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+++ ASTON MARTIN may soon return to Europe’s bond market to offset pressure on the luxury automaker’s free cash flow, according to 4 people familiar with the matter. The potential debt issuance will be unsecured and rated CCC, according to 2 of the people, who are not authorized to speak publicly and asked not to be identified. That would give existing bondholders a buffer given the company’s outstanding notes are all secured. “If we require some additional financing, from sources with which we are familiar, to maintain capacity and flexibility then that is exactly what we will go out and get”, a company spokeswoman said. The new financing is expected to bolster Aston Martin’s liquidity until it launches full production of a new crossover (the DBX) in early 2020. The British automaker generated about $1.1 million of cash from operations in the first half of the year, the lowest since it started to disclose earnings. Another factor pressuring the company’s cash flow is the UK government’s refusal to grant export finance, some of the people familiar said. A lack of government-backed funding may have accelerated the timetable to launch new debt, they added. The Gaydon-based company has blamed its ailing sales on ongoing Brexit uncertainty and a wider fallout in the auto industry this year. Its equity has slumped 70 % since the company went public. Aston Martin avoided a public debt offering in April and instead opted to privately place $190 million of bonds in April. That issuance would allow the company “to weather the difficult industry conditions”, S&P Global Ratings said at the time. +++ 

+++ CHINA ’s auto sales could experience negative to low growth over the next 3 years, an official with the country’s top industry association said, after sales fell for a 14th consecutive month in August. The number of new energy vehicles (NEVs) sold contracted for the second month in a row, data from the China Association of Automobile Manufacturers (CAAM) showed. Total auto sales fell 6.9 % from the same month a year earlier to 1.96 million, CAAM said. This followed declines of 4.3 % in July and 9.6 % in June. “The sales in the second half of the year should become better, but we are not sure to what extent the sales would be”, Shi Jianhua, senior official at CAAM said. “Perhaps the next 3 years will be at a low or small negative growth. We’re all looking forward to sales picking up, but it’s normal if we don’t get that”, he said, adding the key reason for the poor outlook was low consumer confidence amid a economic slowdown and trade tensions with the United States. As recently as 3 years ago automakers had enjoyed double digit annual growth in the world’s largest auto market, before the brakes came on with the first annual contraction since the 1990s last year. Sales of new energy vehicles fell 15.8 % in August, CAAM said, following a 4.7 % fall in July; their first decline since January 2017. NEV sales jumped almost 62 % last year even as the broader auto market contracted. NEVs include plug-in hybrids, battery-only electric vehicles and those powered by hydrogen fuel cells. China has been a keen supporter of NEVs and has brought in sales quota requirements for automakers. “Due to the impact of subsidies cut on new energy vehicles, sales for new energy vehicles continued to drop”, Chen Shihua, assistant secretary general at CAAM, said. CAAM said in July it expected auto sales to fall 5 % year-on-year to 26.68 million vehicles in 2019. It still expects sales of new energy vehicles to increase, but at a slower pace to 1.5 million, down from a previous forecast of 1.6 million. China has been trying since January to boost consumption of a range of goods as the world’s second-biggest economy slows further amid a trade spat with the United States characterized by tit-for-tat import tariffs. “We expect these measures will promote the consumption of autos in China”, Chen said. The implementation of new vehicle emission standards earlier than the central government’s 2020 deadline by 15 cities and provinces, which account for over 60 % of car sales in China, spooked buyers too and hurt sales (particularly of traditional-fuel vehicles) according to CAAM, analysts, dealers and consumers. The prolonged sales decline has made local carmakers such as Geely and Great Wall Motor cut expectations for sales and profit. The decline has also prompted some global names including PSA to close plants and adjust workforce. China is also re-instituting an additional 25 % tariff on U.S.-made vehicles and 5 % tariffs on auto parts that had been suspended at the beginning of the year. Carmakers such as Daimler and Tesla had adjusted their prices in China when the auto and auto parts tariffs were suspended. +++

