Front Burner - Tesla woes and Canada’s big EV bet

Episode Date: April 10, 2024

Tesla is having its worst year since the pandemic. The company is selling fewer cars, and its stock is plummeting.And it’s not just Tesla. We’re seeing a cool down in North America’s EV industry as a whole.Why is this happening? And as Canada pours billions of dollars into the industry, will that bet pay off? Senior CBC business reporter Peter Armstrong explains.

In the Dragon's Den, a simple pitch can lead to a life-changing connection. Watch new episodes of Dragon's Den free on CBC Gem. Brought to you in part by National Angel Capital Organization, empowering Canada's entrepreneurs through angel investment and industry connections. This is a CBC Podcast. Hi, I'm Allie Janes, in for Jamie Poisson. It's been a tough few months for Tesla. Last week, Elon Musk's company put out its first quarter earnings report. And to summarize, things are not great.

We've missed on the first quarter, and we've not just missed, Ed, but it is a considerable, considerable undershoot. And now that's starting to be borne out in delivery numbers. Tesla reported disappointing sales in the first three months of 2024, lower than the same three months in 2023. That bad news comes after a massive recall in December to fix the autopilot feature in over 2 million cars, plus a Department of Justice investigation and tanking stocks.

But it's not just Tesla. This is all happening at a time when we're seeing a cool-down in North America's EV industry as a whole. And as Canada pours billions into battery manufacturing, what could it mean here? Today, Peter Armstrong is with me. He's a senior business

reporter for CBC News, and he's been following the EV industry. Peter, always great to have you. Thanks. Thanks for coming on. Nice to be back in the front burner studios. So last week, Tesla had this really dismal earnings report. And so just break this down for me. Like, how dismal are we talking here? Pretty bad. And in a weird way, this might be the worst patch of news, not just for Tesla, but for the whole industry in quite some time.

Right. What was what Tesla was reporting is that the deliveries it was making were way fewer than had been expected. That's a really clear driver of what sales are going to be. So that's going to be way lower than what Wall Street expected. And it kind of piles atop a bunch of really bad news already, where people were starting to kind of turn and sour on Tesla as a company, as an investment, as a provider of electric vehicles, as sort of touchstone for future industry.

Like it's been all these things to different people for all these years. And one by one, each of those columns, people are like, maybe it's not quite what I thought it was going to be. Okay. So, so we're going to, we're going to get into some of that, but I mean, just, just to, you know, make this a little more concrete, like Tesla shares right now are selling for about 175 USD, which is still a lot of money, but this is way lower than say, like two years ago when they were selling for $400. So why do analysts say this is happening? Well, it's not one thing. It's a bunch of things, but more than all the other things,

it's the fact that Tesla has fundamentally lost its first mover advantage, that it was way out in front of everybody. It was the thing. When you talked about electric cars, what, 10 years ago, eight years ago, seven years ago, you talked about Tesla. Yeah, this is it. That was it. And it was cool.

And it was interesting. It was innovative. Uh, and I mean, when was the last time Tesla came out with a new model? Like other than the kind of crazy truck that it's got on offer, there's a sense that maybe it tapped into all of the early adopters, all the people that were, and again, there's like columns to these. They're the people who are like EV enthusiasts writ to, you know, the millionth degree. They've probably already bought all

their cars. There's the kind of Tesla Elon fanboys. They've probably bought their electric car. So there's a sense of has Tesla tapped out the available market to it at a time when all of these other competitors are flooding into the market, and Tesla hasn't done anything to really firm up that early mover advantage it had for years, where it basically acted alone in the electric industry. Right. And I mean, talking about those competitors, some of those competitors are selling cars that are way cheaper, right? You really have to think about the EV market in two spheres. There's the China situation, and then there's kind of the rest of the world. And in China, where Elon Musk eventually ended up opening up a massive plant to make these cars, he was selling, it was a huge part of their growth and a huge part of their growth

forecast. Now, all of a sudden, his competitor is selling them for like $10,000. So like getting way undercut by BYD is the name of the company there. Then you look at its situation here in the rest of the world, but in North America and Canada in particular, these are still really expensive cars. And compare it in an environment like we're in today, where interest rates are through the roof,

