Ford vs Tesla Stock: Which is a Better Bet?

With rocketing stock prices, Tesla’s market capitalization surpassed $1 trillion, in the process making the company the most valuable automaker in the world, and its CEO the richest person on the planet. The company’s numero uno position in the electric vehicle (EV) space amply demonstrates investors’ unbridled enthusiasm for the entire electric vehicle market in general and Tesla in particular.

Tesla currently valued at above $900 billion dwarfs Ford’s market cap by a huge margin, which currently stands at over $62 billion. Having said that, it is important to remember that Tesla still trails Ford in several key metrics. More on those later.

Ford was established in Dearborn, Michigan by Henry Ford in June of 1903, while Tesla is practically a startup having been founded in 2003 by the engineers, Martin Eberhard and Marc Tarpenning in San Carlos, California. Additionally, Ford manufactures and sells a far larger number of vehicles than Tesla.

However, these days sales volume does not play a primary role in determining an automaker’s valuation. The continual growth of a company, results that continue to beat analysts’ expectations and its profit margins are the important factors that drive up a company’s valuation these days. 

These are among the many reasons the market cap of Tesla has shot up to formerly unfathomable levels, even though by sales volume it lags far behind Ford as well as other established players like General Motors, Toyota, Volkswagen and Daimler.

Meanwhile, Ford has bold plans of its own to establish its footprints in the EV space. Last year President Biden toured Ford’s Electric Vehicle Center in Michigan, where the company’s brand-new all-electric version of its F-150 pickup truck, called the Lightning was the center of attraction.

Valuations: TSLA vs F

Both TSLA and Ford are engaged in the design, development and manufacture of automobiles. The similarity, between the two, to an extent, ends here.

As an electric vehicle maker, Tesla’s staggering valuation hinges on its technology, operational efficiency and market size capture more so than the units it sells. With that said, its unit volumes are ever more impressive.

Tesla set a quarterly delivery record during the first quarter of this year, and the company with a market cap of over $900 billion, rivals and even eclipses the GDP of many countries in the world.

It has been selling more vehicles and also has been increasing the price of cars in recent quarters. As a result, its valuation skyrocketed; Tesla’s P/E ratio reached an incredible all-time high of 1,100x. 

In contrast, Ford is more of a traditional automaker, and as such the company is valued according to its financial performance and the number of vehicles it sells. It means that its valuation (around $62 billion) is nowhere near the mammoth valuation of Tesla.

If we look at the numbers, Ford’s global vehicle sales, including 11,116 EVs, stood at 3.9 million. Tesla’s numbers were less impressive: the EV leader delivered 937,172 electric vehicles in 2021.

If we delve a bit deeper and take into account the company’s market cap and the number of vehicles delivered, Tesla’s equity valuation comes in at an astonishing $959,200 per car delivered, which is in stark contrast to Ford’s “measly” comparison figure of $18,400 per car sold.

Ford vs Tesla: A Detailed Perspective

Legacy automaker Ford and EV leader are arguably two of the world’s most distinguished automotive brands. Tesla, of course, is the world’s most valuable automaker by far, with its market capitalization recently breaching an astonishing $1 trillion mark.

Ford in comparison, has little to boast of by way of growth, and its market cap of just over $70 billion is nowhere like that of Tesla, but its plan to enter into the highly lucrative EV market is gaining traction.

If we look to sales and the number of vehicles delivered, Tesla has a lot of catching up to do, but investors remain highly bullish on the company with their optimism driven by the belief that Tesla’s early mover advantage in the EV market will keep it an indomitable force in times to come.

Tesla vs Ford: The Hare and the Tortoise?

Apart from buyers’ unfettered enthusiasm for electric vehicles across the globe as they continue to line up to purchase electric vehicles, Tesla has been benefiting from rising sales, higher prices and resumption of production at its facility in Shanghai. The automaker has also been more successful in comparison to its peer in dealing with worldwide semiconductor shortages. 

