Tesla and the Rental Fleets

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By Gary S. Vasilash

One of the things that rental companies do—besides trying to get you to buy all manner of insurance and making you feel marginally criminal and totally liable if you don’t—is sell vehicles from their fleets in order to get an even better ROI.

Hertz, back in 2021, announced that it was going to make a massive investment in electrifying its fleet, with the purchase of some 100,000 Teslas. A few months later it upped the amperage and further announced 65,000 Polestars would be included in lots at airports around the country.

But it seems that the company is rethinking its approach for a couple of reasons.

One of which has to do with the price reductions that Tesla made in order to boost its sales volumes, which had the consequence of putting downward pressure on the residual values of its vehicles. That is, if you buy something for one price and then the same thing is available for a lower price, even before you try to sell your object as used it is worth less than it otherwise would have been.

Hertz CEO Stephen Scherr told The Verge, “The MSRP declines in EVs over the course of 2023, driven primarily by Tesla, have driven the fair market value of our EVs lower compared to last year, such that a salvage creates a larger loss and, therefore, greater burden.”

In addition to which, Hertz discovered that it was costing about twice as much to repair damaged EVs compared to vehicles with internal combustion engines.

“We nonetheless remain committed to our long-term strategy to electrify the fleet,” Scherr also said, which undoubtedly has something to do with the company (1) justifying its initial tranche of EVs and (2) simply positioning itself as a good corporate citizen.

But Hertz isn’t the only rental company rethinking its EV strategy.

Sixt, the German rental company (#2 in Europe; #4 in the U.S.) has decided that as it is electrifying its fleet it is moving away from Tesla and moving toward Chinese OEM BYD.

Again: the residual values and the costly repairs are factors that have played into this move.

While this doesn’t mean that either of these companies are any less interested in electrification, it seems to indicate that their interest in Tesla is waning or disappearing.

China and the EU

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By Gary S. Vasilash

Here’s something that at the very least ought to raise some eyebrows in Detroit and Washington DC.

This, from the European Automobile Manufacturers Association’s report on economic activity released last week:

“In the first three quarters of 2023, China maintained its position as the primary source of new EU car imports in value terms, growing by an impressive 58.1% and claiming a significant 17.2% market share in value terms.”

While one might imagine that it would be Japan, but that countries auto manufacturers are in third place, at 14.4% of the market, behind South Korea, at 14.6%.

The U.S.? In fifth place, at 10.6%, behind the United Kingdom, which has 14.1% of the EU market.

It’s not so much that the U.S. is so far behind the others (realize that the delta behind the U.K. is 25%), but that China is gaining so much ground in the EU so quickly.

How does this portend for the future of U.S. OEMs, especially if the Chinese start bringing in lower-cost cars that many Americans can afford despite the current 27.5% tariff that the Chinese would have to absorb?

Another List With Some Missing Names

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By Gary S. Vasilash

Kelley Blue Book, an outfit with plenty of folks who know a whole lot about vehicles, their value and what consumers like or don’t about those vehicles, has come up with its list of “Best Buy Awards.”

In other words, the vehicles that were launched last year (or which underwent a redesign) that, based on a variety of criteria, KBB thinks people will be happier to acquire than competitive vehicles not on the list.

2024 Toyota Prius (Image: Toyota)

So without further ado, here are the winners of the 2024 Kelley Blue Book Best Buy Awards (all model year 2024 vehicles):

  • Best New Model: Toyota Prius
  • Best Compact Car: Honda Civic
  • Best Midsize Car: Honda Accord
  • Best Subcompact SUV: Hyundai Kona
  • Best Compact SUV: Honda CR-V
  • Best Midsize SUV: Kia Telluride
  • Best Full-Size SUV: Ford Expedition
  • Best Compact Truck: Ford Maverick
  • Best Midsize Truck: Toyota Tacoma
  • Best Full-Size Truck: Ford F-150
  • Best Minivan: Toyota Sienna
  • Best Electric Vehicle: Hyundai Ioniq 5
  • Best 3-Row Electric Vehicle: EV9
  • Best Electric Truck: Ford F-150 Lightning

One of the things that is evident from this list is that Ford is a superlative truck company.

Which leads to a question: Where’s anything from General Motors? No Cadillac? Chevy? Buick? GMC? Not one?