+++ Europe’s carmakers are telling governments they must help build ELECTRIC car charging points and provide consumer subsidies to boost sales of battery-powered vehicles and assist the industry in meeting stringent new emissions rules. German carmakers are accelerating plans to launch electric vehicles, under pressure from a European Union mandate to deliver a 37.5 % cut in carbon dioxide emissions between 2021 and 2030, on top of a 40 % cut in emissions between 2007 and 2021. Industry executives warned at the Frankfurt auto show that the EU rules could be disastrous for profits and jobs because mainstream customers were not buying electric vehicles. Instead, consumers are opting for larger SUVs. “Our industry is eager to move as fast as possible toward zero-emission mobility. But this transition is a shared responsibility”, said PSA Group chief executive Carlos Tavares, who is also president of European auto industry association ACEA. “It requires a 360 degrees approach”. “Governments across the EU need to match the increasing pace at which we are launching these cars by dramatically stepping up investments in infrastructure. Moreover, they also have to put in place sustainable purchase incentives that are consistent across the EU”, Tavares said. +++

+++ The future of the FRANKFURT auto show in its present form is in doubt after automakers criticized its format and some key players skipped the event, which was opened to the public by German Chancellor Angela Merkel. Automakers are discussing a new concept that would place more emphasis on mobility concepts rather than new cars. The show could also tour different German cities. Among automakers that are absent from this year’s show are Toyota, Peugeot, Citroen, Nissan, Kia, Volvo, Ferrari and all Fiat Chrysler Automobiles’ brands. Some car companies that have stands at the show have scaled down their presence. “The importance of motor shows has changed. In the future, the focus will have to be less on the product and more on the technology”, Nicolas Peter, BMW’s finance chief, was quoted as saying. BMW cut its show space and budget by almost two thirds this year and Daimler reduced its exhibition space for its Mercedes and Smart brands by 30 %. The number of exhibitors fell this year by 20 % to around 800 and the exhibition area was reduced by 16 % to 168,000 square meters. Automakers and representatives of the VDA German auto industry association, which organizes the event, will meet to discuss future ideas for the show. The VDA president was quoted as saying that the association is working with its member companies to develop the show’s positioning. Former Opel boss Karl Thomas Neumann predicted that the show will not survive past this year. He tweeted that this year’s show is only a “sad shadow” of what it once was that there would not be a show in 2021. +++  