The electric vehicle leader has trumped revenue estimates in nine consecutive quarters even with all the COVID lockdowns and supply chain snarls. In comparison, Ford’s sales rose by just about 6% over the most recent quarter, as the company’s recovery is being hurt by the semiconductor shortage.

When we look at a longer time frame, we see that Tesla’s revenue over the last three years has grown at a compounded rate of about 39% over the last three years. In stark contrast, Ford’s revenues have witnessed a decline at a compounded rate of -6.5% during the same time frame.

Automobile stocks have weakened in recent weeks owing to a variety of macro factors. Both companies and consumers are having to deal with raging inflation that has made everything from food to gas more expensive. This has brought the Fed into action. It has been forced to tighten monetary policy by raising interest rates, among other measures.

The war in Ukraine has also raised concerns of a looming recession as oil prices rise, food supplies get disrupted and supply chains come under added pressure. Stock prices of both Tesla and Ford have retreated from their highs, but that has not dented the ambition of both these companies, which stems from regulatory reforms enacted domestically and globally that will outlaw gasoline powered cars by within the next decade or so.

Ford and Tesla Pricing Strategy

The key difference between the two automotive giants is that Tesla is an EV pure-play, whereas Ford’s expertise lies in ICE vehicles.

Another is that the two companies seem to follow different EV strategies, when it comes to the production and pricing of their vehicles. Tesla began with high-end vehicles before rolling out lower-priced higher-volume vehicles. Its lowest-priced car, the Model 3, still starts at nearly $47,000, while the Y commands a price tag of around $60,000.

The automaker currently has two volume vehicles, Model 3 and Model Y, and two high-end vehicles, Model S and Model X. Other EV automakers like Lucid, are following a similar pricing strategy: start with a high-end vehicle, follow it up with an SUV, and then roll out lower-priced models that can be produced en masse.

Ford, however, is taking a different approach to EV production, a luxury it can afford because of its long and illustrious car manufacturing history, and its command over global supply chains. Unlike Tesla, it was not compelled to start with a high-priced vehicle such as the S.

Instead, the company had the resources and the liberty to simultaneously introduce a range of EVs at different price points. The Mustang Mach-E was a runaway hit, trailing only Tesla’s Model Y as the best-selling electric SUV in the United States.

Ford’s upcoming F-150 Lightning is going to be the automaker’s first mass-produced electric truck. It is going to hit the road before Tesla’s Cybertruck.

Ford’s longstanding relations with truck buyers across the country coupled with its solid expertise in building trucks gave it a headstart over Tesla, which seems to lack meaningful expertise in truck production. Also, Tesla is a name not generally recognized as a work-vehicle producer. In fact, Ford had to refuse further bookings after its F-150 Lightning trucks hit the 200,000 mark.

Soaring Costs Not Hurting Demand

Even if we look at Rivian, the Irvin, California-based EV manufacturer, we realize that soaring raw material prices and skyrocketing lithium-ion battery cells costs have failed to dampen buyers’ as well as investors’ enthusiasm for electric vehicles.

A couple of Rivian models, including R1T and R1S have received around 70,000 preorders, which is about a third of those Ford’s F-150 Lightning trucks. Moreover, Ford has other EV models and a profitable time-tested ICE business. Still, Ford is valued at around $64 billion, which is less than 2x the market cap of Rivian.  This, in short, suggests that Ford’s EV business is underappreciated today, though it has a lot of growth potential.

Ford’s management apparently felt the same way, and that’s the reason it was decided to restructure the company into two distinct businesses.

As a legacy automaker, Ford is known more for its ICE business rather than its EV manufacturing capabilities. As such the decision to split the business into two separate units makes sense; the value proposition for each will become clearer to investors, especially once the EV business takes off and starts registering strong sales numbers and profitability.

This is perfectly achievable given that Ford has highly ambitious plans of becoming one of the largest EV players in the world, with its cause helped by its strong brand name and the popularity it enjoys in the electric truck space.