Or the company formerly known as Chrysler? Nothing from the Stellantis cadre (Chrysler, Jeep, Dodge, Ram, Alfa Romeo, Fiat)? The company that invented the minivan doesn’t make the Best Buy minivan?

And there is also the noticeable lack of anything with a European pedigree.

Looking into the Ford wins, in the Compact Truck category, there is really only the Maverick, so Ford gets a bonus there because it competes with nothing.

And the only other electric full-size truck that would qualify would be the Chevrolet Silverado EV, though it probably came out too late in the year to be assessed by KBB, so Ford Lightning by default (although it is a bit odd, given that the Lightning was launched in April 2022, not 2023).

But credit where credit is due.

GM’s Hydrogen Tech Going to Heavy-Duty Tools (a.k.a. “Vocational Trucks”)

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By Gary S. Vasilash

Although it seems as though GM execs can’t talk enough about the Ultium platform for battery electric vehicles (there seems to be an inverse relation, however, between talking about it and delivering vehicles based on it: through Q3 it delivered 5,334 Cadillac LYRIQs, 1,216 HUMMER EVs, and 18 Silverado EVs, for a cumulative 6,568 vehicles: you could park all of them at the Mall of America and still have 6,182 parking spaces left over), there is another electric vehicle technology that the company is pursuing that deserves more attention: HYDROTEC, its fuel cell technology.

It has developed what it calls “power cubes.” A cube contains >300 individual hydrogen fuel cells that combined produce 77 kW. (The cube also contains the necessary thermal and power management systems and controls.)

GM HYDROTEC fuel cell “power cube.” (Image: General Motors)

Today GM announced that it has signed a development agreement with Autocar Industries.

Autocar Industries doesn’t build cars. It builds trucks—although its tagline is:

“Some Build Trucks. We Build Tools.”

As in tools that are trucks that are used in vocational applications such as hauling trash or hauling trailers around freight yards.

Charlie Freese, GM executive director, Global HYDROTEC:

“EV propulsion systems like GM’s Ultium Platform are great solutions for electrifying passenger vehicles,* but larger vehicles like Autocar’s class 8 trucks, refuse trucks and terminal tractors require robust solutions that enable significant energy carrying capacity and fast refueling times.”

So they’re going to be developing, along with Triz Engineering, which specializes in commercial vehicle engineering, hydrogen fuel cell-powered vehicles that Autocar will manufacture in its plant in Birmingham, Alabama. The power cubes will be produced at a GM facility in Brownstown, Michigan.

The first vehicles to be built are cement mixers, roll-off trucks and dump trucks. The power cubes can be combined, so if 77 kW isn’t enough, then there can be 154 kW or 231 or. . .

If there is any question about the viability, capability and durability of fuel cells, applications like this one should put it to rest. Freese said that they put the systems through all manner of demanding tests—G-loads, temperature extremes, crashes—and the carbon fiber hydrogen tanks have been subjected to small-arms fire. (There are also military applications; the Autocar trucks aren’t likely to be taking fire.) These things are meant to get the job done.

(The thing about hydrogen for vehicles is that whereas people talk about the lack of infrastructure for electric vehicles, the infrastructure for hydrogen refueling is essentially non-existent except for some places in California. Consequently, building vehicles for the mass market doesn’t make a whole lot of sense now. Building vehicles for specfic applications–like what Autocar does–makes a whole lot of sense because users can create dedicated refueling without having to worry about pumps dotting a highway: they know where their equipment is going to be at the end of the day, so they can put the refueling equipment there. Still, perhaps when people start realizing that even fast-charging EVs will take about 20 minutes to get the battery charged 80% and hydrogen refueling is functionally and temporally the same as that at one’s local gas station (i.e., fill it up in <5 minutes), perhaps the demand for fuel cells for passenger vehicles will grow.)

*See?

EVs and the Middle Class

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By Gary S. Vasilash

Electric vehicles aren’t cheap.

According to the most-recent figures from Kelley Blue Book, the average transaction price for an EV in October was $51,762. (Silver lining? Down 7.4% compared to the price in October 2022.)

The average transaction price for a non-luxury vehicle—arguably the type of vehicle that the average person buys—was $44,331 in October.

That’s a difference of $7,431. Or to go from the non-lux vehicle to the EV a ~17% increase.

Non-trivial.

