Automotive

The electric carmaker had unveiled chief Elon Musk’s proposed $1 trillion compensation plan in September.

Tesla’s proposed $1 trillion pay package for CEO Elon Musk has come under renewed scrutiny after proxy adviser Institutional Shareholder Services (ISS) urged investors to vote against what could be the largest compensation plan ever awarded to a company chief.

ISS’s comments on Friday marks the second consecutive year that it has urged shareholders to reject a compensation plan for Musk.

Proxy advisers often sway major institutional investors, including the passive funds that hold large stakes in Tesla.

The ISS recommendation adds pressure on Tesla’s board before a closely watched November 6 shareholder meeting and renews scrutiny of Musk’s compensation after a Delaware court earlier voided his $56bn pay package.

Musk’s record Tesla pay plan could still hand him tens of billions of dollars even if he falls short of most of its ambitious targets, however, thanks to a structure that rewards partial achievement and soaring share prices.

Last month, Tesla’s board proposed a $1 trillion compensation plan for Musk in what it described as the largest corporate pay package in history, setting ambitious performance targets and aiming to address his push for greater control over the company.

ISS said that while the board’s goal was to retain Musk because of his “track record and vision”, the 2025 pay package “locks in extraordinarily high pay opportunities over the next ten years” and “reduces the board’s ability to meaningfully adjust future pay levels.”

Tesla’s shares rose after the compensation plan was unveiled last month, as investors believe the pay package would incentivise Musk to focus on the company’s strategy.

“Many people come to Tesla to specifically work with Elon, so we recognise that retaining and incentivising him will, in the long run, help us retain and recruit better talent,” Director Kathleen Wilson-Thompson said in a video posted to Tesla’s X handle on Friday.

Unlike the 2018 pay deal, Musk will be allowed to vote using his shares this time, giving him about 13.5 percent of Tesla’s voting power, according to a securities filing last month. That stake alone could be enough to secure approval.

The proxy adviser cited the “astronomical” size of the proposed grant, design features that could deliver very high payouts for partial goal achievement and potential dilution for existing investors.

Tesla did not immediately respond to a request for comment from the Reuters news agency.

ISS valued the stock-based award at $104bn, higher than Tesla’s own estimate of $87.8bn.

The grant would vest only if Tesla reaches market capitalisation milestones up to $8.5 trillion and operational targets, including delivery of 20 million vehicles, one million robotaxis and $400bn in adjusted core earnings.

The proxy adviser’s guidance on Musk’s pay was part of a wider set of voting recommendations issued on Friday.

As of 3:45pm in New York (19:45 GMT), Tesla’s stock was up 2.4 percent.

After a wave of rushed buying, driven by looming tariffs, US car sales have started to slow, weighing on carmakers.

New car sales fell by 300,000 in June from 15.6 million to 15.3 million, according to data released by Cox Automotive last month.

“Now we’ve got sales slowing because [the pre-tariff buying] surge pretty much pulled ahead a lot of people that might have been in the market this year, who wanted to buy before tariffs hit,” Mark Schirmer, director of industry insights at Cox Automotive, told Al Jazeera.

This will only get harder for carmakers, dealerships and shoppers down the road.

“Price rises together with demand destruction,” Sina Golara, assistant professor of supply chain management at Georgia State’s Robinson College of Business, told Al Jazeera. “If consumers don’t have the resilience to pay for those higher prices, they’ll take a step back.”

United States President Donald Trump’s erratic approach to tariffs, putting some in place and then taking them away, has made it difficult for businesses to plan. In April, car companies, including Stellantis, Ford and Volvo, suspended financial guidance as a result of the uncertainty.

Last month Volvo also said that tariffs will cost it $1.2bn in the second quarter. Ford then announced it expects a reduced annual profits to $3bn after taking an $800m hit from tariffs in the second quarter. GM announced that it expects a $5bn hit, and Toyota said it expects $9.5bn in tariff-driven blows to profits for the year.