The Detroit-based company recently announced its plans to introduce four new electric vehicles into its Lincoln lineup by 2026, as the luxury brand shifts its focus towards the fast-growing EV space. Ford expects EVs to make up more than 90% of its North American sales by 2030.

Tesla shares have come under pressure in recent months as rising interest rates are inducing investors to pull away from riskier wagers. Skeptics have long been voicing concerns over Tesla’s valuation which they believe is elevated based on highly optimistic projections for the future.

Tesla Delivers Another Record-breaking Quarter

Defying expectations, Tesla delivered another swashbuckling quarter, with the automaker reporting a net profit of $3.3 billion in the first quarter of the year.

The world’s most valuable automaker has been more resilient than some predicted, and despite the exploding costs of metals such as nickel and lithium, which it uses in batteries, and rocketing shipping and labor costs, Tesla has managed to thrive for the simple reason that it is passing the higher costs of productions to the customers.

CEO Elon Musk believes that Tesla should be able to produce 1.5 million vehicles this year, an impressive jump of 60% from the previous year. Production in its largest factory in Shanghai has resumed after the factory was closed because of lockdowns. Also, the company is planning to split its stock for the second time in recent years to make it more affordable for everyday investors.

Will Supply Chain Issues Catch Up To Tesla?

Tesla enjoys pricing power, and so far, has been successful in offsetting the higher cost of production by increasing the prices of its vehicles, a luxury it can afford because of its longer waitlists and loyal customer base.

Tesla’s stock continues to defy gravity, although growth could slow down as the EV king is not immune to supply chain problems.

The fear of potential downside remains real and present though, with future projects such as the Roadster 2, Tesla Semi, and Cybertruck still sputtering. It has led many skeptics to wonder whether Tesla can keep the momentum going given its somewhat stale model lineup and increasing competition from startups as well as established automakers. 

Ford Revenue: EV A Bright Horizon?

Coming back to Ford, its revenue grew 7.2% in 2021, while revenue per vehicle rose 13.9% YoY in 2021.

The automaker reported on April 4, 2022, that its U.S. vehicles sales fell over 25% year-over-year to 159,328 vehicles in March 2022.

Vehicle sales witnessed a decline across all its segments with truck sales falling close to 35% Y/Y to 74,420 units; cars sales fell 67% Y/Y to 3,628 units, while SUV sales weakened over -9 % Y/Y to 81,280 units. And to top it all, Ford announced that it will recall over 737,000 vehicles to fix oil leakage.

On the positive side, its EV business was the silver lining for the company registering a growth of nearly 17% year-over-year to 13,772 units.

Ford made a profit of $4,551 per vehicle in 2021, which was in sharp contrast to a loss of $305 in 2020, as its revenues per vehicle rose 13.9%.

Meanwhile, profit per vehicle for Tesla tripled during the same period. Net income for automobile companies rose because of a slew of measures they took such as cutting incentives, increasing the price of vehicles, and reducing dealerships. In short, Ford’s increasing net income and revenues have been a positive for the company. 

A worrying factor for Ford is that its stock price is taking a hit with rising inflation. Inflation, coupled with rising rates, may erode a prospective car buyer’s purchasing capacity. This in turn may compel consumers to postpone the decision to buy a car or purchase one that is priced lower, thereby lowering a company’s revenues.

Market Growth Is A Tailwind For Ford and Tesla

Global EV sales last year registered highly-impressive growth of close to 110%, while the total automobile (EV and ICE) witnessed a meagre growth of just 4.6%. In North America, the number of EV vehicles currently is just around 10%, which translates into a huge market opportunity for EV manufacturers.

To avail of this growth opportunity and as hinted at above, Ford has announced that it is restructuring its business into two separate entities called Ford Blue and Ford Model E. 

