Hey, I’m Steven and this is Solving The Money Problem.
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I can’t let this slide any longer.
It appears many of the big automakers don’t want to survive this decade and they’re
going to get their wish.
If you’re an investor or employee or supplier to any of these companies, please pay attention.
For months I’ve been predicting very tough times for legacy automakers, suggesting many
won’t make it out of the 2020s alive.
They HAVE to go all-in on EVs NOW or they’re dead.
And that was BEFORE this unexpected health issue which looks to be the final nail in
the coffin.
Ford and GM are both ****ed.
This is no longer a possibility in my mind, but an inevitability.
Truth be told, I feel VW is the ONLY large legacy automaker who both KNOW what needs
to be done, and is taking the necessary steps.
Their CEO Herbert Deiss gets it.
VW is in great hands.
In fact, for contrast, let’s listen to Diess talking with CNBC recently about the future
of the automotive industry.
Why?
Because he is literally the ONLY legacy auto CEO who is saying ANYTHING that makes ANY
sense:
[Generally I think uh 2020 for the automotive industry.. will be a very difficult year.
We are well-prepared so and we optimistic uh, we come with a lot of new product so we
are basically optimistic but it will be a very demanding year for their industry.]
[Mr. Diess, a very very interesting time for the auto industry.
We take a look at Tesla's market value surging past Volkswagen.
I mean how do you explain why investors are putting money in a company like Tesla which
is not making money yet compared to a company like Volkswagen?]
[Yeah]
[I mean it's burning cash.
You're making money.]
[Yeah you know the--the market evaluation tells you something about the future, no?
Future expectations.
Then Tesla is having a product which basically describes the future of the auto industry.
Now fully-connected, electric car and so into--there's a lot of evaluation about the future car and
I think Tesla is paving the way there.
It's--it's modeling something new for the industry.
I think we are close to follow, yeah.
And so we are quite optimistic that we still can keep the pace with Tesla and also at some
stage, probably overtake.]
[keep the pace, overtake.
The question really...eventually… who will win in this you know tech car space?
Will it be you know traditional car makers like yourself, like Toyota or Tesla or you
know players like Google?]
[I think it's an open race.
I would take Tesla more seriously than Google and but and they're also from our peers some
very competitive companies like Toyota.
But it will be I think the company which adopts fastest and which is most innovative but also
which has enough scale in the new world will make the race.]
[ What are you doing to win that race?]
[We are really ramping up our software capabilities, buying companies, building up new skills,
we are heavily investing in EVs, in battery cells, so I think we're doing the right things
to be competitive.]
[The sense out there will be gas powered; that would be the future.
I mean where do you stand on that?]
[No.
The future will be electric in the in the passenger car world for sure.
I think that's pretty clear now and this train is moving.
Is it's gaining speed.
It's gaining momentum.
And for this world we are preparing.
[So my view is that the car will be the most precious and still prestigious and and innovative
internet device.]
[What could hinder the effort?]
[Nothing can hinder the effort.]
[The new thing is really to have the car fully integrated in the internet so loads of data
being uploaded from the car to the internet and downloaded and it makes a car really safe,
innovative, convenient and it makes a big change and that's something new which we have
to learn and that something probably Tesla is quite advanced already.]
[You know, is the change of pace the change of progress to electric cars but also to driverless
cars going to be quicker than we think?]
[Yes I think]
[or less quick]
[I think 2020 will be a breakthrough year for electric cars because also the also legislation
is demanding basically a percentage of electric cars in Europe and in China later then in
the United States, so 2020/21 should be decisive years.]
Meanwhile Ford, GM and others are either incredibly dumb -- I mean, so absurdly stupid it defies
belief -- or they’re smarter than they’re letting on and sandbagging their public EV
plans to avoid causing ICE sales to implode.
I’m not sure which is which.
I can only act on what’s being said, planned and done so I’ll take things at face value.
I hope I’m wrong.
But if I’m not, GM and Ford will be bankrupt or acquired before this decade is out, or
in the best case scenario, they’ll LIMP into the 2030s, clinging on for dear life.
