Which other car company do you think have the darkest future?

[RobStark]

Buick is a step-up brand above Chevrolet but below Cadillac and is doing very well.

This seems to be Acura's biggest competition because of their adamant refusal to get rwd platforms with V8 power.

Almost all Acura's sales are in North America despite being introduced to China in 2006(Hong Kong 1991) and Russia in 2014.

In 2014 Buick had 246k sales vs 187k for Acura.

And Buick is killing Acura in China. In China, Buick is the "Emperor's Car."

 

[AudubonB]

Acura, Lexus, Buick....it is useful to remember these are lines, rather than automobile companies. The OP's intent was to find a publicly-held entity to short against a long position in Tesla.

 

[eloder]

- Who basically re-invented modern car manufacturing with processes like TPS, JIT and is currently refining all of this with TNGA (smaller batches and better modularity while keeping high margins...)?

- Who has been among the most profitable mass-market car makers in recent decades (highest margins compared to car ATP, even with a rising home currency against many main export markets...)?

That's as relevant as saying who were the top horse and buggy manufacturers and who reinvented the processes for making them in the early 1900s. Tesla alone won't cause Toyota to fail, but Tesla, Nissan, Daimler, BMW, and GM will cause its downfall. I know 100% that you don't drive an EV because you have no idea about how good EVs are. For manufacturers that offer electrified vehicles, the EVs tend to have by far the highest consumer satisfaction. Nissan, Tesla, GM--the end is coming for gas cars, and not due to the cost of oil.

 

[RobStark]

Acura, Lexus, Buick....it is useful to remember these are lines, rather than automobile companies. The OP's intent was to find a publicly-held entity to short against a long position in Tesla.

They are Brands. Lexus LS 400 is a car line. Buick LaCrosse is a car line.

And generally more profitable than the entry level brands for each automaker.

Kill that one, and you get a greater percentage of that legacy automakers profits than the raw vehicles sales suggest.

 

[SebastianR]

What the VW thing shows to me is, that the ICE is essentially done: between cost, quality, reliability, environmental legislation the ICE is squeezed and we will watch the long and painful struggle of traditional car makers for maintaining profit margins while not moving to EVs.

I think we were too focused on predicting which car maker will make all the EVs and then claim "someone will need to sell all these cars". I think that's correct. But what I haven't seen in the past - and what becomes clear to me - is that the whole industry will increase in terms of risk so I assume we will see sudden collapses of big companies and (hopefully?) less willingness of legislators to bail them out. Of course any collapse will short-term benefit the rests of the ICE car makers.

So if you want to short something, I suggest the whole industry ex Tesla and other EV makers - the pressure will raise on the industry and who know who is the next one to crack? Thoughts?

 

[AudubonB]

They are Brands. Lexus LS 400 is a car line. Buick LaCrosse is a car line.

Thanks for the clarification; I was not aware those terms were not synonymous.

 

[adiggs]

Porsche as POAHY is down 48% y-o-y, so I think you definitely get partial credit. Full credit, of course, if you actually did hedge your portfolio thusly.

I don't use short positions in my portfolio, so it's about understanding the market for me, rather than finding something I would invest in down this path. Or maybe better - being clear about what I wouldn't invest in

 

[RobStark]

As far as witch specific companies to short I would again say Subaru and Mazda with no EV competence.

They may rebadge a few Kei cars in Japan with someone else's technology but that is about it.

Next is Fiat-Chrysler. Fiat 500e is a Bosch Samsung collaboration in a Fiat glider. I look forward to seeing the Chrysler minivan PHEV. But they have nothing in their rainy day fund and no "nationality" to go to a national government for bailout. Italy feels dissed by Fiat essentially moving global headquarters to Detroit and moving their "tax address" to the UK. I don't think there is a willingness to bailout FCA either in Washington or London.

VW and Toyota are too big to fail and get at least one get out of jail free card.

If Tesla is manufacturing 2M plus cars per year by the time the Big Two are teetering I don't know if there will be a consensus in Washington that either GM or Ford are too big to fail.