Ford Blue will manage the ICE business, while Ford Model E will concentrate on electric vehicles with products like the Mustang Mach-E and Ford F-150 Lightning.

The move projects the company’s lofty ambitions of becoming a major EV player, with an aim of producing two million electric vehicles in 2026, a huge jump from the 600,000 EVs planned for the next year. However, we must remember that Ford’s EVs need to be competitive against the market leader Tesla, as well plethora of other companies also keen on increasing their EV footprint.

To put it in perspective, out of 159,328 Ford vehicles sold in March in the U.S., only 13,772 were EVs, which constitutes less than 9% of the total vehicles sold.

Tesla The #1 Market Leader

EVs are the future of the automobile industry, and Tesla as the current market leader finds itself in a highly advantageous position. For one, it holds a software advantage that is reputed to be years ahead of its competition.

The company’s relatively small model lineup has helped it to an extent circumvent supply chain issues faced by major automobile companies. The demand for EVs is not going to slow down any time soon, but Tesla’s long-term contracts – which have kept costs down – will eventually expire, and then Tesla might have to give in to the suppliers’ demand for increasing prices.

Tesla’s first-quarter net earnings smashed expectations, as higher prices and strong sales helped isolate the EV maker from supply-chain kinks, rising costs and pandemic-related production cuts in China.

The electric vehicle and solar panel company’s revenue for the quarter jumped over 80% year-over-year to reach18.76 billion, well above expectations of $17.8 billion. This is up 81% from a year earlier.

Tesla made an adjusted profit of $5 billion, and its pre-tax profit (EBITDA) per vehicle delivered stood at $16,203, a jump of 60% in the latest quarter compared with a year earlier. Its earnings per share were $3.22, soundly beating estimates of $2.26 per share.

The Austin, Texas-based company’s net earnings were seven times higher in comparison to the same quarter last year, as the automaker massively benefited from multiple price hikes and rising sales, which negated the rising costs of raw materials like lithium, cobalt and nickel, cobalt and other raw materials.

Tesla increased the prices of its vehicles in China, the United States and other countries, to offset substantial inflationary pressure the company was facing owing to the rising cost of raw materials and logistics issues amidst the raging war in Ukraine.

The price increases will insulate Tesla from likely rise in production costs in the next six to 12 months. Tesla has been a welcome exception ever during the pandemic, which derailed global supply chains and forced major automakers to cut or halt production.

The electric car company has been an outlier exceeding performance targets several quarters in a row with above expectations deliveries and earnings as it turned out to be more successful than its peers and competitors in dealing with parts shortages. Also, Tesla’s Shanghai plant is operational now after an extended lockdown halted all production activities since March 28. 

Tesla’s CEO Musk believes that Tesla is well on track to build 1.5 million vehicles this year with the EV manufacturer well-placed to achieve 60% vehicle delivery growth and confident of accomplishing 50% growth in vehicle deliveries over the next several years.

The company recently started deliveries of Model Y from its Gigafactory Texas and Gigafactory Berlin-Brandenburg. The growth in Tesla’s share price performance has been exceptional as well, with the share price up almost 31 per cent over the past 1 year. The company is putting considerable effort into in-house cell production and trying to lower raw materials procurement cost by diversifying its supplier base. 

Tesla delivered a record 310,000 vehicles worldwide in the first quarter, a jump of around 68% in comparison to the same period last year, when it delivered 185,000 vehicles. The company had delivered 936,000 vehicles in 2021, up 87% over the same period a year back. The company expects 50% annual growth in sales, which translates into roughly around 1.4 million vehicles this year.

Bumps In The Road Ahead?

Tesla may find it difficult to deliver another record-shattering quarter later this year. The challenges surrounding the supply chain are unlikely to ease anytime soon amidst rising raw material prices, rising inflation, and the ongoing war in Ukraine which are likely to impact production and sales. Additionally, the company has to contend with rising costs related to ramping up new factories in Germany and Texas. 

