what’s happening at General Motors, even if investor reaction to good numbers at GM was muted because of the strike by the United Auto Workers union.
GM beat earnings expectations by 40 cents a share, but shares fell 3% because of investor worries about the strike, which forced GM to withdraw its fourth-quarter earnings forecast on Oct. 24. Ford, which settled with the UAW on Oct. 25, said the next day it had a “mixed” quarter, as profit missed Wall Street targets due to the strike. Consumers came through, as unit sales rose 7.7% for the quarter, with truck and EV sales both up 15%. GM CEO Mary Barra said on GM’s analyst call that the company gained market share, posting a 21% gain in unit sales despite offering incentives below the industry average.
“While we hear reports out there in the macro that consumer sentiment might be weakening, etc., we haven’t seen that in demand for our vehicles,” GM CFO Paul Jacobson told analysts. But Ford CFO John Lawler said car prices need to decline by about $1,800 to be as affordable as they were before Covid. “We think it’s going to happen over 12 to 18 months,” he said.
Tesla’s turnaround plan turns on continuing to lower its cost of producing cars, which came down by about $2,000 per vehicle in last year, the company said. Along with federal tax credits for electric vehicles, a Model Y crossover can be had for about $36,490, or as little as $31,500 in states with local tax incentives for EVs. That’s way below the average for all cars, which Cox Automotive puts at more than $50,000. But Musk says some consumers still aren’t convincible. .
“When you look at the price reductions we’ve made in, say, the Model Y, and you compare that to how much people’s monthly payment has risen due to interest rates, the price of the Model Y is almost unchanged,” Musk said. “They can’t afford it.”
Most banks say the consumer still has cash, but not Discover
To know how consumers are doing, ask the banks, which disclose consumer balances quarterly. To know if they’re confident, ask the credit card companies (often the same companies) how much they are spending.
In most cases, financial services firms say consumers are doing well.
At Bank of America, consumer balances are still about one-third higher than before Covid, CEO Brian Moynihan said on the company’s conference call. At JPMorgan Chase, balances have eroded 3% in the last year, but consumer loan delinquencies declined during the quarter, the company said.
“Where am I seeing softness in [consumer] credit?” said chief financial officer Jeremy Barnum, repeating an analyst’s question on the earnings call. “I think the answer to that is actually nowhere.”
Among credit card companies, the “resilient” is still the main story. MasterCard, in fact, used that word or “resilience” eight times to describe U.S. consumers in its Oct. 26 call.
“I mean, the reality is, unemployment levels are [near] all-time record lows,” MasterCard chief financial officer Sachin Mehra said.
At American Express, which saw U.S. consumer spending rise 9%, the mild surprise was the company’s disclosure that young consumers are adding Amex cards faster than any other group. Millennials and Gen Zers saw their U.S. spending via Amex rise 18%, the company said.
“Guess they’re not bothered by the resumption of student loan payments,” Stovall said.
The major fly in the ointment came from Discover Financial Services, one of the few banks to make big additions to its loan loss reserves for consumer debt, driving a 33% drop in profit as Discover’s loan chargeoffs doubled.
Despite the fact that U.S. household debt burdens are almost exactly the same as in late 2019, and declined during the quarter, according to government data, Discover chief financial officer John Greene said on its call, “Our macro assumptions reflect a relatively strong labor market but also consumer headwinds from a declining savings rate and increasing debt burdens.”
At airlines, still no sign of a travel recession
It’s good to be Delta Air Lines right now, sitting on a 59% third-quarter profit gain driven by the most expensive products on their virtual shelves: First-class seats and international vacations. Also good to be United, where higher-margin international travel rose almost 25% and the company is planning to add seven first-class seats per departure by 2027. Not so good to be discounter Spirit, which saw shares fall after reporting a $157 million loss.
“With the market continuing to seemingly will a travel recession into existence despite evidence to the contrary from daily [government] data and our consumer surveys, Delta’s third-quarter beat and solid fourth-quarter guide and commentary should finally put the group at ease about a consumer “cliff,” allow them to unfasten their seatbelts and walk about the cabin,” Morgan Stanley analyst Ravi Shanker said in a note to clients.
One tangible impact: United is adding 20 planes this quarter, though it is pushing 12 more deliveries into 2024, while Spirit said it’s delaying plane deliveries, and focusing on its proposed merger with JetBlue and cost-cutting to regain competitiveness as soft demand for its product persists into the holiday season.
As has been the case throughout much of 2023, richer consumers — who contribute the greater share of spending — are doing better than moderate-income families, Sundaram said.
The goods recession is for real
Whirlpool, Ethan Allen and mattress maker Sleep Number all saw their stocks tumble after reporting bad earnings, all of them experiencing sales struggles consistent with the macro data.
This follows a trend now well-entrenched in the economy: people stocked up on hard goods, especially for the house, during the pandemic, when they were stuck at home more. All three companies saw shares surge during Covid, and growth has slacked off since as they found their markets at least partly saturated and consumers moved spending to travel and other services.
“All of the stimulus money went to the furniture industry,” Sundaram said, exaggerating for effect. “Now they’ve been falling apart for the last year.”
Ethan Allen sales dropped 24%, as the company said a flood in a Vermont factory and softer demand were among the causes. At Whirlpool, which said in second-quarter earnings that it was moving to make up slowing sales to consumers by selling more appliances to home builders, “discretionary purchases have been even softer than anticipated, as a result of increased mortgage rates and low consumer confidence,” CEO Marc Bitzer said during Thursday’s earnings call. Its shares fell more than 20%.