where inflation is through the roof, where the economy is slowing and confidence that the economy is going to do very well have collapsed. Are you really going to take on that extra, however many hundred dollars a month in car payment to get the cool electric car? Or would you say, and we're hearing this from people that say, you know what, maybe on the next round, but right now I'm going to go buy a Honda Civic that's, you know, 15, $20,000 cheaper than the electric new Tesla model, whatever. Uh, and that's going to cost them an extra two, $300 a month in a car payment for the exact same car they would have got pre pandemic simply because interest rates are through the roof. And you got all these competitors

looking at Tesla saying, well, wait a second, if they're cutting back, maybe we don't need to be in as big a rush to invest and buy and do all the things that we need to do to keep up with them. And so that's kind of slowed everything else. Let's stick with Tesla for a moment here, because, I mean, this company in its own right has also had some big hits to its reputation, right? Like probably the most serious issues are around the autopilot function of its cars. Tesla is recalling 2.2 million vehicles, which is nearly all of its electric vehicles in the U.S. The recall comes after a series of horrific accidents involving Tesla's autopilot feature. The U.S. Department of Justice right now is investigating Tesla after more than a dozen crashes.

Just on Monday, they settled a lawsuit over a fatal crash that involved that technology. Filed by the family of a former Apple engineer who died in 2018 after his Tesla Model X veered off the highway going more than 70 miles an hour. An NTSB investigation found the autopilot function had been on for nearly 19 minutes before the crash. The driver's family had said... How do you think those kind of issues are affecting sales for Tesla specifically? It's a really good question. And I tried to get a better answer than I'm going to give you from the analyst that I spoke to last week. But really what people kept telling me is

as excited as Tesla and especially Elon Musk is about the future of the driverless car, we're still fundamentally just dealing with the electric vehicle market, the EV market. And that that's just this totally different thing. It weighs on the stock on the EV side of it for sure, but it's still just so far off.

I mean, I don't know. Have you ever driven one of the, the. No. On autopilot, a Tesla on autopilot. I test drove one as part of the story I was working on many years ago now and drove one down the DVP, the Don Valley Parkway in Toronto. That's kind of a, it's a bit of a windy road, right? It's not just a straight highway. It was an amazing experience. Like it was wild. I never want to have to drive a car again. This

is amazing. And yet all of this information that keeps coming out about the DOJ's investigations, about the crashes, about the unreliability of the technology, just push it further and further and further down the road. So, you know, you were talking earlier about how Tesla's maybe kind of like missing the moment in some ways, or they're not sort of like meeting the market where it's at, we're in this moment of really high inflation. And that's obviously a big part of what this moment is. So I was pretty surprised to see this reporting from Reuters this past Friday that said,

Tesla is scrapping plans to build a cheap car, which is this thing that Elon Musk has been talking about since the very earliest days one of the things that troubles me the most is that we don't yet have a truly affordable car um and that that is something that we will make in the future uh but in order to do that um we've got to get the cost of batteries down we've got to make uh and we've got to be better at manufacturing and he's like this is the master plan we're gonna put we're going to put out these luxury cars first to fund this cheaper car. Like this is the dream. So what is going on here? mover adapter types so we can fund selling a cheap one to the mass market. And Reuters has this announcement saying that they're going to scrap this.

They didn't get a comment from Tesla for the article. Almost immediately after the article came out, Elon Musk went on Twitter and said, not true, not happening, but gave no more information than that. It is a perplexing situation because if you look at what do you need to do to sort of democratize, to gain all of that access to a mass market? Because like I say, it's one thing to convince the guy who's been waiting for a Tesla his whole life and he's super excited about it

and he thinks Elon Musk is this genius who's going to change the world. Selling that person a car is easy. Selling an electric vehicle to the suburban parents in, you know, outside of Edmonton or in Whitby or in Halifax that just need to get the groceries and get their kids to soccer practice and go to work three times a week. Getting them on board is a very different struggle. And it requires not just a different vehicle.

It requires a different approach. And we had not just a different vehicle, it requires a different approach. And we had always sort of thought that approach was coming. And here we are with Reuters at least saying that approach isn't coming and it certainly isn't coming right now. And it's not coming right now at a moment when there is an expectation that the market isn't just getting flooded now,

it's going to continue to get flooded. Today in North America, there's 50 some. And by the end of the 2020s, by 2030, we're going to see 141 different electric car vehicles flooding into the market, totally different brands of vehicles. We talk about the slowing rate of growth. And I think people mistake that for slowing growth. Growth is not slowing. The market is growing. The question of pace of growth is the only thing in question. But if you're spreading that out over so many more brands that are selling these things, then it gets an awful lot harder to make a profit. Yeah.