+++ LARGE PICKUPS that tow most of the profits in to Ford and General Motors (GM) are holdovers from another century, with heavy ladder frames and big internal combustion engines in the front driving the wheels in the back. Now, Ford and GM are racing to design radical new takes on their most profitable models, replacing petroleum-fueled engines with batteries in a bid to outflank Tesla’s plan to eclipse their brands. Ford’s F-150 pickup and GM’s Chevrolet Silverado are the top selling vehicles in the U.S. market. “This is going to be a real watershed for the whole industry”, Ford chairman Bill Ford told in a recent interview. The automaker has disclosed few details about the electric F-series, but Bill Ford hinted the pick-up could have load-carrying space under the hood in addition to the traditional bed in the back. “You pick up all that extra space where the engine compartment has been”, Ford said. An electric F-Series could be a work truck, with its batteries functioning as a job site power source, he said. And it could be positioned as a high-performance vehicle next to the gas-fueled, 450 horsepower Raptor pickup. The Dearborn, Michigan-based company has said it will invest $11.5 billion electrifying its vehicles by 2022, including adding 16 fully electric models, all of which will be profitable. Ford and GM have more than one reason to take chances on electric pickups; a concept that some analysts and industry executives say could be a small niche. Electric pickups could help Ford and GM generate the significant sales of EVs they will need to meet tougher emission standards and electric vehicle mandates in California and other states. The Trump administration is moving to roll back those standards, but the electric trucks are a hedge if California prevails. Governments and corporations (major buyers of pickups) could view electric pickups as a way to show a commitment to reducing greenhouse gas emissions. Competition from Tesla and startups Rivian Automotive plus Workhorse Group is another factor, although Ford recently mitigated some of that risk by investing $500 million in Rivian. 3 years ago, Tesla CEO Elon Musk declared he wanted to attack the heart of the Detroit automakers’ franchises with a Tesla electric pickup he has described as a “cyberpunk” truck with the performance of a Porsche 911 sports car. Tesla is expected to unveil a prototype this year, with analysts forecasting a 2022 debut. Officials familiar with Ford and GM’s plans said their electric pickups will be introduced by early 2022. “Our strategy is very clear”, Ted Cannis, Ford’s director of electrification, told at the No. 2 U.S. automaker’s product development center outside Detroit. “We’re going to play to our strengths. We’re good at pickups”. Ford’s electric truck will be built on a company EV platform separate from the vehicles it will offer later on a Rivian platform. Ford has said it will introduce a hybrid F-150 next year. Bill Ford said the all-electric F-150 “won’t be too far after that”. At GM, chief executive Mary Barra said in April the automaker would make an electric full-size pickup, but provided no further details. The company has said it plans to invest $8 billion to develop electric and self-driving vehicles, launching 20 new EVs globally by 2023. Officials have not discussed plans for the electric pickup, but GM is pushing to introduce it within 2 years, according to several people familiar with the plans. The lead engineer is Josh Tavel, who was the chief engineer for the Chevrolet Volt, Cadillac ELR and Bolt as well as executive chief engineer for full-size pickups, GM said. Rivian CEO R.J. Scaringe believes positive reaction last fall for his company’s R1T electric truck, due in fall 2020, shows the potential demand. “The question is how large is the demand and does it translate across all price points or does it stay more isolated in the higher price points?” he told. Ford officials will not discuss sales expectations for the electric F-150. But Bill Ford said the electric pickup could outperform conservative expectations … if prospective customers try it. Ford has broken with pickup segment conventions before: substituting a turbocharged 6-cylinder EcoBoost engine for the traditional V8, and then giving the current generation of the truck an aluminum body instead of steel, the chairman said. The aluminum F-series is the best-selling pickup truck line in the United States, and about half are equipped with 6-cylinder engines. “Like it was with EcoBoost and like it was with aluminum, it’s important we get people in the vehicle to try it”, Ford said. Beau Boeckmann, president of Galpin Ford in the Los Angeles area and one of the largest U.S. Ford dealers, said customers are already asking about the truck. “We’re going to be shocked”, he said. “I think the electric pickup truck has a huge future”. Not everyone is so sanguine. Industry tracking firm IHS Markit has estimated the entire full-size electric truck segment will account for fewer than 30,000 sales in 2026, compared with an expected 2.3 million sales overall. “We’re in uncharted waters”, IHS Markit principal analyst Stephanie Brinley said. “We’re talking niche in the beginning”. Detroit’s other big automaker, Fiat Chrysler Automobiles, has no current plans for an all-electric Ram, while Toyota is betting more heavily on a hybrid Tundra pickup. “The sliver of volume that’s going to be electric pickups is not worthy of a business case”, said one person familiar with Toyota’s plans. The Detroit automakers ultimately want to defend a segment they see as their own. “Why would we let Tesla beat us with a pickup?” said one person familiar with Ford’s plans. “That’s our turf”. +++ 

