Can Traditional Car Manufacturers Compete With Tesla?
May 20,2022 | Chloe Lacour
It is not simple. GM, Ford, Volkswagen, and Toyota are all saddled with massive debts totaling more than $ 700 billion. The majority of their debt is related to the assets of the manufacturing facility / internal combustion engine equipment (ie ICE).
The majority of their revenue comes from retail debt financing, which allows buyers to finance the purchase of ICE vehicles.
What if everyone wants to purchase an electric vehicle?
The loaned ICE car's value plummeted. All of their debt remains, but the ICE manufacturing facilities and equipment purchased with debt are worthless. Because traditional automakers have little or no way to lend them to get them, their interest rates will skyrocket... at the same time, their massive amount. Existing debt continues to accumulate.
When it does happen, it happens quickly. Tesla, on the other hand, has no debt (technically, it has $ 7 billion in debt, but cash on hand is nearly double that, generating a huge profit every one or two quarters). As a result, there is no debt.)
Legacy businesses are in a difficult situation in which they must separate their left arm from their right arm. Do you do it slowly and painfully with a dull butter knife or a sharp ax, unless it's unavoidable?
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