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Industry Buzz - October 2019

by Lou Koehler

The Detroit 3 are now reporting sales on a quarterly basis so it’s difficult to get a handle on monthly figures. Data supplied year-to-date confirms sales are still on target to approach the magical 17-million mark in 2019. GM reports a slight increase over last year. FCA dropped a point and Ford slumped a whopping 4%, mainly due to its shift away from sedans and small cars. As a result, its stock tumbled to under $9.00 per share and Moody’s downgraded Ford’s credit rating to “near junk” status. Fourth-quarter sales are historically strong, and this year should be no different. The settled GM strike and progress in China–United States trade talks has calmed fears and boosted optimism. Looking ahead, the upcoming 2020 election looms as the next big concern. Is the country ready for Warren/Sanders democratic socialism or will we prefer four more years of Trump drama? Cause for worry for both Democrats and Republicans. I attended the PM Management Summit and spoke with many industry leaders. Look for their comments and concerns in the next Buzz.

The lovely Mrs. K and I recently completed an enjoyable 10-day holiday in Europe. Seeking to justify a partial write-off against Koehler Associates LLC’s meager earnings, I spent a few days visiting companies in our industry. These firms are enjoying a sustained growth period similar to ours in the U.S., albeit at a slower pace. Brexit is top-of-mind, especially in the UK with yet another deadline passing without a deal. The managing director of a UK company schooled me on the issue. He detailed how the EU created a bureaucracy which, feeding upon itself, promulgated regulations affecting too many aspects of industry and everyday life. Looking back, “Britain probably should have tried to reform the bureaucracy first and then exited if unable to make any headway.” He claims the politicians have made a mess of it, as the Liberal Party refuses to vote for anything that the ruling Conservatives propose (Sound familiar? Seems politics is the same everywhere.) He further offered that three-years ago, in a nationwide referendum, the voters opted for exiting and the general feeling now is “let’s just get on with it and leave.”

I squeezed in time for a dinner with a group of friends from VALE’s Clydach, Wales, refinery. This is where the nickel-carbonyl refining process was developed over 100-years ago, and the plant still operates at the same location! Under Inco’s ownership the facility was thoroughly modernized and can now produce ~35,000 tons of pellet and ~10,000 tons of powder products. My friends report that powder production is near capacity with much of it going into the nickel sulfate market for ultimate conversion into 8NiCoMg lithium ion batteries for electric vehicles.

I also dined with the marketing VP of a U.S. company supplying materials to the welding and foundry industries. He reports sales are off about 5% versus a very strong 2018. As with PM, welding heavily relies on the auto industry. His company imports manganese, titanium, and ferro boron from China for further processing and has seen duties on these products increase due to the China–United States trade difficulties. The result has been that “Asian competitors do not have to deal with these duties and are able to sell some finished consumable welding products at prices lower than U.S. welding producers.” He is experiencing volatility in metals, especially nickel, which makes pricing a challenge and is receiving more and more pushback from customers on raw material price increases. The “current weakness in U.S. steel production could mean continued slowness in welding consumables that tend to lag steel production.”

Our friend, the enigmatic Elon Musk, is once again producing fodder for this column. Tesla surprised analysts by posting a third-quarter profit of $143 million, reversing a $1.1 billion loss sustained in the first two quarters. The turn-around was achieved by eliminating “substantial cost” from its operations. Reductions were so significant that profit rose even though revenue fell slightly. Tesla sold 97,000 cars in the 3rd quarter, up from 95,000 cars in the 2nd quarter. However, the sales gain reflected increased demand for its $39,500 Model 3 while sales of its more expensive Models S and X declined.

Not all-good news at Tesla. It’s been rumored for months, and recently confirmed by The Wall Street Journal, that the love affair between Panasonic and Tesla may be on the rocks. Partners in the Nevada Tesla Gigafactory 1, a lithium-ion battery factory, the firms appear heading for divorce. Panasonic has pumped in over $1 billion in the factory. On one side of the plant, Panasonic workers assemble millions of cylindrical battery cells, which resemble oversize AA batteries. Autonomous carts deliver the batteries to the other side of the factory where Tesla workers and robots “stuff thousands into a special battery pack that is installed in each car.” Panasonic has lost money at the plant despite significant volume increases the last two years. Ignoring Panasonic’s losses, Mr. Musk continues to push for battery price cuts to drive down the cost of the Model 3. So far, Panasonic has resisted the price requests and also refused to go into a joint battery operation in China to support Tesla’s new Model 3 plant. There will be more on this in the coming months.