This story is meant to be a reflection of the past growth and prediction of the future growth of Tesla, not a criticism of Ford. Having said that, the reason to have Ford even in the story is it provides a company to compare Tesla to, and Ford has been the least troubled of the traditional US auto manufacturers in my opinion. Of the big 3, it was the only one that didn’t need help in the 2008 financial crisis. I’m going to look at 4 metrics: market cap, profits, revenue, and unit sales.
Tesla & Ford Market Capitalization
Up until the Model 3 was unveiled on March 31, 2016, most investors (including myself) didn’t really think to compare a regular car company like Ford to the specialty auto manufacturer Tesla. I realize Elon Musk had shared his master plan to build a mass-market sedan much earlier, but most people didn’t believe he could do it. Once the world saw that the Model 3 looked to be competitive with entry-level luxury sedans from BMW and Mercedes in purchase price and mass-market sedans like the Toyota Camry and Honda Accord in total cost of ownership, at least some investors started to see that Tesla had a chance to be a volume automaker if it could only get past production and delivery hell.
In 2020, Tesla stock took off for several reasons. As the company became consistently profitable and cash flow positive (even as it was investing huge sums in new factories), it made the stock feel much safer to investors and the constant threat of bankruptcy was no longer part of every discussion. The smooth ramp of the Model Y and the enthusiastic reception of the Cybertruck didn’t hurt either. As investors noticed electric cars becoming more popular around the world and every other manufacturer announced plans to electrify their production, some even announced they were stopping the design of new gas and diesel engines.
Tesla & Ford Profitability
While the market cap of a company anticipates future earnings and rewarded Tesla for a rosy outlook, you can see Ford is taking advantage of its larger scale to drive higher earnings while the car market is highly supply-constrained. Tesla looks to take advantage of the financial leverage possible when your unit volume grows significantly while your costs grow more slowly. While Tesla is already all-electric and focused on expanding output efficiently, Ford must both aggressively expand electric vehicle output and carefully manage the decline of its gas and diesel vehicle business. It has to resist the temptation of holding back the promotion of its electric vehicles, which have the potential to crush the sales of its existing vehicles, even before it can produce sufficient qualities of the electric replacements. If it doesn’t make the best electric vehicles and promote them, its competitors will do so. So existing vehicle sales will go down, whether because of better Ford vehicles or vehicle competitors.
Tesla & Ford Revenue
For the first 2 measures (Market Capitalization and Profitability), I was using factual historical data. For the next 2 measures, I’m going to switch to looking more at the future, giving my opinion, and telling the reasons why I think Tesla and Ford will grow as I predict.
Tesla’s sales revenue is still about half of Ford’s, but with Tesla targeting over 50% unit growth in sales and average selling prices not dropping significantly, they could catch up to Ford in 2 years if Ford’s growth is 10% to 15% as analysts expect.
Factors considered before making my forecast:
- Tesla received approval from the German government to open its gigafactory in Berlin, as we reported here. This factory will take a while to ramp up, but the goal is to make 10,000 cars a week. 10,000 cars a week times 13 weeks in a quarter times a $50,000 ASP (average selling price) equals an extra $6.5 billion in revenue in 2023 if Tesla is able to ramp Berlin as hoped.
- Tesla is planning to open a similarly sized gigafactory in Austin this week, as we reported here. That factory could also supply $6.5 billion in revenue in 2023 if Tesla is able to ramp as hoped.
- Tesla plans to continue to ramp production in Fremont, but I think those increases will be minor and the lines might be shut down for extended periods in 2023 to rework them.
- A recent rumor is that Tesla is expanding its Shanghai gigafactory to produce 2 million cars a year. We have already heard reports that Tesla is expanding capacity to an annual 1.2 million vehicles a year by this month. Tesla produced an estimated 180,000 vehicles in Q4 2021. An increase to 2 million a year would be an increase of 320,000 per quarter times a $40,000 estimated ASP. (The Asian EV market is more price sensitive, so I think it is likely that more standard range models would be produced to increase quantity demanded.) This would result in an additional $12.8 billion in quarterly revenue.
- Tesla Energy is growing quickly, but revenues have been flat over the last year.
- Adding Berlin, Austin, and Shanghai revenue increases to the $17.7 billion in quarterly revenue Tesla booked in Q4 2021 would give us a $43.5 billion quarterly revenue. That would be a 146% growth in 5 quarters, so unrealistic if you take Tesla’s 17% average sequential revenue growth rate over the last year. That would give us figures of $20.7 billion for Q1 of 2022, $24.2 billion for Q2 of 2022, $28.3 billion for Q3 of 2022, and $33.2 billion for Q4 of 2022. I’ll go with a $33 billion prediction for Q4 2022, but the $43.5 billion a quarter is very realistic for one of the quarters in 2023.
