Nick Sciple: Welcome to Industry Focus, the podcast that dives into a different sector
of the stock market every day. Today's Thursday, October 11th, and we're discussing electric vehicles.
I'm your host, Nick Sciple. Today, I'm joined by Motley Fool senior auto specialist,
John Rosevear, via Skype. How are you doing, John?
John Rosevear: I'm doing well, Nick! How are you?
Sciple: I'm doing great! First off the bat, John, I'm a big Twitter user, I just wanted
to ask you, you've got that blue checkmark going on. How do I get one of those?
Rosevear: [laughs] You ask nicely, and you wait quite a while, is the answer. I'll clue you
in later on. There is a way to request one. You're working in media, you might be
able to get one. I don't know. I got to the point where I had enough followers that
I said, "Hey, folks, can I have one?" And at first, they said no. And then six months later,
they wrote back and said, "Actually, yes, if you change this one little thing on your profile."
So, I did, and like a week later, I had it. Thank you, Twitter!
I'm grateful for that! But, I think it's a crapshoot to some extent.
Sciple: Well, maybe one of these days, I'll join that blue checkmark mafia
with you, John. What do you think? Rosevear: The more, the merrier!
Sciple: For this episode, we're talking about electric vehicles. Everybody thinks about
electric vehicles, the first thing we think about is Tesla. From my perspective,
we've heard enough about Tesla. Last week, we had The Fool writers' conference. Motley Fool founder,
David Gardner, even said that. There's plenty of other stocks out in the market,
and there's plenty of other electric vehicle businesses out here that we can talk about.
So, that's going to be the goal of this episode. What's going on in electric vehicles not named Tesla?
First off the bat, let's go ahead and talk
about General Motors. They're one of the largest automakers in the world. They have a big presence
in electric vehicles. Probably the most recent story coming out about GM was that they partnered
with Honda. Honda is investing $2.75 billion into Cruise. I believe that's $750 million now,
and then the $2 billion over the next 12 years. Is that correct, John?
Rosevear: Let's back up. Cruise is a GM subsidiary that is developing a self-driving taxi service.
That relates to electric vehicles because they're using electric vehicles. Their self-driving taxi,
their first one is a heavily-adapted Chevy Bolt. The idea is, when it goes into production,
it'll be built on the Bolt's production line.
Honda was actually the second outside entity to invest in Cruise. The first was SoftBank's
venture capital fund. Honda is making a $750 million equity investment right now, or last week,
or whenever it was. And then, over the next 12 years, they will contribute $2 billion toward
the development of a from-the-ground-up vehicle designed to be self-driving.
It sounds like it's going to be a self-driving architecture that they could turn into a taxi,
a delivery van, things we haven't thought of yet, that kind of thing. The idea is that they're not even going
to hand wave toward provisions for a human driver. It's going to be completely self-driving.
No need for controls or anything like that. That changes everything,
from the safety calculations -- if you can seat people anywhere in the vehicle, where do you want
to see them for optimum safety? -- all the way to, does it need a windshield?
Can we put a movie screen there instead? You know?
It opens up a whole different range of design considerations.
Honda is really good at some of that stuff.
GM is really good at some of that stuff. They have proven on other projects that they can
work together well. This could be a really interesting product.
Sciple: You're right, John. This is continuing a partnership that's been going on between
Honda and GM in this space for a while. They've worked together on fuel cells for several years.
And then, back in June, Honda and GM signed a deal where Honda is going to buy
some GM battery packs for use in its own electric vehicles. In a way, Honda is looking to GM
as the EV thought leader, and they're cooperating with GM to move their aspirations along.
Would that be an accurate representation of what's going on here?
Rosevear: It is. GM gets something out of this too, though. GM wants to play in Japan.
The number of vehicles GM sells in Japan every year rounds to zero. Honda's quite big.
Toyota is the biggest, but Honda's obviously quite big, and in its home market it has a substantial presence.
Toyota is making its own moves towards various
self-driving delivery, taxi kinds of initiatives in Japan, again, partnered with SoftBank.
Honda would like to counter that. GM would like to have a presence there because it's
a huge market and it's an advanced, high-tech market. It's one of the places where
we may see self-driving vehicles take off fairly soon relative to other parts of the world.
