Jun 5, 2019

Axios Navigate

Joann Muller

Good morning! 📺 Check out some clips from the first episode of the second season of "Axios on HBO."

Today Expert Voices contributor Jim Barbaresso writes about the strain on the U.S. electrical grid from growing demand for plug-in vehicles.

We're all about brevity here at Axios. Today's newsletter clocks in at 1,069 words, about a 4-minute read.

1 big thing: How the Tesla drama could end

Illustration: Sarah Grillo/Axios

Tesla's tumultuous year has analysts and industry pundits speculating about a possible end game for the 16-year-old electric vehicle manufacturer, ranging from a distressed sale of the company to a soaring, China-led rebound.

Why it matters: Even once-bullish investors have turned decidedly sour on the company lately amid slowing demand for cars like the Model 3 and cash flow warnings from CEO Elon Musk. The next 6 to 12 months will be critical in determining the eventual outcome.

Driving the news: Tesla has always been a roller coaster and generated divergent views among investors. What's new is a greater wariness about the company's long-term future.

  • It's not just Tesla stock (down 38% this year) — Tesla bonds are trading lower while the cost of insuring its debt against default is surging, too.
  • A $2.7 billion capital raise in May bought the company some time, but Musk warned in a May 16 email to employees that Tesla has only 10 months to achieve breakeven status and called for "hard core" cost cuts.
  • Meanwhile, Wall Street is questioning the underlying demand for Tesla products now that federal tax subsidies have expired. Musk, for his part, says Tesla can still achieve record sales this quarter.

What's next: Predicting the future at Tesla is always difficult — and the company declined to comment — but here are some plausible scenarios.

1. China to the rescue: EV sales in China are through the roof, thanks to government mandates, which makes it a perfect market for Tesla.

  • A new Tesla factory near Shanghai could begin production as early as August, helping the company avoid higher tariffs on U.S. imports.
  • But, the brewing trade war between the U.S. and China could limit Tesla's upside in China. Plus, should Tesla default on its loans, Chinese interests could wind up with a bigger stake. (To be sure, in the current climate, the U.S. government would likely stop that from happening.)

2. Distressed fire sale: Some analysts have weighed the possibility of a buyout by another automaker or tech company, but most say Tesla is still too expensive. Plus, any buyer would likely insist Musk leave the company, but that's hard to envision.

"Tesla is Elon. And Elon is Tesla"
Brian Johnson, automotive analyst, Barclays

3. Licensing its technology: Tesla's lithium-ion battery pack and related power electronics in the Model 3 are the envy of the industry, but it's struggled to master vehicle manufacturing.

  • Instead of trying to build its own cars, it could license its premium EV technology and software capabilities to other manufacturers.

4. Or ... Tesla delivers. Musk has a way of defying skeptics, and the company may well manage to muddle through — again.

Go deeper

2. Toyota to lean on Chinese partners for EVs

Toyota Mirai. Photo: Anadolu Agency

Toyota plans to unveil a new type of "personal electric vehicle" this week and will outline a broad electrification strategy heavily reliant on partnerships with Chinese manufacturers, Axios has learned.

Why it matters: Despite its longtime lead in hybrids like the Prius, Toyota is seen as lagging on the industry-wide shift to battery-electric vehicles, especially as China and Europe have moved to mandate more zero-emission vehicles.

What's new: On Friday in Japan, Toyota senior executives will share details of the company's EV pipeline and its future business model, according to a source with knowledge of the plan.

  • New products will include "personal EVs" and other battery-powered passenger cars.
  • The company also plans to discuss other aspects of its electrification effort, including collaboration with unnamed Chinese partners on batteries and future battery-powered vehicles.
  • The strategy is not being widely publicized in the U.S. because of sensitivity to strained U.S.-China trade relations, a source tells me.

Read more

3. EV adoption could overwhelm charging stations

Illustration: Sarah Grillo/Axios

As EVs proliferate, it's increasingly urgent to address limitations of the U.S. electrical grid and anticipate the effects of fully autonomous vehicles on charging strategies and infrastructure, Jim Barbaresso writes for Axios Expert Voices.

What's happening: Electrify America, Tesla and a recently announced GM–Bechtel partnership, among others, are building thousands of electric charging stations, most near commercial activity, along major interstates or at transit hubs.

  • Roughly 150,000 U.S. gas stations could also offer electric charging. The petroleum lobby has largely resisted this, but a new Chevron charging pilot could signal change.

But, but, but: Over a million EVs have been sold in the U.S. As of March, there were 63,303 charging stations, a large percentage of them in California.

  • The annual growth rate of public charging stations has plateaued at around 20% over the last 5 years, but the ratio of EVs per station is climbing from about 6 EVs per station in 2012 to an expected 28 per station in 2021.

The bottom line: EV penetration could be stifled without significant, large-scale investment in charging infrastructure and advanced charging technology that can keep pace with EV adoption.

Go deeper

Barbaresso is SVP of intelligent transportation systems at HNTB, an infrastructure advisory firm.

4. Driving the conversation

Alec Baldwin in "Framing John DeLorean." Photo: Nicole Rivelli Photographie/Sundance Selects

Detection: Radar finds new place in self-driving technology (Pete Bigelow — Automotive News)

  • Why it matters: Cars have been outfitted with radar sensors for 20 years as a tool for object detection, but now companies are discovering new radar technologies can be just as useful as lidar and cameras to precisely locate where an AV is within its environment.

Domino effect: Boeing built deadly assumptions into 737 Max, blind to a late design change (Jack Nicas, Natalie Kitroeff, David Gelles and James Glanz — NYT)

  • The big picture: Automakers are all too familiar with the fallout that can occur when decisions are made in isolation; GM's deadly ignition switch crisis is a recent example.

Movie: As John DeLorean, Alec Baldwin revisits the past of a car made for the future (Steve Inskeep — NPR)

  • "I think John could have played an important part in American automobile manufacturing until all this went wrong. It's kind of a warning to Elon Musk — a cautionary tale in terms of: Just do one thing well, you know? Just make the car," Baldwin says to NPR.
5. 1 fun thing: pogo sticks

A promotional photo by Cangoroo. Photo: Cangoroo

A Swedish company says it has a vertical twist on urban personal mobility — the pogo stick, Axios' Steve LeVine writes.

What's new: Cangoroo says that by the end of this month, it will debut an app-based pogo stick fleet in the Swedish cities of Stockholm and Malmö, where it's headquartered, Jason Plautz reports for Smart Cities Dive.

  • After an investment seed round, it will move on to London and San Francisco this summer or fall.
  • The cost will be 30 cents a minute, plus a dollar fixed fee.

The startup, launched by a public relations firm called ODD, is facing questions about the venture's seriousness.

  • "Cangoroo is 100% real," the company says in a statement posted on its website.
  • But face it: This is a company that specializes in viral stunts, per Forbes.
  • Still, they have some legit business successes, Forbes notes: ODD co-founded Wheelys Cafe, a bicycle-based coffee cart business that raised $2.5 million from Silicon Valley investors and, via Indiegogo, sold $1 million worth of these mobile cafes now brewing solar-powered coffee in 80 countries around the world.

The bottom line: They saw another opportunity ... and jumped on it.

Joann Muller