The demise of the OEMs

[Buckminster]

From main thread:

Wow,
Is this real? I thought other auto companies are formidable rivals, but they actually have neeeeeeeeegative value?



Legacy is f***ed
@tesla4k

Tesla Market Cap—$144B Total debt—$13B
Ford Market Cap—$32B Total debt—$155B
GM Market Cap—$50B Total debt—$103B
VW Market Cap—$96B Total debt—$227B
Daimler Market Cap—$59B Total debt—$169B
BMW Market Cap—$43B Total debt—$113B
Toyota Market Cap—$198B Total debt—$183B
Twitter

Also, this report has a couple of interesting angles.
Tesla teardown finds electronics 6 years ahead of Toyota and VW

 

[jw934]

Excellent video on comparison of multiple financial ratios between the OEMs.

 

[Mata Hari]

They will die a slow death. The world’s economy is heavily dependent on trading oil. The US and possibly others will prop up the failing companies for awhile, like GM was bailed out in the recent past.

IMHO better to bet on a rising Tesla...

 

[Christine69420]

Moody's just downgraded Renault

Moody's Investors Service on Tuesday downgraded Renault SA long-term

ratings to Ba1 from and its short-term ratings to non-prime, but kept a stable outlook.

Moody's said the downgrade was triggered by Renault's "substantially weakened operating performance, reported for the year 2019, "to a level no longer commensurate with the Baa3 rating category".​

Source: Moody's Downgrades Renault's Amid

 

[TheTalkingMule]

Carmakers press for EU and UK subsidies after slump in demand

 

[Knightshade]

Tesla originally hoped to build 500,000+ cars this year...it may be less from the shutdown... but let's say they make 600k.

And let's say with giga berlin they will sometime in the next few years add 500k more capacity.

And giga texas let's say another 1 million (2x the capacity of any factory officially existing or under construction for Tesla).

That gets them to 2.1 million cars a year max production.


And that's assuming Tesla can increase battery production at least 5x (just for those cars... plus another what at least 1-2x for the semis they ALSO want to make in that time?).


In an average year roughly 80 million new cars are sold.

So Tesla would be able to replace just over... 2.5% of the new car market.


Legacy car makers aren't going anywhere for a while. There's literally nobody to replace them.

 

[adiggs]

....

Legacy car makers aren't going anywhere for a while. There's literally nobody to replace them.

Just quoting a piece of your larger comment. I agree with your data, observations, and most of your conclusion.

There's an important caveat about legacy car companies not going anywhere for awhile. Clearly this is true from a units point of view (that they aren't going anywhere). Tesla can't replace 80M units / year anytime soon (though they can much sooner than most think - they're building factories fast enough!).

Anyway, that caveat isn't whether they can produce the units. The question / caveat is can they do so in a sufficiently economic fashion that they can continue as going concerns. Car manufacturing is an incredibly capital intensive business. This is important for understanding the relationship between revenue and profits. Generally speaking, capital intense means that there's some minimum revenue level that needs to be hit for the business to be profitable, with a LOT of profits as the business grows beyond that minimum revenue level for break even.

Below that level, the business loses money FAST.


The problem for the other OEM's is that with Tesla taking share so quickly in units, they're also taking share in revenue, with that share in revenue broadly speaking coming from the top end and most profitable end of the market.

So while the legacy OEM's are clearly needed for the units, I foresee a window (coming soon - next 2-5 years?) where the annual unit production of automobiles shrinks pretty dramatically, even as Tesla continues to ramp production as fast as they can. What will happen is that through awareness of Tesla (and other EVs), we'll start seeing new car buyers deciding to delay their purchases (a little or a lot), until their EV is available. That will show up in expanding demand for EVs, and shrinking demand for fossil fuel burners, and will show up as a big net reduction in annual unit deliveries.

As well as in legacy OEM bankruptcies as their unit production falls below the level where they can be profitable given their capital investment to build units.


Interesting side bar, though not the topic of this thread. I think the O&G business is facing a similar dynamic, much as the coal industry (at least in the US) already has. In the coal industry, actual units of consumption has shrunk maybe 25 or 33% over the last decade (definitely less than 50%). However the market cap of coal mines / coal companies is down >>99%. The delivered units is down "some", but the economic value of the entities delivering those units is down almost to nothing.