+++ All 3 major German luxury-car rivals continue to buck the downturn of China’s new-vehicle market, and MERCEDES-BENZ keeps outselling BMW and Audi. In August, Mercedes sales in China rose 13 % from a year earlier to 60,134, Daimler said. Audi said its China sales gained 2 % to 58,580 in August. BMW brand sold 56,242 vehicles last month in China, increasing 9 % year on year. Mercedes has also topped BMW and Audi in China for the first 8 months of the year. In the period, Mercedes delivered 464,226 vehicles in China; up 4.1 % from a year earlier. Total sales of BMW jumped 16 % to 442,642. Audi deliveries increased 2.4 % to 427,447 in the period. Mercedes-Benz is poised to widen its sales lead over its two main rivals in China by quickly expanding its lineup of locally built products. The brand will assemble its first full-electric vehicle, first AMG performance car and an additional gasoline crossover at its joint venture with BAIC Motor this year. The 3 products are the EQ C, the elongated AMG A 35 Sedan and the GLB. Mercedes-Benz builds the GLA and GLC plus stretched A, C and E class sedans at the joint venture. Local production enables a foreign automaker to avoid paying tariffs at Chinese customs and modify products for local tastes. +++ 

+++ The head of NISSAN ’s China business and an executive tasked with leading its revival have emerged as 2 of the top candidates to take over as the next CEO of the troubled Japanese automaker, 4 people familiar with the matter said. Discussions are still underway and nothing has been decided, said the people, all of whom spoke on condition of anonymity. There is also a possibility that another candidate could still be successful, with temporary Chief Executive Yasuhiro Yamauchi seen as one possibility, according to 2 sources. The appointment of Nissan’s next CEO in October will have vast implications for both the future of Japan’s second-largest automaker and its strained alliance with top shareholder Renault. The next leader could push for deeper ties with Renault or greater independence from it. 2 of the top candidates are Makoto Uchida, in charge of Nissan’s operations in China, its biggest market, and Jun Seki, who previously headed the China business and is now spearheading an internal team charged with Nissan’s recovery. Uchida, who has worked on purchasing for the alliance, is seen as being favored by Renault and Renault-friendly members of Nissan’s board, while Seki is preferred by those from the Nissan side, 2 of the people familiar with the matter said. “Renault is much more familiar with Uchida”, one of the people, a Nissan insider, said. “The Renault side thinks Uchida is much easier to control than Seki”. Other board members are throwing their weight behind Seki, partially due to politics but also because he is seen as having more well rounded experience as an auto executive, the 2 said. “Seki is much more personable and well liked within Nissan and trusted by his peers and those under him”, the Nissan insider said. The nominations committee, which includes board members, is considering the candidates from a list of around 10, according to another person familiar with the deliberations. The board will ultimately vote on the next CEO. “Given the short lead time, the next CEO most likely wouldn’t be someone too far from the existing power structure”, said Andre Lindeque, representative director of Turnpoint Consulting, an automotive recruiting agency in Tokyo. “The focus on improved corporate governance may allow them the leeway to elevate someone who does not pose too much disruption to the leadership team”. Nissan said that chief executive Hiroto Saikawa will resign, bowing to pressure after he admitted to being improperly overpaid by around $440,000. It marks more upheaval at a company battered by a plunge in profit and the dramatic arrest of former chairman Carlos Ghosn last year. Yamauchi will take over as temporary chief executive and the nominations committee has said it wants a permanent replacement appointed by the end of October. Yamauchi is also seen as possible candidate especially if the board wants to stress continuity, 2 sources said. Nissan managers favor Yamauchi, one of the people said. Yamauchi, 63, is widely seen as a bridge between the alliance partners, and the near 4-decade Nissan veteran is known to be well-regarded at Renault where he serves as a board member. +++

