The EV Startup Craze Might Be Past Its Peak

The EV Startup Craze Might Be Past Its Peak

The used car market has overheated, Volvo is doing well, and EV startups are not. All that and more in The Morning Shift for June 3, 2021.

1st Gear: EV Startups Are Finding It Hard To Replicate Tesla’s Success

And that has led some to wonder whether the EV startup party is more or less over, according to Reuters. I suspect that it is more likely that it will come and go in waves, but the air seems to have been taken out of the room for now in any case.

“Everyone is looking for their golden ticket,” said Steven Merkt, president of transportation solutions at sensor, connector and electronic component maker TE Connectivity Ltd., which works with all the startups and provides technical feedback on designs. “If you don’t have scale, you’re going to get squeezed out pretty quick.”

Desperate to find the next Tesla, investors have poured billions of dollars into electric vehicle startups, with mixed results.

But unlike Tesla, which enjoyed a head start of years over traditional carmakers, commercial EV startups are racing against time as major manufacturers like Ford Motor Co. race to bring products to market or others like Volkswagen Group beef up their electric offerings.

Some startups already have their golden ticket. Arrival, which went public via a merger with a special purpose acquisition company (SPAC), has an order for up to 10,000 vans from UPS. Chanje has a 1,000 van order from FedEx in California, while Rivian has an order to build 100,000 vans for Amazon.

Others, like Xos, are close. Xos, which is going public via public through a merger with blank-check firm NextGen Acquisition Corp, is testing electric delivery trucks with both UPS and Amazon.

Some, like Canoo Inc. have experienced turmoil as they finetune their strategies.

Thore Meurer, European senior fleet director at Deutsche Post AG unit DHL Express, said, “The window of opportunity is closing.”

It does seem significant that established automakers like Ford and Volkswagen and Toyota and GM are in on EVs now. It makes the argument for an EV startup that much tougher. Why take a gamble on Canoo when you can take less of a gamble on an E-Transit?

While the Reuters story mainly covers the commercial market, one can envision something similar happening with the consumer market as well. In a few years, when almost every major automaker has an EV offering, good luck explaining how your new EV startup offers anything worthwhile.

2nd Gear: The Booming Used Car Market Has Some People Worried About Inflation

Inflation is one of those economic concepts that I understand on a conceptual level but, in practice, do not understand at all. I’ve never lived through a period where it was an issue, which is to say I wasn’t alive in the U.S. in the 1970s. Inflation is also a thing that commentators (typically on the right) claim is the big risk of big federal spending, like the infrastructure bill that Joe Biden wants.

Now, the Financial Times is trying to make the somewhat dubious case that used car prices (which are very high) could be a factor in locking inflation in.

Last month it took Carey Cherner, a 36-year-old used car dealer in Kensington, Maryland, less than 12 hours to sell a 2001 Ford F-150 pick-up truck with 296,119 km on the clock. It went for $US7,500 ($9,620) — 50 per cent higher than usual.

Cherner’s experience was not a one-off in the US used car market, where prices are rising rapidly. The industry is at the heart of the country’s growing inflationary pressures — and has therefore become a subject of great interest to policymakers in Washington.

“There’s more people buying cars than there are cars in the market, which makes it go kind of crazy,” Cherner said.

Unusually, officials are watching used car prices closely as an indicator for the future path of inflation. If the price rises become entrenched and spread into other parts of the economy, America could face a prolonged period of overheating for the first time in decades, posing a big challenge for the US Federal Reserve and Joe Biden’s economic policymakers.

The only problem with this theory is it seems unlikely that high used car prices will persist. Eventually the semiconductor shortage will ease, and new car inventories will expand, and the market will sort of normalize, also according to the FT.

In addition — unusually for a recession — the number of customers who defaulted on vehicle finance and had their car repossessed has declined, cutting off another source of supply for dealers such as Cherner.