- Ford revenue has been flat over the last few years as it has increased sales of SUVs and trucks, but has largely left the sedan market.
- This year, Ford’s sales are down over 20% due to many small shutdowns due to chip and other supply chain issues. Those issues looked to improve this year before the Ukraine war, but now look to possibly get worse before they get better. For whatever reasons, legacy automakers have been more affected by these issues than Tesla and the other newer automakers.
- Ford is expanding EV sales quickly, but unfortunately, as Ford shows customers great EVs, they will cause their customers to delay their gas and diesel purchases, waiting to see if the new electric models would be a better fit for their needs. In other words, Ford very much has to be concerned with the Osborne effect.
- Wall Street analysts predict Ford’s revenue will be 15% higher in 2022 than 2021 (from $32 billion quarterly to $36 billion), but for the reasons above, I think it is likely to stay at $32 billion a quarter for 2022. The current street estimate for the 1st quarter of 2022 is less than $32 billion and has been falling over the last 60 days. So, I’m basically predicting it won’t recover as the street hopes.
So, the shocking prediction is that I think that Tesla will have about the same worldwide revenue in Q4 2022 as Ford!
The Electric Viking has similar thoughts. I started this article before this video came out, but he was quicker to publish his insights, so congrats to him!
Tesla & Ford Unit Volume
Unit volume will be the last of the 4 measures for Tesla to overtake Ford. In 2021, Tesla produced 930,422, over 9 times its total only 4 years earlier in 2017 (101,025). As we previously mentioned when discussing revenue, Tesla now has the factories built to make 3.7 million vehicles a year. I expect the volume to increase by about 15% a quarter from the 305,000 production total announced a few days ago for Q1 2022. That gives us 351,000 for Q2, 403,000 for Q3, 464,000 for Q4 (that is 1.5 million for 2022, a 62% increase from 2021), 534,000 for Q1 2023, 614,000 for Q2, 706,000 for Q3, and 812,000 for Q4 2023 (that is 2.7 million for 2023, or a 77% increase from 2022).
Ford, on the other hand, has had sales drop from 6.6 million in 2017 to 3.9 million sales in 2021. Ford gets about 60% of its unit sales from North America and about 21% from Europe and 19% from China. Both Europe and China have very high gas and diesel costs, and also strong government incentives to go electric. It will be difficult for Ford to maintain unit volume with the strong electric vehicle competition coming in those 2 regions. In the US, the high fuel prices and the supply chain difficulties will likely reduce sales. Ford has some strong EVs coming out, but the volumes are too low to move the needle. I’d expect quarterly unit sales to decline by about 50,000 a quarter over the next 2 years. So, that’s 950,000 in Q1 2022, 900,000 in Q2, 850,000 in Q3, 800,000 in Q4, 750,000 in Q1 2023, 700,000 in Q2, 650,000 in Q3, and 600,000 in Q4 2023.
If it plays out that way, it would be in about 15 months, or Q3 2023, that the unit sales of Tesla and Ford cross.
The thing that is interesting to me is that each of the 4 measures crosses over at a different time.
- Market cap was similar from 2016 to 2019, and then in 2020 the market decided Tesla was worth a lot more.
- Ford has made good profits for years while Tesla consistently lost money as it was building scale. In 2020, Tesla turned profitable, and in 2021, it showed it could make similar amounts of profit to Ford even though their revenue is much lower (if you back out the one-time, $9 billion gain from Rivian). It is also very worrying that 47% of Ford’s profit comes from Ford Credit, which is dependent on the resale values of Ford’s vehicles.
- Tesla’s revenue last year was about a third of Ford’s worldwide revenue, yet I’m predicting Tesla will catch up in 6 months, by the 4th quarter of this year!
- Unit sales take a little longer, since Tesla vehicles have a higher selling price than Ford vehicles, but for the numbers I projected, Tesla will make and sell more vehicles than Ford in a little more than a year.
So, to oversimplify, market cap crossed over in 2020, profits in 2021, and I’m predicting revenue to cross in 2022 and vehicle unit sales in 2023.
What do you think? Comment below where you agree or disagree.
Disclosure: I am a shareholder in Tesla [TSLA], BYD [BYDDY], Nio [NIO], and XPeng [XPEV]. But I offer no investment advice of any sort here.