If you've been to Tokyo, you know why. They love technology and love gadgets.
There's lots of stuff there. They're likely to catch on quickly as soon as the technology is ready.
GM wants to play there. Honda is a partner with whom they can play there. Already has a big
established presence. That's GM's side of it. Certainly, yes,
Honda gets access to technology. They were somewhat late in getting moving on things like
self-driving and electric vehicles, which surprised a lot of people. They had a CEO change a couple
of years ago. Their current CEO tried to pick up things and get things really rolling and.
Partnerships have proven to be a cost-effective way to do that. So, yeah, I'd look to them
doing more and more with GM. The electric vehicle side of it is,
GM is working toward an all-new next generation platform architecture for electric vehicles
that will succeed what they've done with the Bolt. Honda's going to buy the battery packs
from there. They'll design their own vehicles around it, but they'll be designed around
GM's battery packs. That's what's going on there.
Sciple: Let's go ahead and swing into talking about what GM's EV presence is today.
What does the Bolt look like today? This is a car that has an MSRP around $36,000. That's real
close to the mythical Model 3 $35,000 production model vehicle. But this is a car that's already
on the road, has a 238-mile range. And apparently, it's doing well for GM, because CEO Mary Barra
has announced that they're on track to increase Bolt production 20% in the fourth quarter.
That demand is not necessarily coming from the United States. GM has seen global sales
of their battery EVs go up more than 35% in the second quarter and more than 40% in the
first six months of 2018. However, in the second quarter of 2018, Bolt sales in the
U.S. were down 22% and only up 3.5% for the first half of the year. So, that demand is
coming from overseas. That's something that GM is really pushing towards.
Rosevear: To some extent, it's that the supply is going overseas. GM's scaled to build -- officially,
it's a secret, but informally, it's around 2,500-3,000 Bolts a month at their factory.
They thought, "We can probably sell 30,000 a year of these," at first, when they were
scaling the program a couple of years ago. Now, they're exporting some of those.
They're selling, as I understand it, fairly well in Korea. They're sending some to Europe.
GM has sold its Opel subsidiary to Peugeot, but it's still supplying some vehicles to be badged
as Opels, and the Bolt is one of them. It's known as the Opel Ampera-e in Europe.
They're selling some there, and there are a few going to other places, other markets, as well.
What they want to do is ratchet up production so they can continue to supply
more Bolts here. It may be a supply issue in the United States. I am not clear.
They don't seem to be spending a ton of time on dealer lots. But certainly, they know they
can sell more. They're investing in added production.
One thing we should talk about with the Bolt, comparing as a Model 3 rival is kind of deceptive.
The Model 3 is an electric riff on the idea of a BMW 3 series, you know? [laughs]
It's clear what they benchmark. The Bolt is not. The Bolt was clearly thought out as kind of
an urban taxi. I think when GM originally designed the program, they were thinking,
"We'll sell these to Lyft." And it's really optimized for that. It's got a super tight
turning circle. It's got cameras all around it that make it really easy to park in a little
tiny parking space in a city and to navigate tight streets and things like that.
When you sit in it, you realize the seats are covered with this really sturdy,
durable fabric that you might expect to find in a taxi or something like that. They're not luxurious.
That has actually been a little bit of a knock on the Bolt that people who might be
on the waiting list for a Model 3 have come to check out the Bolt and said, "It's nice,
it's a well-done electric car, it's just not that nice inside."
I have wondered all along if GM would do an upgraded interior for an extra $2,000
for it or something. They may figure that, with the Bolt, they're selling all they can make
right now. They're just going to move ahead to 2020 or so, when they start to launch their
next generation vehicles. Sciple: Right. I guess the endgame for the
Bolt, with the way they're developing their Cruise, is that it's going to be that flagship
vehicle for the Cruise autonomous driving service, if and when that comes to the market.
Is that the current view there for GM? Rosevear: Sure. When they first rolled out
the Bolt, I spent some time talking to a couple of the people who had worked on the development of it.
They said, "Look, the Bolt is a platform. It's built so that we can tinker with a lot
of different technologies on it. We can tinker with remotely ID-ing drivers for use in a
car-sharing situation." GM has a subsidiary called Maven that does car sharing.
