Tesla, on a Hot Streak, Passes Ford in Investor Value -- 2nd Update

Date : 04/03/2017 @ 7:39PM
Source : Dow Jones News
Stock : Ford Motor Company (F)
Quote : 10.71  0.06 (0.56%) @ 4:18PM
Ford Motor share price Chart

Tesla, on a Hot Streak, Passes Ford in Investor Value -- 2nd Update

Ford Motor (NYSE:F)
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By Tim Higgins and Christina Rogers 

Elon Musk has steered past Henry Ford in the minds of investors, the latest sign that the auto industry is undergoing a seismic shift.

Tesla Inc., the upstart Silicon Valley electric-car maker run by Mr. Musk, has overtaken Ford Motor Co., the automotive pioneer that is exactly 100 years older, as the second-largest U.S. auto maker by stock-market value.

Shares in Tesla were up 7.3% at $298.52 Monday, pushing the California auto maker's market capitalization to $48.7 billion, above the Michigan company's roughly $45.5 billion, according to FactSet. The next milestone for Tesla would be General Motors Co., valued at roughly $51.2 billion.

This milestone was achieved as the broader auto industry delivered disappointing March sales results, reinforcing widespread investor concern that the profitable U.S. market has plateaued after seven years of growth.

Wall Street has soured on blue-chip auto stocks as discounts to sell cars soar and inventories balloon, fearful that established players are headed into the prolonged downturns that have long plagued the boom-and-bust car business.

Tesla is among the few companies showing the potential to defy that cycle. Its sales of electric cars, while relatively modest, have skyrocketed in a period when low gasoline prices have sunk demand for other electric vehicles. On Sunday, the company said its global sales rose 69% in the first quarter, putting the car maker on the path to meet its goal of 50,000 deliveries in the first half.

GM launched its Chevrolet Bolt in January with none of the fanfare Tesla's forthcoming Model 3 received; and the 3,000 Bolts sold through March indicate that the battery-powered Chevrolet will struggle to be more than a niche car.

Tesla shares, which had already received a vote of confidence last week with Chinese tech company Tencent Holdings Ltd. revealing it had taken a 5% stake, were boosted by the auto maker's vehicle sales record.

The changing of the guard reflects a growing belief that internal-combustion engines will eventually be replaced by electric motors as the primary power source for automobiles. It is the latest threat to Detroit's once-dominant stranglehold on personal transportation, a role that was diminished by Japanese car companies in the 1980s and is now being challenged by Silicon Valley's technological might. While Mr. Ford's Model T ushered in a wave of affordable mobility for the middle class, Mr. Musk is promising the same with the coming Model 3. It is a sleek, computerized $35,000 sedan that can drive nearly the distance from New York City to Washington on a single charge.

Tesla is a bet that Mr. Musk -- who is 45 years old, the same age as Mr. Ford was in 1908 when he released the Model T -- can reshape transportation not only with electric vehicles, but with cars that drive themselves.

A Tesla spokesman declined to comment on the new market value. In a tweet Monday, Mr. Musk defended against critics of his company's valuation, saying it reflects Tesla's future potential. "Tesla is absurdly overvalued if based on the past, but that's irrelevant," Mr. Musk wrote. "A stock price represents risk-adjusted future cash flows."

In a statement, Ford said it doesn't run its business based on daily stock changes. "What we are doing is focusing our business on what drives value creation, which is profitable growth, minimizing risk and delivering strong returns."

Some investors believe Tesla is better positioned than auto makers and tech giants to bring advanced self-driving technology to the roadway.

"Other auto makers really have to make this transition to electric and autonomous, and it is almost like twice as hard for them to get there than it is for Tesla," said Tasha Keeney, an analyst for ARK Invest, which owns shares in Tesla, GM and Toyota Motor Corp.

Tesla remains a shaky bet. The 13-year-old company is unprofitable, deeply indebted and delivered just 76,000 cars last year. Its Autopilot mode is untested as a fully autonomous feature and has raised safety concerns.

Ford has over 20 times the annual revenue, billions of dollars in profit and sells millions of cars each year. It isn't standing still under Chief Executive Mark Fields, promising to deliver self-driving cars by 2021. It is buying and investing in tech startups: It invested $1 billion in Argo AI, a company consisting of engineers from the autonomous vehicle programs of Uber Technologies Inc. and Alphabet Inc. Ford is coming off one of its most profitable periods in history, after a restructuring effort led by former Chief Executive Alan Mulally that eliminated brands, closed plants and streamlined the company's global operations.

Under Mr. Fields, who took over Ford in 2014, the company has benefited from strong truck demand but struggled to persuade investors that brighter days are ahead, particularly as important markets plateau. He has proposed a number of ways to reshape Ford, but his vision is weighed down by a century-old business model that will be expensive to reshape.

Ford is forecasting leaner results for 2017, further confirming Wall Street's view that traditional car makers are still too exposed to the auto industry's boom-bust cycles. On Monday, Ford reported March sales plunged 7.2% amid a decline in fleet and passenger-car sales. GM posted a softer-than-expected 1.6% sales increase for the month.

Ford's market value is roughly the same as it was in late 2010, when a newly public Tesla was valued at less than $2 billion. Ford's stock has fluctuated since then, while Tesla's has steadily risen and has surged more than 50% since the company acquired SolarCity Corp. in November.

The acquisition was part of Mr. Musk's vision to have under one roof a company that could offer customers solar-roof panels, battery-storage units and electric-powered cars. It is a vision he highlighted in February when he removed the word "Motors" from Tesla's official name.

Mr. Musk is betting that a less-expensive Model 3 will help Tesla evolve from a luxury-car maker into one with mass-market appeal. He is aiming to make 500,000 vehicles next year, a projection doubted by some of his biggest supporters.

Still, Morgan Stanley autos analyst Adam Jonas has a price target of $305 a share for Tesla, estimating the added value could come from a ride-hailing service that Mr. Musk has hinted will work with future vehicles. "Tesla is distinctively positioned to commercialize an app-based, on-demand mobility service," Mr. Jonas wrote in a note to investors.

Some old-timers disagree.

"Its market cap is based on hype and promises versus substance," said David Cole, an outspoken supporter and investor in Detroit auto makers, and chairman emeritus of the Center for Automotive Research in Ann Arbor, Mich.

Write to Tim Higgins at Tim.Higgins@WSJ.com and Christina Rogers at christina.rogers@wsj.com

 

(END) Dow Jones Newswires

April 03, 2017 19:24 ET (23:24 GMT)

Copyright (c) 2017 Dow Jones & Company, Inc.

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