Author: CNBC Online news

Tesla’s onslaught of announcements is raising red flags about demand for its cars

Source: Tesla.
Tesla teases the Model Y.

Tesla's onslaught of announcements is starting to make analysts wonder if customers are losing interest in its cars.

CEO Elon Musk said Sunday that Tesla's upcoming Model Y crossover vehicle will be unveiled on March 14. While it could be a great vehicle with high demand, RBC analyst Joseph Spak said the timing of the announcement raises concerns. Musk tweeted the news days after the company made considerable price cuts to its other models and said Tesla needs to cut its showrooms and sales staff. It also spent nearly $1 billion paying off debt last week.

On Thursday, Tesla unveiled its long-awaited $35,000 Model 3, cut prices on upgrades to its autopilot automated driver assistance system and made significant price cuts to its Model S and Model X vehicles after saying it will only sell its vehicles online to reduce costs. Its shares fell nearly 8 percent Friday and slid by another 2.5 percent in morning trading Monday.

All of this suggests Tesla is rushing to strengthen demand for its products, which could be waning in the U.S., Europe and China, Spak told investors in a research note Sunday.

“A Model Y announcement so shortly after the $35k [Model 3] suggests that consumer reaction toward the $35k Model 3 may not have been as strong as the company had hoped,” Spak said. “We believe there has been a fall- off in U.S. demand and softer than expected demand in Europe/China.” The price cuts on Tesla's three models, the X, S and 3, backs up the idea that demand has softened, he added.

It is important to note that Musk has teased mid-March as a possible date for the unveiling of the Model Y before. He had said as far back as May 2018 that the Y could be revealed on March 15. “I just made that up, because the Ides of March sounded good,” Musk said on Twitter.

Investors have long worried about whether Tesla can sustain interest in its cars at their current high prices. Tesla is somewhat boxed in by the need to keep prices high enough to recoup its massive investments and turn a profit, while keeping them low enough to compete with bigger manufacturers that are pouring money into electric vehicles.

High prices weren't as much of an issue when Tesla was making premium electric vehicles, such as the Model S and Model X. But the Model 3 is meant for the mass market. Up through the end of 2018, Tesla's sales were bolstered by a federal tax credit of $7,500 for electric car buyers. But that credit was halved starting Jan. 1, and some have questioned whether that will hurt demand.

On the positive side, the Model Y launch a few weeks before the quarter closes could bring a fresh infusion of cash into the company from customer deposits. Musk told reporters Friday he was doubtful Tesla will turn a profit in the first quarter. The company also spent $920 million paying off debt Friday.

More than 400,000 customers shelled out $1,000 each to reserve a Model 3 in 2016, according to Tesla's count, which boosted the company's cash by $400 million that year. Interest in the Model Y, given that it will compete in the highly popular crossover segment, may yield a similar benefit to its bottom line, analysts said.

The downside of that is that the new Model Y could steal demand away from the Model 3, which Tesla has spent years and piles of cash trying to produce in high volume, analysts said.

Volvo to cut top speed on vehicles

Source: Volvo

At a time when automakers are pushing speed and acceleration to make their vehicles more appealing, Volvo is taking a different approach. The Swedish carmaker is cutting the top speed for all of its new models to 112 miles per hour starting next year.

Currently, the top speed for Volvo's is 130 mph.

“While a speed limitation is not a cure-all, it's worth doing if we can even l save one life,” Volvo President and CEO Hakan Samuelsson said in a statement announcing the decision.

The move is part of Volvo's Vision 2020 initiative to eliminate fatalities or serious injuries by next year.

It's unclear how much limiting the top speed to 112 mph might curb accidents or fatalities given the speed is still high. Still, Volvo is venturing into an area automakers have been hesitant to approach: reducing the speed of cars and trucks.

The automaker is considering other possibilities to limit how fast its models travel in certain areas. For example, the company is looking at ways to use software and geofencing technology to limit the speed of Volvos when they drive by schools and hospitals.

“We want to start a conversation about whether car makers have the right or maybe even an obligation to install technology in cars that changes their driver's behavior, to tackle things like speeding, intoxication or distraction,” said Samuelsson.

Safety advocates are increasingly warning higher speeds are a factor behind traffic and fatalities staying at high levels. The National Safety Council estimates 40,000 people were killed in traffic accidents in the U.S. last year.

