+++ The BMW Group had its best July ever, with sales in the month totalling 180.726 cars; a 0.4 percent increase year-on-year. The company also sold more vehicles than ever before in the first 7 months of the year with a total of 1,401,551 (+4.3 percent) vehicles delivered to customers around the world. “Following a record first half-year, our sales in July remain at a very high level, with profitability our primary focus”, said Ian Robertson, Management Board Member for Sales. “Despite continuing headwinds in the USA, as well as the model changeover of the X3 and the 5-series in China, we were still able to achieve last year’s high sales levels, due to our policy of balanced global sales growth. Sales of our electrified vehicles continue to develop extremely well, with all 9 of our electrified cars playing their role in this success”, he continued. July saw yet another milestone for the BMW Group’s unmatched range of electrified vehicles: more than 50,000 BMW i, BMW iPerformance and electrified Mini vehicles have been delivered to customers around the world since the start of the year. The BMW Group now has a total of 9 electrified automobiles on the market: sales of these vehicles totalled 50,711 in the first 7 months of the year, an increase of 74.8 percent on the same period last year. This makes the BMW Group the world’s 3rd biggest BEV/PHEV manufacturer. The BMW i3 is the best-selling compact battery-electric vehicle in the Premium Segment worldwide since 2014, with the sales curve showing a clear upward trend. Global BMW brand sales in July were at last year’s extremely high level. A total of 153,511 (+0.1 percent) BMW automobiles were delivered to customers around the world. The first 7 months of the year were the most successful ever for the brand with 1,191,547 vehicles sold, an increase of 4.5 percent. A wide range of models throughout the portfolio contributed to this growth. The BMW X family continues to be a major growth driver, despite the current model changeover of the X3, with overall X sales up 15.4 percent (407,492). The 1 Series (107,460 / +8.5 percent) and 7 Series (37,159 / +21.9 percent) also achieved notable growth. Meanwhile in July, the new 5 Series achieved sales growth of 34.9 percent (17,712) in markets excluding China. The 5 Series is currently in model changeover in China, where sales in July are down 47.2 percent (6,766) year-on-year. Headwinds in the significant United Kingdom market led to a slight decrease in sales in Europe in July, but sales in the region in the year to date remain slightly above the very high level of last year, with growth of 1.7 percent. France (51,569 / +3.6 percent) and Spain (35,731 / +8.9 percent) were 2 of the regions more significant growth drivers. BMW Group sales in Asia continue to grow this year, driven mainly by China, where combined BMW and Mini deliveries are up 17.0 percent in the first 7 months of the year. The downturn in the US automotive market is reflected in the BMW Group’s figures for the Americas, which in the year to date are 3.5 percent below last year’s level. +++
+++ FERRARI is still evaluating whether to build a successor to its iconic 1960s Dino sports car, because it fears a potential dilution of the company’s exclusivity. Sergio Marchionne, Ferrari’s CEO, was the one that revealed that there are split views within the brand’s management on the new Dino. Not everyone is convinced that this would be a good move, he said. The idea of a Dino revival has been “kicked around” according to Marchionne but added that lowering the entry level price of a Ferrari would be dangerous for the brand. He also said that he was unsure whether a cheaper Ferrari is necessary for the company to attract younger buyers since the company already enjoys a “phenomenally young” customer base in Asia. “We need to explore ways to attract customers to traditional values of the brand such as style, performance and engine sound before downgrading the entry level price for the brand”, Marchionne said on a call with analysts. Marchionne appears to dismiss the idea of a cheaper Dino model and that surprised experts who thought of him as the one who would bring the project to life, after former Ferrari Chairman Luca di Montezemolo resisted the idea for years. Still though, there’s hope; Marchionne promised that a decision on the Dino will be made public at the announcement of Ferrari’s next 5-year plan, which will take place during the first quarter of 2018. If Ferrari will indeed ditch the revival of the Dino and move on with their plans for a four-seat “utility” vehicle for the upper corner of the luxury SUV segment, they better be ready for a good amount of fury coming from the fans. +++
