Auto News Analysis #1

Analyzing developments at VW, Panasonic, Tesla, BMW, Rivian, and Polestar

Welcome to the inaugural Auto News Update article! I plan to post updates at the middle and end of each month covering key news, data, and commentary across the auto industry and supply chain, specifically as it relates to electric vehicles and new technologies. I’ll continue to post fundamental and financial analysis but think a separate recurring news update helps keep everybody more informed, including myself. If you’re interested in this topic, please consider subscribing!

This update will briefly cover:

1. Volkswagen begins construction for new battery facility and experiences software delays

2. Panasonic to build a new battery facility in Kansas

3. Tesla’s Head of AI leaves

4. BMW details subscription options

5. Rivian layoffs

6. Polestar re-iterates sales guidance

Volkswagen begins construction for new battery facility and experiences software delays

On July 7, Volkswagen began construction of a new battery facility in Salzgitter, Germany through a newly formed entity, PowerCo. This is expected to create 5,000 jobs and begin cell production in 2025, and will be one of six factories that VW plans to build in Europe by 2030 with a combined 240 GWh battery capacity. VW has committed to investing €20 billion to build out these facilities, which will vertically integrate its battery production processes in an effort to reduce battery costs. This level of forward thinking is a key reason why I think VW is best-positioned among legacy OEMs.

In other VW-related news, the company has reportedly delayed several new EV models until 2027 as a result of software development issues. This delay comes as a result of delays at Cariad, a separate VW entity formed to develop its own vehicle software. This will impact several key EV launches across the Audi, Porche, and Bently brands, including Audi’s flagship Artemis project.

Panasonic to build a new battery facility in Kansas

On July 13, Panasonic confirmed that it will build a 4680 battery factory in Kansas and invest $4 billion in this facility. This project is still pending board approval and its final size is still TBD, but is expected to create 4,000 jobs. While the factory’s primary purpose is to supply Tesla in its production ramp, the Kansas facility will also supply other OEMs who are using the 4680 cell form factor, which was pioneered by Tesla in 2020. This news comes one month after LG announced a similar $450 million investment to produce the 4680 cells. These projects coincide with Tesla’s internal 4680 production, which has been progressing slower than the company had hoped.

Tesla’s Head of AI leaves

On July 13, Andrej Karpathy, a leading expert in AI and machine learning, announced he is leaving Tesla after 5 years with the company. Over this time, Andrej has been instrumental in helping Tesla’s FSD program advance from handling simple highway lane keeping situations to complex city driving scenarios. This departure is undoubtedly a loss for the Tesla team. In my opinion, this move casts doubts on Tesla’s ability to achieve true level 5 self-driving anytime soon, as I don’t think he would leave if they were truly on the cusp of solving one of the greatest technology challenges in history.

While I remain pessimistic on Tesla’s (or anybody’s) ability to achieve level 5 self-driving in the near-term, I think many are over-estimating Andrej’s impact. As Andrej points out, Tesla has hundreds of extremely talented Autopilot engineers, they just don’t have the same level of public exposure. In fact, Andrej has already been away from Tesla since March on a sabbatical, and FSD has progressed nicely over this time with several over-the-air software updates. In last year’s Tesla AI Day, Andrej was one of 5 executives to present on the company’s progress in AI software and hardware. This is a deep and talented team that should continue making substantial progress over time.

BMW details subscription options

On July 12, BMW announced several subscription options for customers, ranging from driver-assist packages to automatic high beam headlights. While many customers are outraged, I suspect we’ll see more similar announcements from other OEMs as they attempt to monetize the vehicle post-sale. Tesla has successfully upsold customers on software updates in the past and other OEMs are following their lead. The difference is that Tesla charges for real value-add features, like improved 0-60 time and range increases, while BMW is charging for features that customers are used to experiencing for free. It will be interesting to follow how OEMs develop their software capabilities and see how they monetize these services going forward.

Rivian layoffs

On July 12, Rivian CEO RJ Scaringe confirmed the company would lay off about 5% of its workforce. This comes after Rivian burned $3 billion in Q4’21 and Q1’22 as the company began its production ramp and after Tesla laid off ~3.5% of its workforce. I’m a firm believer that Rivian is the best-positioned EV startup in the US, but their cash burn has been a major concern and these layoffs should help reduce some of their overhead costs. Fortunately for Rivian, the company had over $16 billion in cash as of March 31 after raising $11.9 billion in a very well-timed IPO last November. Commentary on their production ramp and cash burn will be a key focus on their Q2 earnings call and I’ll be sure to cover that here.

Polestar re-iterates sales guidance

On July 13, Polestar confirmed that it’s still on track to deliver 50k EVs this year. This isn’t too surprising since the company last updated its guidance in May, where Polestar lowered its 2022 forecast from 65k to 50k units. These volumes are much higher than other EV startups like Rivian and Lucid, but it’s worth noting that Polestar is a Joint Venture between Volvo Cars and Chinese automaker Geely. Their production ramp has been impressive, but it’s not really an apples-to-apples comparison against independently other operated businesses.

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