Legacy Automakers are Late to the “Scared Party”
Legacy Automakers are Late to the “Scared Party”
Last week’s Wall Street Journal article titled “What Scared Ford’s CEO in China” is further evidence that legacy automotive companies are “incrementalists.” As I wrote in the TaaSMaster Newsletter recently, automotive incrementalism is detrimental to car-maker shareholders.
There are a lot of business benefits to incrementalism in the automotive space. However, share price appreciation is not one of them. Investors do not reward the slow and steady approach. Instead, share price appreciation rewards go to automakers that can demonstrate both strong financial performance and a vision of industry disruption - whether that disruption is real or perceived.
In his WSJ article, Mike Colias described Ford Motor Company CEO Jim Farley recognizing, after a trip to China, that Chinese automakers are “pulling away in the electric vehicle race.” Colias details how Chinese automakers are beating the world in EV price, features, and offerings. The reasons for this are varied, but one important factor investors in legacy car companies should understand is that these competitive advantages by Chinese automakers should not be a new surprise to any automotive CEO or their board.
At the recommendation of the late Charlie Munger, Berkshire Hathaway acquired 225 million shares of Chinese automaker BYD back in 2008. What did Munger recognize in BYD sixteen years ago that legacy automaker CEOs have only recently identified as a competitive threat?
Michael Dunne recently wrote in the Dunne Insights Newsletter that “China has launched a global car blitzkrieg.” But why are legacy car executives only recently realizing the competitive threat posed by Chinese auto companies. More importantly, why are legacy automakers consistently the ones being threatened, instead of being the companies doing the threatening?
Disclosure: I have owned shares of Tesla, GM and Ford in the past. I do not own shares in either company today. I do own Stellantis shares.
Disclaimer
TaaSMaster, LLC is not a registered investment advisor or broker/dealer. All investment opinions expressed by TaaSMaster, LLC are from personal research and experience of the owner of the site and are intended as educational material. Although best efforts are made to ensure that all information is accurate and up to date, occasionally unintended errors may occur.