The big cost in an EV is the battery. It can represent 40% or more of the sticker.

So one thing vehicle manufacturers are working on is reducing the price of the battery.

One of the ways they’re doing this is by using batteries with less-costly materials.

Right now the (more or less) standard type of battery chemistry is NMC, or lithium nickel manganese cobalt oxide. The key things to know are the nickel and the cobalt, as these are the pricey ones.

There is another chemistry, LFP, or lithium iron phosphate. Iron and phosphorus are a lot cheaper than nickel and cobalt.

What’s more, the manufacturing process to make LFP batteries is simpler, which also contributes to a lower price.

However, LFP batteries have less energy density than NMC batteries. Which means less range for the same-size battery.

Additionally, LFP batteries don’t charge as readily in cold environments.

But there’s a price difference of about 30%, so perhaps the downsides of LFP are not a concern for those who are looking for affordability.

Stellantis and CATL, the leading producer of batteries for EVs, have signed a strategic memorandum of understanding (MoU) for the supply of battery cells and modules to the vehicle manufacturer’s operations—in Europe.

For LFP battery cells and modules.

The interesting thing is this:

Carlos Tavares, Stellantis CEO, rationalized the arrangement by saying, “This MoU with CATL on LFP battery chemistry is another ingredient in our long-term strategy to protect freedom of mobility for the European middle class.”

Have you ever heard a U.S. automotive exec specifically say they’re developing EVs for the middle class?

Until that is the stated objective, odds are it’s not going to happen. And there will continue to be that double-digit percentage difference between the cost of an EV and a non-luxury car.

Yes, Ford, for example, is working with CATL on the now-reduced-scope battery plant that will be built in Marshall, Michigan, and yes, Ford has said that the LFP batteries that will be built there will be less expensive than the NMC batteries it offers, but the market is still waiting for a true middle class EV from Ford (i.e., the least-expensive F-150 Lightning that a consumer can buy right now is $54,995 and the median price for a Mustang Mach-E is $46,995).

Perhaps the cooling in the EV market is explained by the simple fact that the vehicles available, for the most part, are simply too expensive for the middle class buyer.

UK Invests in Green Manufacturing

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By Gary S. Vasilash

The UK government has announced a £4.5 billion investment in “strategic manufacturing sectors.” The auto industry will be getting the greatest part of the spend, which will be rolled out over five years, staring in 2025.

Auto gets >£2 billion.

The focus of all of the funding is environmentally oriented, as in zero-emissions vehicles.

While manufacturing isn’t given a whole lot of attention by people who aren’t in some way involved in manufacturing, in the UK it makes up 43% of all exports and employs 2.6 million people. In terms of economic output (as measured by percentage of gross value added), it is third in the UK, following real estate and retail and wholesale.

The Chancellor of the Exchequer, Jeremy Hunt, said:

“Britain is now the 8th largest manufacturer in the world, recently overtaking France. To build on this success, we are targeting funding to support the sectors where the UK is or could be world-leading.”

While part of this might be sticking it to France, it is clear that there is an understanding that investing in making stuff is important to the economy in the UK.

According to the Society of Motor Manufacturers and Traders (SMMT), a trade organization, eight out of 10 cars manufactured in the UK are exported—so if it wants to continue to have that happen, then the manufacturers located in the UK are going to have to produce the types of vehicles that are in demand, which is increasingly (though certainly not entirely) electric.

And getting the wherewithal to produce electric vehicles takes big money, whether measured in pounds or dollars.

Hyundai, Amazon & the Transformation of Dealership Transactions

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By Gary S. Vasilash

The announcement that Hyundai and Amazon have entered into a partnership agreement which will have Hyundai models sold through the Amazon interface will have repercussions in automotive retail the likes of which have probably never been experienced before— perhaps those inflatable gorillas and floppy men had a fairly big effect, or so the traditional car-buying model might have it.

Now this doesn’t mean that the dealership model is kaput. Well, at least not in 2024, when the availability of Sonatas and Tucsons can be configured on the site.

Dealers are still part of the picture.

Customers can search on Amazon for the Hyundai of interest, configure it, and even select their method of financing. The vehicle will then go through a dealership for delivery.

And it is likely that individual dealerships will be able to establish their own storefronts on Amazon the way the purveyors of an array of products do.

A Change Is Coming. Fast.

