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US Automakers

2020-02-06, Michael Thompson

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US Automakers

While Tesla shares are up over 60% in the last month, Ford and GM have taken a beating, down 12% and 3.5% respectively. We have serious respect for Tesla and the low cost of ownership reportedly achieved for the Model 3, but we can't imagine investing in Tesla at the current valuation.

Tesla's market cap currently stands at 160B USD - double the combined values of Ford and GM. This puts Tesla's stock price at 50 times forward earnings, while Ford and GM are priced around 6 times forward earnings. Ford and GM also provide attractive yields over 7% and 4.4%, respectively.

We expect Tesla to make serious gains in sedan market share in the near future, but Ford's F-series trucks are still the best-selling vehicle in America, and their sales increased by 8.4% in 2019. We expect another good year for the F-series in 2020.

Tesla expects to sell its electric Cybertruck within a couple years, but we do not have high expectations for that just yet. The truck industry could be where Ford and GM have drawn a line in the sand. They are undoubtedly at work (in secret as much as feasible) on their own electric trucks. Indeed, just as this article was being written GM announced some details about an upcoming Hummer electric truck, to be sold as soon as 2021! Add this to news from Rivian and Bollinger and it looks like there's going to be a serious battle for electric truck sales in the next 5 years. Lastly, we also expect inertia in truck drivers accustomed to their noisy old ICEs. Even if some attractive, well priced electric trucks do hit the market in 2021, it's very possible the old F-series will remain king in 2022 and even 2023. Oh, and experts estimate Ford will profit about 10K USD for each F-series sale!

We'd be remiss not to mention some negatives of buying Ford and/or GM. Tesla does seem to have a promising future with the model 3 and EV sedans in general. If the electrification of trucks (and cars in general) doesn’t pan out well for Ford and/or GM they are at risk for total failure. They are pushing their own electric cars, but it's not clear if they will be able to compete with Tesla, who has already won the respect of many future EV buyers. It may be difficult for Ford and GM to compete even with technically comperable sedans.

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