Anyone who is involved in the world of automotive, especially as a Tesla investors heard this: the competition is coming.
As someone who started following Tesla in the middle of the last decade and started to invest towards the end of it, this is rhetoric that was espoused at a fevered pitch since 2017. At this time, it is still an absolute joke.
In the past, I made the statement the competition is coming. The difference is I understand who the predator is as compared to the prey. More on that in a bit.
Ford just announced their earnings. To be fair, they did have a fairly strong quarter. The problem is that it was all from their legacy division. Their EV numbers were abysmal.
Some might shrug this off. If you believe the future is not EV, then perhaps that is a worthwhile approach. That said, if you do believe the future is electric, then this is just another sign that the game is over.
The major problem for EV makers, other than Tesla, is the lose money on each car. BYD might be the sole exception although that is tough to tell since most of their electric sales are hybrid. Nevertheless, legacy auto is losing a fortune.
Here are some charts from Ford's investor pack upon the earnings release.
Look at those numbers. The company sold 33% less than Q1 of last year. This naturally pulled in less revenue. The problem is look at the loss, most notably the margin. Ford lost over 100% on each EV sale. The average cost was around $56K and the loss per vehicle was over $115K.
Is this really competition?
Again, this is only focusing upon the EV division and credit to Ford for breaking them out in terms of the numbers. General Motors, as an example, lumps them all in together.
In short, we can say the EV business is sick, very sick.
Of course, the Tesla detractors will say that Ford experienced a fire and did shut down a line for safety reasons. Valid point. This means that when production goes up, the loss per vehicle will drop drastically.
It is another valid point. Ford obviously is able to leverage the economies of scale that come from manufacturing. Do you know who else can do that? Tesla.
Ironic how most attack Tesla's declining profit margins when that company is scaling two new factories. I guess most feel Tesla will not enjoy this like other companies.
As a comparison, in the automotive division, Tesla delivered a gross profit margin of 19.3% in Q1.
The competition is coming as a threat to Tesla is noise, at least from legacy automotive.
As I stated, there are two EV entities: Tesla and the Chinese companies. This is who is going to dominate in the next couple decades. Legacy auto will either be downsized or out of business. That means we are going to see consolidation within the industry as they struggle to hang on. This is going to resemble what happen in retail as deparment stores merged in an effort to fend off Amazon.
We also discussed the car dealership in other articles. If we see a shift to EVs, what happens to those entities as more sales are taken from them. Some will say that Ford will crank up the production of their EVs?
The problem is we heard that for years also. Right now, Ford is on pace for less than 100K EVs delivered. By the way, it is important to note a sale to Ford is when a dealership places an order. That does not mean it is in a customer's hands like with Tesla.
Once again, the competition is coming. The only question is who is the predator and who is the prey.
Remember Nokia and Motorola. They were industry leaders by a wide margin until one day they were not.
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