One of the arguments that is made regarding people purchasing cars on the internet and why it isn’t going to make a difference is that people like to take test drives. People like to see the sheet metal. People like physically see what it is that they’re going to be spending tens of thousands of dollars for over a few years.

True.

But consider this: one of the things that nearly knocked out Best Buy was “showrooming”: People would go to a store to check out that big-screen TV and then go home and buy it on Amazon.

They’d, essentially, kick the tires, and then complete the transaction elsewhere. Best Buy did the work. It didn’t get the reveune.

The incredibly friendly Amazon interface will undoubtedly make it all the easier for Dealer A to promote better deals than Dealer B, so if the Dealer B is where the customer did their showrooming, then A may come out on top. While people can check on individual dealer websites to see what’s available, this setup with Amazon will undoubtedly facilitate that.

And what of the salespeople? Will any given dealership need as many going forward?

Dealership value is undoubtedly going to change profoundly—and not necessarily for the better.

Something like this was bound to happen.

And now it has.

(One of the things that must be considered vis-à-vis this partnership is that Hyundai is clearly positioned as a company that sees how the world works. People buy lots of stuff online. People want convenience. So Hyundai is facilitating that. Many other OEMs are busy perpetuating past practices despite their pronouncements about the future. Those OEMs are like Nokia. Hyundai is like Samsung.)

EV (Dis)interest

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By Gary S. Vasilash

One of the things that isn’t talked about much is the fact that electric vehicles really aren’t that popular unless they come from Tesla.

Flying in the face of that is a finding of Kelley Blue Book that in Q3 2023 EV sales in the U.S. hit 313,086 units, a 49.8% increase over Q3 2022. Such a jump means interest, right?

Well, the total number of EVs sold in Q3 represents 7.9% of total industry sales.

In other words, 92.1% of the vehicles people bought in Q3 weren’t electric.

And to the point of Tesla’s sway over the market—even though KBB saysTesla’s share of market tumbled to 50%–is that KBB acknowledges“Tesla’s price cuts have moved the market, pushing electric vehicle prices down more than 22% year over year, from $65,295.”

That’s right: a single company moves the entire segment.

(And in case you’re wondering, in October, according to KBB, the average transaction price for an EV was $51,762 while the ATP for a non-lux vehicle was $44,331.)

Drilling down a bit more, it is bracing to discover that in terms of share of the EV segment, the mainstream brands really don’t have much in Q3.

  • Chevrolet, 5.1%
  • Ford, 6.7%
  • GMC, 0.4%
  • Hyundai, 6.3%
  • Kia, 3%
  • Nissan, 1.9%
  • Subaru, 0.9%
  • Toyota, 0.9%
  • VW, 3.4%

And know that the 6.7% for Q3 Ford racked up represents 20,926 vehicles: 14,842 Mach-Es, 3,503 F-150 Lightnings and 2,617 E-Transits.

Ford sold 23,931 Mavericks in Q3, of which 56.5% were hybrids. Somehow that 20,926 EVs sold—encompassing three models, one of which is based on the best-selling pickup Since Time Began—seems more than anemic.

So even before Ford started talking about having to make adjustments as a result of the salary and benefit increases in the proposed agreement with the UAW, the auto company suddenly found things like the F-150 Hybrid more interesting.

When I ask knowledgeable people about the subject, they point out that much of the EV development and promotion is predicated on government regulations, more than organic customer demand. Look at those puny percentages up there, slices of the 313,086 vehicles sold by companies ranging from Audi to Volkswagen.

There’s not much there there.

Yes, there will be more EVs offered. More EVs sold.

But—again, absent Tesla—the market demand isn’t at all what it sounds like it should be.

Another example of this not-big demand is something that some point to as a real success story: the Chevrolet Bolt EV.

Here are the sales figures for the past five years:

  • 2018: 18,019
  • 2019: 16,418
  • 2020: 20,754
  • 2021: 24,828
  • 2022: 38,120

Whoa! you might think. From 2018 to 2022 the sales of the Bolt EV doubled! Remarkable.

But there are a couple of elements that need to be considered.

For one thing, Chevy added a (slightly) different body style, the more ute-like Bolt EUV in 2021, which certainly added some interest to the model(s).

And in June 2022 General Motors cut the price of the Bolt to persuade customers to buy one—sort of like what Elon has been doing.