In May, Ford also announced it would have to raise prices on some of its cars made in Mexico, including the Mustang Mach-E electric SUV, Maverick pick-up truck and Bronco Sport, in some cases by as much as $2,000, the Reuters news agency reported. Those cars began to reach lots last month.

As a result, consumers are overwhelmingly opting for used cars that are not subject to tariffs, including foreign-made ones, as they are already on US roads.

Used car sales are up 2.3 percent from this time last year, according to Used Car Index report, an auto industry insight platform by Edmunds.

In part, this is because of the limited supply of used cars. Edmunds’s report says that buyers, and sellers looking to upgrade but need the money from sale of a current car, are hesitant about undertaking expenses amid economic uncertainty.

The bigger impact of both those trends is of inventory piling up. On average, dealerships have 82 days worth of cars on the lot, a roughly 14 percent increase between May and June.

An expensive escalation

Cox forecasts prices could rise anywhere between 4 to 8 percent over the next six months as a result of the tariffs. The group expects new car sales of 13 million to 13.3 million this year.

“Tariffs will be inflationary on both the new and used vehicle market,” Schirmer said, adding, the main challenge right now is the unsold inventory that’s piling up.

Analysts believe that prices will continue to rise amid Trump’s tariffs, especially as companies try to move supply chains to the US, as demanded by Trump, an effort that is years in the making.

“The tariff ‘relief’ is like putting a band-aid on a bullet wound with US car companies now dealing with the repercussions moving forward as this Twilight Zone situation will change the paradigm for the US auto industry for years to come,” Dan Ives, analyst at Wedbush Securities, said in a note provided to Al Jazeera.

In the meantime, the cost to import a car is expected to increase by $1,000 this year to $5,700, according to Cox Automotive.

“The US imports a little less than half of the new vehicles sold, but dependence on imports varies substantially by segment. The most dependent segments are at the two ends of the price spectrum – the most affordable vehicles and luxury vehicles. Most of the vehicles priced under $30,000 would face added costs that would make them unaffordable,” Cox Automotive chief economist Jonathan Smoke said in a June conference call shared with Al Jazeera.

EVs hit hard

Trump’s new tax legislation – signed into law last month and which cut the EV tax credit of up to $7,500 – has already led to a significant pullback specifically for the electric vehicle marketplace as demand for the products begins to fall.

“Our forecast had been for approximately 10 percent of new vehicle sales this year to be EV. We slightly lowered that to 9 percent,” Schirmer added.

Volvo reported a 26 percent decline in sales for electric vehicles (12 percent overall). Ford EV sales tumbled by 31 percent. Rivian saw sales decline by 23 percent. Tesla saw a decline of 13.5 percent globally as CEO Elon Musk’s political involvement hindered the brand’s reputation. The cuts to the EV tax credit is expected to cost Tesla $1.2bn every year, JP Morgan forecast.

“Several dealers have also stated that these [EV tax credits] are the main drivers [for consumers]. So without those incentives, there would definitely be a significant hit through EV sales,” Golara added.

General Motors has been the exception to the rule. The Michigan-based auto giant doubled its EV sales in recent months.

Despite the dip in sales, Golora believes that the setback in the EV market is temporary.

“It’s [the EV market] still compelling in the long run because many manufacturers have already reached a decision that this is where the industry is going,” Golara said.

“Investment [in EV production] doesn’t look like a lost one. The payback period will be longer.”

Manufacturing strains

While US manufacturing ticked up overall in June, when it comes to motor vehicle and parts production, it is a different story. Production tumbled by 2.6 percent for the month as demand began to slow.

US auto manufacturing employment is also down. According to the Bureau of Labor Statistics, employment in auto manufacturing in the United States has tumbled by 35.7 percent since this time last year and down 2.4 percent from this time last month.

Al Jazeera reached out to the United Auto Workers for comment about the effect on car manufacturing jobs, but the organisation did not respond.

“Demand was not growing as fast as needed, and many manufacturers were caught by surprise. That’s a problem, and it is kind of a longer-term, structural issue,” Golara said.

