Truck love killing cars and signals trouble for politicians pushing carbon taxes

If you’re trying to sell a car – any car – in Canada, good luck. A truck of some sort? No problem. Given the cost of fuel in Canada, this makes no economic sense. Put all the pieces together, however, and you will find a very clear message for politicians.

Let’s start with sales. Year-to-date data from DesRosiers Automotive Consultants paints a discouraging picture for cars. Some of the most popular models of the past decade suffered double-digit declines through the end of May: Toyota Corolla, -11.7%; Hyundai Elantra -15.2%; Kia Forte -13.6%. Passenger car sales are down 9.2% overall this year.

Ford’s F-Series pickup: by far the most popular vehicle with Canadians.

Meantime, light truck sales continue to strengthen, up 4.6 per cent this year. It’s interesting to see what sorts of trucks Canadians are buying in the greatest numbers, too.

Essentially, you can divide Canadian truck-buying habits into two main camps: large pickup and small utility. Year-to-date, Canadians bought 153,497 rigs like Ford’s F-Series and Chevrolet’s Silverado, while sales of compact SUVs (sport-utility vehicles) hit 183,527. We do love wagons like Toyota’s RAV4 and Honda’s CR-V.

Total truck sales in that period: 588,293. So, of all the light trucks sold in Canada, 57% were big pickups and smallish rigs.

Trucks, of course, are not particularly fuel efficient. Meantime, pump prices are a big issue in Canada. So big, the Conservatives in Ontario rode to victory on the promise of lower fuel prices. And indeed, the Ford Government has scrapped EV subsidies and the cap and trade program that paid for them.

Then there’s British Columbia, where the carbon tax hits vehicle owners hard at the pump – to the tune of some $1.2 billion in annual extra revenue for the provincial government, reports The National Post.

As the Post notes, the carbon tax “adds approximately 8.55 cents per litre of gasoline with the GST tacked onto it, and 10.06 cents per litre for diesel with the GST. To fill up an average Toyota Camry with a 70-litre fuel tank costs $6 in carbon tax. A Dodge Ram pick-up truck costs more than $10 in carbon tax and a Ford Super Duty Diesel costs more than $17 per fill up.”

So far, British Columbians seem willing to suffer the cost of the carbon tax; they elected an NDP/Green hybrid government in the last election. No Doug Fords for B.C., yet.

But read the tea leaves. Canadians are guzzling gas guzzlers at a record clip, while bemoaning the high price of filling them up. The promise of cheap gas, in fact, helped elect Doug Ford’s Conservatives in Ontario. All the while, some very good and highly fuel-efficient cars are languishing on dealer lots, unloved and unwanted.

If I were running for provincial or federal office in an upcoming election, I would note that Canadians have a love affair going with trucks. I’d also think long and hard about the government that voters elected in Canada’s largest province.

A federal carbon tax is going to be a very tough sell in the next national election.

Read more

Has Elon Musk become one of Tesla’s biggest problems?

The bears are growling ever louder, obviously tired of Elon Musk’s endless parade of failed promises and red ink. Tesla Inc., if you hadn’t noticed, is in very deep trouble.

One of every three Wall Street analysts covering Tesla has a “sell” rating on the stock, reports Bloomberg.

Source: Elon Musk, Twitter

NASDAQ still rates Tesla a consensus “buy,” but just barely. The consensus price target is $305, slightly below the $312 Tesla is trading at as I write this (all figures in U.S. dollars). Tesla did, indeed, hit the magic 5,000 target for Model 3 production in a single week recently. But few believe Tesla can sustain 5,000 a week while also keeping up with production of the Model S and X and putting out all the many fires that keep igniting in and around the company.

Nonetheless, no one should forget that institutions still hold 62 per cent of Tesla’s stock ($32.3 billion worth), so don’t expect a mass selloff, even with the worst of news. T. Rowe Price, Fidelity, Baillie, Vanguard, Black Rock and the like will not dump their Tesla holdings en masse, thereby committing a form of public financial suicide.

Still, some highly prominent analysts are urging clients to sell – among them John Murphy at Merrill Lynch, Efram Levy at CFRA and Colin Langan at UBS. Perhaps more telling, the greatest Tesla bull on Wall Street, Adam Jonas, has a “hold” on Tesla and a price target of $291, far, far, far below his once-optimistic view of Tesla. Note: a “hold” on Wall Street is often the kindest way to say “bail.”