Amazon’s $1.3 billion holiday hiring spree
Amazon is making its biggest-ever commitment to holiday hiring, spending $1.3 billion to add the workers, mostly in fulfillment centers.
That’s possible because Amazon has reorganized its warehouse network to speed up deliveries and lower costs, sparking 11% sales gains the last two quarters as consumers turn to the online giant for more everyday repeat purchases. Amazon also tends to serve a more affluent consumer who is proving more resilient in the face of interest rate hikes and inflation than audiences for Target or dollar stores, according to CFRA retailing analyst Arun Sundaram said.
“Their retail sales are performing really well,” Sundaram said. “There’s still headwinds affecting discretionary sales, but everyday essentials are doing really well.
All of this sets the stage for a high-stakes holiday season.
PNC still thinks there will be a recession in early 2024, thanks partly to the Federal Reserve’ rate hikes, and thinks investors will focus on sales of goods looking for more signs of weakness. “There’s a lot of strength for the late innings” of an expansion, said PNC Asset Management chief investment officer Amanda Agati.
Sundaram, whose firm has predicted that interest rates will soon drop as inflation wanes, thinks retailers are in better shape, with stronger supply chains that will allow strategic discounting more than last year to pump sales. The Uggs sales outperformance was attributed to improved supply chains and shorter shipping times as the lingering effects of the pandemic recede.
“Though there are headwinds for the consumer, there’s a chance for a decent holiday season,” he said, albeit one hampered still by the inflation of the last two years. “The 2022 holiday season may have been the low point.”
General Motors and Stellantis have each agreed to provide 25% wage increases to United Auto Workers members in their ongoing contract talks, matching the same offer by Ford to end the six-week strike, according to people familiar with the discussions.
The GM proposal also includes cost-of-living increases over the more-than-four-year contract, according to two of the people, who were not authorized to speak about the negotiations. A tentative agreement may be signed late Friday or early Saturday as the two sides work on final details, including how to handle temporary workers, the people said.
GM made the offer at about 4 a.m. Friday, the people said. Talks broke up at 5 a.m. and resumed at 11 a.m. The automaker wants to finalize the deal Friday, the people said, though an announcement may not come until Sunday, when UAW President Shawn Fain plans to update members on details of the Ford deal.
Stellantis and GM shares rose modestly in after-hours trading. Ford shares rose slightly in late trading after dropping more than 12% Friday — the most in 13 months — one day after it pulled its profit forecast for the year due to the strike’s impact. GM shares fell 4.7% on the day; it suspended its full-year guidance on Oct. 24.
Any final agreements must be approved by union leadership and then voted on by the company’s union members, a process that may take weeks.
Talks with both automakers were continuing late Friday to complete final portions of the agreements, the people said. The UAW’s Fain left the GM meeting to go to the Stellantis table.
Job security has been a key issue in the Stellantis talks, as the automaker shifts to electric vehicles. Stellantis had angered the union earlier this year by idling an assembly plant in Belvidere, Illinois, that once employed 5,000 people, and by pushing to use more lower-paid temporary workers. Stellantis proposed to close 18 facilities, including 10 parts and distribution centers.
Stellantis has now proposed building a new vehicle at the idled Belvidere plant, and an additional battery plant, said three people familiar with the talks who declined to be identified discussing sensitive details. The automaker has also put forward creating an Amazon.com-like hub for parts distribution that would absorb workers from the consolidated parts facilities.
These offers are conditional on other items and are not guaranteed, two of the people said.
Ford agreed as part of its tentative deal with the UAW to convert temp hires to full-time employees. Ford has a fraction of temp workers compared with the other two Detroit automakers so it’s easier for Ford to give them permanent status. Offering the same concession would push GM and Stellantis closer to Ford’s costs, which are higher than its rivals.
The UAW strike began Sept. 15 and grew to include more than 45,000 workers from GM, Ford and Stellantis at eight assembly plants and 38 parts-distribution facilities in 22 states. Ford’s deal with the UAW this week ramped up pressure on its Detroit rivals to wrap up their negotiations and get back to work.
Ford said Oct. 26 that the work stoppage had cost the company $1.3 billion. Earlier in the week, GM said its strike costs had reached $800 million.
In his race to diversify Saudi Arabia’s oil-dependent economy away from black gold, Crown Prince Mohammed bin Salman just won a major victory.
Starting as early as 2026, Hyundai expects to begin local production of up to 50,000 combustion engine and electric vehicle cars annually with the help of an investment estimated to exceed half a billion dollars.
The new commercial joint venture will be 70% majority owned by the Public Investment Fund (PIF), the Saudi sovereign wealth fund, while the South Korean automaker will control the remaining minority stake.
“We are excited about the potential of this venture to drive significant advancements in vehicle production, fostering a sustainable and eco-friendly automotive future in the region,” Hyundai CEO Jaehoon Chang said in a statement.
Hyundai did not elaborate as to whether it would invest its own money into the project or whether its 30% stake reflects a non-cash contribution in kind, for example through the planned transfer of knowledge and expertise. No location was named, but the country’s economic hub Jeddah would be a leading candidate.
Fast-growing economy
Saudi Arabia was the fastest growing G20 nation in the world last year, thanks in no small part to the gains its flagship state-owned oil producer Aramco got from soaring energy prices sparked by Russian president Vladimir Putin’s invasion of Ukraine,.
Adopting a similar strategy to China, bin Salman wants to introduce economic reforms without political ones that may pose a risk to the House of Saud’s continued reign. To realize his Vision 2030 strategy to modernize the Saudi economy, he will need to convince companies to look past its human rights abuses and other controversies such as the 2018 murder of Saudi dissident Jamal Khashoggi by government agents.
