Disruptive car maker Tesla Inc (NASDAQ:TSLA) is freely reimagining every aspect of the modern auto experience- from how cars are purchased to the energy they need to drive. And this innovative strategy is paying off- Tesla’s market valuation soared an extraordinary 40% this year to over $50 billion. Now Tesla is now worth more than major auto players like Ford or General Motors. To put this into perspective, Tesla made 84,000 cars last year- which equates to about 1% of Ford’s annual sales. Even CEO Elon Musk says: “I do believe this market cap is higher than we have any right to deserve”.
On the other end of the spectrum, traditional automaker Ford Motor Company (NYSE:F) has just been forced to fire CEO Mark Fields and replace him with more tech-focused Jim Hackett. During Field’s three years as Ford CEO the stock fell by a whopping 40% to just $11. Tellingly, Hackett was promoted from his position as head of Ford’s driverless car division, Ford Smart Mobile founded in 2016. He is now tasked with pushing the company into the mobility space and modernizing Ford’s business via big data, AI, advanced robotics, and 3D printing.
But headlines can be deceiving. Can Tesla really have an edge over Ford? We wanted to take a closer look at what is really happening in this increasingly tense industry…
A Compelling Vision
With visionary CEO Elon Musk leading the way, the Tesla brand presents a clear and exciting vision of what the auto industry could look like in the next decade. Ford shows us what the market looks like today. Tesla shows us what it could look like tomorrow. For example, Tesla vehicles boast a very impressive internet-connected and centralized operating software which is accessed via a powerful installed touchscreen. As well as autonomous driving, drivers can also control features such as the sun roof, climate, radio, maps, as well as smart phone interaction. One day it may even be possible for the cars to wirelessly recharge themselves.
And while Ford makes classic standalone cars, Tesla specializes in energy-revolutionizing systems- from solar roofs to electric vehicles that all connect to provide consumers with a cleaner lifestyle aspiration. Once the price of these vehicles drops below the $25,000 mark, Tesla is likely to see the real benefit from this new trend.
Ford’s Comeback Kid
It’s not all doom and gloom with Ford’s product lineup. Although Ford may be late to the game, the company is now busy developing its own affordable all-electric SUV, due for launch in 2020. According to Ford, the new vehicle will have a better battery range of over 300 miles than its Tesla Model Y equivalent (expected to launch in 2019/20 on a completely different platform to the upcoming Model S and the Model 3). And Ford’s CTO, Raj Nair, even told Business Insider that the competition from Tesla is a good thing because if demand for electric vehicles increases then economies of scale will kick in, making pricey battery tech more affordable.
In the meantime, Ford still has its classic SUVs and successful pick-up trucks like the F-150 to provide share-support. And in the future maybe Ford can find its niche with a a driverless pick-up truck!
Morgan Stanley’s Surprising Take
A recent report led by Morgan Stanley’s Adam Jonas has revealed that the Street is actually more bullish on Ford and less bullish on Tesla than the share prices of the two companies would suggest.
From 140 investor surveys, Jonas found that 57% of investors chose Ford over Tesla. Indeed, Jonas says he was “surprised to see how positive investors appear to be on Ford vis-à-vis Tesla in terms of forward-looking share-price performance.” The five-star analyst points out that the survey does not reveal if investors are attracted to the value Ford stock represents, or whether investors are simply too nervous of Tesla’s high valuation, poor cash flow and ability to turn potential into serious profit.
Most intriguingly while the majority of investors believe the much-hyped upcoming Model 3 will be a success they nonetheless think that Ford will outperform Tesla. “Perhaps the missing link is that the Model 3 may be a commercial success (i.e., a very nice car) but not necessary a financial success (i.e., a profitable car). Time will tell” says Jonas. Indeed, when asked what Tesla’s share price will be in 3 years’ time, Jonas found the most popular choice, at 26%, was the option $200 to $299 which given that the current stock price is $340 it not such a positive analysis on Tesla’s money-making outlook.
This is reflected in TipRanks analyst consensus rating for the two stocks- hold for Tesla and moderate buy for Ford. Indeed TipRanks’ unique score system reveals that key market players (analysts, bloggers and fund managers) all rate Ford more highly than Tesla. However news sentiment comes out more bullish for Tesla (7.6 out of 10) than for Ford (4.8).
Ford may be late to the game, and shares have suffered recently on declining sales and weaker pricing, but it would seem that the market is quietly confident that this automaker will remain a major player for the foreseeable future.