Demand, meanwhile, has boomed. Americans’ preferences have shifted away from public transport because of the pandemic. Stimulus measures have helped them to spend. And rental car companies that sold off their fleets as travel collapsed last year are now scrambling to rebuild them with used vehicles.

“It’s incredibly tight right now: you have more demand . . . that is supported by fiscal stimulus, so it’s just like a perfect storm. And we’re seeing that clearly in prices,” said Laura Rosner, a senior economist at MacroPolicy Perspectives.

But Jonathan Smoke of Cox Automotive, a consultancy for car dealers, noted that “several leading indicators of what’s happening at our auctions” suggest “the price appreciation streak is likely going to end”.

I renew my plea for everyone to take a deep breath and be patient.

3rd Gear: CATL, Which Supplies Batteries To Tesla, Is Expanding

That’s according to Reuters sources, sources which Reuters does not identify, sources that are definitely not people at CATL talking about how well CATL is doing.

China’s CATL (300750.SZ) is planning a major new automotive battery plant in Shanghai, continuing a blistering pace of expansion that will cement its lead as the world’s No.1 supplier, two people with knowledge of the matter said.

Locating the factory in Shanghai will put it close to Tesla Inc’s (TSLA.O) Chinese production base after it began supplying batteries for the U.S. automaker’s Model 3 cars in China last year.

CATL hopes to rapidly expand that relationship, aiming to become its biggest supplier in the near future by providing half of the battery cells Tesla uses globally in electric vehicles and roof energy storage, said a senior source at the Chinese company.

Are you listening, Tesla? CATL is calling.

4th Gear: Volvo Good

Volvo sales have been up for 11 straight months.

From Reuters:

“The growth was mainly driven by a strong demand in the U.S. and, in Europe, a recovery from a sales drop in May last year related to the COVID-19 pandemic,” it said in the statement.

The XC40 was the company’s top-selling model in May with a volume of 20,350, followed by the XC60 with sales of 19,835 cars and the XC90 with 9,961 units sold.

Volvo’s global sales in the January-May period were 312,533 cars, up 49.9 per cent year-on-year, with sales in Europe growing 46 per cent, while volume was up 55 and 57 per cent in China and the U.S., respectively.

5th Gear: A Connecticut Dealer Is Trying To Block Out Tesla

In many ways, Tesla’s ongoing battle with state franchise laws is one of the biggest legacies of the company. That is being played out in state after state, though dealers haven’t been going without a fight. Like in Connecticut, where a dealer is now suing to block Tesla from opening a shop there.

From the Hartford Courant:

Hoffman Auto Group, under the business name Jetobra Inc., has asked a Hartford Superior Court judge to set aside the town’s decision allowing the service centre and showroom. Hoffman says the showroom violates Connecticut law prohibiting car manufacturers from sidestepping dealerships by selling directly to consumers.

It’s the latest battle in a lengthy dispute between Connecticut’s car dealerships and Tesla, which is lobbying for state legislation allowing it to sell its electric cars directly to buyers.

Hoffman Auto Group said it’s “committed to defend Connecticut’s pro-consumer franchise system.” The proposed Tesla service centre and showroom would deprive Connecticut vehicle buyers of consumer protections, it said in a statement.

Whether Tesla can operate a service centre and showroom allowed by the special use permit and site plan application issued by East Hartford’s planning and zoning commission is in dispute, the lawsuit says.

The decision by East Hartford violates state laws “in regard to new and used car dealers in the state of Connecticut,” according to the lawsuit filed by attorney Richard Weinstein of West Hartford.

State franchise laws have very little to do with consumer protection and a lot to do with dealership protection; you can tell because dealers are the only ones ever rushing to their defence.

Reverse: Spacewalk

Ed White was memorably portrayed by Jason Clarke in 2018’s First Man.

Neutral: How Are You?

I am pretty much the only person I know who simply can’t want to get back to the office. I might even, to mark the occasion, drive in the first day back and pay some exorbitant amount of money to park in Midtown.