Electric Vehicles Push Legacy Automakers Into £1T Debt Crisis: Layoffs and Calls for ‘Urgent’ EV Incentives

Key Takeaways

• Major automakers are heavily indebted at a time when they need to fund massive investments in electric vehicles.
• Nissan’s debt has soared so high that it has sparked fears that the company’s credit rating could be downgraded.
• In the U.K., automakers have called on the government to provide financial incentives for people to buy electric vehicles.

As they struggle to adapt to the rising electrification of the global auto market, legacy manufacturers are borrowing more money than ever before.

With the debt-to-equity ratio of companies like Ford, Volkswagen, and Nissan running high ever since the pandemic, carmakers have been forced to slash jobs and are calling for government incentives to help meet electrification targets.

Legacy Automakers Heavily Indebted

The three auto companies with the highest debt-to-equity ratio  are Taiwan’s Yulon, Renault Group, and Ford Motor Company. Each has liabilities equivalent to more than double its shareholder equity. But they aren’t the only ones with mounting debts.

Nissan’s debt has soared  so high that it has sparked fears that the company’s credit rating could be downgraded.

Although the company likely has sufficient liquidity to make $1.6 billion in bond payments next year, raising additional cash is becoming expensive, a problem that would worsen if it is downgraded.

Of the five most indebted companies in the world, four are automotive manufacturers, with hundreds of billions of dollars of debt each. Collectively, the industry owes well over a trillion dollars.

Meeting Electric Vehicle Targets

While the changes shaping the global auto market aren’t the only factor driving up companies’ debt, the cost of transforming a century-old industry is certainly a contributing factor.

More problematically, electric vehicle (EV) mandates in Europe mean companies can’t simply bide their time or rely on traditional vehicle sales to maintain revenues.

From 2035, the sale of new combustion engine vehicles will be effectively banned in the EU and the U.K., whether legacy brands are ready for it or not.

A Decade to Electrify

With ten years to transition their European sales operations to 100% zero-emission vehicles, automakers are scrambling to gain a foothold in a space some of them only entered recently.

Criticizing the government’s sales targets, Ford UK has called for incentives to promote EV sales.

Speaking to the BBC, Ford UK Chair Lisa Brankin said : “The one thing that we really need is government-backed incentives to urgently boost the uptake of electric vehicles.”

Her comments add to rising tensions between the government and the auto industry over how to phase out new petrol and diesel vehicles.

This week, Stellantis announced plans to shutter a U.K. factory where it makes vans, putting over 1,000 jobs at risk and sparking a debate over the industry’s long-term viability in the country.

According to the Society of Motor Manufacturers and Traders (SMMT) weak demand for EVs and the requirement to fulfill sales quotas would cost automakers £6 billion  this year alone, “with the potential for devastating impacts on business viability and jobs.”