Attracting car manufacturers and their supplier parks would be a major victory. The industry traditionally plays a key role among developing countries in driving prosperity, since it sits atop the economic pyramid. That’s because it sources parts from virtually every sector beneath it, including steel and aluminum for the body, chemicals for paint and plastics and, increasingly, high-tech electronics.
Only last month luxury EV manufacturer Lucid opened the monarchy’s first ever automotive facility in King Abdullah Economic City, near Jeddah, with a capacity to build 5,000 cars annually using what are called semi knocked-down (SKD) kits.
This kind of low value-added work, in which only final assembly is performed, is a common risk-mitigation strategy in the industry when expanding into new markets. Yet Lucid, which counts PIF as its anchor shareholder, aims to add full-scale manufacturing of roughly 150,000 cars by the middle of the decade.
In two years, Lucid could be joined by Ceer Motors, the first Saudi EV brand that is a joint venture between PIF and Taiwan’s Apple iPhone contract manufacturer Foxconn. A new National Automotive and Mobility Investment Company called Tasaru, launched earlier this month, aims to furthermore situate suppliers in the country.
Peak demand expected for 2026
But it will take more to develop Jeddah into the kind of competitive automotive cluster found in parts of Germany, Japan and the United States. It would be almost impossible to accomplish this through two small challenger brands facing uncertain outlooks and operating plants that likely would not have gotten off the ground without hefty government support.
The Saudis need to reach a critical threshold in scale for the effort to be self-sustaining, and winning a trusted partner like an industry incumbent definitely helps.
“Partnering with Hyundai is another significant milestone for PIF […], aligning closely with our existing stakes in Lucid and Ceer Motors, and amplifying the breadth of Saudi Arabia’s automotive and mobility value chain,” said Yazeed Al-Humied, deputy governor at PIF and head of its Middle East and North Africa investments.
Hyundai’s follow-up investment could be the proof point other companies need before they too are willing to invest in the local economy.
One reason is that skilled labor, a key criteria for auto execs when selecting sites, is hard to find in Saudi Arabia, since Riyadh has traditionally relied on importing both white collar employees and menial labor from abroad. Roughly two-thirds of all Saudi nationals collect government paychecks, which ensures a level of dependency on the continued rule of the royal dynasty.
The House of Saud faces a broader shift away from fossil fuels that threatens its strategic value to key allies like the United States.
In a June report, the International Energy Agency predicted the world’s collective appetite for oil is “set to slow almost to a halt” in the coming years amid projections that the increase in annual demand will “shrivel” from 2.4 million barrels per day to just 400,000 in 2028.
The chief culprit for this is transport fuels. The next three years of growth are expected to mark the last before a rising tide of electric vehicles usher in an era of steady decline for crude distillates like gasoline. This may be behind the recent wave of consolidation in the oil industry.
“The shift to a clean energy economy is picking up pace, with a peak in global oil demand in sight before the end of this decade,” said IEA executive director Fatih Birol. “Oil producers need to pay careful attention to the gathering pace of change and calibrate their investment decisions to ensure an orderly transition.”
While this technocratic recommendation is phrased innocuously, Birol is warning petrodollar states lacking democratic legitimacy that they could face widescale disruption to their economies should they not diversify. This poses a risk to the stability repressive regimes prize.
Developing a small but thriving auto industry could go a long way in insulating the monarchy from domestic unrest.
Striking United Auto Workers (UAW) members from the General Motors Lansing Delta Plant picket in Delta Township, Michigan September 29, 2023.
Rebecca Cook | Reuters
DETROIT – The United Auto Workers union believes there is “more to be won” in ongoing contract negotiations with the Detroit automakers following five weeks of labor strikes against the companies, UAW President Shawn Fain said Friday.
His comments come despite record contract offers from General Motors, Ford Motor and Stellantis that now include 23% hourly pay increases and other significantly enhanced benefits during the terms of the four and a half-year deal.
“There is more to be won,” Fain said during an online broadcast. “These are already record contracts, but they come at the end of decades of record decline. So it’s not enough to be the best ever, when auto workers have gone backwards over the last two decades. That’s a very low bar.”
Despite Fain’s comments, the union did not announce additional strikes Friday against any of the companies. He said the “bottom line is we’ve got cards left to play, and they’ve got money left to spend.”
Fain did not address a Friday report by Bloomberg that the union has asked for a 25% increase in general wages.
The union has not announced any additional strikes since initiating an unexpected walkout on Oct. 11 at Ford’s Kentucky Truck Plant that produces highly profitable pickup trucks and SUVs. That’s despite Ford having the best proposal regarding economics, as outlined Friday by Fain.
Fain spent quite a notable amount of time during the online broadcast discussing how the union plans to use these talks to assist in organizing non-union plans. He also heavily criticized the Monday comments of Ford Chair Bill Ford to bring an end to the negotiations.
“Bill Ford said it shouldn’t be Ford versus the UAW. He said it should be the UAW and Ford against foreign automakers,” Fain said. “I want to be crystal clear on one thing: The days of the UAW and Ford being a team to fight other companies are over … Non-union autoworkers are not the enemy. Those are our future union family.”
Ford said it remains “eager to conclude these negotiations with a contract” that benefits its workers, citing it’s “good that Mr. Fain acknowledged Ford’s contract offer ‘already’ is a record and remains the best one on the table.”