I want to talk to you more about this because I mean, we've in the past few months been seeing a lot of headlines that are like electric car, you know, market is slowing down. There's not the same amount of growth that was expected. In August 2023, it took about twice as long to sell an EV in the U.S. as it did the previous January. The survey by Autotrader found the number of Canadians who didn't own an EV but plan to buy one dropped from 68% in 2022 to 56% this year. I mean, it sounds bad, right? Like there's, I mean, in January, Ford slash production of its electric pickups in half. Ford is taking its foot off the gas, delaying plans to produce electric vehicles out of its Oakville, Ontario plant by two years.

Ford says the extra time will allow for EV demand to pick up. The car rental company Hertz says that they're selling off about 20,000 electric vehicles. So like that, that sounds not good, right? That doesn't sound good. No, and it doesn't jive with what all of them are saying about growth. Like GM cut its production and said, we're just not going to make as many of these as, as we were,

or as we intended to at the same time, the CEO, Mary Barra on a, on an earnings call actually gave their numbers for growth. It's like the growth is going to be like 17 or 18% year over year. That's solid growth. And if you're trying to sell into that and you're one of eight players, you can probably stand to sell a bunch of cars, make a bunch of profit.

Everybody comes away happy. But if you are one of 140 people standing on the side of the road, trying to get the attention of a slightly growing market, that gets a lot harder to make money. It gets a lot harder to convince people to invest. It gets a lot harder to convince companies to say, we're going to divert money and investment from project X into project Y because we think we can really tap into that market. And at the end of the day, you know, the, the biggest selling vehicle in North America right now is the Ford F-150 pickup truck. In the Dragon's Den, a simple pitch can lead to a life-changing connection.

Watch new episodes of Dragon's Den free on CBC Gem. Brought to you in part by National Angel Capital Organization. Empowering Canada's entrepreneurs through angel investment and industry connections. Hi, it's Ramit Sethi here. You may have seen my money show on Netflix. I've been talking about money for 20 years. I've talked to millions of people, and I have some startling numbers to share with you. Did you know that of the people I speak to, 50% of them do not know their own household income. That's not a typo,

50%. That's because money is confusing. In my new book and podcast, Money for Couples, I help you and your partner create a financial vision together. To listen to this podcast, just search for Money for Couples. Something that I've seen, like some really interesting analysis, is also how North Americans kind of like the obsession with big cars and with big batteries that are long enough to take really long road trips.

I mean, you mentioned the range thing. People want cars that can, and car makers are trying to make cars that can go like uh oh 500 kilometers on one charge even though most of us are like most of the time just driving a costco like people aren't really going that far but but they're they want to buy cars that can go 500 kilometers and that means really big batteries like how is that maybe slowing down what like like the pickup on this? A hundred percent. And what it's slowing, I think,

is the mass adoption, right? The people that are excited about electric cars, they've probably all got them right now. Full disclosure, I drive a Chevy Bolt, an electric vehicle. And one of the things I love about it is it doesn't tell you how much gas you have in the tank because you don't have a gas tank.

It tells you how much range you have left. And so I suddenly became so much more aware, not of how much gas I use, but how many kilometers I drive in a day. I don't drive very far at all, right? Like I live 6K from where we are right now. That's my big commute. I drive out to one of the suburbs, take my kid to gymnastics. That's about it. And so I was a little

surprised even of my own sort of expectations of where we were at in terms of how much I drive, therefore, how much battery do I need to charge it? And like bigger batteries are more expensive and that means the cars stay more expensive, right? Not only that, the solution that seems to be emerging as best right now is the idea of a hybrid. And there you're putting two engines in a car, which is not cheap. So, you know, there are three fundamental challenges that are yet to be solved by the EV industry if it wants to break into that broader mass market. One is price. And we talked a bit about that with Tesla and it's backing away from the cheaper one.

They've got to figure out a way of making these things cheaper and more available. The other, as you say, is range. The thing that goes hand in hand with the range anxiety is the infrastructure. How have we, what have we done to build out that infrastructure, take away some of that range anxiety and the infrastructure that we do have in terms of so many of those chargers that are out there, you go to a, you know, a highway stop and you can plug in a lot of them don't work. A lot of them take time, take way longer in the winter, it takes longer to charge. So there are three fairly easy to solve problems, but still to this day, problems that act as

obstacles for the growth into that mass market. Just to summarize by range anxiety, we mean like we need a car that right now has a big battery, therefore more expensive so that you can get further on one charge. I mean, one, one way to do that is to make the bigger batteries bigger. The other would be that we have a serious, uh, like infrastructure system so that like you want to take a road trip, you can stop lots of places and quickly charge your car or whatever. Like we have with gas stations. Right.