If you want to rent a car for an hour or whatever, you can do that. The Bolt pioneered some of
GM's take on that kind of technology, where you get the confirmation in your phone and
you walk up and the phone unlocks the car, and off you go.
In addition to that, obviously, they were thinking about self-driving. As soon as they
acquired Cruise in early 2016, I believe, they sent Bolts out there, even before they
were officially in production. They sent pre-production Bolts out there. There were prototyped,
cobbled together, self-driving Bolts visible in San Francisco like six months before the
Bolt officially went into production. [laughs] They had a bunch of them out there early on.
That was the whole idea, that the Bolt was proof of concept. It was designed so that
if no retail customers would buy them, they could put them in a taxi service, and it was
well-adapted for that. It was not ever designed to compete directly with a Tesla. Although,
its specs are quite good. It's got good range, it's got nice acceleration. They're fun to drive.
For a zippy little runabout designed as a taxi, they're actually quite fun to drive.
They're nice. But it's not an electric BMW-inspired kind
of vehicle the way that Tesla is. On the other hand, it's more utilitarian. On the other hand,
they're putting it to lots of interesting uses because they tinker. And those will inform
the range of GM electric vehicle products that come out on this next generation platform
in a couple of years. Sciple: Right. Going away, for our listeners, on GM,
I think we really need to view GM as an EV company. Mary Barra, their CEO,
has come out and said that GM is on track to sell a million EVs per year profitably by 2026.
They expect to have 23 all-electric models launched by 2023. They're already launching
some of those models in China. The Buick Velite is one of those. They're really investing
heavily in their battery development. They just got LG Electronics to set up a battery
plant in Detroit. So, GM is really putting a lot of chips on the table with respect to EV.
When people think about these old U.S. car makers, it's not that these guys are behind
the times. They are right there on point when it comes to EVs, just like everybody else.
Rosevear: Mary Barra and her team are not messing around. That's true on a lot of fronts.
American investors who think of bad old GM, where they didn't even know how much money
they were making, they talked about market share over profits, and all this other stuff
-- that company is gone. This company is a machine. And I do think it's underappreciated
by investors. It pays a good dividend, too. Sciple: Yeah. When you get the optionality
of getting a 4%-plus dividend and the opportunity to own Cruise, which has the potential to
be one of the largest autonomous ride-sharing services going into the future, that's not
a bad risk-reward trade-off. A guaranteed 4% dividend with the optionality for who knows
how big Cruise could be over the long-term?
Rosevear: We talk about Waymo a lot for self-driving taxis.
Who is Waymo's No. 1 competitor in the U.S.? It's a no-brainer, it's Cruise.
They're fairly close behind with the technology. The advantage GM has is, the whole thing is integrated.
They have an assembly line ready to go. They don't have to get with partners
and sort out that stuff. As soon as it's ready, they're rolling down the assembly line in
Orion Township, Michigan, where the Bolt factory is, and out to the world.
Sciple: Yeah, exactly. We spent the first part of the show talking about these U.S.
manufacturers, particularly GM. We probably gave them a decent amount of attention.
Let's pivot over to Europe. That's one of the places where I think demand is going to come on board
the quickest. That's in part because of these E.U. emissions standards that are coming.
Over the past couple of weeks, we've seen the European Council and the European Parliament
both come forward with emissions standards. They've disagreed about the extent of what
these should be, but we're looking at 15-20% cuts in CO2 by 2025, 35% by 2030, or 40%,
depending on which body you're looking at. They still need to negotiate the final numbers on these.
But the important number that I really want
to call out is, both of them agree on a quota of 35% of vehicles by 2030 being zero and
low-emission vehicles. What that means is, electric vehicles, hybrid vehicles,
these sorts of things. It's why we've seen a real pushout in Europe of some luxury electric
vehicles coming to market. These are particularly things that folks are excited about.
We've got the Jaguar I-PACE SUV, we've got the Audi e-tron electric SUV, the Mercedes-Benz EQ
is looking to come to market, maybe sometime in 2019.
Can you talk about these trends we're seeing out of Europe and how these things are positioned?
We're seeing a lot of SUVs, there's a lot of demand there. You want to talk about that, as well?
