Ceres: Electric Challenge Is Good For US Automakers

3 months ago by Sebastian Blanco 19

There’s been a lot of scuttlebutt lately about the wildly different fortunes of the Tesla and Ford stock prices. Whereas Ford is an established automaker that sells millions of vehicles a year, its stock hovers around $10-$12,  a market cap of ~$43 billion)  Tesla, a new automaker with a big challenge ahead, has been on a stock market upswing like you wouldn’t believe. It’s at around $365 today – good for a $60 billion market cap. So, what can we make of this?

Well, there are of course a ton of reasons for those two stock valuations, but one important aspect is the way an automaker is engaging with a cleaner, more electrified future. A new analysis commissioned by Ceres and written by Alan Baum, a principal of Baum & Associates, an automotive forecasting and research consultancy, says that there are two important aspects to how strong an automaker’s financial outlooks is. First, there’s been a bit of a softening of overall demand, because “the pent-up demand from the 2007-2009 Great Recession (which resulted in record 2015 and 2016 sales) is apparently exhausted.”

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The more important reason, though, is that there’s a whole new raft of possible players (think Uber and Lyft) and ideas (electric vehicles) that are causing uncertainty about what’s coming next.

“Wall Street remains skeptical regarding the efficacy of the industry’s reaction” Baum writes, and so “the legacy automakers are now under tremendous pressure to invest in new technologies and redefine their business strategies to enable them to thrive in this new era.”

Which brings us to the idea of fuel economy standards and their impact on the industry. Baum says that some OEMs are blaming strong standards for their lackluster stock prices, but his analysis shows strong standards are actually good for the industry because they light a fire under the companies to actually make changes.

“In fact,” he writes, “fuel economy in general and electrification in particular are critical to automakers’ success in this new era; given the importance of operating costs, fuel efficiency and electrification will drive growth in ride sharing and autonomous fleets.  Investors are also sending a clear signal that they value forward looking investment in advanced technologies. We conclude that current fuel economy standards have not negatively affected the legacy automakers’ financial performance, and that, given the major trends affecting the industry going forward, weakening the current fuel economy standards would in fact be detrimental to the future competitiveness of U.S. automakers and their suppliers.”

Here’s one more key paragraph from Ceres’ report:

While the improvement of fuel economy and reduction in greenhouse gas emissions is mandated by governments across the globe, it is demanded by consumers and of course positively affects operating costs and will help automakers thrive in the face of the broad industry changes described above.  While the federal clean car and fuel economy standards for model years 2022-2025 are under review and a number of auto companies and their trade associations are seeking to weaken existing standards, many global automakers recognize the importance of investing in fuel economy improvement in order to meet market demand and corporate marketing goals, and contribute to a better environment.  Of course, these trends are global with countries and large cities around the world (including China, India, France and the UK) setting or considering policies that will incentivize in some cases and require in others high mileage and/or electric vehicles.  As a result, weakening the U.S. standards will inhibit U.S. automakers’ ability to compete on the global stage.

Source: Ceres

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19 responses to "Ceres: Electric Challenge Is Good For US Automakers"

  1. Dav8or says:

    There’s really nothing any other company of anything can do at this point. There is only one Elon Musk and they can’t have him. He is pretty the ONLY reason for Tesla’s stock prices and market cap.

    1. trackdaze says:

      For real?

    2. Brandon says:

      You do realize the cobalt used in all electric car batteries right is mined using child slave labor right? Musk needs to get off his holy horse and make sure he’s not funding child slavery for every Tesla he shoves out the door.

      1. jelloslug says:

        I love how people read one article and then think they are an expert on the subject.

      2. Roy_H says:

        I don’t have time to find the quote, but I am sure I read that Tesla makes sure they do not buy supplies from sources that use child labor.

      3. L'amata says:

        were you there & did you physically witness this?…the Anti EV 0il guys will tell you nothing but Lies.they hire specialists that spin the truth & LIE through their Teeth. ..I’m Buying A Model 3…Ha Ha Ha

      4. Unplugged says:

        Placing lies in the comment section doesn’t help your credibility. Tesla only uses North American cobalt in its batteries.
        https://techcrunch.com/2017/01/01/no-cobalt-no-tesla/

    3. pjwood1 says:

      The report does single out Tesla, as a driving disrupter, while ranking others by invested technologies. It doesn’t throw punches, but lets informed people differentiate for themselves between what will succeed:
      -Hydrogen (noting Toyota’s recent give-up)
      -48V
      -Hybrid
      -Eco Boost
      -Some Battery
      -All Battery

      Interestingly, it doesn’t fight the idea that compliance costs will be $1,300 per vehicle, from some combo of the above. They don’t look at how total costs of ownership, for the consumer can go down in the case of all-battery cars. It’s a business driven thesis for the standards.

