Author: CNBC Online news

A look inside Tesla’s Gigafactory: The key to the automakers’ success

An inside look at Tesla's Gigafactory
1 Hour Ago | 03:31

Walk into Tesla's Gigafactory in Sparks, Nevada, and the first thing that stands out is the size of the battery plant. It's enormous. So big that you could fit 33 football fields — and it's only getting larger.

“The Gigafactory is critical to Tesla. There is more batteries produced here for electric vehicles than in the rest of the planet combined. We would not be able to make all the vehicles we are making now if we didn't have the Gigafactory,” said Jerome Guillen, president of Tesla Automotive.

The Gigafactory's expansion since opening in July 2016 has been critical to Tesla's growth. This year, the automaker is on track to sell 170,000 vehicles, a jump of more than 59 percent compared to last year. Much of that growth is due to its latest vehicle, the Model 3, a sedan targeted to a broader audience than Tesla's previous cars. All of the Model 3's batteries are built at the Gigafactory.

Last quarter, as Tesla hit its target of producing more than 5,000 Model 3 cars per week, the company posted a profit. CEO Elon Musk says his company has turned the corner after years of mounting losses.

Meghan Reeder | CNBC
Workers at the Tesla Gigafactory.

“We expect to again have positive net income and cash flow in Q4 and I believe, our aspiration certainly will be for all quarters going forward,” Musk told analysts during the company's earnings conference call.

Analysts are not so sure. “Part of the real reason they beat in Q3 is because the mix was so strong,” said Colin Langan, an auto analyst for UBS who has a sell rating on Tesla. Langan calculates the average Tesla sold for more than $60,000 last quarter, well above the price point Tesla initially promised potential buyers.

“I think long-term the price will probably settle in the mid-forties, where comparable luxury vehicles sell today, and that is going to put a lot of margin pressure on over time,” he said.

Easing that pressure and keeping Tesla profitable will come down to a few key factors, most notably, growing sales and lowering the cost to build battery packs. In both cases, the Gigafactory will determine if Tesla succeeds.

Running around the clock, the Gigafactory cranks out approximately two battery packs every minute. Its production is currently estimated to be 5,000 a week, with room to grow, according to Sam Jaffe, managing director with Cairn Energy Research Advisors in Boulder, Colorado.

Meghan Reeder | CNBC
Workers at the Tesla Gigafactory.

Jaffe studies the electric vehicle market, specifically focusing on the costs to build the battery packs and cells that provide the energy inside those packs. Jaffe's analysis pegs Tesla's cost to manufacture a battery cell at $116 per kilowatt-hour, which he says is “far ahead of the industry.” He estimates other automakers building electric vehicles have battery cell costs closer to $146 per kilowatt-hour.

“Tesla has shown an ability and a drive to reduce both cell costs and battery pack costs,” he said. “They have been planning for this moment, with this tremendous cost advantage, for a long time, and in general they have executed well on it.”

That's not to say, there haven't been growing pains at the Gigafactory. From having to backtrack on overly ambitious plans to use robotics and automation to allegations the plant is being wasteful, Tesla's battery plant has faced plenty of scrutiny.

Meghan Reeder | CNBC
Workers at the Tesla Gigafactory.

Guillen said he believes the Gigafactory is just tapping its potential for battery production.

“The costs have come down and continue to come down a lot and that has enabled us to reach profitability in the last quarter and positive cash flow as well,” he said.

—CNBC's Meghan Reeder contributed to this report.

Ford to buy San Francisco-based scooter sharing company Spin to beef up mobility business

David Paul Morris | Bloomberg | Getty Images
A person displays the SpinBike shared electric scooter application on a Apple Inc. iPhone X in San Francisco, California, on Friday, April 13, 2018.

Ford confirmed Thursday it has agreed to buy San Francisco-based scooter sharing company Spin.

News of the deal was first reported by Axios Wednesday, which quoted a source that put its value at $40 million.

Ford did not disclose the financial terms of the deal.

