Brian Wang and Warren Redlich Talk the Future of Car Companies

Brian Wang talked with Warren Redlich which car companies will go bankrupt first. I had written about this topic a few days ago.

My main point is that the car companies other than Tesla already have very weak balance sheets. There are ongoing smaller scale bailouts now and there were bailouts in 2008-2014. The bailouts and bankruptcies will continue and will be more frequent as we go through huge transitions in electrification and self-driving.

Volkswagen has about $260 billion in debt. $30 billion of this comes from fees and penalties from the diesel gate emissions scandal. Macroaxis gives probability of financial distress of 73% in the next two years for Volkswagen. Other car companies are rated at having a 38-49% chance of financial distress in the next two years.

Those risk probabilities are the usual too much debt and facing regular market ups and downs.

The car industry have had a long history of going bankrupt. Chrysler went bankrupt multiple times. Nissan and Renault have had recent reorganizations. T

The regular companies are coming into the next ten to 20 years of transportation disruption in a weak state. The transformations that are clearly happening are electrification, ride sharing, robotaxi and self-driving.

Tesla will be stressing Volkswagen-Audi, BMW, Lexus and Mercedes over the next two years with about 1 million per year more Model Y sales increases in 2022 and another 1 million per year more Model Y sales in 2023.

Tesla starting the Berlin factory means the prices of Tesla cars will face $10000 less in import fees and $1000-2000 less per car in shipping costs.

The carmakers need to spend $5 to $10 billion to convert factories for each 1 million car per year to shift over to electric car production. This increases the debt on already debt-heavy balance sheets. The new electric car launches could fail. This would mean they have more debt and the expected revenues are not created.

Tesla and other upstarts will be taking market share on the core car segments of the ICE carmakers. Volkswagen will see its mid-luxury cars and European market attacked. Ford and GM will see their truck and SUV segments attacked.

In previous decades, GM went from 45% of the car market to 17% when they lost market share to European and Japanese carmakers. This time they will not be able to just abandon sedans and small cars to shift over to trucks, vans and SUVs.

Increased ride sharing and self driving will reduce the overall demand for cars.

The carmakers are weak and facing their greatest challenges.

I believe they will keep getting the bailouts they have already had for many years. But eventually they shrink and shrink like Nokia and Blackberry in the cellphone-smartphone world.