finance correction

Phase I

Finance Project Report

on

Automotive Industry

Fin-421-544

October 3, 2021

Submitted by: Group 9

Udghosh Jung Rana

Zach Muir

Corry Sperry

Tesla (TSLA)

In 2003, Tesla Motors Inc. was established by Elon Musk and Martin (Company profile, n.d.) as an electric car manufacturer with the premise that an electric automobile is superior to a typical combustion engine vehicle. The current ratio of Tesla is 1.51 (Tesla, Inc., n.d.). It usually denotes a strong short-term financial position.

Tesla, the electric car manufacturer, faces a number of significant risks in the automotive industry. Tesla vehicles might be too expensive with tax benefits, and the company's Gigafactory (battery factory) development could take longer than planned (Tesla, Inc., n.d.). Low gas costs and more electric vehicle competition pose a threat to Tesla significantly.

The debt-to-equity ratio of 3.74 is a representation of Tesla's capital structure. Long-term obligations, short-term loans, basic stock, and preferred stock were the components that went into the ratio (Tesla, Inc., n.d.). Tesla's finance policy is in line with the company's product development as well as its strategic goals.

Tesla’s dividend and share repurchase policy states that the Guarantee (or any rights or liabilities associated with it) may be assigned or transferred by Tesla at its discretion. Tesla may procure the sale of the vehicle by a third party or third parties. The Guarantee will automatically come to an end 37 months after its Effective Date (Tesla, Inc., n.d.).

Tesla's value is unquestionably high, given its current profitability and growth. Growth is one of the main reasons why Tesla is valued so much higher than its competitors. Last year, the electric vehicle manufacturer saw a 45 percent rise in sales. This year, Wall Street economists predict another 55% increase in the stock market. Last year, GM's sales increased by just 22%, while F's sales decreased by 10% (Tesla, Inc., n.d.).

Ford (F)

In the shed outside his house, Henry Ford (1863-1947) created his first gasoline-powered horseless vehicle, the Quadricycle. Ford Motor Company was established in 1903 by Henry Ford. Ford Motor Company has a current ratio of 1.19, which is lower than the 2016 average of 1.20. This figure depicts the company's liquidity. Whether or not it has the financial means to meet long- and short-term demands (Ford Motor Company, n.d.).

There are several factors that might pose troubles for Ford in the future, and Ford is well aware of many of them. Large vehicles, recessions, and climate change are just a few examples (Ford Motor Company, n.d.). Many of these risk variables, however, are beyond Ford's control.

Pre-tax operating profit before exceptional charges was $8 billion per share in 2012. In the same year, the firm closed the year with an automotive margin of $24.3 billion in gross cash, surpassing debt by $10 billion. A healthy cash position of $34.5 billion, up $2.1 billion from the previous year. Ford maintained its greatest and quickest manufacturing expansion in more than 50 years, with an eye to the future. Because of choice taken in 2006 to borrow against its assets, the company's debt-to-equity ratio has risen significantly (Ford Motor Company, n.d.).

Ford has adjusted its quarterly dividend payments so that a stockholder who opts to sell all of their shares will receive approximately the same quarterly dividend amount that they receive for the number of shares received in the recapitalization from each share surrendered.

According to Ford Motor Company (n.d.), Ford totals roughly 178.35 billion in the present valuation of the automotive industry, which is about 50% in total.

General Motors (GM)

Billy Durant, a former horse-drawn vehicle manufacturer, founded General Motors in 1908. The current assets and liabilities of the firm are $169 million and $71 million, respectively (General Motors, n.d.). When using current assets only, a current ratio measures an organization's readiness to pay current liabilities. In 2015, GM had more liability than assets, illustrating their weak position at that time with their current assets divided by liabilities.

Among the many risks faced by GM are supply risks, market risks, labor risks, inflation risks, commodity risks, exchange risks, among others. In recognition of the risks involved, GM takes precautions to reduce the extent of risk as well as provide solutions in these areas (General Motors, n.d.).

General Motors was struggling to remain solvent because it was facing financial distress. The U.S. government was given 60% of GM after its bankruptcy filing on June 1, 2009, in return for $50 billion in funding to keep the company afloat while being restructured.

