New Report Reveals Ford & GM's EV Fueled Push Is Fueled By Cash, Not Credit
The report, which was first published by Standard & Poor, revealed that Ford and GM had invested a combined $65 billion -$35 billion GM and $30 billion Ford - and it appears that the two companies don't have any plans to formally borrow any credit to fund their green-tinged ventures. Instead, the two auto giants are taking the money from their operating cash flow in a bid to reduce risk and boost long-term growth.
Cutting Risk And Boosting Long Term Plans
While paying with credit offers convenience and the ability to kick the proverbial can down the road, it also comes with added risk and makes a company vulnerable to abrupt moves in the market. Ford and GM know first hand what the risks can bring, thanks in part to the 2008 financial crisis. However, paying directly out of the cash flow eliminates the risks brought on by borrowing, which will help provide a lift to a company's stock price since they will be operating on a more secure footing in the long run.
“The short answer is that they are doing it because they can,” said Nishit Madlani, automotive sector lead at bond rating agency Standard and Poor’s. “The popularity of trucks [since the pandemic began] and strong pricing is giving them confidence.”
Part of this confidence comes from some prior borrowing that both firms did in 2020 as fears of an outright economic implosion gripped the world during the COVID-19 pandemic. Once it became clear that the decline in sales was not going to be as bad as initially feared, the subsequent bounce back in sales allowed the two companies to repay the debt while slashing unprofitable sedan models and other pieces of dead weight allowed them to focus heavily on trucks and SUVs which have seen rapid surges in sales and demand.
Stock Prices Will Also See Boost
In addition to the immediate boost in profits that the truck and SUV markets have provided Ford and GM, this enhanced success will also help add some fire into the stock prices for both companies. While the era of both companies trading over $100 a share is still a long way away, it would help end what can be seen as a period of stagnation for both companies. GM, for example, is currently trading for $53.18 a share, but the brand's stock has not crossed the $65 barrier in the last five years.
As for Ford, their stock is currently trading for $20.65 a share, and during the last five years, it has not crossed that barrier. The reduction in borrowing and the untapped potential of the EV segment as a whole could help Ford and GM radically boost their stock prices. The latter reason, in particular, will play a vital role in this rejuvenation as GM's Ultium technology and Ford's rapidly evolving EV and lifestyle tech aim to appeal to a broader pool of customers looking to make the switch from a gasoline-powered vehicle to a fully electric vehicle.
Photo Credit: Ford & General Motors
Carl Malek has been an automotive journalist for over 10 years. In addition to his specialization with Ford, he grew up in a General Motors household and is extensively familiar with their products too. Contact Carl on Twitter at @CarlMalek3, on Instagram and Facebook for automotive news to send news tips.