Stellantis said the sides “continue to be productive, building on the momentum from the past several weeks,” but declined to discuss specific details. GM declined to comment regarding Fain’s comments, citing details it released of its most recent offer earlier Friday.
The UAW hasn’t expanded strikes at GM since Sept. 29 or at Stellantis since Sept. 22, despite offers made this week not meeting details of Ford’s proposal from last week and Fain last week saying the union was initiating a “new phase” of strikes and contract negotiations.
“Right before a deal is when there’s the most aggressive push for that last mile. They just want to wait us out,” Fain said. “They want division. They want fear. They want uncertainty. And what we have is our solidarity.”
The strike at Ford’s Kentucky plant — responsible for $25 billion in revenue annually — marked a major escalation in the UAW’s targeted, or “stand-up,” strikes. It also represents a shift in strategy, as Fain had previously publicly announced the targets before the work stoppages occurred.
The UAW has been gradually increasing the strikes since the work stoppages began after the sides failed to reach tentative agreements by Sept 14.
About 34,000 U.S. automakers with the companies, or roughly 23% of UAW members covered by the expired contracts with the Detroit automakers, were on strike.
Here are details of current proposals by the companies to UAW:
Wages: All three automakers have offered a 23% pay increase over four and a half years.
Wage tiers: All three automakers have agreed to eliminate wage tiers at parts facilities where workers have historically been paid less than production-line workers.
Wage progression: Ford has offered a three-year progression to the top wage rate, a system that was in place from the mid-1990s until the aftermath of the 2008 economic crisis. GM has also offered a three-year progression, but only for current workers. GM wants a more gradual four-year progression for future hires. Stellantis has offered only a four-year progression.
Cost of living adjustments (COLA): Ford has offered to restore its COLA formula to the level last used in 2009, meeting the UAW’s demand. Fain said that GM is “approaching restoration but not fully there,” while Stellantis wants to delay cost-of-living adjustments by a year.
Job security: Ford and Stellantis have agreed to give the union the right to strike over plant closures, a key UAW demand. GM has so far rejected that demand.
Temporary workers: Ford has offered to convert current temp workers with 90 days of service to full-time employees, with a raise to $21 per hour for remaining and future temps. Whether those future temps will be converted to full-time employees automatically is still being negotiated, Fain said. GM has proposed to convert current and future temps with one year of service to full time employees, and has matched Ford with a $21 per hour wage for remaining and future temps. Stellantis agreed to convert “thousands” of current temps to full-time status, with a wage increase to $20 per hour for remaining and future temps. As with Ford, the automatic conversion of future temps is “still being negotiated,” Fain said.
Retirement plans: All three automakers have offered a $3 increase to pension benefits. Ford and Stellantis have offered to increase their 401(k) contributions to 9.5% plus $1 per hour. GM offered an increase to 8% plus $1.25 per hour.
Payments to retired workers: Ford offered annual lump sum payments of $250 to retired workers, with surviving spouses eligible to continue to receive the payments. GM offered a one-time lump sump payment of $1,000, with surviving spouses not eligible. Stellantis rejected all increases to retiree pay. Fain said all three offers were “deeply inadequate.”
Profit sharing: Ford offered to improve its existing profit-sharing formula by including profits from Ford Credit, its financing subsidiary, and to make temp workers eligible to receive profit-sharing payments. Stellantis and GM both want to maintain their current profit-sharing formulas, but GM has offered to make temp workers with 1,000 hours of service eligible to receive payments. Stellantis has not offered to make its temporary workers eligible to receive profit-sharing payments.
Work-life balance: All three automakers have offered to make Juneteenth an official paid holiday and have offered two weeks of paid parental leave.
Tesla shares dropped more than 15% over the last few days to close the week at $211.99 after CEO Elon Musk waxed pessimistic about macroeconomic issues on a third-quarter earnings call Wednesday.
It marks the worst week for Tesla stock of the year, although shares of the electric automaker are still up 96% year-to-date.
For the period ending Sept. 30, 2023, Tesla reported $23.35 billion in revenue and $1.85 billion in profits, a decline versus the prior quarter. Profits were lower than the same quarter last year, too.
On an earnings call to discuss the Q3 results CEO Elon Musk, who divides his time between Tesla, the social network X (formerly Twitter), defense contractor SpaceX, and startups xAI, Neuralink and The Boring Co., struck a deeply pessimistic note about the economy and emphasized that cost-cutting and price cuts would be essential for Tesla in coming quarters.
Musk also threw cold water on shareholders’ expectations for Tesla’s long-delayed Cybertruck, while declining to give details about a “robotaxi” and autonomous vehicle tech that the company has been working on and promising for years. The company is already lagging Cruise and Waymo in the U.S., and robotaxi developers including the ridehailing giant, Didi, in China.
In regards to the company’s deeply unconventional pickup, Musk went so far as to say, “We dug our own grave with Cybertruck” on the Q3 call. He also said he wanted to “temper expectations” for the vehicle, saying it’s a “great product,” but Tesla expects it will take a year to 18 months before the Cybertruck becomes a “positive cash flow contributor.”
“Demand is off the charts. We have over 1 million people who have reserved the car, so it’s not a demand issue,” Musk claimed. “But we have to make it, and we need to make it a price that people can afford, insanely difficult things.”
Tesla is planning an event to officially debut the Cybertruck on Nov. 30, but hasn’t yet disclosed the truck’s final specifications and pricing. It’s not clear how many of the people who paid for a $100 refundable reservation for the Cybertruck will follow through and purchase the trucks.
