🔌 Ford shocked investors

What’s going on here?

ExxonMobil’s profit trundled downhill last quarter, according to its update on Friday.

What does this mean?

Energy prices haven’t been close to last year’s war-induced highs, so record-breaking profits were never on the cards this time. After all, the average price of Brent crude oil, a key international benchmark, was around $80 a barrel last quarter – a far cry from $110 over the same period last year.

So it didn’t exactly set analysts’ hearts aflutter when Exxon’s profit slid to $7.9 billion last quarter, less than half of last year’s $17.9 billion record high. But besides 2022, that was still Exxon’s strongest result for the period in over ten years. The playbook: cutting costs, auctioning off assets, and ramping up production in the Permian basin.

Why should I care?

For markets: Like oil and water.

Exxon isn’t alone in this oil slick. Rivals Chevron, Shell, and TotalEnergies reported similar slumps, and analysts are bracing for more of the same from BP next week. The sector’s current rut, coupled with concerns over its environmental effects, has lost investors’ favor – and the energy sector’s price-to-earnings ratio, a key valuation metric, is the lowest in the whole S&P 500. But there’s a twist: it’s also the sector making the most cash in the index. And Warren Buffett, whose Berkshire Hathaway has been upping its fossil fuel bets lately, may think there’s a bargain to be had.

The bigger picture: A long goodbye.

Despite the push for a greener world, the globe is guzzling more oil than ever. Data shows oil demand likely hit a fresh record high of over 102 million barrels a day in July. And current trends suggest global demand will actually tick up over the next five years. So while oil companies might be black sheep right now, the world’s not done with their wool just yet.

What’s going on here?

Ford reported impressive quarterly results this week – but its EV business is looking a little lost.

What does this mean?

Ford was all revved up about its ambitious EV goals not so long ago – but it’s finding out that there’s a big difference between mapping out a route and actually hitting the road. See, the adoption of its EVs isn’t accelerating as expected. Add on the industry’s all-out price war, and the firm’s been slashing prices to keep up, which has inevitably bitten into profit too. The result: Ford’s bracing for EV losses to double this year from last, and it’s slowing its electric rollout to stem the bleeding. Luckily, though, some cars are picking up the slack – namely, good old gas guzzlers. Thanks to robust demand, those traditional rides drove overall results beyond expectations. But investors, not electrified by the low-voltage EV performance, still responded by offloading stock.

Why should I care?

The bigger picture: Getting overlapped.

Ford isn’t the only one struggling to keep up with EV market leader Tesla. Even German heavyweights like Volkswagen, BMW, Mercedes, and Porsche are eating dust, with their combined EV deliveries still trailing Tesla’s 890,000 in the first half of the year. And as Tesla pushes more cars with price cuts, the gap’s only widening, putting the squeeze on legacy carmakers. Not bad considering that Tesla’s most recent passenger offering, the Model Y, was launched way back in 2020.

Zooming out: Silk Road detour.

China is the ultimate prize for firms in the EV space – and Volkswagen thinks one of the world’s biggest car manufacturers and the world’s biggest car market should really be like peas and carrots. So after a sales dip in China, it’s switched gears and announced plans to invest almost $1 billion in Chinese upstart Xpeng. The goal: to jointly develop EVs in China and put the brakes on Volkswagen's slide in the country.