I see a similar dynamic coming to O&G, though it hasn't really arrived.

And I see a similar dynamic coming for the legacy OEMs. Their units are needed based on current market size. But as purchases get delayed, or skipped - whether from EV desire or from pandemic, or whatever, I foresee a difficulty for many (or most) of these companies to continue as going concerns. A round of bankruptcy will do many of these companies good - shed some debt and wipe out common shareholders (bad for shareholders and debt holders, but good for the company's economics).


In short - units same or down some; economics down a lot.

 

[RobStark]

In an average year roughly 80 million new cars are sold.

The Global Auto Industry is manufacturing at 80% capacity.

They are not all going to fold inside a decade.

Renault-Nissan-Mitsubishi could fold tomorrow and there would still be 80M new cars for consumers to purchase over the next 12 months. Or Peugeot-FCA

The problem is particularly grave in Europe. Even after Ford and GM closed plants.

More capacity is coming online near Berlin too.

 

[Buckminster]

Tesla owns 79% of the electric car market in the US, and that needs to change - Electrek
It's happening exactly as planned. Charging remains a problem. OEMs are going to waste the next decade on hybrids.

 

[RobStark]

120+ kWh CCS Charging Stations in the USA

 

[Buckminster]

Rob - you really think that folk don't see Tesla's charging solution as being a major benefit when making their purchasing decision? Cost, hassle, number of stations, kWh, fear of the unknown, reduced range etc. If people actually start buying non-Teslas, they will have huge problems on Thanksgiving.

 

[RobStark]

Rob - you really think that folk don't see Tesla's charging solution as being a major benefit when making their purchasing decision? Cost, hassle, number of stations, kWh, fear of the unknown, reduced range etc. If people actually start buying non-Teslas, they will have huge problems on Thanksgiving.

Tesla has a clear advantage with Supercharger Network over the CCS Network....but that is way overblown by most Tesla fans. Many Tesla fans tell potential EV owners that CCS EVs face a charging desert.

There are more Tesla fast chargers, they are more likely to be working, and charger/car software is superior. But CCS is good enough for most people.

The more CCS EVs are on the road the better the financials for CCS Network companies. And the more monies they will have to expand the Networks.

Thanksgiving isn't exactly as easy for Tesla drivers as ICEv drivers.

 

[RobStark]

This guy set the EV Cannonball Record in a Taycan.

NYC to Los Angeles Race.

BTW I have zero doubt that the Model S Plaid+ can absolutely crush this record. But the point stands about the usability of the CCS Network. Warts and all. Even 350 kWh chargers trying to charge at 270 kw for the first time.

 

[Rarity]

Wow, this is a blast from the recent past. This has probably already been discussed to death elsewhere, but to answer Quesder's post, no these companies don't have negative value. After all, the debt that they carry has some value to the investors in that debt. So they all have high "enterprise value" (debt + market cap).

That said, these companies' investor bases are pretty brittle. Debt holders tend to be a risk-averse group, which probably perversely increases the risk of failure of these companies when trying to pass through a technological shift. I am glad that Tesla does not have to deal with that type of investor base and that the company is run in a way that would be antithetical to this type of investor.

 

[Buckminster]

I'm really looking forward to watching the Legacy Automakers figure out the path to solvency once it becomes illegal to sell any ICEV's. Even taking the legislation favoring EV's out of the equation, in 5 years, why would anyone want an ICEV?

The paradox facing their business model is truly satisfying to watch unfold. Currently, the legacy's EV's are only price competitive on the backs of their ICE trucks and SUV's. The recent news of the Model 3 winning Motor Trend's Luxury car of the year is significant in showing that even without Federal Incentives, the Model 3 compares favorably with its peers. I don't know if anyone did any research on if the Model 3 was also the least expensive of the competitors, but I believe it was. But they most likely are not financing the costs of their sedan offerings from the truck sales like they are with EV's.

So how will GM be able to offer the Bolt with a $15,000 discount on top of the $9,000 loss they supposedly already incur (according to Bob Lutz), once the ICE trucks and SUV's are no longer part of the equation? If GM or Ford had to price their EV lineup to be profitable on its own, the Bolt would be a $55,000 Sonic.