  2. Scott Franco says:

    Its been over 100 years since the founding of the car industry in America. After an initial shakeout and merger period, the US car industry has become famous for being a virtually unbreakable cartel (pun intended). It has laid waste to all US challengers, and was only humbled by huge foreign conglomerates backed by their governments. And the big two have done this in no small part by enlisting government aid in terms of regulation to keep competitors out.

    Now we have a new company that plays the government like a fiddle, refuses to drop “those silly electric cars” and play by the same rules as the other car companies. And wall street is finally moving enough capital around that they can actually compete on level ground.

    If I were GM and Ford I would be betting that the investors will turn and run at the first sign of trouble and that electric cars are a passing fad. A lot of stock analysts at this point are betting that the big car makers are going to wake up and wipe Tesla off the map.

    I am betting they won’t. This is not a game. There is going to be blood running on the street if EVs even get to %25 share. Oil companies, gas stations, traditional car companies, in decline and headed for death or a dramatic reajustment.

    1. Mikael says:

      Not really, the transition is so slow that traditional car companies will have time to adjust no matter Tesla or not.
      Gas stations have been in decline for a long time, they are just moving to fewer stations and 24 hour automatic and unmanned stations.

      Oil companies are seeing the writings on the wall and are starting to diversify what they are doing.

      1. Rob Stark says:

        Not really. Technological transitions seem slow at the beginning with incumbents thinking they have time to adjust in the future. Kicking needed investments down the road. Then the switch happens fast and hard.

        During the Great Recession a decline in sales of 7% bankrupted GM and Chrysler. Ford mortgaged the family jewels before the Great Recession struck and managed,barely, to escape bankruptcy.

        Today GM and Ford have stronger balance sheets. FCA not so much. This buys GM and Ford about an additional year before filing for bankruptcy.

    2. Leptoquark says:

      “If I were GM and Ford I would be betting that the investors will turn and run at the first sign of trouble and that electric cars are a passing fad.”

      Have you driven one? They are no passing fad. We’re on our third.

      “A lot of stock analysts at this point are betting that the big car makers are going to wake up and wipe Tesla off the map.”

      With what? Was there another carmaker that had lines out the door, 400k+ pre-orders, and hundreds of fan-made commercials on the web? Does some other company have a set-piece nation/worldwide fast charging network in place?

      “There is going to be blood running on the street if EVs even get to %25 share. Oil companies, gas stations, traditional car companies, in decline and headed for death or a dramatic reajustment.”

      Apart from the metaphor, it’s funny how you make that sound like a bad thing. I would think of it as breaking our dependence on finite, politically volatile and polluting resources and increasing our energy security.

      1. Will says:

        The crazies are out for tesla. GM and Ford are not going bankrupt anytime soon. They are making what the markets want and that is trucks and suvs which bring high profit margins

  3. fasterthanonecanimagine says:

    If the Tesla valuation was e.g. only 5 Billion, GM would simply take it over for 10 Billion, make a total write-off, and cease operation. There are many players (car, oil, governments) that would reimburse GM much more then the 10 Bio, just to delay the EV revolution by a couple of years. That’s one reason for the high valuation of Tesla you probably have not read about before.

    1. fasterthanonecanimagine says:

      The high valuation is actually protecting Tesla from extinction.

      1. Will says:

        +1. No profits no money. Surviving only on revenues and junk bonds

  4. Mister G says:

    Tesla is an energy, transportation, and data company, once you accept that the share price is justified.

  5. pjwood1 says:

    Here’s a link:

    Good job, by Ceres and Baum. This is an organization funded through places like “Charity Navigator”, without the deep pockets of doom and gloom. They have to be $$ efficient when responding to the “job killing”, “demand killing”, “nobody’s green” narrative others foster.

    From the report: “200,000” employed by American car makers, “500,000” employed by all the innovators and the supply end that is already invested in seeing CAFE and the ZEV mandates through. Ford and GM advocate for shareholders, not half a million people they don’t even employ. We lead, or we send those jobs someplace else.

  6. FISHEV says:

    Wall St is a casino that doesn’t have a lot to do with the original company’s fortunes. The stock prices are not based on company’s numbers but rather on the gamblers intuition on what other gamblers will pay for the stock in the future.

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