Rosevear: Let's back up. First of all, yeah,
there is a growing certainty that in a few years, you're going to need a lot of electric
vehicles in Europe. Volkswagen, which has the largest market share in Europe, is investing
billions and billions of dollars to build a whole supply chain to be able to build a
couple of million of these things a year, starting in just a few years.
Right now, what we're seeing is the beginnings of that. Again, these are high profit, relatively small
volume products that allow them to build out the supply chain to get to proof of concept
and so forth. The I-PACE was kind of a surprise when that hit. Who thought Jaguar would come
out with the first credible vehicle to rival Tesla? And they did. It's quite good. There are pluses
and minuses in comparing it to Tesla's products, but certainly, it can stand
on their own. Production is still ramping up, but it's doing quite well in Europe,
I understand. There's a substantial backlog of orders. It's coming to the U.S. sometimes soon,
in the next few months. I forget exactly when, but soon. I think you can already pre-order
one from a Jaguar dealer. If you're interested, check with your Jaguar dealer. $69,900,
I think, is the price. Around $70,000. It's a little cheaper than
the Model X 75D. It's a little smaller inside, though. Highly praised for its handling, for
its interior fit and finish, things like that. It's a nice vehicle to drive.
Sciple: Another thing I want to call out here, too, on the Jaguar I-PACE, we talked about
the Chevy Bolt, and what role it's going to play in Cruise. Waymo has ordered 20,000 Jaguar
I-PACE vehicles to be part of its Waymo ride-sharing service when it comes to market. That is another
source of demand for them. It's just an interesting thing that's going on with the I-PACE.
Something to watch out for, particularly, with these manufacturers coming out of Europe.
Rosevear: Just wanted to finish the thought of something you asked about, the whole SUV thing.
That's what's selling right now. I mean, the whole world wants crossover SUVs.
This is a trend we've seen in the U.S. for several years now, the decline of sedans.
What happened is that vs. the truck-based SUVs we saw 15 years ago that were common,
these are based on car architectures. They handle more like cars. They're more comfortable.
They get better fuel economy. It's what people want. It's a roomy station wagon kind of thing
that maybe looks cooler than what we think of as a station wagon or a minivan, and with
some all-wheel drive, all-weather capability. It's what people want. People who still have sedans,
a lot of them are trading them in on these things. So, when you're talking about
coming to market with an electric vehicle, with your first or second one, you want to
hit the place where demand is going to be high. That's why these are all SUVs.
China's hot for them, Europe is hot for them, and U.S. is hot for them. You want to appeal to
the broadest range of buyers with your first vehicle, you're going to come out with a five
or seven passenger SUV. Sciple: John, on the second half of the show,
we're going to talk about this Nio IPO. It IPO-ed a little over a couple of months ago.
We got a question about this from one of our followers on Twitter, Alex. He messaged us
@MFIndustryFocus and asked, "With the recent IPO of Nio, what are your thoughts on Tesla's
operations in China? Also, what are your thoughts on the company as a whole?" Well, we talked about,
we're going to stay a little bit away from Tesla day, but let's talk a little bit
about Nio. It IPO-ed recently. It's got a market cap of about $6 billion, although with
the recent market volatility, it may have moved since then. It's about four years old.
It's one of over 300 startup EV companies in China. Founded by a Chinese entrepreneur
William Li. It's backed by Tencent, Baidu, Sequoia Capital, Hillhouse Capital Group.
When you looked at this IPO from Nio, John, what are you seeing from this company? What
jumps out to you? What's interesting? Rosevear: First and foremost, they are building
and shipping a car. [laughs] They are building and shipping a premium electric vehicle.
For all the promise of a company like Lucid Motors, they're a couple of years away from shipping a car.
Faraday Future has made a lot of noise, so has some of these other companies.
Nio is shipping. What they're shipping is what they call the ES8.
It's a battery electric seven-seat SUV. It's being built for them by a Chinese automaker
in Shanghai. It starts around $65,000. It has range of just over 200 miles, which doesn't
sound like a whole lot to us when we're used to hearing about Tesla's and so forth,
and thinking of 300 miles as a minimum. But it might be enough to get them going.