The world’s top-selling carmaker joins a growing list of companies reporting profit hits because of tariffs

Toyota expects a $9.5bn hit from United States President Donald Trump’s tariffs on cars imported to the US, the largest of any company to date, underscoring growing margin pressures.

The world’s top-selling carmaker announced the forecast impact alongside its updated annual guidance on Thursday.

Toyota also cut its forecast for full-year operating profit by 16 percent, reflecting challenges for global manufacturers grappling with rising costs from US levies on cars, parts, steel and aluminium.

“It’s honestly very difficult for us to predict what will happen regarding the market environment,” Takanori Azuma, Toyota’s head of finance, told a briefing, vowing to keep making cars for US customers, regardless of tariff impact.

Azuma said the 1.4-trillion yen ($9.50bn) estimate also includes fallout that suppliers are facing, particularly those in the US importing parts from Japan, though he declined to say how much of the total was attributable to that.

Toyota’s North American business swung to an operating loss of 63.6 billion yen ($431.3m) in the first quarter, from a profit of 100.7 billion yen ($682.9m) a year earlier, as it took a hit of 450 billion yen ($3bn) from the tariffs.

Its broad production operations, which include US, Canadian, Mexican and Japanese plants, expose it to tariffs not only on direct exports but also on vehicles and parts shipped across borders within North America.

Last week, the automaker said it turned out some 1.1 million Toyota and Lexus brand vehicles in North America in the first six months of 2025, including more than 700,000 in the US.

Forecasts tumble

Toyota cut its operating profit forecast for the financial year to the end of March 2026 to 3.2 trillion yen ($21.7bn) down from a previous outlook of 3.8 trillion yen ($25.7bn).

It had previously estimated a tariff hit of 180 billion yen ($1.2bn) for April and May, but that was solely for the impact from tariffs on Toyota’s vehicles. It had not issued a full-year projection until now.

Rivals have reported smaller tariff hits so far: Jeep maker Stellantis said tariffs were expected to add $1.7bn in expenses for the year. General Motors (GM) has projected one of $4bn to $5bn for the year, while Ford expects a $3bn gross hit to pretax adjusted profit.

On Wednesday, Ford reported that second-quarter results took an $800m hit from tariffs.

Trade deals

The first-quarter results highlight the pressure US import tariffs are putting on Japanese automakers, even as a trade pact between Tokyo and Washington offers potential relief.

Under the deal agreed last month, Japanese auto exports into the US would face a 15 percent tariff, down from levies totalling 27.5 percent previously. But a timeframe for the change has yet to be unveiled.

Last week, Toyota reported record global output and sales for the year’s first half, driven by strong demand in North America, Japan and China, including that for petrol-electric hybrid vehicles.

The carmaker also announced on Thursday a plan to build a new vehicle factory in Japan, where car sales have been falling due to a shrinking population and declining ownership.

Toyota said it planned to start operations early next decade at the new plant, but has yet to decide production models.

On Wall Street, Toyota’s stock is on the decline amid its downward revised forecast. As of 11:30am in New York City (15:30 GMT), it is down by 1.6 percent. Competitors’ stocks are mixed. Ford is down 0.5 percent, Stellantis is up 2.4 percent and GM is up by about 0.7 percent.

GM’s profit tumble in second quarter comes a day after Jeep maker Stellantis says it expected a $2.7bn loss in the first six months of the year.

Auto giant General Motors has reported a 35 percent drop in second-quarter profits, including a $1.1bn hit from United States-imposed tariffs but confirmed its full-year forecast.

GM’s results released on Tuesday still topped analyst estimates, but the US carmaker cautioned that profits in the second half of 2025 would be lower than in the first.

The company pointed to sales growth in North America, where new and revamped trucks and sport utility vehicles sold briskly with solid pricing. GM was among the carmakers that benefitted from a surge in demand this spring from consumers who wanted to beat the US tariffs and their higher prices.