The move is a bid to beef up Ford's holdings in transportation and “mobility” businesses that don't involve selling cars, and tap what executives say is a rapidly growing market.

Several scooter start-ups, such as Bird and Lime, have risen to prominence recently, and some see these companies as yet another form of transportation, along with ride-sharing, that could undermine the need many households have for a garage filled with cars.

Spin rents out “dockless” scooters, meaning users do not have to park the scooters in designated areas or “docks,” as is commonly seen with similar sorts of services, such as bike-share programs. It currently operates in 13 cities and college campuses, including Denver, Detroit, Long Beach, California; Coral Gables, Florida and Troy University in Alabama. It operates bike-share programs at the University of Kentucky; and the University of California, San Diego.

By the end of 2018, Spin plans to operate in Washington, D.C.; Austin, Texas; Charlotte, North Carolina; Durham, North Carolina, as well as nearby Duke University; and Towson University in Maryland.

Ford has made a number of investments in mobility companies through its Smart Mobility division. In early 2018, the automaker bought Autonomic, a company that makes software meant to connect vehicles and organize transportation networks. When Autonomic CEO Sunny Madra joined Smart Mobility he was named the head of Ford X, an incubator designed to help grow new businesses that can target customers who may be losing interest in traditional car ownership.

Micro-mobility businesses like Spin are growing in a much different way than ride-sharing did, according to Madra. Cities are requiring permits and putting caps on the number of scooters a company can put in an area and where they can be placed.

Madra told CNBC Ford chose to acquire Spin because the way the company works fit Ford's values. “They always launch in markets where they have permits, they work very closely with cities to understand what their needs are,” he said.

Ford wants to grow Spin's business from 13 cities and college campuses today to about 100 in the next 18 months.

“We are really going to give them significant resources to help them scale,” Madra said, adding that the Spin will be able to leverage relationships Ford already has with different cities.

The potential market is large. Madra cited data from transportation research firm Populus, which found that half of all trips in the U.S. are three miles or less.

“Some of the leading companies in this space were getting upwards of 10 million rides in less than a year,” Madra said. “And if you compare that to the most disruptive transportation company in the last 10 years, being Uber, it took them three years to get to get the same level of usage. So it became obvious there was consumer desire in this space.”

Understanding how to scale a business like this will be key.

“That is an important fact because as we grow out our range of mobility offerings, we think autonomous vehicles are going to undergo the same sort of scrutiny that the scooters are in that sense,” he said. “Companies will need to get permits, and there will be caps, and companies will need to operate in very distinct ways.”

Ford shares jump after strong truck sales help third-quarter results beat expectations

Ford's shift of focus to trucks boosted its profitability, expert says
4:59 PM ET Wed, 24 Oct 2018 | 02:02

Ford shares surged on Wednesday after the automaker reported quarterly earnings and revenue that beat analysts' expectations.

Strong sales of trucks in North America helped offset declining sales of passenger cars, and challenges such as higher costs, lower volume, and difficulties in China. But earnings are still down from the same quarter last year.

Shares were up more than 4 percent in after-hours trading.

Here's what the company reported compared with what Wall Street was expecting, based on a survey of analysts by Refinitiv:

Earnings per share: 29 cents, adjusted, vs. 28 cents expectedAutomotive Revenue: $34.7 billion vs. $33.3 billion expected

The results come during a challenging time for the automaker, which is very much in the middle of a turnaround. Shares of Ford have fallen more than 30 percent since the beginning of the year. Materials costs have risen and tariffs have already cost the company at least $1 billion.

Ford said third-quarter net income fell to $1 billion, or 25 cents per share, from $1.6 billion, or 39 cents per share a year earlier. Excluding items, Ford earned 29 cents per share, beating the 28 cents per share expected by analysts surveyed by Refinitiv.

Total revenues rose nearly 3 percent to $37.6 billion. Its automotive revenue was $34.7 billion, ahead of the $33.3 billion analysts were expecting.

