Tesla’s solid stock price is about to pay off big for Elon Musk, factory restart dates at the Big Three are pushed back, and Caterpillar is hurting. All that and more in The Morning Shift for Tuesday, April 28, 2020.
1st Gear: Relatively Speaking
Right as Tesla’s furloughed workers find out their return to work and stable income is going to be delayed a little further than they hoped for—with production in Fremont, California stalled until the middle of May now—Elon Musk could soon get a huge $758 million payday, which is a lot even for him.
From Reuters:
Shares of Tesla surged 10% on Monday ahead of the company’s quarterly report this week, and in anticipation it could soon reopen its Fremont, California, plant after it was shuttered because of the pandemic.
Monday’s rally put Tesla’s market capitalization at $145 billion. Importantly for Musk, its stock market value reached a six-month average of $96 billion. Hitting a six-month average of $100 billion would trigger the vesting of the first of 12 tranches of options granted to the billionaire to buy Tesla stock as part of his two-year-old pay package.
Each tranche gives Musk the option to buy 1.69 million Tesla shares at $350.02 each. Taking Monday’s Tesla closing stock price of $798.75 as an example, Musk could sell those shares for a profit of $758 million.
I’m not going to lean in too hard on the whole, “you have so much money you could easily still pay your workers amid a crisis,” line here, but the optics here as a “manager” are not great. And the first asshole to tell me Tesla’s workers get stock too, the replacement of actual income for money that stuck in the stock market does nobody any good in an economic crash like we’re experiencing.
Unless you have stock options on the scale of Elon Musk.
2nd Gear: The Big Three Push Back A Restart
U.S. automakers and the rest of the industry have shuffled their plans to return to work after quarantine for the novel coronavirus, with a common restart date now planned around May 18—after UAW officials raised concerns over earlier suggestions to restart earlier in May.
From The Wall Street Journal:
Detroit’s car companies are targeting May 18 to resume some production at their U.S. factories after the companies shut down their plants in March amid the spread of the coronavirus, according to people familiar with the plans.
Executives from General Motors Co., Ford Motor Co. and Fiat Chrysler Automobiles NV in recent days tentatively settled on the timeline after talks with United Auto Workers leaders and Michigan Gov. Gretchen Whitmer’s office, the people said.
The UAW last week expressed concern that reopening factories early next month—as earlier target dates had called for—wouldn’t provide enough time to develop safety protocols to protect workers from the risk of infection.
Ford followed up with a comment that it had not yet officially decided on a production restart date, according to the WSJ. Since the automakers shuttered their dealerships voluntarily after the outbreak, they can pretty much pick when they want to return.
But this continuing ambiguity around a solid date has left suppliers in the lurch, WSJ reports, as it hasn’t yet been made clear whether all aspects of the industry, including supplies manufacturing, are essential businesses.
So we may see Detroit try to get started and find they have to operate at reduced capacity, or only certain model lines, at least for the first few weeks back. But May 18 also seems very close for a global situation that’s still very dangerous, so we’ll see.
3rd Gear: Four Percent
Imagine painstakingly piling up four percent of your current net worth and then just setting it on fire. That’s the global economy right now.
From Bloomberg:
The coronavirus pandemic will cause the global economy to shrink 4% in 2020, according to a Bloomberg Economics estimate that assumes a recovery starts in the second half of the year.
The economy has “entered a downturn of unprecedented speed and severity, with most advanced economies facing their weakest performance since the Great Depression,” Tom Orlik and Jamie Rush wrote in a report. “Relative to expectations at the start of the year, the cost of lost output is more than $6 trillion,” the wrote.
That a contraction of this magnitude is based on “optimistic assumptions about both the outbreak and the recovery” underscores the challenge facing policy makers trying to cushion the blow of the pandemic. Under such scenario, U.S. gross domestic product will shrink 6.4%, while euro area GDP is set to contract 8.1%. Japan will shrink 4%, while China will expand at the slowest pace on record.
What’s really interesting in that last paragraph is seeing Europe lose so much more than the rest of the major global economic groups. It’s most likely due to the EU’s increased reliance on open border trade among member states, which make up most of the continent. When supplies shut down and travel is forcefully minimized, everything is going to grind to a halt.
4th Gear: Nissan Wins Small, Loses Big
Nissan sells nine SUVs and trucks. One billion has nine zeros. Coincidence?
The automaker finally put a number to financial pain it’s preparing for following an alleged financial misconduct scandal that ousted its leadership, declining car market, rocky global economy and now virus outbreak, and it’s big.
From Automotive News:
Nissan, already reeling from plunging profits and sales before the COVID-19 pandemic hit, is warning that the global outbreak could deliver a net loss of close to $1 billion.
Nissan will sink to an operating loss of between 35 billion yen to 45 billion yen ($324.6 million and $417.4 million) and book an even worse net loss of between 85 billion yen to 95 billion yen ($788.4 million to $881.2 million), Japan’s No. 2 automaker said in a release on Tuesday.
Time to start seriously talking about whether Nissan is going to be alright.
5th Gear: Caterpillar
Let’s not forget about a major side of the vehicle industry we rarely talk about, which is our friends over in heavy machinery. Companies like Caterpillar are feeling the pain, too. From Reuters:
Caterpillar Inc on Tuesday reported a 46% annual drop in first-quarter earnings, with sales falling across all its primary business segments, highlighting the economic devastation caused by the coronavirus pandemic.
The world’s biggest construction and mining equipment maker reported an adjusted profit of $1.60 per share, down from $2.94 a year earlier and below the $1.69 forecast by analysts on average, Refinitiv Eikon data showed.
I’m highlighting this to show that, even maintaining operations at around 75 percent, the company still took a huge hit from the current situation. That’s because sending people into factories to make expensive things won’t work if the people who normally buy those expensive things suddenly can’t do their job, or lose it altogether.
Even if we’re told it’s safe to be close to one another again in the next couple of months, it’s going to be a marathon to build back up any kind of demand resembling what companies were enjoying just a few short weeks ago.
Reverse: Mutiny
I always loved stories of mutiny. The drama of it all. This one involves a rogue colony!
Neutral: Who’s Wanting To Buy A Car Right Now?
Did you have plans to potentially purchase a new car before the whole epidemic-economy thing happened? How, uh, have those plans changed? Do you see yourself following through any time soon?
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