It's got some interesting technology in it, Advanced Driver Assist stuff that they expect to evolve
into self-driving over time, as well as a voice-activated intelligent assistant,
which is kind of a novelty. Nio is emphasizing customer service as well as usability.
They have a sophisticated phone app that comes with this that can control a bunch of features
in the vehicle. They are only selling in China. They began
production at the very end of June. They delivered through August. They delivered something like
1,600 and had another face 15,000-16,000 reservations that they were looking to fill over the next
couple of months. So, there appears to be some demand for it.
In comparison with Tesla, what's interesting is that the recent trade war and the tariffs,
tit for tat, that we've seen go on, it's putting some pressure on Tesla in China, because all
Teslas are imported from the U.S. to China right now. Tesla's talked for years about
building a factory in Shanghai. They're actually taking some steps toward it now, maybe,
but that's unlikely to be up and running before 2020 at the very earliest. It just takes time
to prepare the ground, to build the building, to create the tooling, to get the tooling
in place and up and running, and so forth. That would seem to give Nio an opportunity
to get really rolling here. Teslas are still very high price. The price may come down a
couple of years, but we're not there yet because the factory's going to take a while to build.
They have an interesting opportunity. We'll see how well they can capitalize on it.
I think they're well positioned. Sciple: Yeah. We talked about the pricing,
with imports and all those sorts of things. The MSRP on an ES8, which is Nio's flagship
vehicle right now, is about $65,000. Compare that to the Model X, which is probably its
closest analogue from Tesla, retails $140,000 plus in China, at least from the data that
I've been able to find. Rosevear: Yep.
Sciple: So, you've got a vehicle that has a lot of similar attributes to what the Model X
can have, at less than half the price. That's a big opportunity there for them. I will say,
if you look at their financials, it posted a net loss of $502 million in the first half
of 2018 on just $7 million in revenue. It lost $759 million in 2017. This is not a profitable
company right now. Rosevear: Let's hang on with that, though.
Just $7 million in revenue because their car started shipping the last week of June, right?
[laughs] OK, that revenue is going to look very different for the third quarter because
they've been, presumably, steadily shipping vehicles. It should ramp up significantly
as their production ramps up. We'll see. I don't know where their breakeven point is,
but they're going to be closer to it now than they were in June.
Sciple: Right. We've talked about its opportunity, as well. Let's pull the thread a little bit
on having a third-party manufacture its vehicles. What are the benefits to Nio of that relationship?
And what are the downsides of having a third party manufacture the car?
Rosevear: We should start by saying that the Jaguar I-PACE is built by a third party,
an established niche product builder. It's a division of the giant auto supplier, Magnasphere.
It's built vehicles for several European automakers, including Porsche and Mercedes and some others.
They can do very high-quality work. But they're building the I-PACE because Jaguar didn't
have the capacity in England, where it really only has one factory. Jaguar and Land Rover
have a couple of big factories between them in England. So, it can work out very well.
What Nio is doing is basically, they've hired a rival that head extra capacity to build
their vehicles for them. Apparently, they can do about 100,000 a year, if Nio ramps
up that far. Nio is building its own factory, or is working with somebody to build a factory
that it will lease, in any event, in or near Shanghai. But that's not until 2020. In the meantime,
they have cars ready to build. They would like to build and sell them and
get to the point where they're self-funding. I think for them, it was a good solution to,
"We don't have a ton of money to build a factory right now. We'd like to get rolling.
Hey, we've got a car designed. Can you help us get it into production and do this deal?"
I mean, they have to give up some profit, some margin, to do this, but at the same time,
it's getting them some income. It's getting them considerable revenue that they can then
put to work to build their own factory, to work on future models, and so forth.
They do have a second smaller crossover SUV coming, a five-passenger vehicle, early nextyear, I think.
I think their plan is to show it in December and then roll it into production next spring.
Sciple: That's what I'm seeing too, John.
Again, you talk about that 100,000 vehicle number. This week, we just had the first analyst
estimates come out following Nio's IPO. Deutsche Bank is expecting them to have 100,000 units
of sales by 2021. Again, these are estimates, you can never project that. But, it took seven
years for Tesla to reach that demand. If Nio can reach that this quickly, it'd be pretty impressive.
