Detroit’s automakers are using a surprisingly conservative financial strategy in order to make EVs the new vehicle of choice for American customers.

They pay cash.

General Motors Ford are investing $65 billion between them – $35 billion at GM and $30 billion for Ford – and, so far, don’t propose to borrow any of it. Instead, the most radical change in auto products in a century is being paid for out of the companies’ operating cash flow – seriously reducing the risk to the companies over time, and, for now, boosting their stock prices.

Nishit, the automotive sector head at Standard and Poor’s bond rating agency Standard and Poor’s said: “The quick answer is that they’re doing it because there’s an option.” Trucks are very popular [since the pandemic began]They have confidence in strong pricing.

Detroit has had years to develop its aggressive financing and prudent investment strategies. It was made possible by Ford borrowing $4 billion from GM in May 2020 and also by Ford drawing down a revolving line of credit by $15 billion at the same time. These moves were intended to offset a feared Covid-19 sales collapse. Although sales dropped more than anticipated in 2020, they rebounded in 2021. Ford was able to pay off high-interest debt and keep their stock prices up.

The companies did not pay dividends or repurchase shares, but they kept their cash. Companies have also reduced billions of annual costs by eliminating entire lines of unprofitable sedans as well as withdrawing their businesses from foreign markets. The focus has remained on trucks which remains the most profitable segment of their business.

All of these factors combined, the U.S.’s two largest automakers are able to finance the biggest technological revolution in the history of the industry.

Contrary to the how, Detroit 2’s finance strategy is quite different. TeslaThe company was a start up at the time and funded its push for EVs in the past decade. The EV pioneer raised capital from bond and stock markets in order to fund its projects. He also filed paperwork with the federal regulators regarding $10 billion of stock sales, as recent as 2020. Tesla’s California first EV factory was funded with a federally guaranteed loan in 2010. This was before there was an EV market or material revenue.

GM & Ford are willing to invest even more.

Ford spokesmen said, “If nothing, it will climb from there.”

According to Nelson, the U.S.’s rebound to close to 15 million cars sold by 2021 gave Detroit the financial support it needed to continue aggressively. Nelson said that the collapse was less severe than the one following the 2008 financial crash, which saw the U.S. car market drop to just 10 million units. Madlani explained that both the companies’ war chests were large enough to cover the investment requirement of billions of new dollars.

Ford spokesperson said, “We prepared to the known and unknown.” The pandemic was the unknown. “The known part was the need to lead in electric cars.

While sales have rebounded at a slower pace than pre-pandemic, $7.8 Billion in free cash flow has been generated by Ford over the last nine months. This includes September. GM’s automotive operations were barely able to break even with operating cash flow for the nine first months of 2020. However, the company had enough liquidity to allow it more than $4B in capital expenditures. GM expects to publish fourth-quarter results by February 1. Ford will announce their results February 3.

Thomson Reuters data shows that Ford will report profits of 42c per share from $35.8billion in revenue. That’s 75% more than the September quarter. GM will earn $1.11 a Share, down from $1.52 during the third quarter. GM increased its full-year forecast in December. It now expects to earn $1.11 a share, down from $1.52 in the third quarter.

Nelson explained that despite U.S. unit sales falling to the 17-million-vehicle pace of the previous Covid, Ford profits and GM profits have held steady. Nelson noted that the firms aggressively reduced costs in order to make the transition smoother. Ford was almost out of sedan manufacturing, so GM laid off 4,000 employees in 2019. These numbers are in addition the many factory closings which include the sale of GM’s Lordstown, Ohio facility, which later was sold to an EV start up. Lordstown Motors.

The companies also have plenty of cash in reserve to cover cash flows that are not as expected. In 2019, some analysts were skeptical about Ford spending so much capital. However, they also noted that Ford had $37bn in short-term and cash securities. Ford has now $46.4billion and generated over $12 billion of operating cash during the first nine months 2021.

At investor conferences over the past year, both companies had a lot to share about financing strategies and EV planning. Common theme: Ford’s EV strategy should be built around the existing Mustang models. especially the F-150 pickup truckThe company’s pre-orders have reached 200,000. This is a testament to the value of customer acceptance as well as cost control.

Based on demand for these products in the coming 24 months, [we]It would likely be number 2 in EV manufacturing, with approximately 600,000 electric vehicles per year worldwide [from Ford’s current product lineup]”And we don’t want to stop there,” Lisa Drake (Ford’s North American chief Operating Officer) told an investor conference sponsored by Goldman Sachs in December. “The product complexity in EV space has been much lower than it was at the beginning,” Drake said. [internal combustion engines]. …And that’s going to allow us to be more efficient with our capital and more efficient with the labor and the assembly plants.”

GM the EV strategy includes a wave of new vehicles using new and existing nameplates – most recently, the company unveiled a $42,000 electric version of its Chevrolet Silverado SUV – as well as its Cruise joint venture with Honda, Microsoft and other investors to build an EV-centered autonomous-car business.

That has meant manufacturing complexes devoted to EV production that are in progress – or in production – in two Michigan towns and in Spring Hill, Tennessee, with planned battery plants near the sold-off Lordstown plant and in Spring Hill. Paul Jacobson, chief financial officer at GM, stated in March that the company can save $1 billion to $1.5 million per plant by converting existing cars factories instead of developing new ones. This will make GM’s EV efforts $20 billion to $30 trillion by its full potential.

Nelson states that while electric vehicles may be less lucrative than their big-selling SUVs and pickups, this is not likely to change. Nelson says that as battery costs continues to drop and Ford and GM build scale in their EV business, they can surpass the profitability of internal combustion powered vehicles – noting that Tesla is more profitable, per dollar of sales, than Ford or GM’s auto businesses. Ford claims its Mustang Mach E makes it profitable, even though the vehicle sold less than 30,000 units by 2021.

We do expect to eventually match. [internal combustion engine]”We scale our operations and battery costs drop to make EVs profitable,” a GM spokesperson said in an emailed.

At Morgan Stanley, analyst Adam Jonas – a longstanding EV bull – says Ford’s surge which led its stock to outperform Tesla last yearAccording to, its EV-focused companies are valued at about $50 billion. Each 100,000 EV sales will add $2 to the stock’s price. In a January 13 report, he said that the stock could dip briefly later in the year due to hard-to-avoid delays in rolling out the electric F-150 as well as other vehicles.

Jonas said, “From a $25 Level, we believe that Ford’s success is difficult to surpass.”