Musk repeatedly addressed Tesla’s efforts to reduce costs internally, and the cost of its electric vehicles for customers. During a question-and-answer portion of the earnings call with analysts, Musk said, “I am worried about the high-interest rate environment that we’re in.” For car buyers, he said, “If interest rates remain high or if they go even higher, it’s that much harder for people to buy the car. They simply cannot afford it.”
“Reducing the cost of our vehicles is our top priority,” Tesla’s new CFO Vaibhav Taneja said on the call, echoing Musk’s concerns and priorities. “We’ve tried to offset such adjustments via our focus on reducing costs. However, there is an inherent lag in cost reductions, which in turn impacts margins,” he added.
Musk made some optimistic claims on the call, for example assuring investors that Tesla will continue to, “invest significantly in AI development,” a technology that he has pegged as “the massive game changer,” with “potential to make Tesla the most valuable company in the world by far” with “fully autonomous cars at scale and fully autonomous humanoid robots.”
However, the market did not respond to the celebrity CEO’s long-term vision statements as it has in the past. Even some of the analysts who are reliably bullish on Tesla issued cautious notes after the company’s Q3 results as CNBC Pro reported.
For example, “No more rose-colored glasses,” Wells Fargo analyst Colin Langan wrote in a note Wednesday. And Morgan Stanley’s Adam Jonas reduced his price target to $380 from $400. His forecast still implies more than a 56% upside in a note out after the Q3 Tesla call.
Jonas asked, “How can we defend a ‘growth’ stock that appears ready to enter its 2nd consecutive year of earnings decline?” He later answered, “We feel it is also important and reasonable to consider the long-term potential of the products and services being commercialized by the company,” in the note.
Toni Sacconaghi of Bernstein, who is typically more skeptical of Tesla’s hype, maintained an underperform rating on the EV maker with a $150 price target on shares, suggesting a 38% downside from Wednesday’s close. “5% auto revenue growth, collapsing margins and trading at 200x FCF — is the story broken?” the analyst asked in a note out Thursday.
Some of Tesla’s long-term believers, including Jonas, see the company’s Q3 results as an alarm bell signaling a difficult outlook for EVs broadly. Chinese EV makers, among other automakers, saw shares decline following Tesla’s cautious, third-quarter call as well.
Electric-vehicle giant
reported
third-quarter results
on Wednesday evening that missed Wall Street estimates, underscoring that the pain of price cuts isn’t over. Tesla’s travails show that it will be tough going for traditional auto makers trying to build competing EV businesses.
Apple iPhone supplier Foxconn, officially known as Hon Hai, said its semiconductor strategy is to focus on producing “specialty chips” — not competing in cutting-edge chips.
“We do not chase [after] the most advanced technology. Hon Hai will not compete with leading edge players like 4-nanometer or 3-nanometer. We focus more on specialty technology,” Chiang Shang-Yi, chief strategy officer for semiconductor at Hon Hai Technology Group, told CNBC’s Emily Tan on Tuesday.
Specialty chips are known as semiconductors found in sectors such as automotive and internet of things. Chips for automotive uses are typically made using mature technology – 28-nanometer or larger chips.
“Nanometer” in chips refers to the size of individual transistors on a chip. The smaller the size of the transistor, the more powerful and efficient it is, but it also becomes more challenging to develop.
“If we tried to chase 3-nanometer, 2-nanometer, we are way too late. The way we are working on [is to] just try to manage the supply chain. And we call it specialty technology – that is not late at all,” said Chiang.
Our strategy is we attack all.
Jun Seki
Hon Hai’s chief strategy officer for EVs
Hon Hai Technology Group is the world’s largest contract electronics manufacturer that assembles consumer products like Apple’s iPhones. But in the last couple of years, the Taiwanese firm has made its foray into semiconductors and electric vehicles.
When it comes to EVs, Chiang said the focus lies in power devices and silicon carbide chips — increasingly a material of choice among EV-makers, thanks to its higher efficiency at higher voltages common in EVs.
Foxconn first announced EV prototypes in 2021 made by Foxtron, a venture between Foxconn and Taiwanese car maker Yulon Motor.
Foxconn currently only produces a small number of EVs, but has set an initial target of capturing a 5% market share globally by 2025, according to Reuters.
“When we [talk] about EV business, we have a component business. We have a platform business. We have a CDM business: contract, design and manufacturing services,” said Jun Seki, Hon Hai’s chief strategy officer for EVs, told CNBC in a separate interview.
“Our strategy is we attack all. Component module platform makes our cost very competitive. This is an area that makes traditional auto OEMs profitability very poor, he said referring to original equipment manufacturer, which are products sold to other companies as components.
We have a little bit of everything. There’s a good reason for that. If you do a little bit in everything, you know what’s going on in that area.
Chiang Shang-Yi
Chief strategy officer for semiconductor
“Sometimes we may have to build their cars by their drawings. If our customers can give a chance to us, we can build our ideas into their cars, then we can make customers more competitive,” said Jun.
However, the global EV market is only getting more competitive.
China, Europe and the U.S. are major players when it comes to electric cars. From third-quarter 2021 to second-quarter this year, the top three players – Tesla, BYD and Volkswagen – held 42% of the global EV market, according to Counterpoint Research.
Foxconn’s foray into semiconductor has had a tough start, pointing to the difficulty for new players to enter a market dominated by firms with extensive experience and a highly intricate supply chain.
Earlier this year, Foxconn pulled out of a joint venture with Indian metals-to-oil conglomerate Vedanta to set up a semiconductor and display production plant in India as part of a $19.5 billion deal.
