Apr 25, 2019

Axios Generate

Good morning!

At this moment 25 years ago, the soundtrack to "Above the Rim" was atop Billboard's R&B/hip-hop album charts, so a classic track is today's intro tune...

1 big thing: Tesla's troubles return

New Teslas in transit. Photo: Smith Collection/Gado/Getty Images

Tesla swung to a bigger-than-expected profit loss in the first quarter, while revenue came up short as well, the company said in its quarterly report released late on Wednesday.

What's happening: Axios' Courtenay Brown reports that after 2 straight quarters of profitability, the company said price cuts on the Model S and Model X contributed to its profit shortfall.

  • Its cash pile also shrunk by $1.5 billion from the prior quarter thanks to a bond repayment and more electric vehicles than expected in transit — not delivered — to customers.
  • Nonetheless, the company also said it expects to return to profitability in Q3.

What's next: On a call with analysts, CEO Elon Musk said there is "merit to the idea of raising capital at this point." Previously, Musk had been adamant that the company would not have to raise cash.

The big picture: Tesla's stock is down just slightly in pre-market trading. But the bigger-than-expected loss is nonetheless likely to fuel concerns about the company's long-term picture.

  • Bloomberg reports that the company is looking at $2.5 billion in capital spending this year as it develops new products including the Model Y crossover and a semi-truck.
  • Auto analyst Rebecca Lindland contrasted it with the $2.2 billion in cash in Tesla's coffers at the end of the quarter. “$2.2 billion in cash is a lot of money, but not when you’re making the kinds of investments Tesla is making,” she told Bloomberg TV. “I’m definitely concerned about some of their projections.”

The intrigue: Via The Wall Street Journal, "Mr. Musk added new uncertainty about where the Model Y — a compact SUV due out next year — will be made, saying he hopes to decide shortly between Tesla’s California plant and its Nevada battery factory."

By the numbers: Q1 shows...

  • Tesla's adjusted loss per share was $2.90, wider than the $0.69 loss Wall Street was expecting.
  • Sales were $4.5 billion versus the $5.1 billion analysts had forecast.
  • As Tesla announced earlier this month, the company delivered fewer cars during the first quarter than expected.
  • The company reaffirmed its expectation to deliver between 360,000 and 400,000 vehicles this year — citing "strong demand for Model S, X and 3" — and said it would potentially be able to produce 500,000 cars globally.
2. The stakes of Ford's work with an EV startup
Illustration: Lazaro Gamio/Axios

Ford's $500 million investment in EV maker Rivian is a stark sign of how legacy automakers are looking outside their walls to find competitive advantages in the emerging market.

The big picture: It's the latest in a wave of corporate partnerships and joint ventures in the auto industry as big players seek their footing, a topic we explored here.

Why it matters: The investment and collaboration deal, which comes in addition to Ford's broader $11 billion in EV-related investments planned over the next few years, could be vital to Ford's future, Morgan Stanley analysts said in a note.

  • Ford's reliance on profits from pickup trucks is the "highest dependency on the segment" among automakers, per Morgan Stanley.
  • That makes Ford "particularly exposed to advancements in commercialized EV technology in the segment that could pose an obsolescence risk to Ford’s core franchise," they wrote.
  • The New York Times reports: "Ford is counting on the partnership to accelerate its efforts to field a range of electric cars and trucks, while it also pushes to streamline operations, slash costs and increase profitability."

What's next: In addition to Ford's equity investment, Ford and Rivian plan to develop an all-new EV of some sort (they didn't provide details) using Rivian's "skateboard" platform, which is engineered to accommodate a range of designs.

  • Rivian is already planning to launch 2 EV models next year, a pickup and an SUV, while Ford is also planning new models including an electric version of its popular F-150 pickup.
  • However, per Quartz, Ford won’t use Rivian’s technology for the electric F-150, because that would delay the 2021 launch date.

The bottom line: "In our view, if there were one global OEM who would benefit the most from the advantage of Rivian’s momentum in EVs, it’s Ford," Morgan Stanley analysts said.