Profits overall fell 35.4 percent to $1.9bn year-on-year while revenues dipped 1.8 percent to $47.1bn.

The US imposed 25 percent tariffs on imported finished cars in early April, a move that affected major GM manufacturing operations in Mexico, Canada and South Korea. Car companies have also faced tariffs on imported steel, aluminium and auto parts.

The tariff hit in the second quarter reflected that there were “minimal mitigation offsets”, GM said in a slide presentation.

The Detroit, Michigan-based company’s outlook for a weaker second half of 2025 reflects “seasonally lower” volumes, increased spending on vehicle launches and the presence of two quarters with a tariff hit compared with just one in the first half of the year.

GM expected annual operating income of $10bn to $12.5bn after notching $6.5bn in the first half of the year.

Chief Financial Officer Paul Jacobson described the hit to profitability in the first quarter as “the peak of the tariff impact for us”, telling CNBC in an interview that mitigation efforts should enable a partial recovery in profit margins later in the year.

Shifting manufacturing

GM expected to mitigate “at least” 30 percent of the tariff hit through “manufacturing adjustments, targeted cost initiatives and consistent pricing”, according to a slide.

Jacobson said it would take 18 to 24 months to implement capital projects to adjust GM’s manufacturing footprint.

In June, GM announced spending of $4bn over two years to expand production at plants in Michigan, Kansas and Tennessee, making use of unused capacity in its home market as President Donald Trump’s tariffs penalise imports of finished vehicles.

The June announcement included steps to produce the Chevrolet Equinox and Chevrolet Blazer in the US. The two vehicles are currently assembled in Mexico.

GM has so far not shifted manufacturing from South Korea, home to production for the Chevrolet Trax, a popular compact SUV that is priced affordably.

Jacobson told CNBC the Trax has stayed profitable even with the hit from the tariff on imported autos.

“We haven’t made any long-term decisions about Korea yet, mainly because there is a lot of uncertainty about that,” Jacobson said.

Trump has set an August 1 deadline to reach broad trade deals with numerous countries, including South Korea, which faces a 25 percent tariff if there is no deal.

“We’re optimistic that the US and Korea can find common ground,” Jacobson said. “We know the auto industry is important to both sides in those conversations.”

GM’s stock tumbled on the lacklustre earnings report. It is down 6.6 percent for the day as of 11:30am in New York (15:30 GMT).

GM’s newly reported hit comes a day after carmaker Stellantis announced it expected a $2.7bn loss in the first six months of the year because of Trump’s imposed tariffs. Stellantis, the owner of brands including Fiat and Jeep, will disclose its final results for the first half of the year on July 29.

Stellantis stock is down 0.3 percent since the market opened on Tuesday and had increased more than 2.4 percent over the past five days.

The mandate that the DoT challenged was a key part of former US President Joe Biden’s plan to address climate change.

The United States Department of Transportation (DoT) has declared that former President Joe Biden’s administration exceeded its authority by assuming a high uptake of electric vehicles in calculating fuel economy rules.

With that declaration on Friday, the DoT paved the way for looser fuel standards and published the “Resetting the Corporate Average Fuel Economy Program” (CAFE) rule. A future separate rule from the administration of President Donald Trump will revise the fuel economy requirements.

“We are making vehicles more affordable and easier to manufacture in the United States. The previous administration illegally used CAFE standards as an electric vehicle mandate,” Transportation Secretary Sean Duffy said in a statement.

The department’s National Highway Traffic Safety Administration (NHTSA), in writing its rule last year under Biden, had “assumed significant numbers of EVs would continue to be produced regardless of the standards set by the agency, in turn increasing the level of standards that could be considered maximum feasible,” it said Friday.

A shift away from Biden policies 

In January, Duffy signed an order directing NHTSA to rescind fuel economy standards issued under Biden for the 2022-2031 model years that had aimed to drastically reduce fuel use for cars and trucks.