Renault is too important to the French psyche to fail and not a top candidate to be in the front row of the firing line. PSA Peugeot Citroën may be circling the toilet bowl even if they are rebadging Mitsubishi i-Mievs.

 

[FlatSix911]

Buick is a step-up brand above Chevrolet but below Cadillac and is doing very well.
This seems to be Acura's biggest competition because of their adamant refusal to get rwd platforms with V8 power.
Almost all Acura's sales are in North America despite being introduced to China in 2006(Hong Kong 1991) and Russia in 2014.
In 2014 Buick had 246k sales vs 187k for Acura. And Buick is killing Acura in China. In China, Buick is the "Emperor's Car."

Did you see the new Hybrid Acura NSX ... great car with an EV performance focus, ala the Porsche 918
http://nsx.acura.com/

 

[anticitizen13.7]

Did you see the new Hybrid Acura NSX ... great car with an EV performance focus, ala the Porsche 918
http://nsx.acura.com/

The NSX won't solve Acura's problems. The core of the NSX powertrain is Honda's newest twin-turbo DOHC V6. Like other hybrid cars, this is first and foremost a gasoline engine vehicle.

Even more problematic for Acura is that the NSX is frankly close to irrelevant as far as setting the bar for the future of automobiles. The original NSX was a harbinger of future technologies like VTEC. This NSX is stuck in the past. Reviewers don't even seem to like the new NSX all that much, and have criticized its steering for being numb. Meanwhile, Honda's all-electric CR-Z EV prototype (a fully electric CR-Z with 4 motors, 1 on each wheel), received a lot of attention and praise for performance and handling.

All the forward-looking tech is on the Honda side, while the Acura subsidiary languishes. Honda Motor Co. has said for years that they would invest in Acura and resolve long term problems with Acura's overall purpose and vision. It hasn't happened as far as I can tell.

 

[tftf]

[/I]That's as relevant as saying who were the top horse and buggy manufacturers and who reinvented the processes for making them in the early 1900s..

I have to assume you don't know what the abbreviations I posted (TPS, JIT...) are about after reading your answer.

These methods and (production) processes will remain as relevant as ever in future car manufacturing, regardless of the propulsion system used.

Things like having all key suppliers on board and managing critical paths with little to no inventory.

Things as mundane as having enough second-row seats when producing a new car model.

BTW, how many Model X have been built as of today? Probably a handful after the "launch".

And how many cars will Toyota build in 2015? Probably around or above 10 million.

Shouldn't Tesla first try to produce 100k cars and batteries in 2-3 years reliably before talking about "millions of cars" and "disrupting" the car industry?

As I outlined in the GF investor thread, the GF in Nevada only has one building under construction, six more will have to built to even get to full capacity by 2020 - but even that output level plus cells imported from Panasonic Japan will restrict Tesla's output level to well below 1% of global car output.

You can't sell a car you can't build first - and there's an additional hard limit given Tesla's GF completion level (or lack thereof) outlined above.

"Disruption" in the tech sector definition of the word simply isn't possible in the car industry.

It takes decades, not years, to shift market share in the double digits in the car industry.

That means Toyota has ample time to adjust R&D from hydrogen to next-gen batteries between 2020-2030 in case (future) battery tech is more promising.

 

[Drax7]

I have to assume you don't know what the abbreviations I posted (TPS, JIT...) are about after reading your answer.

These methods and (production) processes will remain as relevant as ever in future car manufacturing, regardless of the propulsion system used.

Things like having all key suppliers on board and managing critical paths with little to no inventory.

Things as mundane as having enough second-row seats when producing a new car model.

BTW, how many Model X have been built as of today? Probably a handful after the "launch".

And how many cars will Toyota build in 2015? Probably around or above 10 million.

Shouldn't Tesla first try to produce 100k cars and batteries in 2-3 years reliably before talking about "millions of cars" and "disrupting" the car industry?

As I outlined in the GF investor thread, the GF in Nevada only has one building under construction, six more will have to built to even get to full capacity by 2020 - but even that output level plus cells imported from Panasonic Japan will restrict Tesla's output level to well below 1% of global car output.