Tesla pays off $920 million convertible bond in cash

Kiichiro Sato | AP
Tesla CEO and founder of the Boring Company Elon Musk.

Tesla has paid off its $920 million convertible bond obligation in cash, sources familiar with the matter told CNBC. The company also confirmed that it made the payment today.

The $920 million in convertible senior notes expired March 1, at a conversion price of $359.87 per share. Since Tesla's stock hasn't traded at or above $359 in weeks, the electric vehicle maker had to pay in all-cash rather than half-stock and half-cash as it had previously intended.

In its 2018 annual report, Tesla said it had $3.69 billion in unrestricted cash and equivalents to end the year.

When asked about the payment earlier this week, a Tesla spokesperson pointed to comments from the fourth-quarter shareholder letter, when the company said it has “sufficient cash on hand to comfortably settle in cash our convertible bond that will mature in March 2019.” Tesla also said that its cash position improved by $1.45 billion in the second half of 2018, and that it expects positive net income and positive free cash flow “in every quarter beyond Q1 2019.”

WATCH: Tesla shifts to online sales, lowers price of Model 3

Tesla shifts to online sales, lowers price of Model 3
10 Hours Ago | 06:24

A month ago, Elon Musk thought Tesla would be profitable. Now he doesn’t. What changed?

Noah Berger | Reuters
Tesla Chief Executive Office Elon Musk speaks at his company's factory in Fremont, California.

How rapidly things change in Silicon Valley.

A month ago, Tesla CEO Elon Musk seemed confident the electric car maker would turn a profit in the first quarter. Now he's predicting a loss. The reversal — disclosed on a media call Thursday night — overshadowed what was supposed to be good news during a tough week of headlines: Tesla was finally unveiling its long-awaited Model 3 sedan at $35,000.

The shares, already under pressure from Musk's ongoing tussle with federal securities regulators, tanked by almost 8 percent in midday trading Friday.

To make its popular electric car at a more affordable price for consumers, Musk said the company has to trim stores, cut employees and shift sales online. It's all part of a push to profitably sell the long-anticipated (and much delayed) $35,000 variant of the Model 3, the midsize sedan Musk and company had long bet would take Tesla from a niche manufacturer to a major automaker.

On Jan. 30, Musk told investors he thought Tesla would continue making money after finally turning its first back-to-back profits during the third and fourth quarters of last year, fulfilling his previous forecast that Tesla would become “sustainably profitable” from the third quarter of 2018 onward.

“I would say at this point I'm optimistic about being profitable in Q1,” Musk said on the Jan. 30 conference call discussing the company's fourth-quarter earnings. “Not by a lot, but I'm optimistic about being profitable in Q1 and for all quarters going forward.”

So what happened?

Musk cited one-time charges this quarter as one major factor, though he did not specify what those are. The company has $920 million in debt due Friday, and Musk has previously said it had enough cash on hand to cover.

He also said there have been some difficulties getting cars to China and Europe.

How much money Tesla can make selling a cheaper Model 3, and whether customers will actually buy it, are major concerns among investors.

“Tesla cut the size of their battery by 30 percent to get this $35,000 base unit out the door,” said Craig Irwin, an analyst with Roth Capital Partners. That is probably a reduction in cost of about $5,500 per car, Irwin said. But who wants a low-range car, he said.

“They killed the 60 kWh Model S for poor demand, and even weaker margins,” he said. “It seems to dovetail nicely that 2019 will see major margin pressure,” he said.

The fact that the company is moving all vehicle sales online and cutting retail jobs also suggests it is coming to the realization that many industry observers suspected all along — profitably selling a $35,000 electric car will be very difficult.

“Tesla appears to have answered the question we have long asked around whether the company was going to be able to profitably produce the $35k Model 3 through production efficiencies and increased volumes,” Cowen analyst Jeff Osborne said in a note to clients Friday. “Switching the strategy now to shed stores that are the face of the brand beyond Elon Musk's Twitter feed, likely means that management has come to the realization that it was not going to be feasible.”

It is also significant that this is all happening as federal tax credits for Tesla cars start to wind down, said CFRA analyst Garrett Nelson. The first 200,000 customers to buy Tesla cars received a federal tax credit of $7,500. But those were halved at the beginning of the year, after Tesla hit the limit. They will continue to be phased out by the quarter.

“I think it all goes back to the EV tax credits, which are negatively impacting sales and gross margins,” Nelson said.

