The Long Road Back for Autos
We all know about the vast fixed investments in electric, connected, autonomous, and self-driving vehicles, and we all knew returns on investment were a year or three away. We didn’t know a post-corona ball and chain was coming, however, and so the cue the mass auto stock exodus. There’s $72 billion in new debt to service!
This will distract from growth, and the sheer thousands of car parts involved in production mean major headaches from frozen supply chains. It seems manufacturers have been forced to pay for stranded supplies, and global sales are expected to drop 22% this year as dealerships empty out, according to AlixPartners.
The winners could be all-electric, as these banana peels affect incumbent manufacturers worst, like Ford, General Motors, and Volkswagen. These companies are racing to catch up in battery tech, and now they’re faced with an unprofitable core business.
German Chancellor Angela Merkel is bearish on these laggards and bullish on that electric car revolution. It’s obvious to her this sector is shifting, and jobs need protecting. She’s welcoming Tesla to Berlin with open arms, much to VW and BMW’s irritation.
The trucking trade could also be a safe haven for investors, as truckers’ consumer confidence stabilizes amid low fuel prices. It’s much easier for a business customer to bulk order trucks on the phone than it is for mom-and-pop to upgrade a car online.
The S&P Global rates debt based on its prospects of being repaid, and it’s reminded us that no one in this sector has escaped all the fallout. S&P has downgraded the entire $72 billion in made loans to the automotive sector without discrimination.
All in all, this market niche isn’t totally off bounds, but watch your step; there are banana peels everywhere!