Why?
The EV Transition Is Happening
I’ve been over this 50,000 times.
We ARE transitioning to EVs.
This is not up for debate.
EVs WILL be approximately 100% of new vehicles sales in the future.
Today they’re just a few percent.
EVs are an incredibly disruptive technology and this adoption will follow an s-curve,
much like cars a century ago, or more recently color television and the mobile phone.
First, battery costs are steadily declining over time.
The battery is the most expensive component in an EV.
Today, when factoring in total cost of ownership (maintenance, cost per mile etc) a Model 3
is roughly on par with Civic or Camry despite a higher sticker price.
In a few years the sticker price will be lower AND you’ll get more bang for your buck.
Second, EVs are not cars.
They’re computers on wheels.
Over the updates can improve performance (like range, acceleration and braking) and add new
features such as Tesla’s sentry mode, dog mode, games, theater and more.
Owning a dumb car in the second half of this decade will be like carrying a blackberry
in the iPhone era.
If you’re still not with me, sorry.
I feel like it’s 1995 and I’m trying to explain how the internet will become ubiquitous.
How Ford and GM Make Money
You’d be forgiven for thinking Ford and GM make money selling cars.
This is only half true.
They make money selling SOME cars.
Many of their vehicles have meager margins.
The real profit centers are pickup trucks.
Following those are heavily optioned vehicles and luxury models.
But Ford and GM are really finance companies, making mountains of money on vehicle leases
and loans.
There’s two problems here.
Being heavily reliant on a single class of vehicle, the pickup truck, for most of your
automotive profits is precarious.
What if something like Cybertruck comes along and eats your lunch?
What if budget conscious consumers are no longer willing to buy gas-guzzling trucks?
But worse still are the automotive loans.
This is a whole other video but in a nutshell, these loans are secured against internal combustion
engine vehicles.
If the customer fails to pay their loan, at least you can seize their car.
There’s a problem here.
The value of internal combustion engine vehicles is on the edge of a precipice.
As EVs reach purchase price parity, ICE vehicles are toast.
Why buy a vehicle for the same price that’s way more expensive to fuel, way more expensive
to maintain because of all the moving parts, has inferior performance, spews CO2 into the
atmosphere and can’t make fart sounds?
This ticking time bomb will probably be the undoing for Ford and GM.
Borrowing Billions
Last week, Ford drew down $15.4 billion dollars in existing credit facilities to “weather
this storm”.
Doesn’t sound terrible until you realise that was almost the same as their entire market
capitalization.
Today, Ford has over $170 billion in total debt.
Much of it secured to ancient technology which will become close to worthless this decade
as EVs take over.
This is not good.
Further, Ford’s debt has just been downgraded to JUNK by the S&P.
This is REALLY not good.
For comparison, Tesla has less than a tenth of Ford’s debt yet 5 times its market capitalization.
Even the markets recognise Ford is screwed.
It wasn’t just Ford who tapped into credit.
This week GM drew down $16 billion dollars to get through this rough patch.
GM’s total debt is over $100 billion dollars and much of it, like Ford, is a ticking time
bomb.
This is REALLY not good.
Both companies are in precarious situations with their core technology and products on
the way out, and no plans to rip off the band-aid and go all-in on EVs.
Transitioning to EVs will cost both companies tens of billions, but the longer it takes
them to go all-in, the more costly and painful it will be.
This presents a huge problem.
The fallout of this health issue means making the transition to EVs which was already an
EMERGENCY may now be impossible to do without going bankrupt.
And that brings us to the punchline of this video.
Ford and GM’s EV Plans
Let’s read this this excerpt from a recent Reuters article which leaked the plans of
Ford and GM in the US:
General Motors and Ford have widely touted their commitment to emission-free electric
cars, but their production plans show a growing reliance on ever-larger gas-powered vehicles.
The two biggest U.S. automakers will make more than 5 million SUVs and pickup trucks
in 2026, but only about 320,000 electric vehicles, according to detailed production plans for
North America seen by Reuters.