You can't sell a car you can't build first - and there's an additional hard limit given Tesla's GF completion level (or lack thereof) outlined above.

"Disruption" in the tech sector definition of the word simply isn't possible in the car industry.

It takes decades, not years, to shift market share in the double digits in the car industry.

That means Toyota has ample time to adjust R&D from hydrogen to next-gen batteries between 2020-2030 in case (future) battery tech is more promising.

The master of doubt has spoken again.
Given your expertise in laundry, what's your favorite detergent?

 

[SebastianR]

You can't sell a car you can't build first - and there's an additional hard limit given Tesla's GF completion level (or lack thereof) outlined above.

"Disruption" in the tech sector definition of the word simply isn't possible in the car industry.

It takes decades, not years, to shift market share in the double digits in the car industry.

You implicitly assume that
a) current levels of car ownership will remain similar to the current state
b) current car fleet age remains similar to today
c) current levels of car usage / car dependence remain similar

I'm not convinced this will be the case. In Europe car sharing schemes are booming. In other places Uber & Co. disrupt personal transportation. In many places in Asia investment in public transport is done to deal with overcrowding of street infrastructure.

It would be nice to get a global picture on that. When I grew up, everyone around me wanted a Mercedes. Today, some of my wealthy friends live proudly without a car (partially even without a license).

As I stated earlier, I think the risk for the car industry is not, that tomorrow Tesla makes Toyota obsolete. But I believe that between environmental legislation, urbanization (hassle to own a car), cost, reliability and efficiency constraints the overall risk increases for the traditional car makers and that margins will suffer.

I would wager that most economies would be doing perfectly fine without a single new car delivered in a period of 6 months. I doubt there is single car maker that could survive these 6 months.

Back to your post: if the question is, how much it takes for Tesla to get bigger than Toyota, then the answer is "too long" or "will not likely happen, unless Toyota collapses for whatever reason". If the question is, if the overall risk on the car industry is increasing, and if disruptions are looming for that industry then the answer is a very clear YES.

 

[Johan]

If the car industry is indeed as capital intensive, and slow moving as our in house expert (who worked at a GM plant when he was young) implies, then I don't see why it couldn't be disrupted on its own proper timescale: 5-10-15-20 years?

Of course it's not like software or indeed cell phones where the market can be disrupted in one year or less, but then again the other side of the giants of the industry being, well giants, must be their sluggishness in changing course, adjusting manufacturing, changing their businesses practices from the ground up etc, right???

 

[electracity]

I don't think you can find a car sales forecast that doesn't show steady increase in the medium term. Presumably, incentives to buy an EV might even increase total sales as the replacement car cycle is accelerated. But there is also clearly a shift in younger westerners having less interest in cars than their parents.

I think EVs will be healthy for the car industry as a whole. I major global recession would not be good for any car company, including Tesla.

 

[bh1783]

It's too bad Tesla doesn't release who is buying up their ZEV credits but I would guess that the companies buying up the ZEV credits are going to struggle the most. They are basically subsidizing Tesla because they can't meet emission guidelines. Also any car company that doesn't have national support in their own country or are owned by foreign brands(Volvo, Jaguar/Land Rover, etc.)

 

[RobStark]

It's too bad Tesla doesn't release who is buying up their ZEV credits but I would guess that the companies buying up the ZEV credits are going to struggle the most.

http://www.arb.ca.gov/msprog/zevprog/zevcredits/2014zevcredits.htm

It changes year to year. Honda and Mercedes were big buyers last year.

This year Fuji(Subaru), Fiat Chrysler, and Ford seem to be big net buyers.

Toyota sold a lot of PZEV credits and purchased a lot of ZEV credits.

I think ZEV credits are 4X as valuable as PZEV credits.


BTW If someone can format the information in the link correctly and post that would be great.​

 

[Julian Cox]

You can't sell a car you can't build first

Perhaps not immediately, but Tesla can certainly strip the market of demand for anything else. The global market demand can be absorbed by a couple of server racks. Figuring out how to supply that demand with a choice of abandoned manufacturing plants around the world is what is known as a high quality problem.

