Jul 25, 2019

Axios Generate

Welcome back! Today's Smart Brevity: 1,340 words (~ 5-min read).

Situational awareness: Utility giant PSEG said Thursday it intends to cut CO2 emissions from its power plants by 80% by 2046 and has a "vision" to be net-zero emissions by 2050. CNN has more.

And today marks the 1980 release date of AC/DC's "Back in Black," which provides today's intro tune...

1 big thing: The fallout from Tesla's tough day

A Tesla Model S. Photo: John Keeble/Getty Images

Tesla's Q2 earnings brought bad news mixed with hopeful signs, but markets focused squarely on the former as the company's stock fell sharply after yesterday's report.

Driving the news: Tesla narrowed its net loss to $408 million in the second quarter as the electric carmaker offset lower vehicle margins with cost reductions, and managed to set a record for quarterly deliveries, Axios' Joann Muller reports.

  • CEO Elon Musk also announced that co-founder and chief technology officer JB Straubel is stepping down, though he'll remain a "senior adviser."

Why it matters: The results and the latest executive departure appear to be fanning concerns about the company's future, despite the improvement compared to losses a year ago and last quarter.

  • The company's stock fell roughly 14% following results that missed analysts’ predictions of an adjusted loss of 35-cents a share — instead losing $1.12 per share.

What they're saying: "The company has never lacked ambition, rather the ability to deliver on it," Oanda analyst Craig Erlam tells Business Insider about the latest "disappointing" report. He adds...

"There's only so long that investors will tolerate it and the reaction to the earnings report says it all."
"I still think there's reasons to be optimistic with the company, but investors need to be very patient or I feel things could unravel quickly for Musk."

Plus, via Bloomberg, Piper Jaffray analyst Alexander Potter said in a note that Straubel is "probably the second-most important person at Tesla." He writes, “[e]ven though he is retaining ‘adviser’ status, his departure is nonetheless likely to rattle investors.”

But, but, but: After a $2.4 billion capital raise, Tesla said it ended the quarter with $5 billion in cash, the biggest sum in its history.

  • That liquidity is important as it prepares to launch Model 3 production in China later this year and Model Y production in the U.S. in 2020.
  • Tesla said it's aiming to make a profit in the current quarter, but its main focus will be to increase volume, expand capacity and generate cash.
  • Musk, on a call with reporters and analysts, said Tesla would be "probably around break-even this quarter and profitable next quarter."
2. Breaking: 4 automakers go around Trump in California deal

Four huge automakers — Ford, Honda, VW and BMW — said Thursday that they've struck a deal with California on vehicle emissions rules, one they're hoping will form the basis for a nationwide agreement with the Trump administration.

Why it matters: It signals a break between the companies and the White House as the administration pushes ahead with plans to weaken mileage and emissions standards.

  • Mary Nichols, California's top air quality official, told The Washington Post that she sees the deal as an "olive branch" to the Trump administration.

Background: The administration is planning to freeze annual increases in 2020 rather than letting them grow stricter as envisioned in Obama-era rules.

  • The EPA, as part of that plan, would seek to strip California's special permission under the Clean Air Act to set its own emissions standards that a number of other states follow.

But, but, but: While major automakers had backed efforts to weaken Obama-era rules, they have also bristled at Trump's push to freeze them outright.

The big picture: According to Reuters, under the deal with California, "the stringency of the requirements would increase at a nationwide average annual rate of 3.7% annually starting in the 2022 model year through 2026, and 1% of that annual improvement could be covered by credits awarded for building electrified vehicles."

What they're saying: In a joint statement, the 4 automakers said the agreement is "available to all automakers" and added...

"These terms will provide our companies much-needed regulatory certainty by allowing us to meet both federal and state requirements with a single national fleet, avoiding a patchwork of regulations while continuing to ensure meaningful greenhouse gas emissions reductions."
3. Why today's global warming is "unprecedented"

Illustration: Aïda Amer/Axios

Recent global warming is an "unprecedented" worldwide phenomenon that differs from the more regional and staggered climatic variations that occurred during the past 2,000 years, a new study concludes.

