A couple of tidbits in the news today that just want to be shared. Tesla’s stock surge continues (up 130% since the beginning of the year), with a market cap of some $206 billion, surpassing Toyota, and making it three times as valuable as the combined market caps of GM and Ford. How’s that for…a company that has been endlessly predicted to be bankrupt any day now?
Meanwhile, Ford has pulled the plug on its slow-selling Continental, another victim of Ford’s determined effort to be a truck-only company.
I have always refused to express an opinion on Tesla’s share price, as it’s been volatile and reflects a huge amount of optimism in the company’s future. But it’s not just wishful thinking; there are a number of facts that are fueling the TSLA fire:
Unlike the rest of the industry, which is reporting first quarter sales being down 25-50%, Tesla is expected to deliver some 88k cars, or very close to its pre-pandemic guidance and its previous record (92k). That also means that Tesla might be able to squeeze out a profit in Q2, contrary to expectations. Tesla’s China plant is starting to really kick in, and its Germany plant is scheduled to start assembling cars by the end of this year.
Meanwhile, all of the “Tesla Killers” are languishing on dealer lots, leading to massive incentives. Chevy Bolts are discounted some $15k, and that’s before state tax credits. You can pick up a Bolt for $25,475, the cheapest true EV currently available. Nissan’s Leaf is very close. Audi’s e-tron is really lagging; 2019’s are still on the lots and can be picked up for $15k off. And the Jaguar I-Pace has a whopping $24k on its hood.
Meanwhile, Teslas have no discounts or incentives, except for some minor spiffs like 6 months free Supercharging (worth some $500).
What this clearly suggests, especially to investors, is that Tesla is only increasing its dominant position, and that its technology gap is widening. Tesla is moving to build its own battery cells, with a new chemistry that promises much longer life, less cobalt, and lower cost. And Tesla’s operating system (software) that encompasses all functions of the car, entertainment, security, Autopilot, etc. is constantly evolving and a moving target, one moving away, not closer, to the competition. VW is still in a huge mess trying to sort out its software and now starting a whole new initiative to create a new open-source system it’s willing to share with partners.
Even industry execs admit that Tesla is some ten years ahead, and that the gap is not narrowing. That explains the biggest bull thesis for TSLA.
And Tesla’s profit margins and free cash flow have been improving steadily. Tesla now sits on an $8 billion dollar wad of cash.
Tesla bulls compare it with the huge growth of high tech companies like Amazon and such, rather than the industrial companies. Obviously it’s easier to scale software (or even iPhones) than cars, but that’s the assumption.
Another factor is that proposed mandates for zero-emission vehicles are growing rapidly. The Democrats have unveiled a plan to make all new cars tail-pipe emission free by 2035. The EU and the UK is moving rapidly that same direction. California and the US states that share its emission regulations is also heading that way. The market for electric vehicles is forecast to increase to 10% of global passenger vehicle sales by 2025, 28% in 2030 and 58% by 2040, according to a May 19 report by BloombergNEF. To whatever extent these mandates and projections become reality (likely to one extent or another) that all bolsters the Tesla bull case.
There you have. But don’t even ask about the market cap of Nikola, the hydrogen/electric truck company that’s been promising a production version for years…last I checked, it’s worth more than either GM or Ford. Now they’re taking $5,000 deposits for a pickup that’s only a rendering.
Oh, and the Continental. Why bother wasting words on a dead horse?