“You call it a failure, but I don’t think it’s finalized yet. I think we learnt through the way how we interpret, how we work with the government. So far, the government is still not making a decision yet. So I will not call it a failure at this moment. We are all still trying to work with the government, to find ways so the government will support our proposal,” Young Liu, Hon Hai’s CEO and chairman, told CNBC.
In August, the government of the state of Karnataka in India said Foxconn will pump in more than $600 million to build a phone manufacturing project and a separate semiconductor equipment facility.
India could account for 20% to 30% of Hon Hai’s manufacturing, which is “very similar to China,” Liu said.
“We’ve been working with countries like India, Indonesia and Thailand. They’re all going quite well,” the CEO said. Foxconn is exploring cooperation with Indonesia and Thailand EV-related companies.
He added that Hon Hai “very much focus on the entire supply chain,” he added. “There’s a good reason for that.”
“If you do a little bit in everything, you know what’s going on in that area. Like we all know, two years ago, there’s a big shortage in chips and many cars cannot be shipped because they lack chips. And this case, Hon Hai will have a better idea because we’ll know what’s going on. And we give us more lead time to try to manage them,” said Chiang.
UAW Local 5960 member Kimberly Fuhr inspects a Chevrolet Bolt EV during vehicle production on May 6, 2021, at the General Motors Orion Assembly Plant in Orion Township, Michigan.
Steve Fecht for Chevrolet
DETROIT – General Motors said Tuesday it is delaying production of all-electric trucks at a Michigan plant by at least a year to “better manage capital investments” and implement improvements in an effort to make the new EVs more profitable.
GM now plans to begin construction of its next-generation EVs at Orion Assembly in suburban Detroit by late 2025, instead of next year. The factory currently produces Chevrolet Bolt EV models, which GM will cease producing at the end of this year.
The delay is the latest sign of potential trouble for the ambitious, multibillion-dollar plans of traditional automakers to move to electric vehicles. Adoption of EVs, which remain costly to produce and purchase, has been slower than many expected.
“General Motors today confirmed it will retime the conversion of its Orion Assembly plant to EV truck production to late 2025, to better manage capital investment while aligning with evolving EV demand. In addition, we have identified engineering improvements that we will implement to increase the profitability of our products,” the company said in a statement.
The change in plans is not connected to the company’s ongoing contract negotiations with the United Auto Workers union, according to a GM spokesman. However, the contentious talks do involve EVs, and current contract proposals by the company are expected to be more expensive than those in year’s past. The UAW, which represents workers at Orion Assembly, did not immediately respond for comment.
The production delay calls into question GM’s previously announced EV goals, including cumulative production of 400,000 EVs in North American from 2022 through mid-2024, which had already been pushed back. GM also has a goal to exclusively offer consumer EVs by 2035.
A GM spokesman late-Tuesday said there’s currently no change in plans to the company’s EV production targets.
New electric versions of the Chevrolet Silverado and GMC Sierra that were supposed to be produced at Orion Assembly will be assembled at GM’s Factory Zero in Detroit, the company said. Limited production of the Silverado EV is underway, while Sierra is scheduled to begin next year.
Alongside the Silverado EV, Factory Zero is currently building the GMC Hummer EV pickup and SUV and Cruise Origin shuttle.
In January 2022, GM announced it would invest $4 billion to convert Orion Assembly to produce electric trucks. The plant was expected to be its second U.S. assembly plant to exclusively produce EVs. GM said construction includes significant facility and capacity expansion at the site, including new body and paint shops and new general assembly and battery pack assembly areas.
Roughly 1,000 hourly workers at Orion Assembly will have the option to transfer to other Michigan facilities until the retooling at Orion Assembly is completed.
U.S. stocks are poised to rise on Monday ahead of a week of earnings and economic data releases, including quarterly reports from
Tesla, Netflix, and .
By most measures, Gary Black qualifies as a big supporter of electric-vehicle giant Tesla. The Chicago fund manager has had Tesla as his No. 1 or No. 2 holding since he opened his fund in 2021, and often appears on social media (and sometimesCNBC) to talk about it, usually supportively. But there’s one thing Black has had on his mind lately: That Tesla is wasting money on price cuts to keep growth rates high.
His once-lonely campaign has been picking up allies lately in a domain where Musk pays close attention — social media. An online poll run by @TroyTeslike, another active social-media Tesla fan, found half of the 8,000-plus respondents thought Tesla should start advertising, beating out growth strategies like more price cuts and adding technology to high-end Model S and Model X.
The investor pressure, or at least nudging, didn’t come out of nowhere. Last May at Tesla’s annual shareholder meeting, Musk looked surprised, if a little amused, when a shareholder challenged him on the issue about 70 minutes in, to the cheers of a crowd dominated by Tesla fanboys.
“525 bucks off of every car this year is half of Netflix’s ad budget, and 1000 bucks is the entire Netflix ad budget and I see their ads everywhere. Why not advertise these things you told us about here?” said Kevin Paffrath, who runs The Meet Kevin Pricing Power ETF in southern California. Hespecifically referred to safety features including airbag deployment technology as Tesla advantages that might appeal to consumers through advertising.
Musk expressed openness to the idea.
“There are amazing features and functionality about Teslas that people just don’t know about, although obviously a lot of people who follow the Tesla account and my account to some degree, it is preaching to the choir and the choir is already convinced,” Musk said.
Then Musk made a promise. “I think what you are saying does have some merit and I believe in taking suggestions and we’ll try a little advertising and see how it goes,” he said.
The shareholders erupted in cheers, to which Musk responded, “I wasn’t expecting that level of enthusiasm.”
