Autos

Liam Denning is a Bloomberg Gadfly columnist covering energy, mining and commodities. He previously was the editor of the Wall Street Journal's "Heard on the Street" column. Before that, he wrote for the Financial Times' Lex column. He has also worked as an investment banker and consultant.

On its first day back from the holidays, America's auto industry began with a Mexican standoff and ended with Tesla just being off.

Ford Motor Co. announced early on Tuesday it was scrapping plans to build a new plant in Mexico, apparently under pressure from President-elect Donald Trump. The PEOTUS then turned his signature industrial-policy-by-tweet on General Motors Co., threatening them over shipping Mexican-made Chevy Cruze cars back home (GM largely refuted that here).

Meanwhile, after the market closed on Tuesday, Tesla Motors Inc. reported it missed its (reduced) guidance for vehicle deliveries in 2016. The stock fell in after-hours trading, as some were clearly caught by surprise -- a reaction that, let's face it, is itself a bit surprising at this point. In any case, a timely tour of the Gigafactory scheduled for Wednesday will no doubt snap the market's attention back away from those pesky number thingies.

What links these stories is Ford's other announcement on Tuesday morning, which got a bit lost in the shuffle; namely, its plans to electrify some of its marquee models -- including the F-150 pickup truck.

Rather than a battery-only version or even a plug-in hybrid model, Ford is committing merely to a basic hybrid version of the F-150 by 2020 -- more Priusizing than Teslarizing it. So we aren't about to see Ford's trucks vanish from gasoline stations anytime soon.

But this is still a big deal.

The F-Series is America's biggest-selling vehicle and represents one of every three full-size pickups sold, according to data compiled by Bloomberg Intelligence.

Also, pickups are archetypal gas guzzlers, and gas guzzlers are doing really well right now because of cheap gasoline. And even as Trump lobs Twitter-bombs at the car-makers' foreign factories, his administration also looks likely to ease up on fuel-efficiency standards.

Vroom
Falling unemployment and gasoline prices have fueled higher sales of trucks in the U.S.
Source: Ward's Automotive Group via Bloomberg
Note: Data are for the seasonally-adjusted annual rate.

So it is interesting that Ford is committing to launching any type of electrified F-150 now.

There are several good reasons to do so. Regardless of current political and market conditions, vehicle electrification isn't likely to hit a wall. Producing a basic hybrid version of the F-150 represents a measured step in line with this trend. It echoes Ford's earlier decision to use more aluminum in the truck body to make it lighter and more fuel-efficient (which hasn't dented sales, despite at least one rival's snarky commercials).

Ford's wider goals of electrifying 13 models, producing fully autonomous vehicles and selling transport-as-a-service rather than just hardware also look well-suited to a new era of trade tantrums.

While Trump may get credit for forcing Ford to cancel its new $1.6 billion plant in Mexico, the more prosaic rationale is those low gasoline prices curbing demand for smaller cars -- such as the Ford Focus that was due to be built there. These will still be built in Mexico at an existing factory.

Ford also announced it will invest $700 million in expanding a plant in Michigan to produce autonomous and electrified vehicles (give the PR folks in Dearborn the day off  for that one). Beyond the optics, though, those higher-value models are more suitable for domestic plants with higher labor costs; this isn't like repatriating the production of commoditized, traditional vehicles.

For the oil market, an F-150 hybrid is just another shadow looming on the horizon for demand. Revised data released last week by the Energy Information Administration showed U.S. gasoline consumption fell year-over-year in October, the first time that's happened since November 2014, at the start of the oil crash.

Slower Burn
The boost provided to U.S. gasoline consumption by low prices appears to be fading
Source: Energy Information Administration
Note: Change in demand, year-over-year, through the first 10 months of each year.

If even trucks start to rely a little more on volts than on octane, it would represent an incursion into gasoline demand's holy-of-holies. Don't forget that, including the F-150, all of the top three vehicle brands in the U.S. are large pickups.

And Tesla? Its CEO wants to bury the internal combustion engine, so on one level Elon Musk should be cheering Ford's announcement.

Unfortunately, that isn't the level on which Tesla's investors get to operate. They will probably ignore this latest missed target, just like all the others. But it shows, again, just how hard it is for Tesla to achieve its ambitions and make money even when it largely had the electric-vehicle race all to itself.

And now a big truck has shown up in the rear-view.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Liam Denning in New York at ldenning1@bloomberg.net

To contact the editor responsible for this story:
Mark Gongloff at mgongloff1@bloomberg.net