The second-largest U.S. automaker continues to benefit from a relentless consumer shift toward sport utility vehicles and trucks in North America, Ford's strongest market. Ford said its F-Series line of full-sized pickup trucks gained market share, and the Super Duty line of trucks saw record high transaction prices.

Ford beats earnings, revenue expectations
4:35 PM ET Wed, 24 Oct 2018 | 01:22

“The shift to trucks is really the driver to profitability and the margins,” said Kelley Blue Book senior managing editor Matt DeLorenzo said on CNBC's Closing Bell. “Ford is pretty well positioned right now with their current product mix. The car decision right now won't hurt them much in the short term. We'll have to see where the market goes in the longer term.”

But it lost market share in every region where it sells vehicles. It continues to struggle internationally, though it lost less money in those markets than it did in the second quarter.

Revenues were up in Europe by about $500 million over the same quarter last year, but were down in South America, the Middle East and Africa, and Asia.

The Ford Credit business had a strong quarter, the company said.

“This quarter shows that our business remains very strong in key areas,” said CEO Jim Hackett. “We continue to make progress on our efforts to redesign Ford to be more competitively fit, disciplined in capital allocations and nimble enough to win in a fast-changing world.”

Ford continues to back its prior forecast, which calls for adjusted full-year earnings of $1.30 to $1.50 per share. It said cash flow for the year will be positive, but lower than it was in 2017.

Previously, the company said it will spend $11 billion on restructuring, but some investors say Ford has not released enough details and is not giving the appearance that it is taking decisive action.For example, the company said on Oct. 5 it plans to make cuts to its salaried workforce of 70,000 people, but it does not yet know how many jobs are at risk and will share more details in the second quarter of 2019.

During a call with analysts, Hackett said he understands the frustration over the lack of clarity, but said Ford has to move cautiously. Although it may not be apparent to those outside the company, Ford has been making progress in formulating a turnaround plan.

Separately, Ford said it expects to continue to pay its regular dividend. Morgan Stanley analyst Adam Jonas recently downgraded the stock from a buy to neutral, and said Ford's cash flow is under pressure and its dividend may be at risk.

“We don't know how we've lost control of the way that has been projected, but we have been consistent, saying that we plan to pay the regular dividend in this five-year plan,” Hackett said.

Ford shares jump more than 8 percent on strong earnings and more details of its turnaround plans

Jeff Kowalsky | AFP | Getty Images
Jim Hackett, president and chief executive officer, Ford Motor stands outside the headquarters as they celebrate the production of the 10,000,000 Mustang on August 8, 2018 in Dearborn, Michigan.

Ford shares were up more than 8 percent Thursday after the company delivered better-than-expected earnings Wednesday night.

Investors seemed encouraged by CEO Jim Hackett's pledge to share more details of his plans to restructure the company and improve efficiency.

Ford is going to host several events in the “coming weeks and months” where it will share more information about Hackett's $11 billion turnaround plans. Hackett has spoken extensively of the need to improve the company's “fitness,” or efficiency, but investors have at times expressed frustration at what they say is a lack of clarity and transparency on Ford's part.

The automaker's shares have fallen roughly 30 percent since the beginning of the year.

“It seems that Mr. Hackett understands that the Street needs more information to gain comfort with his plan, and as such he hinted that there are a number of investor events planned for the near future,” said RBC analyst Joseph Spak in a note published Thursday.

Ford's third-quarter results were solid, despite the fact that some key metrics were down from the same quarter last year, analysts said. Strong sales of trucks in North America helped offset declining sales of passenger cars, higher materials costs and difficulties in China.

“The results really show an enhanced focus on North America, and a focus on trucks and SUVs,” CFRA analyst Garrett Nelson told CNBC. Nelson was surprised the automaker maintained its full-year earnings guidance of $1.30 to $1.50 per share, and said he expects earnings to come in at the low end of that range.

Ford still faces challenges on numerous fronts, including risks from rising materials costs, threats to both supplies and sales from new tariffs, and struggling international businesses.