As for your contention "Disruption" in the tech sector definition of the word simply isn't possible in the car industry. " I find that to be simply a bizarre thing to say considering firstly that is exactly how it was built and secondly it is inevitably set to erupt right in front of your eyes.

 

[tftf]

Perhaps not immediately, but Tesla can certainly strip the market of demand for anything else. The global market demand can be absorbed by a couple of server racks. Figuring out how to supply that demand with a choice of abandoned manufacturing plants around the world is what is known as a high quality problem.

As for your contention "Disruption" in the tech sector definition of the word simply isn't possible in the car industry. " I find that to be simply a bizarre thing to say considering firstly that is exactly how it was built and secondly it is inevitably set to erupt right in front of your eyes.

It's not like Tesla would have to wait for abandoned factories. There are lots of opportunities, the industry continues to face a utilization problem:

Capacity utilization of the automobile production: worldwide 2017 | Statistic

However, each new GF and/or new car plant takes billions in new investments to build out to newest standards. And this free capacity also means there be will lots of margin pressure in the car industry - new entrants included.

As for disruption, what is "erupting"? Tesla can maybe ship around 1% of all passenger cars in a decade from now - in a best-case scenario. Where will the other 99% of cars come from? Somebody has to supply them. How can Tesla "strip" this demand?

That's why disruptions in technology sector timeframes (weeks, months or a few years for software or consumer electronics) simply aren't possible in the car industry.

Tesla at 1% or even 1.5% market share in a decade would be the definition of "occupying a niche", not "disruption", in my opinion.

Toyota knows this very well and has strategic plans for the long-term:

Toyota has an ambitious plan to (almost) stop selling gasoline cars by 2050 - Quartz

We can laugh about this 2050 target and call Toyota stubborn / too conservative, but I think it will take at least 1-2 decades for EVs or other new propulsion technologies to get meaningful market share.

I think big TSLA investors like Baron (regardless of the billions he manages) have a much too optimistic view of manufacturing ramp-up as well as general change and replacement cycles in the car industry.

- - - Updated - - -

In Europe car sharing schemes are booming. In other places Uber & Co. disrupt personal transportation. In many places in Asia investment in public transport is done to deal with overcrowding of street infrastructure.
It would be nice to get a global picture on that. When I grew up, everyone around me wanted a Mercedes. Today, some of my wealthy friends live proudly without a car (partially even without a license).

Agreed. The big shift in the car industry will probably come with more autonomous cars and "TaaS" rather than new propulsion methods. (I discussed this back in 2014 on SA in an Apple car article).

This could result in reduced car ownership ratios in many countries (and fewer cars sold worldwide or at least a plateau) over time.

But remember cars are also (still) a status symbol for people who got in the middle class for the first time in generations, maybe even for the first time ever - namely in Asia and Africa. The two scenarios could outweigh each other (less demand in the West vs more future car demand in Asia and Africa).

 

[RobStark]

Automobiles, even BEVs, are very capital intensive. So market changes happen much more slowly than electronics.

30% of global automotive profits come from luxury cars (i.e. Germans) ~ 7.5M units.

30% of global automotive profits come from full size trucks (i.e. Detroit) ~2.5M units.


All other types of vehicles combine for 40% of global automotive profits.


The global auto industry has high fixed cost from factories, union contracts with pensions and healthcare(this one is an American issue).

But take a significant portion of those luxury and full size truck sales and the economics of automakers comes crashing down.

On the one hand most Japanese auto revenue comes down market and a bit better isolated from the Tesla and Apple threat but not completely.

Toyota,on the other hand, has significant US exposure and significant revenue from Lexus,Landcruiser, Titan,Tundra,and Sequoia.

Companies like Suzuki can hide in Asia for a while making cheap tiny ICEv with cheap tiny fuel efficient ICEs.

Apple and/or some of the other tech/electronics companies entering the auto industry will fail. But not all of them.