Hats must be off this week to Elon Musk and his successful launch of two U.S. astronauts to the International Space Station two months ago and their triumphant splashdown in the Gulf of Mexico as Tropical Storm Isaias was churning up the Atlantic on the other side of Florida.
Musk has also accomplished amazing things in the automotive market with his Tesla electric vehicle and the performance of TSLA stock. In recent weeks, Tesla has surpassed Toyota in total market value. It is absurd that TSLA’s market cap is currently $277 billion and in the eight years since its founding in 2012, Tesla has built a grand total of 891,000 vehicles.
In contrast, Toyota built 10.7 million vehicles just in 2019 and has a market cap of $204 billion. GM sold 2.9 million vehicles in 2019 and has valued at $37.6 billion. Ford made 2.4 million vehicles in 2019 and has a total market value of $27.1 billion. If you add up Toyota, GM and Ford, Tesla is valued at more than the three companies together which manufacture millions of vehicles. That makes no sense to me and may account for those analysts who have recently pulled their buy ratings on Tesla.
Electric vehicles are surely the wave of the future. We all know they are far better for the environment than cars and trucks that burn petroleum products. When the COVID-19 pandemic had us all house-bound, photos taken from the space station were stunning in what could be viewed on Earth. Star watching took advantage of our suddenly clean skies. The smog in Beverly Hills was gone. Even China saw dramatically improved air quality.
Foolishly, investors are treating the major auto producers as if we know something to which the executives at those companies are oblivious. Yes, IBM invented the personal computer and then left it for others to develop. Similarly, Eastman Kodak invented digital photography but was unable to transition successfully from film to digital recording of information. It was sold off piecemeal and largely evaporated to nothingness until some very bizarre developments now under investigation by the SEC in the last week.
It is my view that executives at Ford and GM are working hard to produce EV cars and trucks ASAP. Tesla couldn’t possible produce the 14 million new vehicles Americans will likely buy this year even if Musk wanted to. We exited our Ford during the winter and have more recently returned to this stock.
Ford has made clear in the last three years since Jim Hackett took over as president that it is working hard to design EV’s and including driverless vans and other automated options for the future. Ford cleverly stopped selling sedans that nobody wants to buy anymore. It announced a new Mustang Electric SUV due out shortly. Hackett was not an auto man; earlier in the decade, neither was Alan Mulally, who had come from Boeing. Ford was the only U.S. automaker to avoid bankruptcy in the Great Recession under Mulally. He was followed by Mark Fields, whose term was cut short when Jim Hackett took over as the choice of Ford scion William Clay Ford Jr. In recent years, Ford paid a juicy dividend but it was eliminated earlier this year to hoard cash when fear gripped the auto industry as the pandemic arrived
Auto sales dropped precipitously in the spring but have already rebounded to 14 million cars at an annual rate. If you look for value in your investments, Ford is far more interesting than Tesla at their current prices. I believe Tesla is overvalued by a lot and that Ford will recover yet again. This week Hackett is retiring and Jim Farley, an auto man, gets his turn at the helm.
Joan Lappin CFA has been called an “investment guru” by Business Week and a “top manager” by the Wall Street Journal. The Sarasota resident founded Gramercy Capital Management, a registered investment adviser, in 1986. Email her at JLappincfa@gmail.com. Follow her on twitter: @joanlappin. Her past columns appear at heraldtribune.com/business/columns.