Now GM got their man in office to push through the inflationary inflation reduction act,
to give them somewhat of a more even playing field against Tesla, or at least they can
portray that illusion to their stockholders.
Hmm, that old wall street saying of "I'll be gone, you'll be gone" suddenly seems apt
right now.
GM On top of that though look how ridiculously
high Tesla's prices have become.
It can’t be too hard for GM to undercut these now.
Hey they are even advertising the price of their luxurious Cadillac for less than a Model
Y.
Although it is a RWD with 20 miles less range.
They aren't ready to publish their AWD estimated range just yet.
Oh and the biggest joke is that this is with an 100 kWh battery, compared to Tesla's 80
kWh.
Yes, it would appear GM really are that bad at this.
But who wants a Tesla when they can have a Cadillac?
GM might be thinking perhaps.
Although it’s unlikely that the consumers will still be thinking that.
I thought Cadillacs were more for the generation before baby boomers.
That market tends to be dwindling.
And some of them can’t even drive any more, which may mean they need self diving Teslas
anyway, oh no, another angle where I see legacy struggling.
MORE TESLAS So we have this little car company in the
US, that actually happen to have the car factory that produces more cars than any other facility
in the whole of North America, but they just have that one, or did until they built the
largest factory in the world in Texas just recently, which will likely have an even higher
output, at least eventually when they get their ducks in a row.
In addition to that we are about to receive an announcement of the next Giga location,
and everyone's money seems to be on North America, and I think we have narrowed it down
to Ohio, Quebec or Ontario, which all serve a massive population.
Elon says each factory is going to be capable of around 1.5 to 2 million capacity.
Well Texas might even be more than that, given it's quite large.
And then this next one, well it is serving an even larger population so it might also
a reasonably large size too.
Some quick numbers, Fremont, Texas and this North East American location, we are at around
5 million vehicles a year.
Let's keep with easy numbers and say that the US sell about 15 million vehicles a year.
Now last year Tesla didn't really make much of a dent in that, perhaps about 1/2 million
or so vehicles sold in the US, maybe 3% market share.
So the legacy auto sales in the US, were not overly affected by Tesla's sales, and the
COVID issues had more of an impact on the fluctuation for them.
So they are still standing, and still selling and still profiting.
But what happens when Tesla goes from 1/2 a million to 10 fold, up to 5 million sales,
perhaps by around 2025 or so, when these factories are ramped, and that's if we don't factor
in any major expansion in Texas, or additional factories in North America.
LEGACY SHARE Anyway, now our 15 million US vehicle sales
a year, with 3% Tesla market share, has expanded to 1/3 market share.
Meaning that legacy now sell 5 million fewer vehicles in the US, assuming new car market
is somewhat zero sum.
People say Tesla's are too expensive, and part of the luxury car market and compare
them to other cars for sale of similar price, although remember the Model 3 RWD does have
a starting price of around the average selling price in the US, before subsidies.
But in my opinion, a more accurate representation is to see what vehicles people are trading
in, in order to purchase a Tesla.
And it seems to be fairly across the board, we have Toyotas and Hondas, as well as BMWs
and Chevrolets.
In other words, I think it's only fair to assume somewhat, that Tesla is a broad market
vehicle, that is not actually in a niche, or particular market segment, aside from of
course being electric, which will likely be mainstream over time anyway.
But it is not a high end luxury brand, despite what a lot of people say just by judging by
the price.
ECONOMIES OF SCALE So across the board, legacy are losing perhaps
30% of their sales, which means they would like have to wind down about 30% of their
production.
Therefore GM, and all other legacy autos in the US, would have to close certain lines,
and only keep their most profitable, or the least losing lines remaining.
But remember we know all about economies of scale, and when you start selling fewer vehicles,
then the likes of OPEX suddenly become more expensive per vehicle,
30% fewer vehicles with the same OPEX actually
increases OPEX 43% more per vehicle.
Ouch, that's quite an addition, especially when it was likely these models were not making
any considerable profit before, and are now making a loss, like their electric cars.
Seriously, this is really tough.
The market is not big enough for them all.
Just this minor drop would destroy them.
You know what, it actually did destroy GM last time.
In the Global Financial Crisis, around 2009 car sales did drop 30%, and GM went bankrupt
and had to be bailed out.
And then when the market picked up again, they were back to making a profit.
But how do you bail out a company that has lost market share forever, and not going to
pick up again.
In fact the opposite, as Tesla might plan on ramping up even more, and taking more of
this market share.
It's musical chairs, the music has stopped playing, and GM doesn't have a chair.
And by the looks of GM's attempts at electric, they are coming up so short.
FORD Am I being overly critical of GM, and ignoring
Ford?
Is it that I have a disdain for people who can lie so easily like Mary Barra, or perhaps
I don't mind Jim Farley as much because his cousin was Chris Farley?
Or perhaps because the tax payers already had to bail out GM, and they didn't even repay
it all, despite making massive profits later.
And not only would a bail out not be able to help them this time, as this is the end
of their industry, they've already had it.
They got a pre-bailout called the inflation reduction act.
I'm not sure if congress is going to be able to pass a bail out on top of that.
Especially by this stage, considering how much this is now costing, Tesla alone at around
5 million vehicles a year, plus batteries and everything, has got to be close to $50
billion just for them.
But the real question is, who will go under first, GM or Ford?
Ford does have more debt, but this is collateralized by the ICE cars they have sold, if their customers
keep making their payments, then Ford should out survive GM.