Ah, Jonas. Three summers ago, in August 2015, Tesla shares were trading around $260, but Jonas had a price target of $465 on the stock. Apparently, Jonas’s thinking has “evolved.”

“We previously thought that if one were to look out longer-term, there would be a greater likelihood that Tesla could justify a market valuation far above (and possibly even a multiple of) its current capitalization,” Jonas said in a bafflegab note to clients in May, reported by Business Insider.

Meantime, Elon Musk himself is lashing out at critics with increasing vehemence. A sign of desperation?

“One analyst who covers Tesla for a large bank says many observers believe Tesla lacks ‘grown ups’ to rein in Mr. Musk’s outbursts, particularly on Twitter, where he goads journalists and promises to ‘burn’ speculators who short the company’s shares,” notes the Financial Times.

One anonymous analyst, adds the Financial Times, suggests that while Musk’s quirks and erraticisms have been in the past intriguing, even endearing and a catalyst for Tesla’s valuation and consumer interest, now Musk “has gone full Trump. The pressure, the need for attention – it’s weird, his mental state is deteriorating.” Is Musk nuts? Is that what this analyst is saying?

In any case, many believe the next six months are make-or-break months for Tesla. The coming operational and financial targets are massive and it’s quite possible that a failure to meet any of them will be catastrophic – especially so, given the tremendous short interest in Tesla shares.

I, for one, don’t believe Tesla as a brand will disappear, but I do think the big investors are going to apply pressure on Musk to reign in his erratic behaviour and concentrate on building the company in which they have invested so heavily.

I would not be surprised to see Tesla merge with a large tech company or form a tight alliance with an established automaker. Either development would see Musk eased out of the operational role he now holds and for which he appears entirely unsuited. He might serve Tesla better as a “visionary” and brand ambassador.

Finally, despite Tesla’s well documented reluctance to let the press test drive its cars, I have secured a test of a Model 3 later this month – with no help at all from Tesla. I hope I am impressed because I want electric cars to succeed. Stay tuned.

Read more

Movin’On with the dreamers and realists in Montreal

Last week I spent 72 hours attending what I would describe as part revival meeting, part problem-solving lab. Actually, I should say labs and panels discussions and seminars, test drives of zero-emissions vehicles and displays showcasing all sorts of assorted cool things. We ran the gamut, from autonomous technologies and such to clever ideas for how to change thinking about moving from here to there, especially in increasingly crowded cities.

Yes, there I was in a steamy, late-spring Montreal. I was one of several thousand earnest dreamers and savvy realists at the Movin’On by Michelin conference. All of us were there in search of solutions that should preserve some semblance of safe and sustainable transportation and movement in a world gone a little mad.

How mad?

Several thousand earnest dreamers and savvy realists spent 72 hours at the Movin’On by Michelin conference in Montreal, Uplifting in a broader world full of bad climate change news.

Our little planet, which www.newgeography.com says has 37 stuffed megacities (and growing) that each are home to 10 million or more residents, is jammed with 7.6 billion people. The United Nations says that number could grow to 9.7 billion by 2050, and 11 billion by 2100.

We now have about a billion cars, SUVS (sport-utility vehicles) and other assorted light vehicles on the road today, notes, Scotiabank Global Economics. For easy reference, we’ll call all these light vehicles “cars.” On top of the massive number of cars, add in the heavy-duty rigs that move goods and dig trenches.

The “car” population will grow by 81.62 million this year. That represents annual sales that have more than doubled since the 1990s. All those cars and trucks…well, let’s say 98.6 per cent of them, burn fossil fuels and are by definition hurting the planet, almost certainly in a fatal way if we don’t change.

Still, the good news is that EVSales says that electric vehicles are on the rise.  Global EV sales were up 93 per cent in April, year-on-year, but the actual number was rather modest – 128,000, for a market share of a paltry 1.4 per cent. Year-to-date EV sales are up 68 per cent, and 61 per cent off all EV sales in 2018 have been pure electric.

Whew.

Sorry to throw out so many numbers, but they create perspective.

Those of us attending the second annual Movin’On by Michelin conference in La Belle Province were both encouraged and discouraged by the facts on the ground, but also enthusiastic about the possibilities for the future. Consumers are becoming increasingly interested in zero-emissions vehicles, though the maddening problem of securing “clean” sources of electricity remains.