Red flags went up for Nelson just a few days after the New Year when Tesla said it would cut prices on its vehicles. Then the company announced it would focus on producing higher-cost exports to China and Europe, lay off workers and introduce a Model 3 leasing program, he said.

“The earnings warning just confirms these red flags, and while it's a bit early to say, it appears that the company's profitability challenges could potentially linger well beyond Q1,” he said.

The announcement certainly was abrupt and did not appear to be made from a position of strength, said Bernstein analyst Toni Sacconaghi in a note Friday. But over the long term there are still several levers Tesla can pull to improve profits, including reducing sales and manufacturing costs as well as driving higher sales volume with the cheaper Model 3, its leasing programs and international expansion, he said.

“In some ways, we believe CEO Musk's recent focus on profitability each quarter may have been misplaced – and that Tesla might be best served by looking to press its brand and first mover advantage by aggressively making and distributing its cars – which yesterday's move appears to be doing,” he said.

Tesla is closing stores, shifting all sales online

Bobby Yip | Reuters
Tesla Chief Executive Elon Musk stands on the podium as he attends a forum on startups in Hong Kong, China.

Tesla is shifting its sales to online only, and giving drivers up to a week to return their newly purchased vehicles if they aren't satisfied, the company announced on Thursday.

The move to e-commerce only will require Tesla to reduce headcount in sales, CEO Elon Musk confirmed. It should also help Tesla cut some operating expenses, and avoid dealing with local politics that have prevented it from operating its own stores (dealerships) in certain states including Connecticut, New Mexico and others.

“We will be closing some stores, some reduction in headcount as a result — there's no question about that. I wish there was some other way. Unfortunately, it will entail a reduction in force on the retail side. There's no way around it,” Musk said.

In a blog post Tesla emphasized that shifting sales to online only would enable it to sell its Model 3 vehicles for the long-awaited base model price of $35,000.

Tesla also said, in that post, it would be shifting resources to improve its customer service systems, with the goal of providing same-day service to Tesla owners.

Tesla's service team reports directly to Musk at this point. The company intends to do as much as possible through its mobile service, rather than asking drivers to come to Tesla service centers, it said.

On Thursday's press call, following the announcement, the CEO did not disclose how many stores would be shuttered, what any restructuring costs might be, or whether savings would offset the cost of hiring more service employees including auto technicians.

As the electric vehicle maker has grown, Tesla has struggled to provide prompt repair service, and handle customer returns and refunds efficiently.

A small number of Tesla stores will remain open as “galleries, showcases and Tesla information centers,” where customers can learn about the company's products, and buy Tesla merchandise.

WATCH:
Tesla launches $35K Model 3 with shorter range, new interior

Tesla launches $35K Model 3 with shorter range, new interior
3 Hours Ago | 07:08

Elon Musk just sent this memo to employees about the cheaper Model 3 and store closures

Qilai Shen | Bloomberg | Getty Images
GP: Elon Musk, chief executive officer of Tesla Inc., speaks during an event at the site of the company's manufacturing facility in Shanghai, China, on Monday, Jan. 7, 2019.

Tesla CEO Elon Musk on Thursday sent an email to employees explaining the company's decision to reduce its headcount in its sales and marketing divisions, according to a copy of the memo that was sent to CNBC.

News of the upcoming layoffs come as Tesla announced that sales of the $35,000 Model 3 were finally available, adding that all sales of Tesla vehicles would be moving exclusively online. As part of the announcement, Musk also warned that the company would not turn a profit in the first quarter, sending Tesla's share price down more than 3 percent Thursday night.

Here's the full memo:

Last month, I noted in my email that the fundamental issue Tesla must overcome is that our products remain too expensive for most people. We know there are many people who want to buy Model 3, but simply can't afford to do so.
That is why we're excited to announce today that we are now offering the standard Model 3 at $35,000. This is a significant milestone for Tesla, the culmination of years of hard work by employees across the company, and something of which you should all be very proud. You can read the details of the announcement on our blog: LINK HERE
In addition, we are also making the decision to shift all sales worldwide to online only.
Last year, 78% of all Model 3 orders were placed online, rather than in a store, and 82% of customers bought their Model 3 without ever having taken a test drive. Customers can now buy a Tesla in North America via their phone in about 1 minute, and that capability will soon be extended worldwide. We are also making it much easier to try out and return a Tesla without a test drive. You can now return a car within 7 days or 1,000 miles for a full refund. Customers are becoming increasingly comfortable making purchases online, and that is especially true for Tesla — which is a testament to the products we make.
As a result, over the next few months, we will be winding down many of our stores and significantly reducing our spend on sales and marketing, which will help make the price changes we've announced today possible. Shifting all sales online combined with other ongoing cost efficiency will enable us to lower all vehicle prices by about 6% on average, allowing us to achieve the $35,000 Model 3 price point.
A small number of stores in high-traffic locations will remain as galleries, showcases and Tesla information centers. At the same time, we will be increasing our investment in the Tesla service system and manufacturing, and I expect that headcount to grow next year.
Unfortunately, this means that some jobs will be impacted or transitioned to other areas of the business. This is a hard decision, but it necessary to make our cars more affordable. Our sales team has fought on the front lines of advancing our mission and has been our connection to hundreds of thousands of customers along the way. I want to express my sincere gratitude for all that you've done.
Kn the coming weeks, we will be evaluating all of our sales and marketing organization to understand where there are operation efficiencies, and how best to support the transition to online sales while also continuing to deliver a truly awesome and education Tesla buying experience.
We'll be sharing more information on this transition soon.
Thank you,
Elon

WATCH: Tesla launches $35K Model 3 with shorter range, new interior

Tesla launches $35K Model 3 with shorter range, new interior
3 Hours Ago | 07:08

A ‘no-deal’ Brexit is already happening for us, Aston Martin CEO says

Aston Martin CEO: No-deal Brexit is here
11 Hours Ago | 02:31

The boss of luxury car maker Aston Martin Lagonda has told CNBC that his company is already operating in a “no deal” Brexit scenario.

“From our point of view, a no-deal Brexit isn't something that is in the planning or might happen. No-deal Brexit has already happened for us,” chief executive Andy Palmer told “Squawk Box Europe” on Thursday.

Palmer said the firm has a 12-week build time for its cars and therefore vehicles being manufactured now would be sold after the Brexit cut-off date at the end of March.

At present, Britain and Northern Ireland will leave the European Union on March 29th with no deal as U.K. lawmakers have failed to agree on the terms that can be signed off between London and Brussels.

Aston Martin has used a surplus of cash from a weakening pound to market more heavily in the United States in a bid to mitigate the effects of Brexit.

Describing that move as “very successful,” Palmer said the U.K. car firm had also increased the level of stock in the supply chain from 3 days to 5 days and raised the level of cars ready for sale.

“I think we are in good shape, but I don't know what shape we have to be in because nobody knows what 'no-deal' Brexit looks like,” he added.

If Britain leaves the EU without a deal, it is assumed it will rely on World Trade Organization rules that mean U.K. car manufacturers must produce at least 55 percent of a car with parts sourced in Britain — a specification known as “local content.”

Palmer said Aston Martin had worked hard to reach the 55 percent level but warned that rival car companies could struggle.

Shares in Aston Martin Lagonda Global Holdings fell more than 15 percent Thursday as it swung to a loss in its first annual report card since joining the London Stock Exchange.

The stock was 1,168 pence by mid-morning Thursday after posting a pre-tax loss of £73.1 million ($97.2 million) in 2018. The share price is down 38 percent from its October initial public offering price of 1,900 pence.

A record number of robots were put to work across North America in 2018, report says

kynny | iStock | Getty Images
A robotic arm at an industrial manufacturing factory.

Robots took on a record number of jobs in North American firms last year, the Robotic Industries Association (RIA) said Thursday.

According to the RIA's data, 35,880 robots were shipped in 2018 to the U.S., Canada and Mexico, up 7 percent from the previous year. Of those shipments, 16,702 were to non-automotive companies — a year-on-year increase of 41 percent.

The consumer goods sector purchased almost 50 percent more robots in 2018 than in 2017, while life sciences saw an increase of a third.

However, shipments to the automotive industry slowed by 12 percent. The industry accounted for 53 percent of total robot shipments to North American companies — its lowest share since 2010.

“These sales and shipments aren't just to large, multinational companies anymore. Small and medium-sized companies are using robots to solve real-world challenges, which is helping them be more competitive on a global scale,” said Jeff Burnstein, president of the Association for Advancing Automation — the RIA's parent company.

U.S. record

In the U.S. alone, robot shipments across all sectors increased by more than 15 percent, marking a record number of shipments to American companies.

