Tesla (TSLA) posted a surprise second-quarter profit last week on cost cutting and strong deliveries, offsetting the effects of its Covid-19 related factory shutdowns. The report may help the electric vehicle manufacturer gain inclusion into the S&P 500 index (^SPX).
Tesla announced earned net income of $104 million for the quarter, or $0.50 per share. This marks the first time the company has posted four straight quarterly profit, a benchmark for the company to be considered for inclusion in the highly coveted S&P 500.
This marks another major win for Chief Executive Elon Musk, whose quest to lead the global auto industry with Tesla, and the aerospace industry with SpaceX, has increasingly been making major leaps forward.
Musk said last Wednesday that the city of Austin, located in Travis County, would be the site of Tesla’s newest factory. The victory for Texas comes at a loss for Oklahoma, which also was seeking to have the factory land in Tulsa. The facility seeks to create as many as 5,000 new jobs. The County offered up to $65 million in tax rebates to entice the company, and plans to begin construction in the third quarter.
The additional plant is slated to produce Model 3 and Model Y vehicles for the Eastern half of the United States, as well as a potential new Tesla Semi truck and its Cybertruck pickup. Elon Musk has stated that his cars are not affordable enough yet for the average consumer, and he hopes to develop a plan to address that issue.
The company also needs to address its growing need for affordable battery cell production, and is looking to expand its partnerships with Panasonic Corp <PCRFY> and Contemporary Amperex Technology of China (CATL) <300750.SZ>.
FILE PHOTO: Supercar Hongqi S9 is unveiled next to FAW Group Chairman Xu Liuping at the 2019 Frankfurt Motor Show (IAA) in Frankfurt, Germany. September 10, 2019. REUTERS/Wolfgang Rattay/File Photo
FRANKFURT (Reuters) – Chinese suppliers and manufacturers have stepped up their presence at the Frankfurt auto show, capitalizing on a strong position in electric technologies forced on European carmakers by regulators seeking to curb pollution.
Though the number of exhibitors has fallen to 800 in 2019 from 994 in 2017, Chinese automakers and suppliers now make up the biggest foreign contingent, with 79 companies, up from 73.
Several European and Japanese carmakers including Fiat , Alfa Romeo, Nissan and Toyota have skipped the show as the industry cuts costs.
Europe’s automakers face multibillion-euro investments to develop electric and autonomous cars, forcing them to rely on Chinese companies for key technologies such as lithium ion battery cell production, an area where Asian suppliers dominate.
German firms are striking major deals with Chinese suppliers to help them meet stringent EU anti-pollution rules, which were introduced in the wake of Volkswagen’s 2015 emissions cheating scandal.
“All carmakers face the challenge that they will have to fulfill fleet consumption targets,” Matthias Zentgraf, regional president for Europe at China’s Contemporary Amperex Technology, told Reuters.
Zentgraf said he expected further supply deals to be struck in Europe this year following agreements with BMW and Volkswagen.
Daimler on Wednesday said it had chosen China-backed Farasis Energy to supply battery cells for its Mercedes-Benz electrification push.
Farasis is building a 600 million euro ($663 million) factory in east Germany, close to where Chinese rival CATL is erecting a 1.8 billion euro battery plant.
SVOLT Energy Technology, which was carved out of China’s Great Wall Motor Co, told Reuters it would start building battery cells in Europe at a new 2 billion euro plant in 2023.
TIPPING POINT
Chinese companies are also giving Europe more attention since the United States and China embarked on a global trade war, which has resulted in tariffs.
“We put Europe up in priority,” said Daniel Kirchert, chief executive of Chinese electric car maker Byton.
“We are at a tipping point” for acceptance of electric vehicles in Europe, Kirchert, a former BMW executive, added.
Byton has taken its prototype vehicles on road shows in Europe, and received expressions of interest from 20,000 customers, he said. In electric vehicle hot spots, such as Norway and the Netherlands, “we see a very positive response.”
Byton plans to export vehicles from its factory in Nanjing, to Europe in 2021, Kirchert said, adding that exporting to the United States would be a challenge if Washington and Beijing did not resolve their trade war.
He said Byton still hoped to launch in the United States in 2021, but tariffs would threaten the company’s goal of selling vehicles at a starting price of about $45,000.
“We decided no matter what” Byton will launch in the United States, even at a higher price, he said.
China’s Great Wall Motor may consider building car manufacturing facilities in the European Union once its sales there hit 50,000 units a year, its chairman told Reuters at the show.
German carmakers have been forced to accelerate electrification plans after the EU imposed a 37.5% cut in carbon dioxide emissions between 2021 and 2030 in addition to a 40% cut in emissions between 2007 and 2021.
PSA Group Chief Executive Carlos Tavares used the show to step up criticism of Europe’s aggressive approach toward emissions limits.
“The word dialogue has become meaningless in Europe,” he said, referring to the requirements placed on the auto industry.
“Politicians can decide rules without any discussion with industry,” he told journalists on the sidelines of the show.
Electric cars made up only 1.5% of global sales last year, or 1.26 million of the 86 million passenger vehicles sold, JATO Dynamics said.
If carmakers fail to meet the 2021 targets they could face a combined 33 billion euros in fines, analysts at Evercore ISI have estimated.
They also estimate it will cost the auto industry an aggregate 15.3 billion euros to comply, assuming a 60 euro cost per gram to reduce CO2 emissions for premium carmakers and 40 euros per gram of CO2 reduction for volume manufacturers.
(Writing by Edward Taylor; Editing by Mark Potter)
A woman cleans the prototype of a Chinese car at the IAA Auto Show in Frankfurt, Germany, Monday, Sept. 9, 2019. The IAA officially starts with media days on Tuesday and Wednesday. (AP Photo/Michael Probst)