Like we have a gas stations. And then, I mean, the, something that I've seen argued is also, I mean, I saw this essay in the New York times that this guy was arguing, you know, a serious electrification policy will have to be tailored to the way we actually drive, not the way we think we do. So basically like changing that psychological hurdle rather than trying to just make these cars bigger and bigger because then they remain expensive and people don't buy them.

And so part of that is how do you incent people into taking that risk? And if you can make those cars cheaper, then maybe they'd be willing to take the risk. As more people use them and more people have the experience that I've had where I realize I don't need as much range as I kind of thought I did that, that can play. They, all of these different things need to play a role. The psychology part, I feel,

I struggle with that because it feels like what you're telling people is that they're wrong. And then if you just believe me, you'll see how wrong you are. That's never been a winning argument to convince somebody to spend money, especially piles of money. Even if it's right, you need to make a better case. And on that front, for all we say about Elon Musk and, you know, the figure he's become in kind of the culture wars in the US, for all we can say about the stock of Tesla going from $400 down to 160 back up to 170.

the stock of Tesla going from $400 down to 160 back up to 170. So this week that company did more to change the way people think about electric cars than anybody had before. Now you have all of these upstarts that are coming behind them. You have all the legacy players coming in behind them. And in a lot of ways, Tesla is becoming the legacy player of the EV industry. And GM is trying to do to Tesla what Tesla did to GM, you know, 10 years ago. As we sort of figure all that out, I do think it's important to just sort of put a circle

around that company did a lot to change the way we think about the EV industry. It's ripe for disruption now and we'll see what happens with it. But boy, it did a lot of the heavy lifting in the early days. So I want to tie this together by bringing this home to Canada and talking about what this means, you know, for the country, for the country and for, uh, kind of the electric vehicle and, and electric vehicle adjacent industries here, because Canada has been betting big on electric cars. They've been pouring, you know, the government's been pouring billions into the industry. So tell me firstly about what the government has been doing here.

Spending. Wow. Are they spending? It is a staggering sum of money. I used to have a Google doc where I was keeping track of all these different announcements. And I lost track. And I went in today to try to add it all up. I don't have the figure, and I'm usually pretty good at staying on top of these.

It is billions of dollars. And it's not just the Stellantis battery plant. It's not just the Volkswagen plant in St. Thomas. Look at the one happening in Quebec. The deal with Swedish company Northvolt took major investments from the federal and Quebec governments, $2.7 billion combined, and there could be billions more in incentives once production begins. And the argument on the investment side is we know where we're going. The path there might not be in a straight line.

It's going to have some volatility to it. There's going to be fits and starts. There's going to be some changes in how the industry sort of adapts to changing consumer behavior, changing economic landscape, interest rates, whatever you may have. But that if this is the direction we're moving in, then we need to get out in front of it now. And the pushback against it is you're spending billions of dollars to incent these foreign

companies to come build here rather than spending billions of dollars to prop up more local companies, the parts providers and, and the existing parts of the, uh, uh, of the, the auto industry that has done so well over these past, however many years. So that I can sort of understand the two arguments, but when you talk to whether it's the, the companies or the politicians, or in fact, just the, the car experts, they do believe that inevitable destination is in fact, where we are headed. Okay. So fundamentally, you know, big picture Canada, like this is a good news story for Canada.

It can be. And I think everybody that I've spoken with believes we're moving in the right direction, that the Canadian business is in a really good position to take advantage of this adoption. And that the way the industry in Canada has been set up is poised to be able to reap great benefits from it. Now, all that to say, it hasn't happened yet. They all agree that there is a curve and that we're on it and that it might be steeper or flatter than some people believe or disagree upon.

Until you actually get there, it's still a bet. And right now, it's a bet worth billions and billions and billions of dollars from the private sector, from the governments, from multiple layers of governments, and from people like me and you that just got to go figure out how to get home. Got to get to Costco. That's right. Okay. Thank you so much, Peter. Always a pleasure to have you. You bet.

All right, that's all for today. I'm Allie Janes. Thanks for listening to FrontBurner. For more CBC Podcasts, go to cbc.ca slash podcasts.