Making a gas-powered small car ain’t easy. Making money selling them is even harder. All that and more in The Morning Shift for July 26, 2021.
1st Gear: Easy To Make An Expensive Car Efficient
If you want to meet the EU’s ever-stricter emissions regulations you’re going to want hybrid drive. The problem is, making a car a hybrid adds a good deal of cost to the equation. If you’re selling something like a full-size Mercedes luxury car or SUV, that’s no problem. Throw a couple more grand on the pile, who’s gonna notice?
For a subcompact car, though, with ultra-slim profit margins, things stop making sense, as Audi tells Automotive News Europe:
“We won’t have a successor to the A1,” Audi CEO Markus Duesmann told Automotive News Europe. “We know that offering combustion engines in the smaller segments in the future will be pretty difficult because the costs will go up. Therefore, we will leave the segment.”
Duesmann’s acknowledgement comes as automakers start to question their small-car strategies in response to more stringent European Union regulations on tailpipe emissions, in particular the output of CO2.
This year the industry must reduce its fleet CO2 average to 95 grams per kilometer, down from 106.7 g/km last year, according to JATO Dynamics.
The problem is that automakers struggle to get CO2 levels in their minicars and small cars to below the 95 g/km average without including some form of electrification, which adds cost in segments when margins are thin.
The silver lining, I guess, is that all of these cars will be all-electric in a few years. Even there, though, bulky long-range battery packs favor larger, heavier cars as well.
2nd Gear: Why Toyota Is Fighting Against EVs
Toyota helped lead the charge in making modern “green” or “eco” cars with its Prius hybrid. Why, then, isn’t Toyota backing new eco-oriented EV regulations? The New York Times explains it’s all about protecting its own shaky bet on hydrogen fuel cells not batteries:
Last month, Chris Reynolds, a senior executive who oversees government affairs for the company, traveled to Washington for closed-door meetings with congressional staff members and outlined Toyota’s opposition to an aggressive transition to all-electric cars. He argued that gas-electric hybrids like the Prius and hydrogen-powered cars should play a bigger role, according to four people familiar with the talks.Behind that position is a business quandary: Even as other automakers have embraced electric cars, Toyota bet its future on the development of hydrogen fuel cells — a costlier technology that has fallen far behind electric batteries — with greater use of hybrids in the near term. That means a rapid shift from gasoline to electric on the roads could be devastating for the company’s market share and bottom line.The recent push in Washington follows Toyota’s worldwide efforts — in markets including the United States, the United Kingdom, the European Union and Australia — to oppose stricter car emissions standards or fight electric vehicle mandates. For example, executives at Toyota’s Indian subsidiary publicly criticized India’s target for 100 percent electric vehicle sales by 2030, saying it was not practical.
You’d think tons of EVs on the market would only help with the adoption of hydrogen cars, but when both are propped up by government plans and money, I can see how it’d feel like cutting thinner slices of one pie.
3rd Gear: Infrastructure Bill Getting Held Up Over 80-20 Transit Spending Split
I was reading a new story on holdups in the big Infrastructure bill and a line caught my eye. From Bloomberg’s report, Pelosi Says Infrastructure Won’t Get Vote Without Larger Plan:
Speaker Nancy Pelosi isn’t backing off her plan to hold up a bipartisan infrastructure package until the Senate delivers a larger, Democratic-only plan expected later this year, prompting a rebuke from Senate Republicans.
Senator Rob Portman of Ohio, a top Republican negotiator on the bipartisan deal, warned Pelosi’s plan could threaten the deal.
“What she has just said is entirely counter to what President Biden has committed to, and what the Senate is doing, which is a two-track process,” he said. “The infrastructure bill has nothing to do with the reckless tax-and-spend extravaganza she’s talking about.”
Pressed on whether that could mean Congress ends up with nothing, Portman said, “If she has her way, we could.”
Portman said the bipartisan negotiators are close to a deal, with a dispute with Democrats over the level of transit funding the last sticking point.
Transit funding seemed like a weird sticking point, so I looked up the issue. It comes down to an ‘80s-era 80-20 split on funding for highways versus transit, as The Washington Post explains:
Republicans and Democrats are sparring over a long-standing ratio of funding for highways and transit known as the 80-20 split.[…]The 80-20 approach has its roots in a 1982 effort to raise the federal gas tax by 5 cents. To gain the support of transit advocates, Congress agreed to deposit 1 cent in a new transit account, with the other 4 cents going to highways. In the years since, the split has become a shorthand for the government’s broader approach to funding transportation.If Congress simply continued to fund transportation at current levels and adjusted for inflation each year, spending would hew close to the ratio: Highways would get about 79 cents of every dollar, with transit getting the remaining 21 cents in five years.
How dramatic of a change do the Dems want? It’s got to be something huge, right? 50-50? Nah, per WaPo:
The original bipartisan framework from late June called for an additional $49 billion in transit funding and $109 billion for roads. Added to current funding, that would seem to shift the split to about 75-25, although publicly released spending breakdowns do not include the full details.
So this is getting stalled over a few pennies against a dollar. I hate everything.
4th Gear: “The Energy Transition? I Don’t Know About That.”
Here is a fun story about the oil industry hunting for one more big break in Brazil, detailing how the final days of oil won’t be a fade out, but an ever-tougher hunt for a diminishing resource. From Bloomberg:
‘’We are going through the best moment in years,’’ said Matheus Rangel, a Rio-based oil worker that runs a YouTube channel offering tips on getting jobs in the industry. He spoke from a hotel where an entire wing is booked with oil workers heading to offshore rigs.
“The energy transition? I don’t know about that. If you have oil, you drill until the last drop.”
The nation’s world-class oil reservoirs, favorable legislation, and broad political support for oil and gas mean hundreds of millions of dollars are getting spent to find new gushers.
In 10 years time, oil majors may stop pursuing these kinds of massive expansion projects, said Schreiner Parker, the vice president for Latin America at consultancy Rystad Energy. But in the meantime they need to secure supplies that can last into the 2040s with consumption still climbing, especially in China.
As always, things will get worse before they get better.
5th Gear: Please Enjoy These Stellantis Dealers Not Believing The Company’s EV Transition Goals
Stellantis has big plans, as it always does. Its dealers, speaking with Automotive News, are perhaps less than convinced they’ll work out.
Maine auto dealer Adam Lee believes the rapid adoption of cellphones occurred because they filled a void for consumers.
Stellantis is hoping for a similarly robust buy-in from customers to help meet its goal of having electrified vehicles account for more than 40 percent of U.S. sales by 2030.
But Lee doesn’t see the same need for plug-in vehicles as there was for phones, so he’s skeptical that the automaker can hit its target.
“We didn’t realize how convenient it would be to have a phone, which is like your computer in your pocket,” Lee, chairman of Lee Auto Malls group, told Automotive News. “Well, we have cars. It’s not like we don’t have cars and suddenly they invented the electric car.”
Oddly the Wrangler 4xe seems to be selling well, so who knows. I also feel like there’s a lot of Tesla bro/Hellcat bro overlap, too.
Reverse: America’s Best Job Invented
Oh, to deliver the mail. A steady union job, meeting all my neighbors, bringing them something they need every day. What more could one want?
Neutral: Shout Out To The Toyota Prius
I put another few hundred miles in my folks’ 200…6? Toyota Prius and it was as good as ever, comfortable, economical, and spacious. Nice ride.