Had Dodge made a substantial price reduction to the SRT Hellcat Redeye Widebody, the Brotherhood of Muscle would exponentially increase its membership of all genders and municipalities throughout the country would have a sharp uptick in revenues from speeding tickets.

If there is a change in the political situation, those regulations that are driving EV development and sales and those incentives that do the same (what if the government offered $7,500 tax credits for the purchase of a Hellcat?), the question of actual market demand is really going to matter.

Will Minivans Make It Once Again?

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By Gary S. Vasilash

One of the things that isn’t often cited with regard to the forthcoming VW ID. Buzz is that it is a minivan. Yes, an electric minivan. But nonetheless the type of vehicle that has more than its share of people who say they’d never be caught driving one.

In the U.S. market, the brand that really brought the minivan to the market back in 1983, Chrysler, is still there with the Pacifica. There is a plug-in hybrid option available for the Pacifica.

Toyota has the Sienna as a hybrid-only minivan.

And there are the Honda Odyssey and the Kia Carnival, although these are ICE-only (for now, anyway).

Which brings us to what they’re calling an “MVP,” or “multi-purpose vehicle,” but which one glance at its configuration says “minivan”: the Volvo EM90.

Volvo EM90: A minivan by any other name is still. . .a minivan. (Image: Volvo)

Volvo describes it as having an interior design that makes it “your living room on the move.”

For years (hard to imagine that the architecture is 40 years on) minivans have always had the most versatile and capacious interiors among light vehicles.

Will electrification make them more appealing to customers such that people will be boastful, not sheepish, about that comparatively boxy three-row vehicle in the driveway?

One thing about the Volvo EM90, however.

It is being launched in China and there has been no announcement it is going to be available elsewhere.

Perhaps if the ID. Buzz becomes a hit in the U.S. market Volvo may offer the EM90 there, as well.

Perhaps.

Polestar Says It Out Loud

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By Gary S. Vasilash

Polestar is an electric vehicle company that, in effect, spun out of Volvo, but Volvo is owned by Geely, but is traded on NASDAQ (as PSNY), so let’s not even try to sort out where the Gothenburg, Sweden-headquartered company exists. (It has announced it will build the forthcoming Polestar 3 in a plant in South Carolina next year. . .the Volvo plant in South Carolina.)

Anyway, yesterday as part of its Q3 earnings presentation it announced a “strengthened business plan.”

Which is notable because the company has stated it is going to put margins ahead of volume.

(Image: Polestar)

Thomas Ingenlath, Polestar CEO, stated, “Margin over volume is our way forward, supported by a gorgeous line-up of four exclusive performance cars.”

Meaning that Polestar is going to focus on the premium end of the EV market.

It figures that as of 2025, when it has four models in production, it will have an annual volume of 155,000 to 165,000 cars, which in and of itself is a rather small number and is smaller when you take into account it is selling globally.

Consider This

According to Kelley Blue Book, in September the average transaction price of a luxury vehicle in the U.S. was $62,342, down 6.2% from September 2022.

Here’s the key to that: “Luxury price declines in 2023 are primarily driven by aggressive price cuts at Tesla, the luxury market leader.” The Model 3 price was down 26% compared to the previous year.

And in the EV space, the average transaction price in September was $50,683, or down about 22% from the previous year “led again by market leader Tesla.”

(Tesla, because of its margins, is really the only OEM that can build mass volumes of EVs and afford to cut its prices.)

The point is, the EV market in the U.S. is pretty much a premium market.

And in the U.S., EVs are pretty much a premium proposition.

When Chevy announced the Equinox EV it made much of the fact that it was going to be a $30,000 vehicle, but it covered itself with “about” and announced a starting price of $34,995. While that is below the average price of an EV, what are the odds there will be many $35,000 Equinox EVs available?

When Chevy announced the Silverado EV work truck earlier this year, pricing was to be just below $40,000, but as reality set in, the price is now above $70,000.

EVs are an expensive proposition.

Let’s face it: until there is some massive change in battery technology (batteries are where most of the cost of an EV is found), the EV market is going to be characterized by prices higher than the ICE market—KBB found that the average transaction price for compact cars in September was below $30,000.

Credit to Polestar for saying it is going to put its profit ahead of volume, something other OEM execs don’t seem to want to say out loud.