A business’ survival is dependent on smart risk management. As the auto industry takes its biggest risk in the era of mass production — the electrification transition — this week’s Automotive News highlights the magnitude of the bets being made.
Ford Motor Co., for example, for the first time publicly disclosed how much money it lost in its Model E electric vehicle division last year ($2.1 billion) and how much it expects to lose this year ($3 billion). Offsetting these large losses, if Ford’s projections hold true, will be large profits from its Ford Blue internal-combustion arm and its Ford Pro commercial business. A cynic might say Ford is chasing bad money with good, as the company plows those divisional profits into EV-related investments such as new factories and R&D on alternative battery chemistries. But that is a risk the company is willing to bear, and it is confident the payoff is not far away.
Newcomer EV companies and other industry startups that are competing with big, well-funded rivals are confronting the fallout from this month’s collapse of Silicon Valley Bank. Breaking into the automotive industry is already a capital-devouring endeavor fraught with peril. As access to capital becomes more difficult for these startups in the aftermath of SVB’s downfall, it’s a reminder to carefully weigh which financial institutions you do business with and spread cash around to reduce your exposure.
On the supplier front, the stress of the EV transition has weakened some companies and exposed skills gaps at others. As a result, Plante Moran projects that auto supplier M&A deals may be heating up again after the pace cooled down last year. Private equity firms, armed with hundreds of billions of dollars, have their eyes on EV growth projections and see the parts business as a good way to get some undervalued assets.
We’re only in the early stages of this high-risk, high-reward game. Over the months and years ahead, Automotive News will keep you up on how these separate but related plots play out.
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