As well, because all car companies lose money on every EV sold, none are willing to bring enough to market to meet what is clearly a combination of emerging and pent-up demand. If you want a Chevrolet Bolt EV in Canada, for instance, you’ll wait a year or more for delivery.

If you put down a deposit on a Tesla Model 3 – qualifying you as a true optimist – you might get your car in a year or three, once the waiting list is whittled down from 400,000 or so, at the rate of about 1,000-3,000 cars a week.

Incoming CEO of the Michelin Group, Florent Menegaux (left) is an optimist. It’s good for business.

Speaking of optimists, however, I sat down with the incoming CEO of the Michelin Group, Florent Menegaux (he takes the reigns in 2019) and was startled by his candor and persuaded by his charm. Yes, it seems a bit odd that a tire company from France, even on more than 100 years old, would choose to sponsor and organize a giant, one-of-its-kind exposition on mobility problem-solving, but then he made the case and I was intrigued.

Efficient mobility is a sign of social and economic progress and a feature of developed societies. Traffic jams are a very real and also a metaphorical sign of stalling and stagnation. And so, in a world of megacities clogged with fossil-fuel-burning cars, we must, he says, “tackle the negative aspects of increased mobility.”

But why is this Michelin’s cause, I asked the slim and charming Menegaux, looking poised and patient in his grew suit and open-collar tailored white shirt.

Michelin, he told me, may be known around the world as a tire company, but it’s really been in the mobility business for 125 years – at least that’s the way Michelin frames itself. Michelin sees the Movin’On conference – the successor to the more sporadic Bibendum Challenge – as what happens when a forward-thinking global company includes long-range planning in its business plan, he told me.

The current “mobility arc,” as I’ll call it, is unsustainable. So “we’re trying to put all the stakeholders at the same table” to come up with viable, affordable, socially and economically successful answers, he told me. The long-range goal is the meet the 2050 goals in the Paris climate change accord, despite the idiocy of Donald Trump, who has announced the United States is pulling out from this voluntary agreement singed by every country in the world except the U.S. and Syria.

Michelin, he told me, has put itself in the centre of progress on the mobility front, making connections itself with cutting edge, thinkers and technological  wizards, while also facilitating networks among all the various players and stakeholders in the world of mobility – from  carmakers like PSA to so-called mobility “architects” like Finland’s Sampo Hietanen (MaaS Global) and Vancouver’s Sandra Phillips (movmi) who came to Canada’s West Coast from Switzerland with big ideas about how to get people moving from  A to B using a full deck of resources – trains, buses, car sharing, bicycles and more.

Michelin makes tires, sure, says Menegaux, but not just car tires and it’s not selling them all in traditional ways. It’s aviation business leases tires to airlines and charges them per landing, which encourages longevity and durability in aviation rubber. Call it a kind of iTunes model for supplying tires in that the steady revenue stream discourages obsolescence. The better, safer, more durable its aircraft tires are, the more Michelin earns.

Menegaux also argues that Michelin, through its Guides and restaurant rankings, as well as having produced high-quality rubber for more than a century, enjoys a “trusted brand” status that gives it clout with consumers, politicians/regulators, academics and industry types. Hosting this gathering boosts the Michelin brand and builds relationships – and that’s good for business. It’s also the right thing to do in a planet increasingly choked and boiled by too much CO2 and even good old fashioned smog in developing countries with no real emissions rules.

The takeaway for me was that a lot of smart and well-meaning people are in the trenches tacking 21st century mobility problems. And don’t expect a single solution to fix everything. Sure, EVs are in the mix and here you will China is leading the way. Many European cities, and our own Vancouver, are at the bleeding edge of finding mixed-use transportation solutions that real people will buy into and actually support and use.

If you live in a big city or developed country, expect to be asked for funding to improve train and subway services, support car-sharing and offer tailored pick-up-and-delivery services for people with limited personal mobility – those who can’t ride bikes and walk to the bus or subway stop. You will see more solar panels on rooftops, more windmills in fields, ports and mountain tops and more initiatives to move from oil and coal to other ways of generating and storing electricity.

These things are more are on the way, as do-gooders and business people huddle to fix our megacity transportation problems before they, literally AND metaphorically, bring everything to a grinding halt – something Michelin’s Menegaux argues is most definitely terrible for business.

