Which Car Companies Will Go Bankrupt First?

Solvency is a concern for non-Tesla car companies. The Z-score formula for predicting bankruptcy was published in 1968 by Edward I. Altman, who was, at the time, an Assistant Professor of Finance at New York University. The formula may be used to predict the probability that a firm will go into bankruptcy within two years.

The Z-score has been found to correlate with bankruptcy 70-90% of the time. It has been shown that manufacturing companies that go bankrupt have bad Z-scores in the years prior to bankruptcy. However, the prediction that companies with bad z-scores will go bankrupt is less clear.

The vast majority of car makers other than Tesla and some Asian car makers have z-scores that are in the danger zone. Bailouts and bankruptcies are a regular occurrence.

VW, Ford and BMW are financially even weaker than Daimler and GM on the Z-score. Model Y going to 2 million per year by 2023 hurts BMW and VW a lot. If Ford spends a lot on F150 Lightning and sales decline after an initial surge, and next year Cybertruck starts to hurt ICE trucks while Ford gets more losses from ICE declines and Lightning losses. Many more car startups (Nikola and others) will implode.

Nextbigfuture prediction that BMW, VW and Ford will need big bailouts and restructuring support within 4 years.

Macroaxis does give probability of distress. The Probability of Bankruptcy SHOULD NOT be confused with the actual chance of a company to file for chapter 7, 11, 12, or 13 bankruptcy protection. Macroaxis simply defines Financial Distress as an operational condition where a company is having difficulty meeting its current financial obligations towards its creditors or delivering on the expectations of its investors. Macroaxis derives these conditions daily from both public financial statements as well as analysis of stock prices reacting to market conditions or economic downturns, including short-term and long-term historical volatility. Other factors taken into account include analysis of liquidity, revenue patterns, R&D expenses, and commitments, as well as public headlines and social sentiment.

Tesla less than 1% probability of distress within 2 years
Volkswagen has a 73% chance of financial distress within 2 years
Daimler 49% probability of distress within 2 years
Ford 49% probability of distress within 2 years
ford 48%, GM 38%, BMW 49%, Hyundai 44%, Honda 49%, Toyota 45%

Nissan, Renault are coming out of reorganizations.

Volkswagen ID4 and ID3 sales have been underwhelming in 2021. VW is missing its ID4 and ID3 sales targets.

The legacy car companies have weak balance sheets and must spend tens of billions of dollars to transition to electric vehicles over the next decade. It is not certain that they can master making compelling and competitive electric cars.

All car companies will have to get the supply chain for new batteries at very large scale.

Suppose the Ford F150 Lightning is a success. Current Ford plans are to be able to build about 160,000 per year in 2026. Ford is targeting annual production of more than 80,000 in 2024, up from its initial target of more than 40,000. Sales of the F-150 Lightning will start in spring 2022. They plan to build 15,000 electric trucks in 2022 and 55,000 in 2023. A second-generation F-150 Lightning is scheduled for late 2025. Ford hopes to build and sell 160,000 electric trucks a year.

The F150 Lightning has 120,000 reservations and the Tesla cybertruck has over 1.5 million reservations.

History of Auto Bankruptcies and Bailouts

Bailouts, bankruptcies and government support is standard for the car industry. The bailouts and aid to corporations is happening now and has been happening a lot historically.

Chrysler and GM had bailouts from 2008-2014.

During the pandemic the Federal Reserve has purchased $500 billion of corporate bonds and has been buying $80 billion per month in treasuries.

The Fed is also buying corporate bond ETFs as part of this $750 billion emergency lending program to buy corporate debt.

Toyota, Daimler, Volkswagen, Ford, GM and BMW are among the top companies getting interest rate support with bond purchases. Each got about $5-8 billion in bond purchase support.

France, UK and the rest of europe have been giving loan guarantees and other bailouts to car companies.