Proprietary Data Insights
Financial Pros Top Auto Manufacturer Stock Searches December
Invest Now Before Rates Rise
Auto companies need to invest in their supply chains to transform into electric vehicle manufacturers.
Those who make that investment now will benefit from lower rates than those who push out their decisions.
Right now, borrowing for corporate debt is as cheap as it’s ever been. And as we point out in our main story, auto companies are set to spend billions in electric-vehicle investments in the coming decade.
That’s why we’re concerned with Toyota’s (TM) more reserved approach than a more aggressive one like General Motors (GM).
It’s not a question of if but when electric vehicles take over.
Waiting to invest in the change means borrowing at higher rates which reduces margins.
Now, companies with better balance sheets can also contribute more towards the initiative.
But given the current supply chain constraints, we expect many of them to borrow capital instead.
Tesla Makes It Happen
Apparently, Tesla (TSLA) hadn’t impressed us enough in 2021.
Shares rocketed almost 10% higher as the company delivered record vehicles in 2021.
Time To Dominate
In Q4, Tesla delivered 308,600 hitting 936,172 vehicles for the year, an 87% rise year-over-year.
Wall Street anticipated 267,000 for Q4 and 897,000 for the year.
The deliveries solidified Tesla’s spot as the dominant electric vehicle manufacturer.
Tesla struggled with supply issues far less than other auto manufacturers.
Years ago, Musk knew he needed to vertically integrate parts of the supply chain in order to feed the manufacturing process.
For Tesla, that meant becoming its own battery manufacturer while developing a core competency in programming microprocessors.
Volkswagen (VOW) and General Motors began to spend heavily on joint-ventures to shore up their own supply of electric-vehicle batteries.
As noted in a Wall Street Journal article, automakers used to pit suppliers against one another to get better pricing. That works great when there are plenty of companies. But with few battery manufacturers, it makes more sense to become your own supplier.
As your own supplier, an auto company risks lower margins entering a business that isn’t their core competency. But, they get a more stable supply.
That said, most are choosing to go the joint-venture route, leveraging the expertise of a partner as well as another company’s capital.
However, it’s very unlikely automakers ever get into the semiconductor manufacturing industry given the cost of a new factory runs +/- $5 billion.
Instead, companies like Ford chose to partner with GlobalFoundies to create a strategic partnership.
The Bottom Line: Car companies will need to spend capital in the coming years to redo their supply chains. In the short-term, that could compress margins and cash flow.
However, it’s both necessary and appropriate for their survival.
We’ll be looking to see how much General Motors, Ford, and Toyota put towards electric-vehicles development.
Their partners also become interesting investments such as GM and Qualcomm (QCOM) and Taiwan Semiconductor (TSM).
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