+++ FORD said German motor authorities are investigating Mondeo diesel emissions after the car was being inspected for the possible use of cheating devices. Ford said none of its cars is equipped with illegal emissions cheating software. Ford Germany said in an emailed statement that all its vehicles and engines, including those with its latest diesel engines, complied with current emissions guidelines and did not contain illegal software devices. Ford said it had been contacted by Germany’s KBA vehicle certification authority about its Mondeo 2.0 TCDi model and it would to cooperate with the German authority. German media said that the Mondeo was being inspected by the KBA at the behest of the transport ministry for the possible use of cheating devices. Germany’s transport ministry was not immediately available for comment. The inspections were prompted by emissions test data that could indicate the use of such devices. An unnamed institute has been commissioned to carry out the tests which are already underway. Ford Germany chief Gunnar Herrmann is denying any wrongdoing. “No illegal shut-off devices were used in our diesel exhaust after-treatment systems”, he told the press, adding that Ford had “neither cheated, nor used tricks”. The car industry has been under scrutiny since U.S. regulators exposed emissions test cheating by Volkswagen nearly 2 years ago. This led to wider revelations that diesel vehicles from most manufacturers release far more toxic NOx on the road than in tests. Ford and Germany’s 3 main carmakers (Volkswagen Group, Daimler and BMW) this week announced incentives to drivers who trade in older diesel models for new, cleaner models. +++
+++ Sales of MINI brand vehicles continued to grow in July, with 26,974 units delivered to customers around the world, an increase of 2.0 percent compared with the same month last year. In the first seven months of 2017, a total of 208,188 Mini vehicles were sold, an increase of 3.4 percent year on year. The Convertible (21,248 / +23.4 percent) and Clubman (34,086 / +6.5 percent) showed very positive sales growth in the year to date. The new Countryman was the main growth driver with sales up 33.5 percent (6,810) in July. +++
+++ OPEL has started a 100-day process to come up with a business plan for new owner PSA, but one proposed model already faces an uncertain future: the flagship large SUV. The 2.2 billion euro takeover of the brand was confirmed last week. There’s said to be little immediate change in day-to-day activity, but Autointernationaal.nl understands that plans for an ‘Insignia SUV’, often referred to as the Monza, have been shelved, at least for now. The car, which would have been the range-topper in Opel’s line-up, was set to be built on the Insignia’s platform and would have rivalled other big SUVs such as the Ford Edge with dramatic styling and a suitably plush interior. Speaking at the 2016 Paris Motor Show, Opel CEO Karl-Thomas Neumann said: “The large SUV will be built in Russelsheim. It makes sense because if you have the Insignia there you also want the SUV there”. However PSA is now expected to freeze all GM-related projects, so the large SUV is said by well-placed sources to have been canned. It may yet be revived, however, as a project that sits on a PSA chassis, such as EMP2. +++
+++ SEAT is considering a new look for its Cupra performance division, including the idea of a bespoke badge for the sub-brand. The Spanish manufacturer has been working on increasingly ambitious plans for Cupra ever since the arrival of current CEO Luca de Meo in autumn 2015. The firm’s head of research and development, Matthias Rabe, is also keen to make greater use of the Seat Sport engineering team, which has recent experience in touring cars. At the moment, Cupra models are made distinct from conventional models by subtle branding featuring a chequered flag motif. But trademark applications made by Seat at the end of May show a different approach entirely, including a new logo that’s placed above the existing Cupra lettering. Perhaps more significantly, one of the applications illustrates a bevelled, three-dimensional badge carrying the same graphic. Seat declined to confirm specific plans, but a spokesperson commented: “Seat is evolving its corporate identity. Additionally, we have to take into account that, as a common procedure in our industrial activity, we register the property of many different patents, logos and designs”. Significantly, though, the company representative added: “As we mentioned a few months ago, one of our goals is to develop the business of Seat Sport beyond