Let us take a look at Ford Motors versus Tesla.
Elon Musk, CEO of Tesla, went on a verbal rant and dropped an f-bomb against the coronavirus shutdown during Tesla’s earnings call. Elon has continued to rail against the shutdown on twitter and had a weird tweet about Tesla stock price being too high. Ford Motors CEO Jim Hackett mused that “there is no future if we don’t have an economic system that is always on” during his earning call.
So what is the future of Ford and Tesla?
Ford Motor lost $2 billion during the first quarter and warned investors that losses will widen to about $5 billion during the second quarter. Ford is trading at $4.92. This means Ford is categorized as a penny stock (a stock that trades below $5 per share.) Ford seems on track to lose $7-10 billion in 2020.
Ford will need to stop bleeding cash before they can spend a lot of money trying to launch electric vehicles.
Tesla had a small profit in the first quarter and was uncertain about the 2nd quarter. Tesla might only have 50,000 cars built in China for the 2nd quarter if the Fremont factory stayed closed. Each week Fremont is in full operation then they will have about 8000 cars per week. An early June opening would be about 32,000 cars. A late May opening would be about 40,000 cars for the second quarter. This would mean about the same financials as the first quarter.
Tesla has fixed expenses of about $1 billion per quarter. They made a slight profit on 88,000 cars in 2020Q1. They have car production capacity of 690,000 cars (Fremont and China) already when not closed. 350k cars per year to break even butthey make 340k more cars from current capacity. Auto revenue would go from $5 billion to $10 billion per quarter at the current full capacity. They would make $1.25 billion in profit per quarter. The extra revenue pretty much drops to the bottom line after paying the fixed costs. Full production of existing factories would make Tesla $5 billion per year. Price-earnings multiple of 40X or more because of 40-50% year over year growth.
China factory built in less than a year and getting expanded. I think it will have more than Fremont production by 2021. I see consumers in China going for Tesla instead of the other electric cars in China.
Model Y will have double the demand Model 3.
The German Factory is set to open in 2021. Tesla will soon announce a Texas gigafactory for Cybertruck and this would likely open in 2022.
In 2022-3, Tesla should have 2.5-3 million cars per year. (Fremont 500k-750k, China 1000k, Texas 500-750K, Germany 500k).
In 2025, Tesla should be making 4+ million cars.
Ark Invest makes the case that Tesla will grow margin based on Wright’s law. In Sept, 2019, Ark Invest predicted Tesla would grow auto gross margin from 17% to 30% in 18 months. Tesla is on track to achieving 30% automotive margin by the end of 2020.
According to Wright’s Law, the cost to produce a Model 3 should drop by roughly 23% as double the cars are made. Gross margins would grow again per that Wright law predictions. Tesla can use this increasing efficiency for more profit to cut prices to boost sales.
3 million cars per year would be 4 times the 690K cars.
Tesla could have $120 Billion in annual car sales ($40K per car) and $32 billion in profit in 2023. If they had a price earnings ratio of 40 this would be a $1.28 trillion market value.
Ford and GM are companies earning profits from parts and services, car loans and leases.
SOURCES- Ford, Tesla
Written By Brian Wang, Nextbigfuture.com (Brian owns shares of Tesla).