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General Motors’ shares soar as strong truck sales, higher prices boost third-quarter profit

General Motors posts strong beats on top and bottom lines
8:37 AM ET Wed, 31 Oct 2018 | 01:42

General Motors said Wednesday it sold fewer vehicles during the third quarter — but at higher prices — helping the Detroit automaker deliver a better-than-expected earnings report that sent its shares soaring.

Here's what the company reported compared with what Wall Street was expecting, based on a survey of analysts by Refinitiv:

Earnings per share: $1.87, adjusted, vs. $1.25 expected

Revenue: $35.79 billion vs. $34.85 billion expected

The carmaker's shares jumped by 6.3 percent in morning trading. During the premarket, it had gained 10 percent.

GM swung to a profit during the quarter from last year's loss, which stemmed from the company's sale of its European business to Groupe PSA. GM's net income was $2.5 billion, or $1.75 a share, compared with a loss of $2.98 billion, or $2.03 a share, a year ago. It generated $35.79 billion in revenue, up 6 percent from $33.62 billion during the same quarter last year. Analysts had expected the company to generate $34.85 billion during the third quarter.

“Our disciplined approach to the U.S. market, combined with strength in China and further growth of GM Financial, drove a very strong quarter,” said GM CFO Dhivya Suryadevara. “We will continue to take actions to mitigate headwinds including foreign currency volatility and commodity costs.”

Here's what's driving the growth in GM's North America sales: Analyst
2:54 PM ET Wed, 31 Oct 2018 | 03:37

Suryadevara said on a conference call that GM expects fourth quarter performance to be strong, with solid sales of highly profitable crew-cab trucks.

The company said it sold fewer cars but was able to raise its prices in the U.S. by an average of about $800 per vehicle to more than $36,000, setting a record for transaction prices and about $4,000 over the industry average. It also said Cadillac sales in China broke a record, up 4 percent over the previous year and 20 percent year to date.

GM's third-quarter vehicle sales volume dropped by 14.7 percent from the previous year, the company said. Sales fell across every region and every brand, with Cadillac seeing the smallest decline in sales among its marquee brands, 3.9 percent, from the previous year.

Sales of several Chevrolet and GMC truck models, including the Silverado LTZ and High Country and the GMC Sierra SLT, Denali and its new off-road AT4 crewcab models exceeded expectations, GM said. The automaker expects to ship about 120,000 of the new trucks in the second half of 2018.

The strength of GM's truck and SUV business in North America is further evidence of how important that market is to all three major U.S. automakers, who have been less successful abroad.

“North America is the best place to do business,” said CFRA analyst Garrett Nelson. “Looking at international operations, it is just a matter of who can tread water the best.”

Major automakers have been reporting higher material costs and other increased expenses stemming from the trade war, particularly between the United States and China.

That's been punctuated by signs of weak demand for new cars overall, particularly in North America. A recent estimate from industry tracker LMC Automotive said North American new vehicle sales are expected to fall in October from last year and face further pressure.

“Affordability may be the canary in the coal mine for the level of auto sales as we close out 2018 and begin to look at 2019. Transaction prices are still edging higher,” said Jeff Schuster, president, Americas operations and global vehicle forecasts at LMC Automotive.

The Federal Reserve is expected to raise interest rates again in December, followed by three more rate hikes in 2019, he said. Drivers are buying more used cars, in the meantime.

“This is a combination that could cause consumers to be squeezed out of the new-vehicle market, putting pressure on volume even if other fundamentals are favorable,” Schuster said.

GM's shares have fallen nearly 19 percent since the beginning of the year.

The auto cycle leaves plenty of room for Ford and GM to continue growing, analysts say

GM has best car lineup and CEO in history: Pro
3:49 PM ET Wed, 31 Oct 2018 | 04:26

There's still plenty of time in the auto cycle, and General Motors and Ford will continue to grow, Tigress Financial Partners CIO Ivan Feinseth said on CNBC Wednesday.

