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--:-- Chris Otts: This podcast is brought to you by Dynatrace, the leader in AI-powered observability, with analytics, automation, and next-level intelligence on one unified platform. Dynatrace delivers the visibility and real-time insights you need to deliver better, more secure software, successful AI initiatives, and innovation at the speed of business. Turn data into decisions that drive your business forward with AI-powered observability where it counts. Learn more at dynatrace.com slash WSJ. That's www.dynatrace.com slash WSJ.
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--:-- Chris Otts: Hey listeners, it's November 6th. I'm Chris Otts for the Wall Street Journal, and this is What's News in Earnings, our look at some of the biggest themes standing out this earnings season.
--:-- Chris Otts: Global automakers are steering through a barrage of obstacles. New supply chain crises are resurrecting nightmares from the COVID pandemic. Tariffs are zapping billions from their bottom lines, yet no one wants to raise the price of their cars. Meanwhile, electrification is slowing. The U.S. has all but done away with any support for EVs. And yet, through all these storms, automakers are largely delivering solid results.
--:-- Chris Otts: I've been following U.S. car companies' earnings, and I'm joined by Stephen Wilmot, our European autos reporter in London. Stephen, it's 2025, not 2021. But we're once again talking about a crisis involving chips and automotive production.
--:-- Stephen Wilmot: Yeah, that's right. This Dutch semiconductor company, which was taken over by a Chinese company, found itself in a sticky situation with the Dutch government. And then the Chinese government stopped shipping Nexperia chips from China to its global customers. And for automakers, they haven't been getting as many components that include all these basic chips that are ubiquitous in cars these days.
--:-- Stephen Wilmot: And then the Trump talks happened. And the US government said that it would postpone its extended blacklists. And then that prompted the Chinese government to start to lift restrictions on Nexperia chip exports from China. But it said it would only do it for some companies. And so the situation as we stand now this week is that chip supplies do seem to be easing, but they remain tight.
--:-- Stephen Wilmot: Yeah, so automakers are all looking around for alternative sources of supply for these chips. And here's what Mercedes CEO Ola Kalanias had to say on an investor call last week. For the short term, we're covered. And it goes without saying that we're scurrying around the world to look for alternatives.
--:-- Chris Otts: Let's turn to the auto story of the year, President Trump's tariffs. These are definitely costing automakers and their suppliers billions of dollars. But this earnings season, it seems the theme is more about relief from tariffs.
--:-- Stephen Wilmot: Yeah, that's right. We've had the deals between Trump and the EU on the one hand, and then Japan and South Korea most recently. And that's been a relief for sure for the European automakers in the most recent quarter, only one month had the old 25% tariff and then two months of 15% tariffs. So that was a help.
--:-- Stephen Wilmot: It wasn't as much of a help as you might think, because the automakers in Europe shipped loads of vehicles in the first quarter ahead of the tariffs coming into effect. And so they channel stuffed, as they say, the industry in the first quarter, which meant that they didn't actually import so much in the second quarter. So the tariff effect was not as much as it might have been otherwise.
--:-- Stephen Wilmot: But then, of course, they've run out of the stock, the inventories that they accumulated. So they had to carry on importing in the most recent quarter. Those effects kind of balance each other out a bit. So it wasn't quite as simple as saying it was a much easier quarter. But yeah, the outlook is looking a bit less bleak than it was three months ago.
--:-- Chris Otts: Well, let me tell you, Stephen, here in the States, the automakers that produce in the U.S. definitely noticed those deals with Japan and the EU, the UK. And they are saying, hey, is it less costly now with all the tariff impacts to make a car in Japan and import it to the US than to just build it in the United States
--:-- Stephen Wilmot: Yeah, that's right. The Trump administration has been listening to that lobbying effort. And the administration relaxed and enriched, extended a program where automakers essentially get rebates from tariffs on the parts that they import to make vehicles in the United States.
--:-- Stephen Wilmot: And this led to an immediate benefit for Ford, GM, and Stellantis. That's the parent company of Jeep and Ram. General Motors and Stellantis both talked about roughly $500 million savings on the tariffs that they had told investors that they were facing just in 2025. and Ford said that they would benefit by about a billion dollars just from this one change that Trump made with the parts tariff.
--:-- Stephen Wilmot: And investors are looking forward to what that change will mean in future years. It goes through 2030, well past when Trump is in office. And so we're seeing the stocks of Ford and GM, especially GM, really rally off of their earnings from the relief from this parts program.
--:-- Chris Otts: Meanwhile, this was the final quarter in which we had that $7,500 tax credit for buying an EV in the United States. And that led to a surge in EV sales for legacy automakers and even for Tesla, whose core auto business has been stagnant at best this year.
--:-- Stephen Wilmot: And then for the legacy automakers, it looks like we're now entering what we might call an EV winter, figuratively, literally. Ford CEO Jim Farley has talked about EV sales dropping by half. And it's an issue for pretty much all of the automakers who have invested in EVs, which I know the German companies have done to a great extent.
--:-- Stephen Wilmot: Absolutely. This has been a huge theme of the earnings season. It's been most dramatic at Porsche which had its first quarterly loss since its IPO three years ago because it wrote down a lot of the investments it had made into electric vehicles. It said a big EV project would be postponed to the 2030s. But we also seen similar things this year from Mercedes BMW a bit less so because it was a bit slower to invest in EVs.
--:-- Stephen Wilmot: We're also seeing the US automakers basically pulling an aggressive U-turn on electric vehicles. forward. They talked about how they've got a big decision point about how many to continue making. They're losing $5 billion a year on EVs and investors are really looking to see, well, can they make that $2 billion or $3 billion? And what would that mean for the stock in the short term?
--:-- Stephen Wilmot: And then there's General Motors, which talked about going all EV by 2035, yet now they They are backtracking. They're taking charges for capacity that they're not going to use. And they're saying that they're going to be disciplined. Here's what CEO Mary Barra said on their earnings call. We also are going to stay true to what we've said before, that we're going to build to consumer demand. We're not going to overbuild. We're going to maintain that discipline.
--:-- Chris Otts: Well, Stephen, lots of short-term challenges and long-term issues to follow in auto's industry. Thank you so much for joining me today.
--:-- Stephen Wilmot: Thanks for having me on.
--:-- Chris Otts: And that was What's News in Earnings. Today's show was produced by Zoe Kolkin with Deputy Editor Chris Zinsley. Additional sound courtesy of S&P Global Market Intelligence. Later today, we'll have the PM edition of What's News out for you as well. I'm Chris Otts. Have a great day.
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