If you are visiting The Drive, then you are a thoughtful, savvy consumer of the news. But you likely face one major problem: there are too many websites. Right now, at this very moment, there are dozens, if not hundreds of websites on the internet, all vying for your limited time and attention. How are you possibly supposed to read them all?
The unfortunate truth is that you cannot. It would take far too much time to read the entire internet in one sitting; attempting to do so would leave little time for leisure activities, or even eating. Fortunately, we are here to help slice through all that noise with a daily roundup of what’s most important in the world of cars, technology, mobility, and the global economy. Welcome to Speed Lines, a new morning newsletter that launches today on The Drive.
On Speed Lines, we’re focused on how the present shapes the future of driving and transportation. Expect a big-picture approach to the most significant news out of the automotive industry with an emphasis on why you should care. We’ll bring a healthy dose of analysis, skepticism, criticism and, yes, humor, because if you aren’t having fun when you’re reading about cars, you are doing something wrong.
As soon as we figure out how, Speed Lines will exist as an email newsletter as well. We’re new at this, and we may tweak the format a bit. If you have feedback (or ideas I can steal and claim as my own) please feel free to reach out here.
Thanks for reading. We’re glad to have you with us.
Turnover At Ford Signals Bigger Problems
Let’s hit the ground running with the big news: some stuff that happened at Ford last week.
No, seriously. We haven’t covered much of the upheaval at the top ranks of Ford, but it’s worth diving into because it’s indicative of larger challenges for that company (and other legacy players) going into 2020 and beyond.
To the outside observer, the departure of Ford’s automotive president Joe Hinrichs sounds like the usual executive shuffling that happens at any company—until you realize that Hinrichs, a 19-year veteran of Ford, had only been put in charge of global automotive manufacturing and operations just eight months ago.
Or that, according to The Detroit Free Press, Hinrichs was a widely respected and beloved executive seemingly at all levels of the company. Or that Ford, which has been dinged in the past by shareholders and industry observers alike for appearing to move too slowly into our electro-autonomous future, had actually been making some big moves lately with EV startup Rivian and its own go-fast electric Mustang Mach-E crossover.
So what happened? For one, the launch of the pivotal Ford Explorer last year was a disaster, with thousands of post-production SUVs needing to be fixed before they could be sold. This and other factors led to Ford’s dismal $1.67 billion loss in Q4 2019 and a net income last year of just $47 million.
No wonder that Ford, despite having as robust a manufacturing and sales infrastructure as you could ask for, can’t convince Wall Street that it can weather a major crisis or another Great Recession-style downturn. Rightfully, Ford shareholders wonder why it’s trending around $8 a share as of this writing and not Tesla’s astronomical $700+ recent streak.
And so a sacrificial lamb is needed, and that is Hinrichs, who at 53 was widely considered a likely future CEO. Another senior executive, Jim Farley, is moving into the chief operating officer role, reporting directly to CEO Jim Hackett. Here’s the Freep:
“It is no surprise that after the dismal quarterly earnings report came out that something had to give,” said Michelle Krebs, executive analyst at Autotrader. “The launch of the new Explorer was disastrous, and Joe Hinrichs, who was in charge of manufacturing, among other things, took the fall for it. Meantime, Jim Farley won the credit for turning around Europe, so he was rewarded and looks as if he is set up to replace Jim Hackett, whenever he steps down.”
However, Hackett said during a conference call with reporters that he did not blame Hinrichs for the Explorer debacle. “This really is not tied to that at all. I want to make that really clear. We’re all accountable for that performance.”
(By the way, read more here about how people at Ford felt about Hinrichs. By most accounts, he seemed like a good boss.)
But we here at Speed Lines wonder just how much time Hackett, a former Steelcase executive and interim director of athletics at the University of Michigan, has before Ford’s board fully runs out of patience. Hackett’s had the top job since 2017, and it’s fair to say Ford has struggled since then, especially in the eyes of investors. Here’s a bit more from Bloomberg:
“There is a long way to go,” Michael Ward, a Benchmark Co. analyst who rates Ford a hold, wrote in a report Monday, cutting his projection for earnings this year and warning that cash needs for restructuring are likely to remain a headwind into 2021. Morgan Stanley’s Adam Jonas wrote separately that he made the “wrong call” upgrading Ford to the equivalent of a buy in August and making it his top pick among U.S. auto stocks.
Ford shares slipped as much as 0.5% to $8.07 as of 10:30 a.m. in New York. The stock has fallen 25% under Hackett and by more than half since the departure of Mulally, the only CEO of a Detroit automaker who kept his company out of bankruptcy in 2009.
Hackett himself acknowledged Ford has run out of margin for error when he told analysts during last week’s earnings call: “It does boil down to we can’t miss a beat now in the product launches.”
This is a story we’ll be keeping an eye on for sure this year. But the lesson is this: even if you’re a huge manufacturer like Ford, that alone isn’t enough to convince the financial powers-that-be that you won’t be left in the dust as this industry transforms. And there is no room for screw-ups, like what happened with the Explorer launch.
Add Coronavirus To Nissan’s Problems
Nissan’s list of troubles feels like it’s growing by the minute. There’s a fugitive former top executive, declining sales in America, an aging lineup and an unclear brand strategy. Reuters reports the automaker is expected to post its first quarterly loss since 2009 on Thursday, in part because of factory shutdowns in China tied to the coronavirus outbreak.
