With major strains on vital medical equipment, major car manufacturers are lending a hand to help boost supplies. Manufacturing ventilators involves modifying a standard HVAC system that would be found in a vehicle, so the transition makes sense for car manufacturers. Here are three manufacturers that President Trump has praised for contributing to the fight:
Tesla (NASDAQ: TSLA) CEO Elon Musk has committed to manufacturing ventilators using scrap car parts, despite previously expressing skepticism about the severity of the virus. Its ventilator utilizes Tesla Model 3 technology for creating an optimal level of pressure control. There is no timeline on when these ventilators will be ready or the method of distribution.
Tesla’s stock price was hammered by the coronavirus market crash, having jumped from $300 in October 2019 to over $900 in February, a lot of these gains have since been wiped out.
It is slowly recovering thanks to vehicle delivery numbers for Q1, beating analyst forecasts by more than 10%. While it has shut down many factories across the U.S., Tesla is a favorite among investors and appears well-positioned amid the crisis. Therefore, its price is likely to shoot up once more when the pandemic tide has finally been turned.
Ford (NYSE: F) is working alongside GE Healthcare (NYSE: GE) to produce ventilators. It hopes to produce 50,000 of these devices in its Michigan facility within 100 days, beginning in April. Once its ramps up its capabilities, Ford estimates it can manufacture 30,000 ventilators monthly from July onwards.
Ford was hit hard by the market downturn, seeing its share price more than halving from being over $9 at the start of February. The company has seen decreasing sales for some years (3.2% drop in U.S. sales in 2019) and the hit stemming from extended economic uncertainty will not help matters.
Its share price has hit 10-year lows and with plants across the U.S. shut down and its credit rating being dropped to junk status, the future does look bleak. It recently borrowed $15.4 billion, which maxes out its credit lines. It was already highly levered with $140 billion worth of credit.
With major car manufacturers like Fiat Chrysler (BIT: FCA) and General Motors (NYSE: GM) going bankrupt during the 2008 financial crisis, investors should be wary about putting money into a highly leveraged auto company with declining sales such as Ford.
General Motors is bringing back 1,000 employees who were furloughed in mid-March due to factory closures to help manufacture ventilators. The company hopes to be producing 10,000 ventilators each month when they ramp up manufacturing.
General Motors is partnering with Ventec on this project, having already produced test models. This was a voluntary partnership until President Trump released an order via the Defense Production Act to force manufacturers into production.
General Motors saw its stock price almost halve as the coronavirus pandemic took hold and has yet to show much meaningful recovery. Expectations are that the dividend will be cut. With the company not being able to manufacture any cars due to the shutdown, the company is in limbo. With car sales dropping by over 30% in March down to 11.4 million units, 2020 is set to be a disastrous year for the auto industry. Similar to Ford, General Motors has liquidity concerns. According to Deutsche Bank, both car manufacturers only have 15-17 weeks worth of liquidity to cover the current market conditions before minimum cash levels needed to operate the businesses are reached.
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Contributing Writer at MyWallSt
Andrew is a contributing writer to MyWallSt. He is a full-time finance writer, having spent time working in the industry. He studied Economics and Finance and has been fascinated with the financial markets since his teens. The first stock that Andrew bought was Apple, reflecting his love for its products.