Although with some massive downsizing themselves, likely leaving the F-150 and a few other brands,
assuming Cybertruck hasn't also taken out the F-150.
I think to be honest, Ford will also be hanging by a thread, and rather than being bailed
out themselves, perhaps they will be forced to purchase GM, for cents on the dollar.
But then they can consolidate, and perhaps Ford's OPEX can now cover both companies.
I would say there is a chance their sports cars, Mustang, Camaro, Corvette, perhaps the
Charger, may still have a chance, due to Tesla not competing with 2 door coupes.
But they may drop some lines.
The Cadillac brand could have had a chance, as it could have got away with a higher price
tag, the Lyriq specs are just so poor though, it's hard to say.
But between Ford and GM there are so many models, they will have to cut back dramatically.
Either way there would be a lot downsizing, and in reality the only thing of much use
to Ford is really GM's battery factories.
GM are investing over $7 billion into battery factories with LG.
So Ford would essentially have access to these now.
Supposedly enough EVs for a million a year.
On top of Ford's plan to have enough factories for 2 million vehicles a year of their own.
SUPPLY AND DEMAND It might even be the markets that are the
most profitable to Ford and GM that they have to actually cut back, pick up trucks and cross
overs, because Tesla will be competing so hard with the Cybertruck and Model Y.
So they may only be able to offer ICE in the segments Tesla is not competing, in fact there's
a high possibility that they may have also converted all these ICE sales to hybrid by
this stage too, to take advantage of the $7,500 tax credit.
Which they will need, as they may now need to raise their prices by about that much to
cover the additional OPEX per vehicle cost.
OTHER COMPETITION So by around 2026 with 3 million EV sales
from this Ford company, 5 million sales a year from Tesla, we are at 8 million electric
vehicles a year.
That's still only half the US market.
There may be another million EV sales from the other companies, like Stellantis and some
of the Germans, perhaps the Koreans.
Then perhaps some hybrid sales from Toyota, and then some ICE and hybrid sales from the
remaining.
But all their ICE sales are dwindling which is hurting their economies of scale, and profits.
So they would possibly have to raise prices.
This would also mean that there is no need for Tesla to start reducing their prices yet,
in order to increase demand.
I keep saying, it's more likely the market gets their heads around vehicles will simply
cost more in the future, at least near future, as we go through this transition, the EV bandwidth
simply isn't big enough yet.
And need to make sacrifices elsewhere.
But I also try to explain that Teslas are still good value, and a $50,000 Tesla is a
similar cost of ownership to a $25,000 ICE.
It just requires a different paradigm of purchase decision.
Or even some education, I still get people commenting that Tesla's are too expensive
at $75,000.
This should also mean that Teslas will continue to hold their price.
There are possibly some Chinese EVs too, but I still can't see them making it big in the
US.
I have to stick with data and numbers on that, despite what others say.
NEW FORD So in this scenario Ford would now be a parent
company to various US brands, and have a large amount of cells.
They will likely use their similar strategy they always have, lots of different models
in lots of different segments to find niches, but no longer have to worry about GM as a
competitor, so will have a larger market share, depending on what Tesla leaves them.
They will also still be receiving massive subsidies, and I can't see the government
removing that for them, as they need it.
The government may end up placing a cap like 10 million sales per manufacturer, in other
words removing Tesla's subsidies.
This would not surprise me at all.
10 million sales may be enough time for Ford to finally become profitable, and perhaps
reach up to 5 million sales a year, which may take them closer to the end of the decade
to reach, meanwhile there is a smaller and smaller market share left as Tesla would continue
to ramp up, and offer more vehicles in more segments, like vans, SUVs and compacts.
To be honest 3 million might be about all this Ford company can reach.
There simply might not be enough market share left for them.
If Ford eventually sold only EVs and it was capped at this 3m a year.
With an ASP of $50,000 and gross margin of 25%
Total gross profit would be $37.5 billion.
That should even be enough profit to cover opex, even for ford, and leave a reasonable
profit.
They would still have a likely profitable ice parts business too, perhaps.
But how can they reach 25% gross margin?
I think they would need to remove the car dealer network to reach these margins.
It’s like a catch 22 though.
Because of ford go under, then the car dealers can’t sell any new fords.
And ford may only survive if the car dealers no longer take a commission.
Maybe they need to have an honest chat with the dealers and come to a compromise.
Perhaps they end up selling all their ICE parts at cost to the dealers so they get more
profit on those, just as an example.
There was talk about ford electric being a new business, that may not be constrained
to dealers.
The dealers will have to offer new services, like maintaining the electric cars, but also
the ICE maintenance business too.
Then used cars.
Some will go under, others not.
But there would be fewer types of EVs to manage compared to multiple brands of ICE.
So perhaps there will be enough supply and demand.
Ford would need to get rid of unions too.
The electric factories could be built in states that are less union friendly.
And likely manufacture them in Mexico.
SUMMARY This is just one idea of how this may play,
I think Ford have a better chance than GM, their electric offering is vastly superior.
It feels like GM are just trying to convince the shareholders, rather than actually save
the company.
If GM goes down it does free up a lot more market share potential for Ford.
GM do have a large cell factory that would likely be of interest to Ford, and the government
may force Ford to acquire it, especially if Ford are also looking like they are about
to go under too.
In any event, I really don't see much hope for GM.
Now this may be the end of GM, and Ford may benefit, but it doesn't necessarily mean that
Ford wont also go out of business too.
In reality no one can predict where this industry will end up by about 2030.
It just doesn't look good for GM.