Go deeper: This EV startup for adventurers has a two-part strategy for success

3. Chart of the day: Iraq's oil growth
Screenshot from IEA report, "Iraq's Energy Sector: A Roadmap to a Brighter Future"

Iraq is projected to be the third-largest contributor to global oil supply growth between now and 2030, adding roughly 1.3 million barrels per day if circumstances align, according to a new International Energy Agency report.

The big picture: That potential output rise (check out the chart above) would bring Iraq's total production to almost 6 million barrels per day in 2030, making it the world's 4th-largest producer.

But, but, but: It depends on factors including sufficient water supplies for injection into reservoirs, attracting foreign capital, and a "conducive political and security environment," IEA said.

Where it stands: "Iraq’s oil sector has navigated well a very turbulent period in the last decade, managing to nearly double its output despite the war against [Islamic State] and large swings in the oil price," the report notes.

4. The war for Anadarko and more petro notes

Shale: CNBC checks in on Occidental's effort to undo Chevron's deal to buy Anadarko by submitting a higher bid. Analysts expect Chevron to prevail but the company may have to sweeten its offer, they report.

  • “This sets up a virtually unprecedented scenario in the E&P industry: a genuine, outright bidding war,” Raymond James analyst Pavel Molchanov tells CNBC.

Deepwater: "Royal Dutch Shell said Wednesday that it has made a major deepwater discovery in the U.S. Gulf of Mexico, finding oil about 250 miles south of Houston in 6,200 feet of water," the Houston Chronicle reports.

Earnings: Reuters looks ahead to Friday, when the 2 largest U.S.-based global giants report Q1 financials.

  • "Exxon Mobil and Chevron are expected to report lower quarterly earnings per share when compared with last year’s first quarter, though their stocks have outperformed smaller companies with both in the midst of aggressive expansion plans in shale oil," they report.
5. Big insurer wants to ease storage barriers

A flow battery at the Fraunhofer Institute in Pfinztal, Germany. Photo: Sebastian Gollnow/picture alliance via Getty Images

German insurance company Munich Re will now offer long-term insurance on battery performance in energy storage systems, a move that could reduce barriers to investment in energy technologies, writes Axios Expert Voices contributor Maggie Teliska.

Why it matters: Large-scale renewable energy systems are expensive and complex, and in some cases their manufacturers have declared bankruptcy before the end of their systems' maintenance and warranty periods.

  • Insuring against such risks — as well as those associated with relatively untested new battery chemistries — could spur adoption of innovative technologies by utilities and transportation providers and in off-grid applications.

How it works: For the purchaser, a 10-year warranty reduces the financial risk for both upfront and maintenance costs and increases confidence in the technology's performance.

Read more

Teliska is a technical specialist at Caldwell Intellectual Property Law and the CTO of Regent Power.

6. Puerto Rico's renewables plan

Solar panel debris in the aftermath of Hurricane Maria in Humacao, Puerto Rico. Photo: Ricardo ArduengoAFP/Getty Images

Axios' Orion Rummler reports ... Puerto Rico has pledged to use 100% renewable power by 2050 as the island rebuilds its grid in the wake of Hurricane Maria, according to the Puerto Rico Energy Public Policy Act signed by Gov. Ricardo Rosselló this month.

The bottom line: The Puerto Rico Electric Power Authority (PREPA) has set short-term goals for reaching the 100% renewable power deadline.

  • PREPA CEO José Ortiz Vázquez tells Axios he's discussed implementing a "transitional" plan with the DOE that will use natural gas as a backbone for metropolitan areas as the island works to rebuild its power grid and use more solar power.

Details: The law sets pre-2050 benchmarks by requiring the island to source 40% of its electricity from renewable energy by 2025 and to stop burning coal by 2028.

  • It also emphasizes solar power by requiring PREPA to purchase renewable energy credits from solar installations and to end taxes on solar energy production.

But, but, but: Other forms of renewable power, like wind farms, aren't off the table.

  • The Energy Department, according to assistant secretary Bruce Walker, believes increasing natural gas generation in San Juan is the most valuable investment for PREPA's "long-term recovery."
  • PREPA, which is currently dealing with creditors in the wake of its 2017 bankruptcy filing and destruction of the island's electricity grid from Hurricane Maria, agrees, according to Ortiz.

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