He told “Closing Bell” that at the trough of the auto cycle, the average age of a car is about 11 years old. At the peak, it is about 7 years old. This year, the average age of a car is about 10 years old.

“Auto sales, as far as an upgrade cycle or a necessity purchase cycle, have a long way to go,” Feinseth said.

“You also have people who buy new cars every three years because of the lease cycle, and also one of the biggest motivators of new car purchases is all of the infotainment and collision-avoidance features that are now available in new cars, so I think that the runway still has a ways to go for GM and Ford,” he added.

He said Ford has a lot of room to grow in the luxury market to compete with GM.

“Ford needs some redesign in a number of their vehicles and they need a bigger push in the luxury market,” Feinseth said, noting that Cadillac is the dominant American luxury car brand.

However, he thinks Ford is winning in pickup trucks and sports cars.

As for GM, it “has the best line-up it's ever had as far as vehicles in the company's history. They are led by one of the best CEOs in the company's history, so I think the wind is at their back,” Feinseth added.

Michael Ward, an auto analyst with Williams Research Partners, also thinks the auto cycle will go higher.

“In an environment where the unemployment rate is low, confidence is high, interest rates at an all-time low and income growing, you're not going to have lower car sales,” Ward said on “Power Lunch” Wednesday.

“You might be down 1 percent; that's because the industry is not goosing them up with incentives. I think you're probably going to see industry sales at 17 million units each in the next two or three years, and to me, that's what the market is missing,” he added. “That will enable companies like General Motors and Ford and the suppliers and dealers to generate record profitability.”

He also said electric cars will be key in growth.

“Electrified vehicles include hybrids,” Ward said. “That is where you're going to see the most growth because they can be in trucks, they can be in cars, they can be in every sized vehicle. Fully electric vehicles are still going to be a very small portion of the market, 1-2 percent at most in the next five to 10 years.”

Here's what's driving the growth in GM's North America sales: Analyst
2:54 PM ET Wed, 31 Oct 2018 | 03:37

Tesla expects to invest up to $6 billion over next two years in factories and equipment

David Butow | Corbis | Getty Images
Workers assemble cars on the line at the Tesla's factory in Fremont, California.

Tesla expects to spend up to $6 billion on factories and equipment over the next two years as it ramps up production and develops new vehicles, the company said in a regulatory filing Friday.

The electric car maker said it expects to spend just under $2.5 billion in capital investments for 2018 and $2.5 billion to $3 billion annually over the next two years.

Tesla is also planning to build a factory in China, which it is calling Gigafactory 3, where it hopes to eventually produce 3,000 of its popular Model 3 sedans a week. The filing cautioned that the time frame on its production targets was “subject to a number of uncertainties, including regulatory approval, supply chain constraints, and the pace of bringing the factory online.”

Gigafactory 1 is the company's plant near Clark, Nevada, where it makes batteries and parts of the Model 3 drive train. Gigafactory 2 is its solar power plant in Buffalo, New York.

Tesla is planning to start producing Model 3s in Shanghai to reduce the impact of tariffs. Because Tesla currently exports all of its vehicles to China, it has been hurt by stiff tariffs, some of which result from the trade war between China and the U.S.

Shares of Tesla were flat Friday morning.

In the filing, the company also revealed that the Justice Department and SEC are investigating Model 3 production targets.

The company has been burning through cash as it ramps up production and deliveries of its Model 3 midsize sedan, and it has big plans for the years ahead. Tesla unveiled an electric semi-truck last year but has not said much since then about when and how the company will produce the vehicles.

It is also planning a crossover sport utility vehicle called the Model Y, and a second-generation version of the Tesla Roadster that CEO Elon Musk has said will be quicker and faster than any other car on the road. Musk has also talked about his desire to make a pickup truck.

It also is attempting to build a business in rooftop solar power systems. In 2016, Musk revealed a planned roof tile that could collect solar power, but the company has so far shipped only a few systems.

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