In today’s Money Morning…when the senseless makes sense, things are completely senseless…comparing Tesla to GM is not a fair competition, so find another comparison that is…if you want to invest in a car company then in our view there is only one…and more…
We’re going to adapt a classic quote from former US Defense Secretary, Donald Rumsfeld…
There are some things that makes sense. There are some things that don’t make sense. Then there are the things you think makes sense, but are senseless. And of course the senseless things that are indeed senseless but people think makes sense.
Good. That’s the state we’re in right now, too. If for different reasons.
This week Tesla [NASDAQ:TSLA] became the biggest US auto maker. That means their market cap is bigger than Ford [NYSE:F] and General Motors [NYSE:GM].
Let’s get something upfront to start with. We don’t hate Tesla as a company. In fact, we really like them. They’ve helped push big auto makers like Ford and GM to join in the future of electric vehicles (EVs). They’ve pushed the envelope and forced the giants to adapt, evolve and compete.
That’s good news for consumers, and the world.
Without Tesla there’s no way GM would have released the Chevy Bolt when they did. If you haven’t heard of or seen a Chevy Bolt, then Google it. It’s GM’s ‘affordable’ long range EV. It has a range of 238 miles (383km) and has enough comfort and interior tech to make most millennials pretty happy.
The other good news is that, after government subsidies, the bolt costs less than US$30,000. That’s always been the ‘holy grail’ price for EVs. It means that the average Joe can afford to go buy one.
The average Joe can’t on the other hand afford to go and get a Tesla Model S and drop in excess of $100,000.
So we like Tesla. But we simply cannot get behind it as an investment right now. The thing that’s disturbing is that Tesla daily volume is around 5.4 million shares. That’s around US$1.65 billion in trading volume…daily!
And it’s disturbing because for every share sold, someone else buys it. That, of course, is how markets work.
To be honest with you, anyone buying Tesla over US$300 is a fool in our book. If you want to make money from a car company going forward, there is only one choice…
Tesla at least makes more cars than one other car company
There’s a lot that worries us about Tesla. A lot.
For a start to be the biggest auto maker in the US you surely need to make a lot of cars…right? Wrong.
In Q1 this year Tesla delivered 25,418 vehicles worldwide. The breakdown of that was 13,450 Model S and 11,550 Model X.
Meanwhile at a real car company, GM’s total sales for Q1 in just the US were 689,521. That’s a mix of retail and commercial sales.
Put bluntly, GM sold 27.12 times as many cars than Tesla in the US alone in the first quarter of this year.
Here’s the other thing…
GM’s global sales in 2016 were 10 million cars. From this they made $166.38 billion in sales. Minus cost of sales of $136.33 billion. That means on average per car they made $3,005.
Tesla on the other hand made $5.589 billion in auto sales for 2016. Their cost of sales was $4.268 billion. And according to their Annual Report 2016 they delivered 76,230 cars. That means per car they make $17,329.
We should also add that, overall, Tesla made a net loss of $674.91 million.
However the average transaction price per Tesla is $73,319. And for the future development of their cars, Tesla spent $834.4 million on R&D for the year.
Per car Tesla makes incredibly more than GM or Ford. Is that Tesla fanboys we can hear rejoice? Hold your horses ‘Tesladdicts’.
If we’re going to compare similar companies, then comparing Tesla to Ford or GM isn’t that straightforward.
For a start Tesla makes two kinds of car. GM has around 32 different models just under the Chevrolet brand. Buick has another nine…we stopped counting after Buick. And then each model has variations under that.
The point being Tesla is more comparable to a company like, well Ferrari N.V [NYSE:RACE]. In fact if you want to pit two innovative, high-tech car companies against each other, then you want to be looking at Tesla and Ferrari.
And we can guarantee one thing. Tesla definitely makes more cars per year than Ferrari does.
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The Tifosi goes wild!
Ferrari currently have six range models, one special series and one limited edition supercar. Heck they make four times as many cars as Tesla. However in 2016 Ferrari shipped just 8,014 cars.
That managed to bring them in €2.18 billion. Their total revenue was €3.105 billion but includes engine manufacturing and other items.
Their cost of sales was €1.515 billion (that’s stripping out €65 million in costs for the manufacture of engines for Maserati and other F1 teams).
Therefore when you look at the per car figures, Ferrari made €82,979. In US dollars that’s just over $88,000. That’s 5.07 times more than Tesla. It also means that the average price per car was €272,023 (US$288,493).
And for good measure Ferrari actually also made an overall company profit of €400 million (US$421.24).
And a hush lulls over the ‘Tesladdicts’ while the ‘Tifosi’ go nuts!
Note: ‘Tifosi’ is Italian for ‘fans’ and is the common term used for Ferrari racing fans.
We might also add that Ferrari spent €613.635 million on R&D in 2016 (US$650.8 million).
The point we’re trying to make here is that if you’re a ‘Tesladdict’, then leave your emotion and awe at the door.
What really makes a car company great?
Is it the profit they can make per car? In that case Ferrari wins hands down.
Is it the amount of profit the company can make overall? In that case GM, Ford and Ferrari all smash Tesla.
Or is it innovation, high-tech development and cutting edge design? Oh, wait. Ferrari wins that one also.
If you’re buying into Tesla now, at these prices, then you’re trading on hope. We say that because there’s nothing else there to justify their price. Sitting at US$51.94 billion market cap makes them massively overpriced.
Whereas a truly great car company, Ferrari, can also be purchased as a publicly traded stock. It has a lowly market cap of just US$13.57 billion. It’s roughly one quarter the size of Tesla.
Ferrari are more innovative. They’re better looking. They’re higher tech (believe it or not). They are better run, better made, better performing. Sure, no one can really afford one. But the same goes for a Model S or Model X.
While Ferrari has no plans to bring out an ‘affordable’ Ferrari, it matters little. When looking at all the car companies in the world as an investment, there is only one. In our view, if you want to make money long term from a cracking car company, Ferrari is the one to invest in, not Tesla.