Lafferty Daily Briefing

1 November 2023

States and governments are banking on a wholesale shift to electric cars in order to meet emissions targets, but the targets are ambitious even in the best of times, and we’re not in the best of times. The motor town of Detroit even had its own music: Motown. The EV industry will take place further south. In 2021 Ford announced an $11 billion investment into battery plants in Kentucky and Tennessee. Toyota this week announced a vast investment of $8 billion into a new US plant: “The newly announced funding would take the Japanese group’s investment in the plant — one of its largest outside Japan — to about $13.9bn by 2030,” notes the FT. “It would also add about 3,000 jobs to the site it calls the ‘epicentre of lithium-ion battery production in North America’, bringing the total to more than 5,000.” Auto workers are striking to prevent job losses in the shift to electric cars, which are easier to build. If Ford’s problems are anything to go by, there are big problems ahead. Ford’s lending wing makes results look impressive but, well, hello subprime market! That’s right: new Fed data shows that 90-day delinquencies have risen sharply. Ford’s loans are mainly prime but we all know what happens when one slices and dices in some profitable subprime loans. Ford’s stock price is its lowest in 11 years. It has to subsidise the prices of its 700 horsepower extended range pickup trucks to the tune of $35,000 on every F150 Lightning it makes, and consumers are starting to return cars as interest rates rise. There’s no other option: China massively subsidises its electric vehicles and visible results include a vastly less polluted Beijing, but it’s also leapt ahead in technology. (California Governor Gavin Newsom flew to China last week to visit BYD, whose electric cars are cheaper than their US rival.) “The second-largest U.S. automaker would be far worse off without its Ford Motor Credit Co. unit, which is effectively funding turnaround efforts by routinely borrowing in the debt markets and paying a dividend back to the parent company. The credit unit is expected to contribute almost $3 billion annually to Ford over the next two years, according to Benchmark Co. analyst Mike Ward. That’s up from just a $400 million contribution in 2017. Ford Credit borrowed around $10 billion in the U.S. investment-grade bond market in the past year, apart from funds raised in other currencies and securitized debt. By contrast, it’s been more than three years since Ford Motor last issued bonds, according to data compiled by Bloomberg, as investors fretted about the company’s high debt load and slowing sales.” But with consumers now fretting also about heating costs, oil prices and higher mortgage rates eating into their disposable income, something’s going to give. The US consumer isn’t a superhero.