Is Ineos in financial woes?

[Gaffer]

That is a bit on the misleading side though as costs of development were still ongoing and they had not ramped up product yet.

Lynn Calder stated earlier this year that IA is now running cash positive. So, whilst development losses will still be baked in, it does suggest that they daily running is positive.

Thanks. I was wondering about the cash flow. I hope that the non-cash expenses are distorting its current financial condition.

 

[LeeroyJ]

Ineos is in a unique position in the car industry that I think could end up being its salvation: basically, Ineos could stop almost all future development and just keep the Grenadier and Quartermaster as they are today with only minor tweaks to improve issues and stay compliant with evolving regulations.

Most car companies couldn't do that and survive. Imagine Toyota deciding that the current version of the Camery is the last "evolution" of the model and they were just going to keep building that for as long as customers were willing. The typical life cycle for a new car model in the USA involves a completely new design ("redesign") every 5 to 7 years and a mid-cycle "facelift" or refresh with minor updates about 3 years into the model's run. In order to support that cycle car manufacturers have to devote huge resources in designing and testing to develop the new models, a process that typically starts 5+ years in advance. There is also often huge costs associated with re-tooling the production lines to accommodate these new models.

So if Ineos just keeps making what they make now, with very little to no development, all those additional design and development costs disappear and the longer this goes on, the more profit per unit Ineos would enjoy.

I suspect consumer demand would support this. But the big unknowns are the move to electric vehicles (and accompanying legislation) and the potential for an unexpected competitor. Right now there really isn't a direct competitor.

 

[NQ94]

Has there been any suggestion of an estimated time frame IA would become profitable recovering development costs and become cash positive without excessive creative accounting or reporting? Grenadier is a relatively niche product that has come to market in a time where there is less money being spent on luxury goods and the auto industry as a whole is having financial and sales issues.
Most of the long established niche brand like Rolls Royce, Ferrari etc have been bought by big auto conglomerates to remain viable, is there any suggestion in any media that Ineos Automotive may be heading in a similar direction to rein in costs?

 

[parb]

Its not clear to me what costs that would reduce? Ineos has been incredibly clever by licensing the BMW engine, transmission and electronic management system. This by itself is likely reducing the majority of the cost. Everything else is mostly integration of suppliers in the supply chain which is costly but nowhere near as costly as bringing out your own drive train and transmission.
I doubt you'd cut cost much more than what they have already done by being owned by one of the big OEM's. Maybe you can reduce some structural cost related to importation and certification that a bigger company has nailed down but i am doubtful its a huge cost drivers.

Think of it differently, what synergies would you find if lets say BMW purchased Ineos? Most of the obvious synergies are already there.
Maybe an EV? Maybe the better reach of BMW service centers? Better lawyers to deal with the government?

 

[NQ94]

Its not clear to me what costs that would reduce? Ineos has been incredibly clever by licensing the BMW engine, transmission and electronic management system. This by itself is likely reducing the majority of the cost. Everything else is mostly integration of suppliers in the supply chain which is costly but nowhere near as costly as bringing out your own drive train and transmission.
I doubt you'd cut cost much more than what they have already done by being owned by one of the big OEM's. Maybe you can reduce some structural cost related to importation and certification that a bigger company has nailed down but i am doubtful its a huge cost drivers.

Think of it differently, what synergies would you find if lets say BMW purchased Ineos? Most of the obvious synergies are already there.
Maybe an EV? Maybe the better reach of BMW service centers? Better lawyers to deal with the government?

I probably should reword the question. More questioning would Ineos sell IA to rein in costs and debts for the parent company.
The car is developed, short of changing to other major component manufacturers there is not much they could currently do to rein in the costs of the car.

 

[Zimm]

Ineos is in a unique position in the car industry that I think could end up being its salvation: basically, Ineos could stop almost all future development and just keep the Grenadier and Quartermaster as they are today with only minor tweaks to improve issues and stay compliant with evolving regulations.

Most car companies couldn't do that and survive. Imagine Toyota deciding that the current version of the Camery is the last "evolution" of the model and they were just going to keep building that for as long as customers were willing. The typical life cycle for a new car model in the USA involves a completely new design ("redesign") every 5 to 7 years and a mid-cycle "facelift" or refresh with minor updates about 3 years into the model's run. In order to support that cycle car manufacturers have to devote huge resources in designing and testing to develop the new models, a process that typically starts 5+ years in advance. There is also often huge costs associated with re-tooling the production lines to accommodate these new models.

So if Ineos just keeps making what they make now, with very little to no development, all those additional design and development costs disappear and the longer this goes on, the more profit per unit Ineos would enjoy.

I suspect consumer demand would support this. But the big unknowns are the move to electric vehicles (and accompanying legislation) and the potential for an unexpected competitor. Right now there really isn't a direct competitor.

Other car companies hedge their bets with various models that are available depending on the market conditions. Gas goes up, that small margin eco car that looked like a waste, saves the day. Unfortunately INEOS made a consumer car, not a work truck that people will buy because its a wearable item, and needs replaced, market conditions or not. Such as empty vans. And at 15mpg, the next fuel crunch, sales will tank, and since IA doens't have bags of credit, and is self financed for operating expenditures, that will be the end. Sorry. They need something else that will sell when this won't.

 

[Zimm]

I probably should reword the question. More questioning would Ineos sell IA to rein in costs and debts for the parent company.
The car is developed, short of changing to other major component manufacturers there is not much they could currently do to rein in the costs of the car.