From that story:
In addition to slumping sales, production disruptions caused by China’s coronavirus outbreak could also drag profits lower. Three senior executives at the automaker told Reuters that they anticipate a poor results announcement on Thursday, with one of them calling the figures “dismal.”
[…] The company is likely to report an operating profit of 48.6 billion yen ($442.5 million) for the quarter ending in December, less than half the 103 billion yen profit a year ago, according to SmartEstimate’s survey of three analysts, who revised their forecasts in January.
The world is more dependent on China’s manufacturing sector than ever before. But factories of all kinds—including those run by all-important auto parts suppliers—have hit pause amid China’s coronavirus outbreak, which is now responsible for more than 1,000 deaths in that country. Here’s the New York Times on that:
The global economy could suffer the longer China stays in low gear. It has been hampered by both the outbreak and its own containment efforts, a process that has cut off workers from their jobs and factories from their raw materials. The result is a slowdown that is already slashing traffic along the world’s shipping lines and leading to forecasts of a sharp fall in production of everything from cars to smartphones.
“It’s like Europe in medieval times,” said Jörg Wuttke, the president of the European Chamber of Commerce in China, “where each city has its checks and crosschecks.”
China’s connected to everything and a lack of parts coming out of those factories could cause production to slow or shut down in other countries as well.
Daimler Cuts Dividends To Pay For The EV Shift, Declining Sales
The future is electric, especially for the European and Chinese automakers, and Daimler AG—parent of Mercedes-Benz—is no exception. As it too begins an aggressive expansion into EVs, Daimler slashed its shareholder dividend by a third for the close of 2019 to help save up for that move. And the global decline in new car sales and various expensive emissions-cheating fines didn’t help things either.
Here’s the Wall Street Journal:
Daimler said it would propose to shareholders to slash the annual dividend, to be approved at a meeting in May, to €0.90 a share from €3.25 a year ago, cutting the size of its payout to €1 billion, a third of what it returned to shareholders last year. The company said lower profit would also affect executive bonuses.
“We cannot be satisfied with our bottom line,” Chief Executive Ola Källenius said. “We have a cost problem. Maybe we were too optimistic on what the revenue side could yield in the past,” he added.
With demand for cars falling world-wide, automakers more broadly are cutting prices, making it hard to offset the rising costs of building electric cars with a vast array of digital features.
Indeed, Mercedes (and everyone else) picked a bad time to finance this industrywide transformation. But given ever-tightening emissions standards in the world’s biggest markets, they have no choice. I suppose the “good news” is you don’t have to pay expensive emissions fines if your cars have no emissions.
‘Right Now, There Is No Funding’
Everyone sort of knows the future of cars will be autonomous, somehow. What nobody knows is exactly how, or when, or how that future supposed to make money. Tech investors seem to be getting wise to the uncertainty in the “mobility” sector, as the auto industry itself focuses on the slightly more certain arena of electrification instead. (I’d add that the entire autonomy field is a lot more cautious since a pedestrian was struck and killed by an Uber test vehicle in Arizona in 2018.)
Here’s more from Wired about this trend:
But this year, Techstars Detroit won’t take on new startups. Instead, it’s shutting down, as earlier reported by TechCrunch. “Right now, there is no funding,” says Serbinski, the accelerator’s managing director. Part of the organization’s collapse is due to internal issues within Techstars, a global network of accelerators and itself a startup, Serbinski says. But the venture capitalist also blames trade winds within the automotive sector: a shift away from autonomous-vehicle investment and toward electrification, and a drive (no pun intended) toward less experimental businesses that can actually make money.
[…] Last year’s giant investments in autonomous-vehicle companies like Aurora and Nuro kept the total amount pouring into the robot car sector at record levels. But there were fewer deals, and early- and seed-stage investment in AVs tapered off—a sign that the industry is getting less buzzy and more mature.
Autonomous vehicles “are definitely in that ‘trough of disillusionment,’” says Tarek Elessawi, a principal at the early-stage investor Plug and Play, referring to the stage in the consultancy Gartner’s “hype cycle” when interest ebbs in a once-hot technology. “We were pretty optimistic about where autonomy was going in 2016 and 2017. Then in 2018, pragmatism started to set in.” By late 2018, even the putative industry leaders at Waymo acknowledged that they were not ready to let totally driverless cars loose on the roads.
I guess it’s good news if you prefer to actually drive your car. More specifically, this slowdown in funding absolutely blows up any of those predictions that your car will fully drive itself in five years, or whatever.
On Our Radar
- Judge Refuses to Block California’s Gig Worker Law During Suit (New York Times)
- From Hummer to Tesla: Breaking down the electric truck battle (Detroit Free Press)
- People Are Jailbreaking Used Teslas to Get the Features They Expect (Vice)
- Meet R2, the First Self-Driving Vehicle to Get Federal Approval (InsideHook)
Read These To Seem Smart And Interesting
- Welcome to the Era of Fake Products (Wirecutter)
- Porsche Taycan Turbo S vs. Tesla Model S Performance: Electric Flattery (Car and Driver)
- How the CIA used Crypto AG encryption devices to spy on countries for decades (Washington Post)
Your Turn
How does Ford turn it around and convince investors it deserves a Tesla-style valuation? Is that even possible?