In a release last year, the DoT, then led by Pete Buttigieg, put in place a required fuel economy to increase by 2 percent for cars made between 2027 and 2031.

At the time, the DoT said it would help save consumers upwards of $600 on gas every year. It was also part of the Biden administration’s plan to address climate change.

“These new fuel economy standards will save our nation billions of dollars, help reduce our dependence on fossil fuels, and make our air cleaner for everyone. Americans will enjoy the benefits of this rule for decades to come,” then NHTSA Deputy Administrator Sophie Shulman said at the time.

In June 2024, the NHTSA said it would hike CAFE requirements to about 50.4 miles per gallon (4.67 litres per 100km) by 2031 from 39.1mpg currently for light-duty vehicles.

The agency last year said the rule for passenger cars and trucks would reduce gasoline consumption by 64 billion gallons and cut emissions by 659 million metric tons, cutting fuel costs with net benefits estimated at $35.2bn.

Late on Thursday, Senate Republicans proposed eliminating fines for failures to meet CAFE rules as part of a wide-ranging tax bill, the latest move aimed at making it easier for automakers to build gas-powered vehicles.

Last year, Chrysler-parent Stellantis paid $190.7m in civil penalties for failing to meet US fuel economy requirements for 2019 and 2020 after paying nearly $400m for penalties from 2016 through 2019. GM previously paid $128.2m in penalties for 2016 and 2017.

Stellantis said it supported the Senate Republican proposal “to provide relief while DoT develops its proposal to reset the CAFE standards … The standards are out of sync with the current market reality, and immediate relief is necessary to preserve affordability and freedom of choice.”

GM declined to comment.

Labour prosecutors allege that workers were brought to Brazil illegally and toiled in ‘slavery-like conditions’.

Brazilian labour prosecutors have filed a lawsuit against the Chinese auto manufacturer BYD and two contractors over allegations of illegally trafficking labourers to live and work under conditions “analogous to slavery”.

On Tuesday, the prosecutors, charged with enforcing labour laws, said in a statement that they would seek 257 million reais ($45m) in damages from BYD as well as contractors China JinJiang Construction Brazil and Tecmonta Equipamentos Inteligentes.

They accused the three companies of trafficking Chinese workers to build a BYD plant in Camacari, in the northeastern state of Bahia. There, the prosecutors allege that the companies subjected the workers to “extremely degrading” conditions.

“In December last year, 220 Chinese workers were found to be in conditions analogous to slavery and victims of international human trafficking,” the statement said.

The damages the prosecutors are seeking amount to a penalty of 50,000 reais ($8,867) per violation, multiplied by the number of workers affected, in addition to moral damages.

The lawsuit is the result of a police raid in December 2024, during which authorities say they “rescued” 163 Chinese workers from Jinjiang and 57 from Tecmonta.

The prosecutors say the workers were victims of international human trafficking and were brought to Brazil with visas that did not fit their jobs.

They also allege that conditions at the construction site left the labourers almost totally dependent on their employers, by withholding up to 70 percent of their wages and imposing high contract termination costs. Some of the workers even had their passports taken away, limiting their ability to leave, according to the prosecutors.

The lawsuit also describes meagre living conditions, including some beds without mattresses.

“In one dormitory, only one toilet was identified for use by 31 people, forcing workers to wake up around 4am to wash themselves before starting their workday,” the prosecutors’ statement notes.

Brazil is the largest market for BYD outside China. The Chinese auto giant has said that it is committed to human rights, is cooperating with authorities and will respond to the lawsuit in court.

A spokesman for the company said in December that allegations of poor working conditions were part of an effort to “smear” China and Chinese companies.

But the Brazilian labour prosecutors rejected the notion that their lawsuit was based on anti-Chinese sentiment.

“Our lawsuit is very well-founded, with a substantial amount of evidence provided during the investigation process,” deputy labour prosecutor Fabio Leal said in an interview.

He stated that the workers, who have all returned to China, would receive any payments related to the lawsuit there, with the companies in Brazil responsible for providing proof of payment.