Tesla so far has managed to reign in production costs to some extent through better manufacturing efficiencies and new battery production technology. The EV manufacturer admitted that its factories have not been running to their maximum capacity limited by supply chain problems and chip shortages.

However, Tesla believes new factories will help it bridge the supply-demand gap, which only widened owing to the shutdown of its biggest factory in China.  The world’s most valuable automaker will also have to contend with heightened competition as startups as well legacy automakers roll out more electric models.

Is Ford The New Belle of the Ball?

A couple of years ago, the question if Ford or Tesla was a better investment option than Ford would have drawn quizzical looks. The comparison would have seemed preposterous to many, and not without good reasons.

Tesla was the brightest shining star on the horizon, racing with lightning speed to a trillion-dollar market cap, whereas Ford stock was stuck in the rut for many years. Tesla was the glamorous disrupter, while Ford looked decidedly out of fashion.

Things can change quickly in the automotive industry though. While Tesla is still the king, Ford has big EV plans and ambitions of its own. In fact, its Mustang Mach-E was awarded the top electric vehicle (EV) by Consumer Reports for its Mustang Mach-E.

The million-dollar question then is where you should place your bet as an investor. Should the 118-year-old legacy Detroit auto giant be the prime contender for your hard-earned cash, or you should wager on Tesla, Musk’s juggernaut that took the stock market and the automobile industry by storm?

Does Tesla Have The Better Product?

Elon Musk’s vision and foresightedness played a major role in revolutionizing the auto industry, with his high-flying electric vehicle company winning the crown of being the most valuable automaker in the world.

The EV leader belied expectations to deliver a new record in quarterly profits, generating a profit of $3.3 billion riding on an 81% jump in revenues to $18.8 billion. The EV manufacturer produced 305,407 autos in the period, taking the output to over one million vehicles in the past 12 months.

Looking ahead, however, it seems that Ford has started to catch up with Tesla, though it still has a long way to go. The company is focusing intensely on its newly restructured EV segment called Ford E. The company’s Ford’s F-150 Lightning is in high demand notching up 200,000 bookings. In contrast, Tesla’s much-anticipated Cybertruck has accrued over 1.2 million reservations, but like F-150 Lightning, it is not expected to hit the road anytime soon.

Analysts believe 2021 was strategically the most important year for Ford since 2007 when the financial crisis brought it to the verge of bankruptcy.

Investors drove up the shares to an all-time high buoyed by Farley’s announcement that Ford would up the production of its electric Mustang Mach-E by over 300% by 2023, which means the automaker would be manufacturing more than 200,000 units per year for North America and Europe by next year. Also, the company was compelled to halt bookings for its F-150 Lightning after it hit 200,000 units.

Also, Tesla has a limited number of models, whereas Ford has an exciting number of EVs lineup. And it is anticipated that they like Mustang Mach-E are sure to catch the fancy of car buyers. Outside of electric vehicles, Ford’s performance has been noteworthy as well. Its F-150 series was the No.1-selling vehicle in the United States in 2021 with over 700,000 units sold.

Overall Ford enjoys a slight edge over here owing to its broader portfolio of models. Tesla has been a pioneer in the EV segment and is a market leader in this rapidly-growing segment. Also, Ford’s CEO recently stated that the company is seeking out “real experts” to give a solid thrust to its EV business and drive scale, which means Ford still lacks the EV talent that Tesla has.

Looking at net profits, Ford is expected to earn $8 billion this year, or an EPS of $2.04, whereas net profit for Tesla is estimated to be around $10.5 billion. Tesla, as such, emerges as the clear winner, but it is important to note that Tesla generates a considerable portion of its sales in China, which means macro issues, such as escalating tension between Taiwan and China could impact Tesla’s overall profitability.

Ford to an extent is likely to be insulated from such problems as it generates a major portion of its sales in its home market. However, Ford would still be negatively affected because of the strain such macro factors can cause on the supply chain.