And the GM faithful look to the Ultium battery as their knight in shining armor that will showcase GM's superior battery tech and catapult GM to the top of the EV mountain. Finally, GM will put Tesla in their place. Hallelujah. They conveniently have ignored that the modular skateboard battery pack in various sizes is circa 2012. But, the real advantage is Ultium's cost advantage where they hope to get their battery costs below $100/kWh. Meanwhile, Tesla has shown how they plan to get their costs in the $60/kWh range. Not just made the claim, but show how they will do it in great detail.

Other than economies of scale, GM's been pretty tight lipped on exactly how they hope to accomplish this. Their battery reveal in sharp contrast to Tesla's battery day didn't really explain anything that would lead one to believe they have a leg up on the competition. No breakthrough in manufacturing, materials, efficiency, form factor, density, weight, structural pack, etc. The truth is, just like the Bolts, anemic charge rate making the car obsolete before it rolled off the assembly line, so too will their Ultium battery go down as an epic failure to innovate.

Currently, the battle cry justifying the purchase of a non-Tesla has typically been price. Otherwise how else can one justify passing on the industry leader in:

• Safety
• Performance
• Efficiency
• Range
• Value
• Resale
• Technology
• Charging Infrastructure
• OTA's
• Autonomy
• Sales model
• TCO

So how exactly do they expect to compete when the exorbitant profits of their trucks and SUV's will no longer subsidize their existence? I suppose they expect to still rape the consumers with ungodly profits from their EV trucks of course. Surely they will be able to make a healthy profit on an E150 at $20k more than the ICE version. Probably could have, except for the Cybertruck, which will decimate their planned gouging experiment before it ever gets off the ground.
It's going to be a long, long time before legacy figures out how to make just EV's and still remain profitable. I have my popcorn ready.

 

[Buckminster]

 

[Buckminster]

Everything Must Go! The American Car Dealership Is for Sale.

 

[winfield100]

Everything Must Go! The American Car Dealership Is for Sale.

will we need UBI sooner…..?

 

[adiggs]

will we need UBI sooner…..?

It's off topic for this thread, but UBI is an interesting topic to me. Today I consider UBI to be inevitable. The dynamic I see is that automation is concentrating the benefits of manufacturing into the hands of owners, while concentrating the liabilities in the hands of works. It is also, for the first time, creating a world in which there can be adequate stuff for everybody, without ~everybody contributing to its creating.

I do see a LOT more service jobs being created, assuming that people have money to spend on them. And that's the key - one lesson I think is there to be learned from the pandemic is that those low priced laborers are, in fact, a critical component of a modern economy. But there won't be enough service jobs as automation continues it's progression. There will also be some level of automation that offsets this incremental work in the service economy as well.

OR this will be just like all the other productivity improvements for many decades - productivity goes up, which increases economic activity and opportunity, and that keeps people employed and contributing economically. I believe strongly in that idea - new technology opens up new activities while closing out old ones. This one - automation - is the first I see where the consequence is fully replacing humans in the manufacturing process. In an automated factory the only need is for a few humans to monitor and handle repairs / maintenance. That's not coming back, the factory can be scaled up to effectively any level of output desired for very little cost.


So we either get a UBI going or we get to see what those dislocations in society look like. One can view it as the rich folks, and people willing / eager to work (and there will always be some), as buying off the rest of us so we don't riot. Or we can view it as using that automation to enrich the few that own it, while enabling the rest of us that would rather be doing something else to do that.


The main question as I see it is timing. In the US - one of the countries I see it coming to early on - my guess is more than a decade away but less than three. There is a strong political undercurrent of 'those that work are valuable and good human beings - those that don't work are lazy bums and bad human beings'. That won't go away on a dime. Increasingly desperate and increasing numbers of people for whom there is no work - that will tilt things.

 

[Buckminster]

Haven't watched it but should be amusing.

Controversial comment:
Is Toyota truly in a worse position than the other OEMs? Nobody is making money other than Tesla on EVs and arguably will have to throw a lot of their learning out to keep up with Tesla.