Why it matters: The paper in the peer-reviewed journal Nature underscores the scope of human-driven warming and how it contrasts with variations in the pre-industrial era.

What they did: The study, using information from tree rings, ice cores and more, reconstructs past periods to show that major fluctuations occurred in different places at different times.

  • The paper finds "no evidence for preindustrial globally coherent cold and warm epochs" over the past 2,000 years.
  • For instance, the "little ice age" was coldest in the eastern and central Pacific Ocean in the 15th century, in northwestern Europe and southeastern North America in the 17th century, and in most other places in the 19th century.

The big picture: The results support a "regional framing" for understanding the climate variability in the 2 millennia before the industrial revolution — and demonstrates that it's a very stark contrast to what's happening now.

"When we go back in the past these are regional phenomena. We found 98% of the globe has this coherent warming during this contemporary period after the Industrial Revolution," said c0-author Nathan Steiger of Columbia University at a press briefing this week.

The bottom line: The findings provide "strong evidence that anthropogenic global warming is not only unparalleled in terms of absolute temperatures, but also unprecedented in spatial consistency within the context of the past 2,000 years," the paper states.

What they're saying: University College London scientist Mark Maslin, who was not part of the study, told Reuters the results should "finally stop climate change deniers claiming that the recent observed coherent global warming is part of a natural ... cycle."

4. Equinor and Total profits dip in Q2

Big Oil earnings season is underway, and Europe-based multinational giants Total and Equinor both reported a decline in profits.

Equinor: The Norway-based giant said its Q2 profits fell to $3.15 billion, compared to well over $4 billion for both last quarter and the same period in 2018.

  • Per the Financial Times, the company "undershot analyst expectations in the second quarter due to lower oil liquids output and weaker gas prices, but announced further cuts to capital expenditure and an accelerated plan to ramp up the Johan Sverdup field."

Total: The French giant reported $2.9 billion in Q2 earnings, down 19% from Q2 in 2018.

  • Reuters notes that Total chalked up the decline to a combination of headwinds. "These include a 7% drop in oil prices since the second quarter of 2018, a sharp fall in gas prices, and a slide in refining margins."
5. New climate plans in Congress and on the stump


Several bills that aim to tackle climate change are surfacing as lawmakers scramble before their August break, Axios' Amy Harder reports.

Why it matters: Amy writes that while the bills won't pass any time soon (if ever), they signal the topic's increasing saliency among Democratic politicians and, in a slowly shifting trend, Republicans too.

Driving the news:

  1. Sen. Sheldon Whitehouse (D-R.I.) is set to introduce a bill to stem emissions from the industrial sector (think cement factories). Sen. Shelley Moore Capito is the GOP co-sponsor, per the Carbon Capture Coalition.
  2. Rep. Francis Rooney (R-Fla.) is introducing legislation Thursday that taxes carbon emissions and uses most of the revenue to lower payroll taxes. He has previously backed similar bills.
  3. Sen. Chris Coons (D-Del.) is also introducing a carbon tax bill Thursday.
  4. Rep. Brian Fitzpatrick (R-Pa.) plans to unveil his carbon tax bill in September.

Go deeper

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Speaking of climate plans, Democratic White House hopeful Kirsten Gillibrand today unveiled a proposal with a goal of net-zero U.S. greenhouse gas emissions by 2050.

Why it matters: It's the latest example of 2020 candidates releasing wide-ranging plans. It'll also be important if Gillibrand — who hasn't gained traction in the polls — ever breaks into the higher tiers.

The big picture: Pillars of the New York senator's plan include...

  • A carbon tax of $52 per metric ton and a separate excise tax on fossil fuel producers that would feed a new "Climate Change Mitigation Trust Fund."
  • The campaign estimates the carbon tax would generate over $200 billion annually that would "go directly back into our country’s transition to renewable energy."
  • Vehicle emissions standards that require new cars and other vehicles to be zero-emissions by 2030, and new investments in EV charging infrastructure and high-speed rail.
  • An executive order to ban new fossil fuel leases on public lands and waters.