 

Read more

As Dieselgate scandal rolls on, VW emerges as the world No. 1 automaker

“Dieselgate” is back in the news thanks to a new Netflix documentary that among other things depicts how Volkswagen pumped diesel exhaust into small see-through chambers to test the effects of noxious diesel gases on monkeys. I am not making this up.

VW’s sprawling plant complex in Wolfsburg, Germany.

The horrific visuals of choking monkeys in Alex Gibney’s “Hard NOx” – part of a new documentary series entitled Dirty Money — are gut-wrenching. VW, we’re told, commissioned the tests in a bogus gambit designed to demonstrate that so-called “clean” diesels were a gift to humanity – affordable and “green.” Complete nonsense, of course. Humans were considered for the tests, by the way.

Moreover, Gibney ties the gassing of monkeys to Adolph Hitler, whose support of the People’s Car in the 1930s is well documented. In the film, attorney Michael Melkersen, who is acting for about 300 plaintiffs in civil suits against VW, says of the gassing: “Obviously one cannot help but think back throughout history to another series of events involving people being gassed.” Oh, my.

VW’s U.S. unit is arguing that the “inflammatory” comments by Melkersen will prejudice the jury in a trial set to start Feb. 26 and is seeking a six-month delay. We’ll see how this plays out. We know this: that trial is the first of about 2,000 suits representing those who opted out of a multibillion-dollar collective U.S. settlement in 2016 for reparation in the emissions scandal.

Ah, the scandal.

To review: for many years, the VW Group perpetrated a global fraud on some 11 million customers. VW had installed a so-called “defeat” device that allowed its diesels to cheat emissions tests so that it could claim vehicles like the Jetta with a small diesel were a fair and clean alternative to hybrids like Toyota’s Prius. That also was nonsense.

VW headquarters in Wolfsburg, Germany.

So far, just two minor VW executives in the U.S. have gone to jail for this fraud (one sentenced to seven years, the other 40 months). To date, VW has incurred upwards of $30 billion (US) in varies penalties and settlements in North American, Canada included.  Among the costs to VW in the U.S.: a $2.8 billion criminal penalty negotiated as part of a settlement with the U.S. Justice Department in January 2017.

In Canada, just last month VW came to an agreement to resolve Dieselgate. VW Canada will make cash payments and other benefits to eligible 3.0-litre diesel owners and lessees, for a total value of up to $290.5 million. VW also agreed to pay a $2.5 million civil penalty. That all comes on the heels of the larger settlement announced last year to compensate owners of 2.0-litre diesels (https://www.vwcanadasettlement.ca/en).

Nothing in the Canadians settlements addresses the millions of Canadians who inhaled excessive diesel fumes from vehicles equipped with the cheating device. And because the Canadian government has a cozy relationship with automakers in general, no further fines or charges are likely to emerge here.

Indeed, no VW Canada official has faced or is likely to face criminal charges for defrauding Canadians and excessively polluting our air. We have not been well served by government here.

But in South Korea, it’s a different story. There, VW has paid record fines and eight local VW and Audi officials have been charged criminally. One is now serving an 18-month prison term.

What’s missing from this picture is any sort of justice at all in Germany and Europe. VW has not offered nor given compensation to a single customer. No criminal or administrative fines or penalties have been imposed in Germany or Europe, either. None of the key decision-makers based in Germany have been charged by German or European authorities.

Perhaps there will be more to this story, yet. Perhaps German or European authorities will act to defend the rights of the public and consumers. Perhaps the many obstacles to successful civil suits in Germany will be overcome. Perhaps the Government of Lower Saxony will divest itself of its 20 per cent stake in VW and end what is clearly a conflict of interest – a government policing its own corporate interests. Perhaps.

What shocks me most of all about Dieselgate is not the lax global oversight of VW, nor the poisoned monkeys. What shocks me most is how little the general public seems to care about the damage done by a huge global automaker. Where is the outrage over European authorities who have failed to act to punish the company? Why do so few care that senior executives who almost certainly were aware of the ongoing fraud have not been charged?