HAHHAHAHAHAHAHAHHAHAHAHHAHAHA.
Are you ****ing serious?
A combined total of 320,000 electric vehicles in the US per year in 7 years?
Are you kidding me?
This is the death knell.
This right here.
This is it.
Game over.
Now it is possible that this report is false but I’ll give it the benefit of the doubt.
For Ford and GM combined to be aiming to produce LESS electric vehicles in 2026 than Tesla
did 7 years earlier in 2019 is all you need to know.
But if you don’t get it, allow me to elaborate.
In 7 years, Tesla will be producing somewhere on the order of 3-6 million EVs per year,
many of them for the US market.
Those numbers are based on 35% and 50% annual growth rates respectively.
Use your own numbers if you prefer.
The point is Ford and GM will need to be making MILLION of EVs combined in 2026 JUST to keep
pace with Tesla JUST in the US.
If their plan truly is to only produce about 5% EVs and the rest internal combustion engine
vehicles in the US by 2026, they are dead.
It sounds like I’m being alarmist.
I’m not.
I’m being a realist.
The writing is so clearly on the wall that I need to put this out there.
I’d feel terrible if I didn’t.
We are seeing two Titanics headed directly toward colossal icebergs.
From where I stand, my money is on them both sinking.
I hope I’m wrong.
I REALLY hope I’m wrong but if Ford and GM either don’t get it, or DO get it but
are too short sighted to shift their business immediately to be all-in on EVs, it’s game
over.
Remember, today Tesla’s battery technology is 5+ years ahead of everyone.
As is their full self-driving data lead.
Their self-driving chip is years ahead too.
And they have more than a decade of experience designing and manufacturing electric vehicles.
Tesla’s lead, which is already ENMOURS, is ACCELERATING.
Ford and GM are years behind and they’re basically planning on doing approximately
NOTHING to change this for 7 years.
If I’m being honest, I kind of understand.
What executive is going to implore their company to immediately begin bleeding billions and
undertaking the brutal and painful process of transitioning to EVs?
Most of these executives will retire this decade.
If their company goes bust after they’re gone, why should they care?
Better to keep the status quo and enjoy those fat bonuses while they last, right?
This health issue has catastrophically complicated things.
Before it, Ford and GM needed to go all-in on EVs to survive the 2020s.
Now, the very thing that MUST DO, may be what brings them undone.
Netflix put Blockbuster out of business in a little over a decade.
We’re now seeing the same thing underway in the auto industry.
EVs are a huge, inevitable disruption.
Any automaker today who is not preparing to go -- or already -- all in on EVs will not
make it through the end of this decade in one piece.
Mark my words.
The question is, after such a significant economic disruption, do any legacy automakers
have the vision, leadership, agility and execution to get through this?
When the world is back up and running, the dinosaur automakers will be focused desperately
on making money in the short term to claw their way out of the holes they’re sinking
deeper into.
This is NOT going to be helpful for their electric vehicles projects -- currently Tesla
is about the only company outside China who actually makes a profit on electric vehicles.
The dinosaurs will be milking their highly profitable pickup trucks, luxury vehicles
and those with lots of options as they lick their wounds, right when they should be abandoning
this ancient technology and going all-in on EVs.
Ford and GM are ****ed.
What else can I say?
I’m Steven Mark Ryan, this is Solving The Money Problem and I love you all.
Thanks so much for watching.
Let me know your thoughts in the comments below.
Do you agree or disagree?
Which automakers will survive the transition to electric vehicles, and which will perish?
And of course, if you have any ideas for future videos, let me know.
I read ALL your comments.
And for anyone who currently works at one of these automakers: your job is at risk.
Again, I’m not being an alarmist.
You need to face reality.
You are working for a company who are steering your ship toward certain catastrophe.
What’s your plan B, C and D?
The same goes for suppliers.
And if you’re an investor in these companies, well...good for you.
I’m not here to give investment advice, just my perspective.
And with that said, I’m out.
p.s.
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