+++ The most profitable car launched in the past year was not a Tesla. Nor was it some crazy hypercar. It was the new PORSCHE 911. The 8th generation of Porsche’s iconic car, known internally and to Porsche faithful as the 992, is more profitable, proportionately speaking, than any other vehicle that debuted in the past year. The 911 has accounted for nearly 30 % of total Porsche earnings since it launched, even though it made up only 11 % of sales. That percentage beats elite models such as the Ferrari F8 Tributo, Aston Martin DBX, Mercedes-Benz GLE, and BMW X5, each of which also punch above their weight when it comes to profit margins. The F8 Tributo, for example, has a 50 % sales margin but contributes just 17 % of total vehicle earnings at Ferrari. Aston Martin will sell an anticipated 4,500 units of its DBX in 2020, doubling sales volumes and singlehandedly accounting for 21 % of total vehicle contribution at the UK sports-car maker. The DBX likely to push Aston Martin margins to 30 %. As for the SUVs, the GLE, together with its GLS sibling, will account for 24 % of earnings at Mercedes in 2020, from just 9 % of total volume; the BMW X5 will account for 16 % of auto earnings, with just 7 % of BMW’s volume. All these models generate “a disproportionately high level of overall earnings”, said Michael Dean, automotive equity research analyst for Bloomberg Intelligence. The recently introduced next-generation 911 in particular will enhance gains even more for Porsche, which is owned by Volkswagen Group. “It’s a very simple calculation: The 911 is very profitable in its own form, and when you add the variations, the margins became immense”, Dean said. He said automakers use lucrative options such as ceramic brakes and turbocharging variants to increase the base suggested retail prices without incurring much additional cost themselves. It also helps that the new 911 has a higher list price than the already strongly profitable previous generation. Beyond that, the addition of the Turbo variant “is basically pure profit”, Dean said. “If you assume they sell 10,000 Turbos anyway, plus GT3 and Turbo S’s, just the Turbo variants of the 911 alone could actually mean half a billion dollars in terms of profit for Porsche”. With its biggest market in China and its upper-crust price bracket, Porsche should also remain unaffected by the woes currently affecting German automakers, Dean said. Car sales in Germany are at their lowest since 2010 as Mercedes-Benz and BMW face trade wars, slowing economies, and lingering pollution concerns intensified by Volkswagen’s 2015 diesel scandal. “There is no issue there”, Dean said. “Porsche is ahead of the game”. In 2018, Porsche’s global vehicle sales rose 3 % to 256.255 cars, while the 911 in particular saw a double-digit rise in deliveries of 10 % to 35.573 units despite the model being on its run-out year before the 992 was introduced. Global sales of Porsche 911s in 2018 alone exceeded those of all cars from Bentley, Ferrari, Aston Martin, and Lamborghini combined. “The 911 capacity to fascinate is stronger than ever”, said Porsche executive board member Detlev von Platen in a company sales report. “We just celebrated the world premiere of the new 911 at the end of the year at the Los Angeles auto show, and yet our sports car icon once again inspired more customers in 2018 than in the previous year”. The 911 debut will help to counterbalance expected losses from the just-released Taycan, Porsche’s first full-electric series production car. Porsche is expected to make 20,000 to 30,000 of the sedan, representing a $6.6 billion investment from the brand, including a new factory near the company’s headquarters in Stuttgart, Germany. “Given the pomp and ceremony for recent EV launches, Porsche’s introduction of the new 911 Carrera was relatively low key”, Dean said. The 911 is well-timed, he said because it will compensate for the transition to battery-electric vehicles, which starts with the new Taycan, its “least-profitable model”. In an interview, Porsche CEO Oliver Blume said the Taycan will eventually will generate a “good margin”, especially in the top-end versions, although returns will not be as high as for other models. Dean said the Taycan is likely to be profitable in 2023, by which time battery prices will have declined significantly. In the meantime, Porsche’s decision to push its higher-margin Taycan “Turbo” version first is a smart strategy. As for the 992, its percentage of brand earnings is expected to increase even more in 2020, as higher-margin derivatives are launched over the next 18 months, including, yes, a Turbo version with an actual turbocharger. Dean expects profit margins on the 911 Turbo to exceed 50 %. +++

