I've been thinking about the last few years of both Ford and GM and the relative collapse of their sales. I think it mostly has to do with seceding the sedan market to the asian and European markets and focusing on trucks and SUV's. But the pandemic/chip shortage really threw a wrench in things for many reasons.
View attachment 704306
View attachment 704307
But if I dig into it more I think their collapse is going to be even faster than I thought. I think they knew for probably the last 24 months+ they need to make the shift to electric and had been planning their exits, but as we all know this is a very difficult proposition for the legacy car companies. The more they lean into electric, the less they sell on the ICE side.
I believe 2020-2022 were supposed to be the golden years for them selling ICE as they make the transition where they get the remaining max profits out of ICE before customer switch to EV's faster. The goal being the ICE trucks would fund their EV development while they were still in large demand. The chip shortage has devastated this hope though. Even though they are making more per vehicle than ever before they dont have near enough volume to make up the difference. Time keeps going by and Tesla and others hit the mainstream and are seemingly unaffected at the same degree to the chip shortage as the Big 3. So while customers still want their trucks, but they cannot buy them, and the longer they wait the sooner EV trucks get here. Their window is closing to sell vehicles people want...and they cant sell them. Ford as an example lost money last quarter on their actual vehicle production, but was saved by their financial arm. This quarter will be much worse as there are more line shutdowns, so instead of having cash to plow into EV F150 and others, they are bleeding cash given they cannot deliver or make cars without chips.
This has been covered over and over, but honestly the EV tax credit doesn't really help any of the manufacturers. It helps consumers (and me personally if I buy a model Y) save money on the cars, but I dont believe we actually need to stimulate demand for EV's, nor are they too expensive at the moment. Unless Ford and GM raise their prices dramatically to claim the credit for themselves, or they use the credit to get undesirable cars to sell its worthless. All the while Tesla makes 25% GM on each car with no tax credits and an ever growing demand problem. The dealers for the big 3 will likely mark up the vehicles in the near term to keep the credit for themselves.
Finally I have a bet with a friend of mine that one or all of the Big 3 will either file for bankruptcy or be bailed out by 2025. I am somewhat positive the government will bail them out as MI/OH are very important to both political parties. But when we do bail them out its just going to be one big sponsored jobs program because I dont see how propping them up changes their business model. I am always amazed at the bond markets appetite for crappier and crappier loans to companies in the chase for yield, but these bonds will be expensive, which only weighs more on these companies.
Anyways I keep buying Tesla and waiting.
