Ford Vs. Tesla – Seeking Alpha

Posted: Wednesday, April 26, 2017

With all the headlines about Tesla (NASDAQ:TSLA) passing Ford (NYSE:F) in market value, I decided to do a little comparison on how these two automakers stack up.

I can sum up the difference between Ford and Tesla in two sentences:

Ford’s stock represents its actual successes and failures. Tesla’s stock represents investors hopes and dreams.

How anyone is using market value to equate these two companies as equals is beyond me. Ford made $4.6 billion last year. Tesla lost $674.91 million. Ford has a massive infrastructure and business dealings all over the world. Tesla is a startup that barely finishes one job before trying to dive into the next one. It’s not as much a car company as a tech tank. The two are not comparable.

Financials

Market capital of $49.84 billion, $307.84 a share. That’s Tesla’s big claim to fame. The valuation behind those numbers is more than a little tough to accept. They haven’t had a profitable year yet. Now the validation for that is that Tesla is a startup. Elon Musk is the modern day version of a Henry Ford/Steve Jobs hybrid. At least that’s what his devout followers would have you believe.

They don’t seem to mind the $7.39 billion in long-term debt that continues to grow (a number that out ranks their annual revenue). They don’t seem to mind the amount of ruthless competition in Tesla’s way. And most importantly, they don’t mind the fact that after a decade, Tesla hasn’t turned a profit. So for financials, the comparison is easy.

Ford has put together five consecutive years of profits amounting to over $24 billion. With over $38 billion in cash and short-term investments. $15.9 billion of that is in cash. Tesla has annual losses amounting to $2.237 billion over five years and uses debt and stock offerings to fund its operations. The one thing that can be said for Tesla is it shouldn’t have any trouble raising funds with a stock price that’s so high. The question you have to ask yourself is how long Musk will be able to dilute the stock for capital before investors start asking questions. Ford on the other hand has bought back some shares in recent years.

Product Lineup/R&D

While Tesla operates entirely in the electric car market, Ford has the distinct advantage of operating in whatever type of automobiles it wants. It can for example use income from gas powered cars to fund its fledgling electric car side of the business.

It’s worth noting that Tesla often fails to meet its production goals and has a hard time making money from the vehicles it already sells. Personally I think Tesla should have stayed in the luxury car market and created a profitable platform. Look at Rolls Royce. They don’t seem to be hurting. The company is pushing growth before it can get a handle on what it already has. Think about it. The upscale Model S has a much higher price tag than the upcoming Model 3 – and Tesla never turns a profit off of them. That really leads to the question, how can they profit from a car that is going to produce a much slimmer margin?

Furthermore, I don’t see the average consumer (ya know, the people who don’t have extra change for toys) spending upwards of $30,000 for an electric car that can’t go 300 miles on one charge. The typical consumer needs a car without compromises – good performance with reliability and fuel range. The Model 3 simply does not meet the practicality of a Chevy Malibu or a Ford Fusion.

Product reliability also is a concern. The company just issued a recall on pretty much all of its cars sold last year for brake issues. Considering the far less complicated components of an electric car, it concerns me that these sorts of things pop up. Every car company has recalls and faulty parts, but what if Tesla manages to ramp up large scale production of the Model 3 only to end up spending a fortune on recalls?

All of this doesn’t really compare to people who purchase electric powered Fords will have the luxury of running to a local Ford dealer if there’s a problem. Tesla doesn’t come close to the infrastructure of larger automakers. Ford is investing $4.5 billion in developing 13 electric vehicles. That’s right, 13.

Ignoring EV competition from rivals, Tesla advocates seem to be forgetting that people are not just going to give up gasoline powered engines all in one day. Some don’t trust it, and some simply like the roaring torque of a big V-8. The more resounding reason is fuel prices are not as ridiculous as they used to be. Regardless of the reasons, an industry doesn’t completely change overnight. As an investment, Ford’s traditional lineup offers far more upside than a fledgling electric fleet that is not convenient at all. The F-Series pickups are in and of themselves a resoundingly solid business.

If you’re specifically looking for an investment in green autos, I still hold Ford as the stronger buy. The Ford Fusion Hybrid is now outselling even the Prius. The hybrid space arguably has much stronger potential in the next 10 years than full EVs. They offer the combined attributes of being able to buzz around town without burning a drop of gas, while still having that surety of a gasoline powered engine for long hauls where gas pumps are plentiful and accessible power outlets may be scarce. The Ford C-Max Energi has 21 miles of battery only range, with over 620 miles of total driving range. On a 14 gallon tank, that’s a pretty darn efficient car.

Conclusion

The question of Tesla is how long shareholders will let Musk dilute the stock for cash before they start demanding profits. I think the company will have a hard time creating consistent profits when rivals such as Ford control the market share, retain a much more complex infrastructure capable of servicing their own growing clean energy fleet, and already have the brand loyalty that comes with being around for over 100 years. The stock produces a 5.25% dividend with the cash on hand to continue providing that dividend even in the event of a sales slowdown. It also comes at a drastic discount to Tesla’s wild premium in terms of share price.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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