If shareholders expected a major advertising push, they’d be disappointed today. In the months since, according to Wedbush analyst Dan Ives, Tesla has spent very minor amounts on online and social advertising. At the same time, the major price cuts continue as Musk’s primary strategy to drum up more interest in Teslas.
Musk has been a firm proponent of cost-cutting first. As he said at this year’s annual meeting, Tesla’s goals include bringing electric transportation to mass-market consumers, and as he said, many Model 3s can be had in the U.S. market for less than the average cost of a new passenger vehicle.
Indeed, the average price of most Teslas has fallen about 20% since August 2022, according to Cox Automotive. The figures don’t include the restoration of the $7,500 federal tax credit for Teslas under the 2022 Inflation Reduction Act.
But the most recent round of price cuts, announced over the past month, is costing Tesla an annual $2 billion a year, Black said. Overall, the price cuts over the past year have shaved revenue by much more, Ives estimated.
Black’s premise, in effect, is that Musk should reconsider how much Tesla relies on price cuts versus spending money on advertising to get the word out about features like the falling cost of EVs and safety features like over-the-air software updates. It becomes especially pressing considering that Tesla stock, while up about 140% this year, is still one-third below its 2021 peak and has trailed the S&P 500 over the last year.
“I don’t think that you get that much demand elasticity by cutting a Model Y to $48,000 from $55,000,” Black said. “Instead of a $2,000 price cut, let’s do $1,800 and try advertising more.”
CNBC reached out to Tesla multiple times. The company did not respond.
In effect, Black argues that Tesla price cuts are a de facto marketing expense, saying Tesla’s share losses among EVs by Tesla this year suggest price cuts alone aren’t working.
Indeed, Tesla’s U.S. market share among EVs has been slipping even as it cuts prices. Third-quarter deliveries were 435,059 units, up sharply from 343,830 a year earlier but below second-quarter unit sales of 466,140 and first-quarter sales of about 423,000. In a press release, Tesla blamed the third-quarter number, which missed analyst projections, on “planned downtime for factory upgrades.”
The lower prices are also showing up in Tesla’s gross margins, which dropped to 18% of sales in the second quarter from 25% in the second quarter of 2022, Ives said. That implies a $1.5 billion drop in potential gross profit, unless some of it is made up in higher sales volume, he said.
What a Tesla ad campaign might look like
It’s possible to guess at what an effective Tesla ad campaign might do, said Allen Weiss, CEO of MarketingProfs, a marketing research and training firm, who pointed to many features beyond just safety that consumers do care about.
“I would start by identifying what benefits customers are looking for, which are likely some [about performance] but others are [about] luxury and even others are symbolic, [being] a person who helps save the planet,” he said. “I would find out what these benefits are, target a segment of these buyers and put a great theme around these benefits. That way, you can have fun ideas but are connecting with the buyers on what they really care about.”
New Tesla electric vehicles fill the car lot at the Tesla retail location on Route 347 in Smithtown, New York on July 5, 2023.
Newsday Llc | Newsday | Getty Images
Tesla’s challenge is that, as it grows, it’s competing more directly with companies that are experienced marketers, Weiss said. Ford has already spent conspicuously to promote its F-150 Lightning pickup, and General Motors has run Super Bowl ads for the last three years. Weiss said Swedish EV maker Polestar also advertises, spending an estimated $20 million this year. Polestar and BMW have both touted EVs on the Super Bowl telecast, the most expensive U.S. TV buy, and industry data firm iSpot estimates that about a quarter of 2022 car ad spending was for EVs, a move Ives called a “tidal wave” that he predicts will grow.
“Other carmakers are used to focusing more on customer benefits, while Tesla is not,” Weiss said. “Go to Ford’s website and click on electric and you will immediately see words like head-turning design, impressive performance and thrill. Go to BMW’s electric vehicles page and you see ‘cutting edge performance and luxury.’ Go to Tesla’s site and you see, well, price.”
Musk himself conceded at the annual meeting that he is often confronted by people who tell him that EVs are too expensive.
“I’ve talked to lots of people who still think Teslas are, like, super-expensive,” Musk said. “I’m like, no, the [average selling price] of a Tesla is lower than the average selling price in the U.S.”
Tesla doesn’t need to spend as much as Ford or GM do on advertising, Ives said, arguing that a focused campaign could zero in on specific Tesla or EV advantages.
“There are differentiations to Tesla that people don’t know about,” he said. Advertising can also be deployed to sustain Tesla’s luxury brand image even as the average cost of its cars falls, he said. “You start to change perceptions.”
The “name of the game” at Tesla as it reaches its full scale is volume and operating margins, Ives said. Black argues that it’s worth finding out, soon, whether advertising more will help. Even Musk may be convincible, and the irony of his longstanding reluctance to advertise wasn’t lost on him at the annual meeting:
“I think it’s ironic that Twitter [X] is highly dependent on advertising and here I am ‘never use advertising’ and now have a company that’s highly dependent on it. I guess I should say advertising is awesome and everyone should do it.”
United Auto Workers members strike the General Motors Lansing Delta Assembly Plant on September 29, 2023 in Lansing, Michigan.
Bill Pugliano | Getty Images
DETROIT – A shift in strategy by the United Auto Workers union this week has some analysts wondering if the parties are — perhaps, counterintuitively — getting closer to a deal.
On Wednesday the union initiated a surprise work stoppage at Ford Motor’s Kentucky Truck Plant. The strike involves 8,700 workers and affects the most crucial plant, by far – responsible for $25 billion in revenue annually – that the union has walked out on since the strikes began Sept. 15. It’s expected to quickly have a ripple effect on other Ford plants and suppliers.