Every sector included in the RIA's analysis saw an increase, with the exception of the automotive industry, where robot shipments to American vehicle makers fell by 30 percent.

Despite an increasing uptake of automation in the workplace, some have argued that companies should be doing more to preserve human jobs.

Last month, South African President Cyril Ramaphosa told a press conference that policymakers needed to “deliver a human-centered agenda.”

In its 2018 “Future of Work” report, the World Economic Forum noted that businesses “will need to recognize human capital investment as an asset rather than a liability.”

“New technology adoption drives business growth, new job creation and augmentation of existing jobs, provided it can fully leverage the talents of a motivated and agile workforce who are equipped with futureproof skills,” the report said.

Meanwhile, a 2018 report from the International Labour Organization concluded that robotization in developed countries negatively affects employment in emerging countries.

GM President of North America Alan Batey is retiring after 40 years

Bill Pugliano | Getty Images
Flags fly outside the General Motors world headquarters building.

General Motors' President of North America Alan Batey plans to retire in 2019 after 40 years at the Detroit automaker, the company said Thursday.

His role will be filled by Barry Engle, who currently runs GM's international business, starting April 1. Engle has been with GM since 2015, beginning his tenure at the automaker as executive vice president and president of South America. he was promoted to head of all GM's international operations in 2017.

Engle has held a variety of positions elsewhere in the automotive industry, including 13 years at Ford, a CEO of an agricultural equipment company, and CEO of an electric vehicle startup called THINK. He was also a Chrysler Plymouth Jeep dealer.

Batey will stay on as an adviser.

Julian Blissett, who is currently executive vice president of GM-SAIC, the automaker's joint partnership with Shanghai Automotive Industry Corporation, will become senior vice president of GM International.

Batey has been in his current role since 2014, and has also led Global Chevrolet since 2013. He was vice president of U.S. sales and service from 2012 to 2013, and vice president of U.S. sales and service for Chevrolet from 2010 to 2012. Batey started with GM in 1979 and has held positions around the world, including the United Kingdom, Switzerland, United Arab Emirates, Germany, Netherlands, Korea, and Australia.

Shares of GM were down 1.5 percent on Thursday.

This story is breaking news. Please check back for updates.

Auto loan delinquencies rise as the cost of monthly payments hit record high

Daniel Acker | Bloomberg | Getty Images
A salesman talks to a person in a vehicle at a Fiat Chrysler Automobiles (FCA) car dealership in Moline, Illinois.

A growing number of borrowers with auto loans are failing to make their monthly payments, according to Experian.

The credit reporting firm, which tracks millions of auto loans, said Thursday the percentage of auto loans delinquent for more than 60 days inched up in the fourth quarter to 0.78 percent from 0.76 percent the previous year.

“The percentage of delinquencies has trended upward within the last few years,” said Melinda Zabritski, senior director of automotive financial solutions for Experian. “But it is worth noting, the percentages are still well below the high-water mark set in 2009.”

While the delinquency rate is well below the historical average, economists say the uptick adds to concerns Americans may be showing signs of struggling financially. Earlier this month, the Federal Reserve Bank of New York reported that more than 7 million borrowers were at least three months behind on their auto loans at the end of last year — more troubled borrowers than at the end of 2010 when overall delinquency rates were at their worst. The delinquency rates are lower now because the market for auto loans has since grown.

Zabritski says the stats are worth watching, but not yet to the point of serious concern. “It's only natural to see an uptick in automotive delinquent loan volume. It's important to view these trends within the larger industry context,” she said.

Americans are borrowing more money than ever to buy new vehicles, $1.17 billion in the fourth quarter, according to Experian. That's not surprising given that consumers are buying more pickups and SUVs, which carry a higher sticker price than sedans.

The automotive website Edmunds says the average transaction price for a new vehicle, what consumers actually paid dealers, in December hit an all-time high of $37,260, an increase of $6,598 from December 2010. As a result of the higher prices, the average new vehicle auto loan in the fourth quarter climbed more than $600 to $31,722, according to Experian.

Not only are consumers borrowing more to pay for a new vehicle, they are also making higher monthly loan payments. Experian says the average monthly payment for a new vehicle hit a record high of $545, up $30 from a year earlier. That increase is driving up interest in used vehicles, which sell at a far lower price and typically carry a lower monthly payment.

Experian says the average used vehicle loan in the fourth quarter topped $20,000 for the first time, with the average used car having a monthly loan payment of $387.