China vs. World (Automotive Edition), Revolving Credit Facility, Ford Patent

Hello folks!

This is the first edition of a new section at Autowist, Analysis. Every week I will send out an Analysis piece, which comprises of the most impactful trends, news and events analyzed a bit more carefully together with my commentary on the matter.

Hope you enjoy it!

Hari.

China vs. World (Automotive Edition)

This week there were 3 headlines that all had the same undertone. Western carmakers want to expand into China, and at the same time China wants to establish it's presence overseas. The latter is seemingly more easier than the former.

Why does this trend matter: If you look at the annual reports and strategy outlooks for most OEMs in the west, one key pillar is China. China has become the one-stop shop to hideaway a lot of activity from Wall Street.What this means for western OEMs: The primary way to enter the Chinese market is through a joint venture with an existing local partner. VW has managed to secure a JV with SAIC motor. And that make's sense as VW is a mass producer producing cars with a rather low margin. To import vehicles in China would kill the business case for them. Setting up shop is pretty much the only way to go. However, LUCID, a more premium carmaker, is choosing the latter route and plan to import vehicles into China.China reciprocates: As VW is entering a JV, Chinese carmakers are bidding for a Ford plant in the Saarland region of Germany. BYD is known to be one of the bidders

• VW’s China joint venture transforms Shanghai plant for EV production (Link)

• Lucid set to sell American-made EVs in China (Link)

• Chinese automakers lead bids for Ford's German site as tensions rise, report says (Link)

Revolving Credit Facility

Last week BMW announced that they have renewed their €8bn revolving credit facility. And I had to understand what is revolving credit and how does that impact the finances of a company. Here's what I learnt.

What is revolving credit: It is a type of credit where the borrower can borrow on a rolling basis, as long as regular payments are made. The amount repaid after interest and fees, will be added to the amount that can be borrowed. Typically such facilities are provided by a group of banks due to the large amount and time horizon of such deals.

Why is it popular in the automotive industry:

• Provides Liquidity Backup: The automotive business has been dealing with a lot of ebbs and flows with EV introduction, COVID-19, supply chain issues lately. That is on top of the usual business of maintaining a huge list of suppliers, keeping production running, logistics, R&D etc. It makes a lot of sense to have a backup liquidity trove to continue operations as usual.

• Pay Interest for what you borrow: Pas as you go, very practical and technically changes the revolving credit to a buffer in the balance sheet of the company.

• Reusability: As you pay back the credit, the amount is available to you for borrowing. And this can be done over and over again.

Sustainability Linked Revolving Credit Facility

This is a special kind of financial instrument becoming popular these days. Basically, the margin rates are subject to change based on whether the borrower meets their climate/sustainability goals. Meaning now there is a financial incentive for companies to meet their climate goals as that will lower their margins on the loan facility.

• HSBC India partners with Tata Motors to promote mass adoption of electric vehicles (Link)

• BMW Group successfully completes €8bn revolving credit facility (Link)

• Mercedes-Benz converts Revolving Credit Facility into a Sustainability-Linked Loan (Link)

• Autoliv has refinanced its existing Revolving Credit Facility (Link)

• Volvo Cars signs EUR 1.3 billion sustainability-linked revolving credit facility (Link)

• €3.75 bn debut syndicated revolving credit facility signed by TRATON SE (Link)

• Volkswagen AG’s syndicated credit line of €10.0 billion (Link)

Ford's Roof Mounted Battery Patent

Here's what I found:

• Traction battery pack that is removably mounted on the roof

• The battery pack, housing multiple battery modules, is used for back up power.

• Cord-set from the battery can be connected to the vehicle charging port to charge the main traction battery.

• Other features: Air ducts for cooling, Polyurethane foam within the interior area, Communication module part of battery pack possibly also includes wireless communication

• Source: Patent (Link)

Nissan Plant crossed the 11 million milestone

That roughly adds up to a car every two minutes for 37 years at the Nissan Sunderland Plant. In total 11 models have been built in this plant.

Source: Nissan