It also ushered in what UAW President Shawn Fain characterized as a “new phase” of strikes and contract negotiations with Ford, General Motors and Chrysler-parent Stellantis, giving the union the element of surprise to keep the automakers on edge during the ongoing negotiations, Fain told members in a Friday presentation.
“We’re entering a new phase of this fight and it demands a new approach,” Fain said Friday. “We’re done waiting until Fridays to escalate our strike.
“We are prepared at any time to call on more locals to stand up and walk out,” he said.
Until this week, Fain had announced all of the union’s new strikes on Fridays, during what has become a weekly livestreamed update for union members.
Some Wall Street analysts and industry experts think this week’s shift in strategy could be a sign that UAW leaders feel a deal with Ford is close, and that they’re increasing pressure as a tactic to get the deal over the finish line — and to help sell a potential tentative deal to their members.
“We continue to believe the escalation at [Ford] this week is a sign the talks may be coming to an end. KY Truck is likely Ford’s most profitable plant, and therefore the strike is the highest level of escalation, aside from a national strike,” Wells Fargo analyst Colin Langan wrote in a Friday note. “This escalation would likely be done to push for final terms.”
But the UAW’s leaders may be looking one more step ahead, to the process of selling a tentative deal with Ford to their members. The thinking is that to convince members to ratify a potential new contract, UAW President Shawn Fain and the union’s leadership will need to convince autoworkers that the union has fought as hard as possible to have their demands met. Striking Ford’s most profitable factory might be one way to do that.
Wolfe Research’s Rod Lache argued the Kentucky strike may allow UAW leadership to claim that they did all that could be done, especially if it leads to one or two more concessions from Ford.
“In another week or two, Fain should be able to credibly announce that he has forced Ford into one last capitulation (battery plants?), and that UAW members have secured the last few ounces of wage, benefits, and job protection concessions that they can get,” Lache wrote Thursday to investors.
Factory workers and UAW union members form a picket line outside the Ford Motor Co. Kentucky Truck Plant in the early morning hours on October 12, 2023 in Louisville, Kentucky.
Only about 34,000 U.S. automakers with the companies, or roughly 23% of UAW members covered by the expired contracts with the Detroit automakers, are currently on strike.
“Hitting a very high-dollar, high-profitable plant, it certainly gets Ford’s attention very quickly,” said Art Wheaton, a labor professor at the Worker Institute at Cornell University. “It also sends a huge message to Stellantis and General Motors.”
Wheaton argues the escalation in Kentucky may just be the beginning. There are plenty more plants the union could hit for each of the automakers, including the full-size pickup truck plants owned by all three and large SUV plants at GM and Stellantis.
GM avoided a strike at its most profitable SUV plant in Texas last week with a last-minute offer to include battery cell plant workers under the company’s national agreement, however details regarding how that will be done are believed to be still being negotiated.
While Fain declined to expand strikes against GM and Stellantis Friday, Wells Fargo’s Langan thinks that doesn’t necessarily mean they’re spared.
“The lack of GM & STLA strike today, even though both have not matched F’s offer, would be consistent with the UAW holding out the most profitable plants for a final push,” he wrote in a Friday note.
All of that tea-leaf reading aside, rapid escalation-turned-resolution is just one potential outcome.
Another includes the automakers holding out for the union to deplete its resources, specifically its strike and defense fund. Or, the UAW could continue rotating strikes or filing additional unfair labor practice charges against the companies. Yet another outcome could see the sides seeking mediation or legal resources.
“I think they’ve got to be getting close to some sort of an agreement, or you just have to conclude a reasonable deal is not in the making — and that this is really more a matter of a test of will than anything else,” said Marick Masters, a business professor at Wayne State University in Detroit who specializes in labor issues.
An automaker also could submit what’s known as a “last, best and final offer,” which, as it states, is typically a final proposal when bargainers have reached an impasse.
Ford may be close to that point. An executive said Thursday the automaker was “at the limit” of what it can offer UAW in terms of economic concessions.
The Detroit automakers have largely given into many of the union’s demands, but not all of them.
The companies haven’t waved the white flag on demands for a 32-hour workweek — which was always a nonstarter for the companies and which has largely fallen out of union talking points — and a 40% wage increase.
Ford was up to a record 23% wage increase in its recent contract proposal, with the others not far behind.
Then there’s the outstanding issues of benefits for retirees as well as a return to traditional pension plans and future battery plant jobs and workers.
Industry experts and sources familiar with the talks believe regardless of the outcome, the contracts will have ripple effects on the companies potentially in the way of reorganizations, cost cuts and future investments and jobs.
A former high-ranking bargainer for one of the automakers told CNBC that it’s nearly guaranteed that the companies will cut union jobs through product allocation, plant closures or other means to offset increased labor costs once the contracts are set.
“They’re going to have to pay up. The question is how much,” said the longtime bargainer, who agreed to speak on the condition of anonymity. “This ends up with fewer jobs. That’s how the automakers cut costs.”
Stock futures posted modest gains Thursday ahead of a report likely to show that
U.S. inflation fell in September as gasoline price growth slowed and used-car costs declined.
Figuring out whether you qualify for an electric vehicle
tax credit isn’t easy–make, model, pricing, the state where you live, your income, and the list goes on. But once you sort things out, you can save thousands–even on a
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Stocks can become buys for Wall Street analysts any number of ways.
New management, new products, or a renewed focus on costs can all be catalysts analysts that analysts examine. Sometimes investors turn stocks into buys all by themselves.