+++ TOYOTA has started using the same type of battery that Panasonic designed for Tesla in some of its plug-in hybrids sold in China, sources familiar with the matter said. Toyota is using Panasonic’s cylindrical batteries in its new Corolla and Levin plug-in hybrid sedans launched in China this year, one of the people said. The batteries are the same size as those that Panasonic makes for Tesla, but the composition is different, said the sources, who declined to be identified as the matter is private. The move reflects Toyota’s efforts to secure stable supplies of high-quality batteries amid the accelerated global shift to electricity-powered cars. Japan’s biggest automaker co-developed the batteries with Panasonic over a period of several years as it expands its lineup of electrified vehicles, according to one of the people, who has direct knowledge of matter. A Panasonic spokeswoman said the company is not in a position to comment as a supplier, while Toyota declined to comment. Toyota has favored square, or prismatic, batteries for its vehicles, and uses some manufactured by Panasonic for its hybrids. The 2 companies announced a joint venture in January to build electric-vehicle (EV) batteries, pooling the R&D and manufacturing strengths of one of the world’s largest automakers with one of the largest battery makers. Toyota has also partnered with China’s Contemporary Amperex Technology Ltd (CATL) and EV maker BYD for battery procurement. Toyota is believed to have ordered about 50,000 of the cylindrical batteries, pushing Panasonic’s battery plant in Osaka to full capacity. Panasonic has been the exclusive battery cell supplier for Tesla, but the U.S. electric vehicle maker is in advanced talks with South Korea’s LG Chem as it seeks to diversify sources of the key component. +++ 

+++ VOLKSWAGEN has abandoned its decades-old obsession with empire building and no-expense-spared engineering to free up resources for the development and mass production of electric cars, its CEO Herbert Diess told. A global clampdown on toxic exhaust fumes has triggered a new wave of consolidation in the auto industry as carmakers look for ways to slash development costs for low-emission and self-driving technologies. While rivals such as Fiat Chrysler Automobiles and Renault explored a $35 billion deal to bulk up, Volkswagen is taking the opposite approach: slimming down. “We don’t need more brands. With very few exceptions we can tap the world’s large profit segments with our existing brands”, Diess told. Volkswagen is spending €80 billion to buy battery cells and develop electric cars and has struck a broad alliance with Ford to help share development and manufacturing costs. Volkswagen grew into a multi-brand empire under the leadership of Ferdinand Piëch, the company’s chief executive and chairman between 1993 and 2015, whose aggressive expansion resulted in the acquisition of Bentley, Bugatti and Lamborghini in a single year. Today the German company has 660,000 employees and owns the Seat, Skoda, Bentley, Bugatti, Lamborghini, Porsche, Ducati and Audi brands in addition Scania, MAN and VW. Piëch, who passed away last month, took pride in emphasizing engineering brilliance ahead of earnings, a culture which caused VW’s profitability to lag behind rivals such as Toyota and PSA. Diess told that creating the best product without regard to costs is a perilous strategy in today’s world, given the task of overhauling combustion engines at the same time as developing new technologies. “The product experience needs to be right. But you need to keep an eye on cost. You cannot run the business by focusing only on product”, Diess told. “There are several examples where this has failed. Look at Borgward, they had by far the best products, but they disappeared”, Diess said, referring to a company which made popular passenger cars in the 1950s. Borgward filed for bankruptcy in 1961. This week European auto leaders warned that a new emissions clampdown threatens jobs and profits after the European Union forced carmakers to slash carbon dioxide emissions by 37.5 % between 2021 and 2030. This comes in addition to a 40 % cut in emissions between 2007 and 2021. Frank Witter, the company’s chief financial officer said he wants to raise profitability to help shoulder the emissions clampdown by slimming down, rather than bulking up the car and truck maker. “Reducing complexity has its value in terms of the overall group structure”, Witter said in an interview at the company’s headquarters in Wolfsburg. “In the past, strategy was reduced to 10 million retail sales and overtaking Toyota”, Witter said. Last year, the Volkswagen brand alone sold 6.2 million passenger cars. VW has begun dismantling Piëch’s empire, selling some assets, including transmissions and bearings manufacturer Renk, MAN Energy Solutions, and listing trucks maker Traton earlier this year. Volkswagen is still reviewing its assets and products in its drive to increase profits, Witter told. “There are other things we certainly could think about, but I continue to refrain from speculation because that makes things more complicated”. +++

 

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