Ford Vs Tesla Stock: The Bottom Line

It is arguably the most interesting and exciting time for the automobile industry. Driven by the gravity-defying success of Tesla, people are lining up across the globe to buy electric vehicles, with the waiting period running into several months.

The unstoppable juggernaut of EVs, as automakers and car buyers make a transition from gasoline-powered cars to vehicles that emit no pollution from tailpipes, is perfectly understandable. EVs are the future of transportation that are likely to institute wide-ranging effects on the environment, government policies around the world, and the economy.

All major automakers across the globe are spending billions of dollars on EV technology and tools, in what seems to be the industry’s greatest transformation since the large-scale manufacturing of cars introduced by Henry Ford in 1903. More importantly, they are all trying to play a catch-up game with the titan that is Tesla.

As such, the all-important question is whether Ford has the resources and the tools to take on a rapidly-expanding Tesla currently valued by investors at about 16 times as much as Ford.

Following the unveiling of new factories in Germany and Texas, and the re-opening of its Shanghai mega plant, Tesla looks on track to produce more than one and a half million vehicles in 2022. Last year it sold almost one million vehicles. Ford sold four times that, but sales fell 6 per cent as like other automakers it too suffered from supply chain snags that led to a shortage of computer chips, batteries and other parts. Tesla is a name people associate with glamour, luxury and technical sophistication. Ford on the other hand is viewed as a maker of large, utilitarian trucks and SUVs.

Ford is betting big on its EV segment, and more precisely on its electric F-150, known as the Lightning. Ford has a lot riding on this electric truck, so much so that William C. Ford Jr., the company’s executive chairman, believes that introducing the truck is “betting the company,” and any snag in the launch could “tarnish the entire franchise.”

The good news for Tesla is that Lightning has generated a lot of positive buzz in the marketplace, having amassed about 200,000 reservations. Further helping its cause is that it will beat Tesla’s Cybertruck to the market by at least one year.

Moreover, the F-150 Lightning comes with a relatively affordable starting price tag of $40,000. Tesla’s cheapest car is the compact Model 3 sedan, which currently lists for a starting price of around $47,000. Also, Ford has tested success in the EV segment with its Mustang Mach-E, an electric sport utility vehicle. It clocked sales of over 27,000 in 2021 and won considerable praise from experts.

Additionally, Ford’s current dividend yield stands just over 2%, whereas Tesla pays no dividend. All in all, based on its far-less-expensive valuation, an exciting upcoming product portfolio, Ford’s reorganization into two distinct auto units, Tesla’s lack of new products, and intensifying competition, gives Ford slight edge over Tesla.

About Ford

Ford Motor Co [NYSE:F] is an American multinational automobile company, which designs, manufactures, markets and services commercial vehicles, including cars, trucks, SUVs and electrified vehicles under the Ford brand. The company sells luxury vehicles under its Lincoln luxury brand.

Founded by Henry Ford in 1903, the Ford Motor Company is the second-largest U.S.-based automaker behind General Motors [NYSE:GM], and the fifth-largest in the world behind Toyota, Volkswagen, Hyundai and General Motors. The Dearborn, Michigan-headquartered Ford serves customers worldwide.

About Tesla

Tesla, Inc. [NASDAQ:TSLA] is an American automotive and clean energy company engaged in the design, development, manufacturing and sale of fully electric vehicles (electric cars and trucks) and energy generation and storage systems, including solar energy systems, solar panels and solar roof tiles. 

The company with manufacturing facilities in the US, Germany and China is known for its Model Y, Model 3, Model X, Model S, Cybertruck, Tesla Semi, and Tesla Roadster vehicles.

The Austin, Texas-based company enjoys the honor of being the world’s most valuable automaker with a market capitalization of more than $1 trillion. Tesla was founded by Jeffrey B. Straubel, Elon Reeve Musk, Martin Eberhard, and Marc Tarpenning on July 1, 2003. 

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.