Automakers Are Flush With Cash, But Investors Not Optimistic As Electric Vehicle Sales Struggle

Top automakers are flushed with cash after a profitable year, but investors are skittish about buying in as poor electric vehicle (EV) sales and moderating car prices tarnish the future outlook of the industry, according to The Wall Street Journal.

As a result of low investor confidence, top automakers like General Motors Co., Ford Motor Co. and Volkswagen stocks have changed 7.2%, 6.6% and -2.1% year-over-year as of Dec. 21, while Tesla has jumped 100.7%, according to the WSJ. The low enthusiasm comes as traditional automakers fail to create profitable EV operations that can compete with Tesla, which initiated a global price war on the commodity this year, coupled with moderating car prices that soared following the COVID-19 pandemic due to supply chain issues.

Global sales for automakers are expected to have risen 10% by the end of the year compared to last year, topping off three profitable years for the industry, according to the WSJ. As of the third quarter of 2023, Volkswagen, Tesla, GM and Ford held $40.4 billion, $26.1 billion, $12.6 billion and $9.3 billion in reserves, respectively, with Stellantis’ most recent report from the second quarter showing $32.8 billion.

In an effort to boost stocks with spare cash, automakers are considering stock buybacks, with GM announcing a $10 billion accelerated buyback, which the company may increase even further, according to the WSJ. The oil and gas industry was similarly flush with cash going into 2023 and took the opportunity this year to do a series of acquisitions and consolidations.

Despite numerous government assistance and incentives to the EV industry, like a $7,500 tax credit per car, manufacturers have failed to accelerate the rate of EV adoption as consumers avoid the costly product. From January to September, EV inventory in the US went from 3% of total cars to around 6%, but sales in that time frame only went from 3% to 4% in terms of market share.

Ford, GM and Stellantis, also have the added weight of a new and expensive union contract going into the new year as a result of a six-week-long strike by the United Auto Workers union. The final contract, voted and passed in November, gives workers a 25% raise over the course of the nearly five-year deal, as well as other benefits like cost-of-living adjustment and the elimination of wage tiers.