Tesla overtakes Ford as investors embrace electric car future

TIM HIGGINS & CHRISTINA ROGERS
April 5, 2017
The Wall Street Journal

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, the upstart Silicon Valley electric carmaker run by Mr Musk, has overtaken Ford, the auto­motive pioneer that is exactly 100 years older, as the second-largest US carmaker by stock­market value.

Shares in Tesla were up 7.3 per cent at $US298.52 yesterday, pushing the Californian firm’s market capitalisation to $US48.69 billion ($64.3bn), above the Michigan company’s $US45.47bn, ­according to FactSet.

The next milestone for Tesla is General Motors, valued at about $US51.19bn.

The milestone was achieved as the broader auto industry delivered disappointing March sales results, reinforcing widespread investor concern that the profitable US 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 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 per cent in the first quarter, putting it 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 3000 Bolts sold through March indicate 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 revealing it had taken a 5 per cent stake, were boosted by the automaker’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 cars. It is the latest threat to Detroit’s once-dominant stranglehold on personal transportation, a role diminished by Japanese car companies in the 1980s and 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, computerised $US35,000 sedan that can drive nearly the distance from New York City to Washington (390km) on a single charge. Tesla is a bet that Mr Musk — who is 45, 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. GM reported a 1.6 per cent sales increase in March to 256,224 units compared with the same month a year ago.

A Tesla spokesman declined to comment on the new market value. In a tweet yesterday, Mr Musk hit back at critics of his company’s valuation, saying it reflected Tesla’s future potential. “Tesla is absurdly overvalued if based on the past, but that’s irrelevant,” he wrote. “A stock price represents risk-adjusted future cash flows.” 

Ford said it did not 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, minimising risk and delivering strong returns.”

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

“Other carmakers 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.

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 more than 20 times the annual revenue, billions of dollars in profit and sells millions of cars each year. And it isn’t standing still under chief executive Mark Fields, promising to deliver self-driving cars by 2021.

Ford is coming off one of its most profitable periods in history, after a restructuring effort led by former chief executive Alan ­Mulally that streamlined the company’s global operations.