Automakers are struggling to preserve cash as sales plummet, which is prompting General Motors to suspend its dividend and stock purchases. As it moved towards bankruptcy and a federal bailout, the company suspended its dividend in July 2008. GM's stock price dropped 3% between the end of last year and the time when the share repurchases were authorized: the stock repurchases failed to lift the stock price over the last five years (General Motors, n.d.).

We expect the value of Free Cash Flow to decline to about 9.3 billion dollars, while the enterprise value might drop to about 132.2 billion dollars. Most of GM's basic determinants, like financial ratio analysis, helps investors to identify companies that are doing well in the market to enable trading at greater or lower levels than their real value (General Motors, n.d.).

Chevrolet (GM)

The Chevrolet Motor Company of Michigan was incorporated on November 3, 1911, and it was the start of it all. GM said it had extended a $3.6 billion revolving credit deal through April 2022 as part of its efforts to improve liquidity (General Motors, n.d.). Over the last three months, GM's stock has dropped 34.3 percent.

Intellectual property rights, supplier location, varied degrees of supplier engagement, and levels of experience working with GM are all risks that GM must proactively minimize. All these variables must be considered by procurement in order to offer a convincing and detailed sourcing choice and plan.

It is dedicated to its capital allocation strategy, which focuses on reinvesting in the business at or above 20% pretax returns, maintaining a solid investment-grade balance sheet, and distributing money to shareholders when the first two objectives are satisfied (General Motors, n.d.).

To conserve funds, GM has suspended its dividend and stock repurchases. The firm is increasing its liquidity to help manage the global market concerns that led to the epidemic. As a result, it is bolstering its financial position and balance sheet in order to position the firm to produce value for all our stakeholders as the epidemic unfolds.

Chevy accounts for half of GM's entire global volume, which is worth $11.3 billion (General Motors, n.d.).

Jeep (STLA), which is Stellantis

Jeep is a brand of American automobiles that is currently owned by the European corporation Stellantis. The PSA Group (Peugeot Société Anonyme) was established on April 9, 1976, when Peugeot S.A. purchased Citroen (Company profile, n.d.). The price-to-sales ratio of the STLA is 0.38. The Enterprise Value to EBITDA ratio of the firm is 5.63. They employed 189.51k employees in 2020.

Uncertainties surrounding the merger integration may result in the loss of management staff or other important legacy workers, posing a risk to future company and operations. FCA made rental options, leasing, dealer financing, and retail available following its commercial agreements, joint partnerships, and subsidiaries with third-party financial corporations. In addition, via the Teksid and Comau brands, FCA has formerly engaged in the components and manufacturing systems industries (Company profile, n.d.).  

The projected annual run-rate synergies from the formation of Stellantis have been considerably boosted to nearly €5 billion from the €3.7 billion originally estimated, thanks to tremendous progress achieved by the combined workstreams over the previous months. The entire one-time implementation cost of attaining these synergies has also risen from €2.8 billion to up to €4 billion (Company profile, n.d.).

The Company's dividend policy calls for an ordinary annual dividend to be paid to common shareholders. Due to the COVID-19 situation, the Company will not pay an ordinary annual dividend to common stockholders, as stated in agenda item 2.D (Company profile, n.d.).  

Stellaris NV's current Real Value per share is $16.42. The company's normal pricing is $19.27. The firm seems to be overpriced at the moment (Company profile, n.d.).  

References

Company profile. (n.d.). Stellaris NV Overview. GlobalData.

https://www.globaldata.com/company-profile/stellantis-nv/

Ford Motor Company. (n.d.). Encyclopedia Britannica. https://www.britannica.com/topic/Ford-Motor-Company

General Motors. (n.d.). Encyclopedia Britannica. 

https://www.britannica.com/topic/General-Motors-Corporation

Magaldi, A. (2021). Is consolidation necessary to survive in the automotive industry? A study of the FCA-PSA merger.

Tesla, Inc. (n.d.). Encyclopedia Britannica. https://www.britannica.com/topic/Tesla-Motors

The Editors of Encyclopedia Britannica. (2019). General Motors | History, Deals, & Facts. In Encyclopædia Britannica. 

https://www.britannica.com/topic/General-Motors-Corporation

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