motorsport activities”. This comment suggests that Seat is indeed considering leveraging the equity in the Cupra brand, and the legitimacy of Seat Sport tuned performance cars, by making its faster models more distinct from the conventional range of vehicles. This could give Cupra more creative freedom and potentially allow the firm to charge more of a premium, improving its profit margins on higher-end editions. The next Cupra vehicle is expected to be a more extreme Leon, badged Cupra R and due on sale before the end of this year. Rabe referred to that vehicle back in the spring and told me to expect “something within 7 or 8 months”. A high-performance version of the Ateca will then follow, in the first half of 2018. It’s not yet clear if either of these models will carry the proposed new branding. +++
+++ TESLA has been shopping its first pure corporate bond offering this week, and a price at the levels whispered on Wall Street would be a big score for the Silicon Valley car maker. Investors, however, may have to curb their enthusiasm: the bonds are lacking many of the customary bondholder protections for this much risk. “Anyone who looks at a lot of high-yield bonds would expect more robust protection against future debt”, said Valerie Potenza, head of high-yield research at Xtract Research, a sister company of Debtwire. “We think it’s a terrible bond, but people seem blinded by the Tesla story”. Tesla earlier this week said it plans to sell $1.5 billion in senior notes due 2025 to help shore up its balance sheet ahead of the Model 3 production ramp this fall. A successful Model 3 production scale-up is the cornerstone of Tesla’s expansion plans, which include new passenger and commercial vehicles, solar-power products and the ability to produce cars at a rate of 500,000 by the end of 2018. The bond offering is being whispered at a coupon of 5.25%, according to market sources, reflecting Wall Street’s continued strong appetite for riskier debt amid still-low interest rates on typically safer debt. But Tesla faces “sizable near-term credit risks” associated with Model 3 production and sales, Moody’s Investors Service said in a note. Moody’s assigned a B2 corporate family rating to the credit, placing it a full 5 notches into speculative, or ‘junk’, territory to reflect those risks. For Moody’s, that includes a “make-or-break” launch for Model 3, minimal proprietary technologies to keep Tesla’s competitive advantage, formidable competitors and credit metrics that reflect its junk credit profile. Moreover, the deal is likely the first of many, according to analysts at CreditSights, which means competing debt in the pipeline that may entice investors. High capital expenses and negative free cash flow “will be the reality” for Tesla for the foreseeable future. While Tesla holds an early-mover advantage in the electric-car space, barriers for electric vehicle penetration are still high, not to mention competition from rivals with bigger pockets and better distribution networks. “We expect the deal will sell and perform well in a hot market, but we see 5.25% as inadequate compensation for the risks of the business and weak asset protection”, CreditSights analysts wrote in a note. Tesla’s cash burn is another factor that might impact its ability to service its debt. The company had about $3 billion of cash at the end of June, but is expected to spend about $2 billion of that in the second half. Moody’s is expecting “significant” capex and cash burn through 2018. “Debt service could become an issue depending on how much debt they sell”, said Xtract’s Potenza. Then there’s the weaker structural protection Tesla is offering bondholders. As a single B-rated credit, the Tesla notes might be expected to come with a full high-yield covenant package, a set of protections for the bondholder to guard the investment by preventing the company from using monies that could be assigned to interest payments for other purposes. The offering is lacking these protections. “The covenants are weak”, said Potenza. “There are no restrictions on the company issuing further unsecured debt, on selling assets and on paying dividends or making investments. There is nothing to stop them from issuing notes on the same terms in an unlimited amount going forward”. Goldman Sachs Group will underwrite the deal. But the sole guarantor is Solar City, which Tesla acquired last year. And the notes rank behind $8.765 billion of debt backed by other non-guarantors, she said. One major shortcoming in the covenants is the risky relationship with the company’s battery factory outside Reno (Nevada) one of Tesla’s major assets. If the “gigafactory” were to issue its own secured debt, the holders of the Tesla-generated bond issue would be pushed even further down the capital structure, she said. Finally, the notes don’t even have the call protection of an investment-grade bond, which means the company could refinance them at a lower level in a few years time. Peter Schwab, senior vice president at sustainable asset manager Pax World and portfolio manager of the Pax High Yield Bond Fund, said the carve-out of the gigafactory was not expected and is part of the reason that high-yield investors are struggling to price the risk. “But it’s a pretty compelling story and hard to ignore. Tesla from day one has proven the investment community mostly wrong”, he said. Investors can take some comfort from Tesla’s enormous market cap, which currently totals $60.2 billion, according to FactSet. That makes it bigger than traditional car makers General Motors, with a market cap of $51.2 billion, and Ford with a market cap of $43.1 billion. “They clearly can access capital markets with an equity offering if they need more funds”, said Schwab. Tesla’s most-active bonds, the 2.375% notes that mature in March of 2022, were last trading at a premium of 128.75 cents on the dollar, to yield 3.372%, according to MarketAxess. Those notes are convertible bonds, which means they can be converted into equity, and thus benefit from a rise in the underlying stock. Tesla last week reported a narrower-than-expected second-quarter loss and bigger-than-expected sales, boosting its stock 6.5% on the week, its best weekly gain since April. +++
+++ Could you imagine the world without the VOLKSWAGEN Golf GTI? While it’s one of many options for those seeking practicality with a splash of fun, it truly was the nameplate that birthed an entire segment, which many of us like to call the ‘hot hatch’. Volkswagen wasn’t too hip on building the Golf GTI, though. Back in the day, it was focused on churning out as many Beetles as it could, and the Beetle simply wouldn’t die. The Golf was originally meant to be a successor to the iconic car, and it was received pretty well. But, Volkswagen really needed something to differentiate the Golf. Enter Anton Konrad, the father of the GTI badge. He came up with a crazy idea at the time: give common consumers the option of a fun to drive, fast car that was still practical: high-performance Golf. Volkswagen didn’t like that idea and flat out gave it a big fat “no”. Konrad went ahead and built the car anyway, and dropped a fuel-injected 1.6-liter engine under the hood. The engine produced 110 horsepower, no small figure for 1976, especially in a tiny car like the Golf. To Volkswagen’s surprise, the GTI was a hit. The German brand planned to produce 5,000 GTIs originally, but that production figure quickly swelled to 420,000 units by the end of the original production run. +++
+++ The VOLVO XC90 T8 Excellence is the Swedish marque’s take on opulence and its finest motoring experience available. With adjectives like that, it’s easy to expect a high price of entry; the XC90 T8 Excellence has a sticker price that starts at a whopping $105,895. However, Volvo has put the 2017 XC90 T8 Excellence on clearance and it’s offering deep discounts: up to $23,500 off. Volvo has enacted a $20,000 discount on all remaining XC90 T8 Excellence models to make room for the 2018 model. Additionally, Volvo offers a $3,500 conquest incentive. All the buyer has to do is show proof they currently lease an Acura, Audi, BMW, Cadillac, Infiniti, Jeep, Lexus, Lincoln or Mercedes-Benz, and it unlocks the additional $3,500 discount. With a grand total of $23,500 in discounts on the XC90 T8 Excellence, it brings the sale price down to around $80,000. In one case, a dealership has advertised the same twin-engine hybrid-powertrain model with another $9,000 dealer discount. The 2017 Volvo XC90 Excellence earns its surname with a feature list awash with luxurious amenities. Each of the SUV’s four seats are finished in Nappa leather. They are also heated, ventilated, and feature a massage function. The rear seats recline and are split by a full-length console wrapped in leather and open-pore wood trim. Additionally, an onboard refrigerator is tucked in for rear-seat passengers; the cupholders are pre-stocked with crystal glasses from Sweden’s Orrefors. The driver isn’t left out of all the fun, either, as more than 400 horsepower is on tap, with Volvo’s all-wheel drive system putting power to the pavement. The upper-class may be the only ones with the means to take advantage of this deal, but there’s no doubt the discounts represent a tremendous steal on a fine vehicle. +++