Tesla's been running lately, since Elon apparently sold all the stocks he needed to for the year... about $14bn or so. The more I look into Tesla, the more I realize how great of a company it is... and how difficult it will be for traditional internal combustion engine (ICE) manufacturers, like GM and Ford, to catch up. I'm seeing Ford having a little run as well... so, I wanted to see if this is something we can get a bargain valuation on – because clearly Tesla is no bargain.
The markets are clearly in a disconnect as to what EV manufacturers and traditional ICE manufacturers should be valued at. We have Tesla, Rivian, Lucid, etc. on one hand valued at insane multiples of sales (or lack of sales), whereas traditional automakers are still at their historically low valuations, given this was an industry that wasn't disrupted.
Ignoring Tesla for a second, and just focusing on Rivian and Lucid... it's evident something is wrong here, because these traditional automakers are actually delivering EVs now and are in the game... or are they?
Ford vs GM: EV Race
Ford is now delivering about 10,000 EVs a month, and expects to get to 600K capacity by 2023. Rivian is expected to get to about 200K by that time... so, a third of that. Meanwhile Rivian is trading at a market cap of nearly $90bn, whereas Ford is trading at $80bn. So what's happening? Rivian is getting a Tesla-like valuation (let's call it an EV pureplay) whereas Ford is getting a traditional valuation... but that's increasing as we speak. And that's the opportunity we're looking to catch... maybe.
Ford has had incredible success with its launch of the Mustang Mach-E, and the Ford-150 Lightning – which they stopped taking pre-orders for at 200,000. There's clearly a lot of demand for the F-150 (even I considered one). It's going to do really well for them. Hopefully they're able to produce all this demand, with the $30bn they're investing into electrification.
GM, on the other hand, is investing $35bn until 2025... and also being super-aggressive in this race. After Tesla, they're the official leader with their sales of the Chevy Bolt – but that's nowhere near the technology needed for the new-age EV. So, in that sense, Ford is taking the lead. But, GM is coming in strong with the Hummer EV. Even with a $100K+ price tag, it sold out within 10 minutes. It's obviously no where near the quantity of F-150s, but still impressive. They also sold out of the up and coming Cadillac Lyriq – which also sold out in just 10 minutes.
Again, this is nowhere near the quantities of the F-150, but the demand is clearly there whether it be for Ford or GM. Although GM makes more cars and has more market share than Ford globally, I think Ford is making a serious run with the F-150 – which is the highest selling vehicle in the USA. That's a very powerful brand. And the F-150 lightning, which can also act as a generator for your house... is pretty sick!
GM's global deliveries (which we'll look at further in our valuation) seems to be declining a lot more steeply than Fords – which is concerning.
In the race for development of autonomous driving, GM has Super Cruise whereas Ford has BlueCruise. It's widely known that GM is far ahead of Ford in this category. In fact, last year, Consumer Reports put GM ahead of the rest of the automakers, including Tesla. Of course, this depends on who you ask, because they are in this race using different technologies – especially Tesla. But, the race isn't over. I previously talked about this, and I think the EV race really comes down to this... who wins in autonomous driving?
GM has also introduced 'Ultra Cruise' – which is an advanced version of the Super Cruise, with more capabilities. It seems like Ford is not writing off GM, the way the market currently is... speaking of which, let's take a look at their financial metrics and valuations.
Valuation: Tesla vs. Ford vs. GM
As always, the valuation working papers are available to premium subscribers of The Hawk Letter (in beta).
I primarily measured their respective business performances, the same way I measured Tesla's, is with deliveries. They both have declining deliveries, with a questionable comp period in 2021 because of the 2020 pandemic and chip shortages. It's really hard to give any one an edge over the other. But, what's clear is GM is much bigger, so it is losing global market share at a faster rate than Ford.
Assuming the same growth rates of deliveries going forward – 7% CAGR until 2024 – I come to the conclusion that Ford is undervalued by 100% and GM is fairly valued. HOWEVER, the big question mark is Capital Expenditures (CapEx)... right now GM is spending a sh*t ton, driving them to negative cash flows. The question is whether this will all pay off, and whether Ford will need to dish out more? But, Ford seems to be doing this with positive cash flows, which is a huge advantage. Ford seems to be better positioned for the transition from ICE to EV... it's clear in their numbers.
Now, when we compare these numbers to Tesla, you can see the difference. Tesla is far ahead of the traditional automakers in growth, margins, etc. I think it will be extremely difficult for traditional automakers and new EV startups to reach this level. So, if you're betting on a turnaround, Ford seems to be the right choice. However, you're already paying a premium on their historical multiples to get in now.. can this go higher? Possibly, that's what we'd be betting on. But, if you're looking to make the bet early, and you think GM can successfully transition, then they make the better pick, because the valuation is much lower than Ford's at the time – but their demand is also declining significantly more than Ford's.
I do think that some traditional automakers are not going to make it out of this transition successfully. So, we have to be aware of that... there's a good chance that Ford and/or GM gets wiped out... you just never know. So, you do have to pick accordingly. It's impossible for anyone to say right now what happens.
Tesla has a significant advantage in margins, not only from having made these investments early and enjoying economies of scale, but also having manufacturing in China, and the giga press die-casting process — which stamps the entire front and rear end of cars like the Model 3. This has apparently eliminated 370 parts and naturally increases efficiencies. Oh yeah, I almost forgot about the dealer network that traditional automakers would have to ditch in order to obtain the same level of direct-to-consumer efficiencies Tesla enjoys. Honestly, it's a pretty tough uphill battle for these legacy automakers.
Regardless, we don't know if the valuation for Tesla should be at tech multiples or automaker multiples... that's the risk.
Because Ford is already ahead, I'd try to get that stock... but wait for a pullback if we can get one. The stock's gone up 50% in the last three months. It needs a little bit of chill. The F-150 Lightning can make a huge difference for Ford that is likely still not priced in yet.
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