As for the broader public, well, consider VW’s sales. Even as this scandal was unfolding in all its lurid detail last year, the VW Group and its 11 subsidiary brands – including Porsche and Audi — were posting record sales. In 2017, VW Group sold 10.7 million vehicles, a 4.3 percent increase on the previous year and enough to make VW the largest carmaker by sales in the world. Why are consumers around the world so forgiving?

Justice has yet to be fully served, and seen to be served, in the Dieselgate scandal and that is perhaps the biggest scandal of all.

Read more

BMW has issues, but not a terminal illness

Folks often ask me what I would own if I could pick any “everyday” ride. Among cars, a BMW 5-Series. My SUV of choice would be the Porsche Cayenne.

BMW CEO Harald Krueger:

Yes, I admire German cars, despite the exorbitant pricing and the gouging of buyers who fail to tip-toe through the options list. German maintenance costs are also high.

On the whole, though, Volkswagen, Porsche, Audi, BMW and Mercedes collectively represent a fortress of automotive genius. The premium ones seem utterly impervious to the whims of wealthy buyers in particular and middle class societal trends in general. From a distance, it has long seemed that the Germans are unstoppable – even a billion-dollar global emissions scandal.

So, it was with great interest that I just read that “BMW Will Be the First to Go.” Oblivion? What?

Value Analyst, a respected Seeking Alpha contributor, is among the naysayers who believe BMW has a big problem with its branding, something being undermined further by a problematic balance sheet, legal troubles and low margins for a German premium automaker. Disruption in the auto industry – autonomous vehicles, car-sharing, electrification, and so on – will obliterate some car companies and BMW “will be the first to go.”

If you drive a BMW, keep it. If you own BMW shares, liquidate, argues Value Analyst.

Let’s dig into the case against BMW, starting with sales. BMW is a laggard in Canada, the U.S. and around the world. Canadian sales have inched up just 1.3 per cent to date, notes DesRosiers Automotive Consultants. That in a market up 5.0 per cent on the year. BMW of North America sales are down 3.2 per cent.

This makes little sense. Luxury car sales are exploding – up 7.4 to 18.0 per cent, depending on the segment in Canada. How bad are things for BMW versus its peers? Audi sales are up 18.7 per cent, Porsche is up 15.8 and Mercedes is up 12.2 per cent.

BMW has invested heavily in a long-range strategy to develop lightweight and electrified vehicles such as the i8 supercar.

Globally, BMW sales look rosier, until you dig. BMW is paying a price for sales that were up 3.7 per cent through the first three-quarters: third quarter pre-tax profit (EBT) was off 5.9 per cent and margin was down to 10.3 per cent. BMW, we can conclude, is buying sales. This is dinging profits and denting margin.

Moreover, the threats to BMW’s future health are many and varied. Tesla, while still incinerating billions, has a brand positioned to whack BMW the hardest among the Germans. If the Model 3 ever does come to market in significant numbers, it seems best positioned to T-bone BMW’s 3-Series more than any other single model.

Clearly, BMW has bungled the launch of its i-brand, which in a smart business plan would have positioned the Bavarian automaker to crush Tesla in an auto industry shifting to an electrified future. Worse, in the short term, BMW’s SUV offerings are not as varied as they should be in a market crazy for SUVs.

Which brings us to pickups. Sales are booming in North America, yet only Mercedes has moved into the pickup business with the X-Class. True, the X-Class is not for sale in North America – yet. Surely, a Merc pickup is coming to these shores. Nothing of the sort from BMW, Porsche, or Audi.

Perhaps BMW’s highly leveraged balance sheet explains why the Bavarian automaker isn’t pushing into pickups, and seems to lag rivals in other areas. Funding new products, technologies and services like Car2Go might become an even bigger problem to a BMW potentially facing liability costs associated with reports that the German car business colluded on technologies for decades.

Here’s something truly cringe-worthy: Dieselgate has cost Volkswagen tens of billions of dollars in fines and settlements with more costs coming, yet BMW has a third VW’s cash and equivalents on its balance sheet.

But in all this, let’s not forget that BMW is a resilient company that has been controlled by the Quandt family for decades. In past crises, BMW has proven resilient and inventive, and when pressed, family-controlled BMW can make quick decisions. Moreover, the BMW brand is powerful, owner loyalty is strong and the company is stuffed with innovative engineers and creative designers.

BMW has its problems and challenges, but only a fool would say the company is in peril. In the meantime, I will continue to love the 5-Series.

Read more