Costs are contained by keeping major components withing existing supply networks. The truck isn't a sales "hit". The volume will never be profitable enough to cover integration for anyone. Even BMW is better off starting with a clean sheet if they want a G competitor. Why try to revive a consumer car who's buzz has faded?

This was supposed to be the "Slate" of the utility truck world. Just pure function.

 

[Jeremy996]

I think @Zimm is being pessimistic, the build a vehicle for utility and keep it going long past it's "best before" date path has already been well trodden by Rover, British Leyland, Austin Rover Group and JLR, called variously Land Rover 110/90/130, Defender 110/90/130 from roughly 1982 to 2016.

Ineos Automotive have 10 years of BMW engines contracted, so what happens in roughly 7 years time will be interesting.

 

[OkGo]

It maybe more complicated than that - emissions regs mean only some cars and some selection of engines can be sold in a fixed period of time. Look at what Suzuki has to do with the Jimmny and it's 1.4L engine.

If it were able to just sell as much of everything that would have sold many times more than it did. Their choice was to either sell more of these, or sell more swift and the likes, their emission quota is fixed.

As these numbers get tighter, ineos may find itself in the pickle, if they are not innovative and evolutionary. And this is just one dimension to a potentially maze of issues.

 

[Gaffer]

If the Grenadier is cash flow positive, then perhaps the loss is due to the amortization of the development costs. If LeeroyJ is right that no further development is necessary, then life is pretty good going forward. Heck, Ineos could write off the remaining capitalized development and be profitable as well as cash flow positive.

 

[Jeremy996]

It maybe more complicated than that - emissions regs mean only some cars and some selection of engines can be sold in a fixed period of time. Look at what Suzuki has to do with the Jimmny and it's 1.4L engine.

If it were able to just sell as much of everything that would have sold many times more than it did. Their choice was to either sell more of these, or sell more swift and the likes, their emission quota is fixed.

As these numbers get tighter, ineos may find itself in the pickle, if they are not innovative and evolutionary. And this is just one dimension to a potentially maze of issues.

Suzuki is constrained by the voluntary market agreement for Japaneses cars in the UK as well as the EU/UK emissions levies for a 'large' manufacturer; Ineos Automotive is still an automotive minnow for the moment.

No telling how the politicians/technocrats will jump next, so placing your bet is more a matter of faith than one of logic.

 

[OkGo]

A lot of what is going on with IA is around faith and hope!

 

[LeeroyJ]

Its not clear to me what costs that would reduce? Ineos has been incredibly clever by licensing the BMW engine, transmission and electronic management system. This by itself is likely reducing the majority of the cost. Everything else is mostly integration of suppliers in the supply chain which is costly but nowhere near as costly as bringing out your own drive train and transmission.
I doubt you'd cut cost much more than what they have already done by being owned by one of the big OEM's. Maybe you can reduce some structural cost related to importation and certification that a bigger company has nailed down but i am doubtful its a huge cost drivers.

Think of it differently, what synergies would you find if lets say BMW purchased Ineos? Most of the obvious synergies are already there.
Maybe an EV? Maybe the better reach of BMW service centers? Better lawyers to deal with the government?

I can't find any clear data for the legacy auto manufacturers on what portion of overall costs in any particular year are attributed to producing and maintaining existing models vs preparing for future models and variants. My guess is that when you include the cost of design, development, construction, retooling, testing, certifying, etc., that future models probably account for 40 to 50% of annual costs. This of course would vary widely by company and the level of "re-design" for the new models. But from my inexperienced perspective, preparing for future models its an enormous portion of the cost of running a car manufacturing business.

Those are costs that Ineos could largely eliminate.

The fact that Ineos outsources the powertrain only further bolsters the argument that if they just keep making what they have now, they have very little in the way of need to invest additional costs into product development. Essentially, they can spread the development costs they have already incurred across 15-20 years of the same product, and my guess is that the demand would be relatively flat (meaning they would probably sell about the same number of units in 15 years as they do now if the pricing doesn't have a significant change one way or the other).

If I were running Ineos, the only money I would be spending on development right now is the potential to make truly stripped-down variants of the Grenadier and Quartermaster (manual windows, manual transmission, manual Air Con, etc.) to achieve a much more affordable model attractive to a broader audience of buyers both retail and business and military. I wouldn't start considering hybrid variants of existing models, or other new models, until the financial picture looked more promising.

 

[LeeroyJ]

Other car companies hedge their bets with various models that are available depending on the market conditions. Gas goes up, that small margin eco car that looked like a waste, saves the day. Unfortunately INEOS made a consumer car, not a work truck that people will buy because its a wearable item, and needs replaced, market conditions or not. Such as empty vans. And at 15mpg, the next fuel crunch, sales will tank, and since IA doens't have bags of credit, and is self financed for operating expenditures, that will be the end. Sorry. They need something else that will sell when this won't.

I don't know that they do need something else. The base demand is probably strong enough to keep production itself running if you free the costs of production from the weight of all the development costs required for new models. They aren't trying to be the next Ford, or even the next Land Rover. If they can get costs to a point where the per-unit costs are profitable, then this is the type of niche vehicle that will have a market for decades.

 

[LeeroyJ]

I think @Zimm is being pessimistic, the build a vehicle for utility and keep it going long past it's "best before" date path has already been well trodden by Rover, British Leyland, Austin Rover Group and JLR, called variously Land Rover 110/90/130, Defender 110/90/130 from roughly 1982 to 2016.

Ineos Automotive have 10 years of BMW engines contracted, so what happens in roughly 7 years time will be interesting.

LR would probably still be making the old Defenders if the costs of production had not been saddled with the costs associated with all the other LR Jaguar models, and if safety and environmental compliance had not been a factor.