Rosevear: To be fair, Tesla didn't have somebody
available to hire easily who could build that volume. [laughs]
Sciple: True. Rosevear: They bootstrapped their factory, basically.
Sciple: Yeah. Well, John, we've talked about
Nio, we've talked about these European car manufacturers, we've talked about GM.
Of the companies we've talked about today, which one do you think has the best prospects going
forward to the next five to 10 years and why? Which one would you invest in today if
you had to choose one? Rosevear: Well, I should start by saying
I own GM. I like it, I have no plans to sell. I think the management team that is in place
now is first-rate and mostly doing very good things, and doing them aggressively.
A lot of companies talk and talk and talk about self-driving. GM went out and bought Cruise
and built a business. [laughs] You know? They haven't put a single vehicle in commercial
service yet, and that business is already valued at $14-15 billion. So, they're doing all right.
I think Cruise has the potential to grow into
something very valuable. GM is retaining a roughly 75% stake in it. That stake could
be very valuable. There's also the possibility for GM investors that Cruise will be spun off,
or that a tracking stock will be issued or something like that. They are looking at
ways to do that. If so, then we could see the valuation of Cruise go up quite a lot
as people say, "Oh, a public pure-play self-driving company, let's buy this!"
Sciple: Vertically integrated. Rosevear: I think it would be great interest
to investors. Nio's an interesting play. I personally am not ready yet to invest in Nio.
But I'm watching them. This has some potential here. I've thought for a while that,
of the electric vehicle startups that have come up in the wake of Tesla, the one to really watch
is Lucid. They're more focused in the United States. But Nio, again, they have a vehicle
in production and they're selling it in China. They're developing that whole process of dealers
and logistics and so forth right now, and learning from, and presumably iterating fairly quickly,
and bringing those lessons into its organization. They're doing it right now.
And now seems to be the time to be doing something like this, that's maybe an upscale vehicle
that isn't going to sell millions in a year, so that you can learn the lessons and
bring that to vehicles that might sell more down the road. That's what Tesla has tried to do.
Sciple: For investors, on Nio, I think it's something where, they just started producing a car,
so wait and see. If you want to start a small position now and start tracking the company,
I think that's probably the best course of action. But there's definitely some
potential to the upside over the long-term. Rosevear: It's a very different investment
from GM. If you wanted to ease into it a little bit and see where it goes, I think that's reasonable.
I would not make it 20% of your portfolio right now. Whereas something like GM,
GM's share price will probably drop somewhat if and when a recession hits. They are probably
well-situated to maintain the dividend through a downturn, unless things get really dire
and protracted and they run through their cash reserve. But their plan is to maintain the dividend.
With GM, you can start to think in terms of,
"OK, I will reinvest the dividend. I will accumulate shares. I won't think about this
too hard for a few years." Then, coming out of the next recession, auto stocks historically
have tended to pop early in recovery. Then, start to think about "Whoa! Suddenly,
GM's sitting at $45-50 a share and I have a whole lot of it!" as it may be in five years or
seven years. We don't know. But that's certainly an outcome that seems quite possibly to me.
You could be looking at a tidy profit from here, especially since GM's been beat up somewhat
because their third quarter sales numbers weren't so good.
Sciple: Right. It's something to keep an eye on going forward. John, thanks for coming
on the show. We'll have to talk about this more. This EV trend is only going to evolve
more going forward. Rosevear: Absolutely. Thanks for having me!
Sciple: Yeah, thanks so much! As always, people on the program may own companies discussed
on the show, and The Motley Fool may have formal recommendations for or against stocks mentioned,
so don't buy or sell anything based solely on what you hear. Thanks to
Austin Morgan for his work behind the glass. For John Rosevear, I'm Nick Sciple.
Thanks for listening and Fool on! --
For more infomation >> Vehicle Crashes Into Building While Fleeing From Police, 2 Injured - Duration: 1:21. 
For more infomation >> Multi-Vehicle Crash Closes Route 28 North For Hours - Duration: 0:54. 
For more infomation >> Motorcyclist dies after striking vehicle on LA 1032 in Livingston Parish - Duration: 0:31. 
For more infomation >> Woman struck by vehicle on northeast side, in 'very critical' condition - Duration: 0:26. 
Không có nhận xét nào:
Đăng nhận xét