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 $48.69 billion,
above the Michigan company's $45.47 billion, according to FactSet.
The next milestone for Tesla is General Motors Co., valued at
roughly $51.19 billion.
The 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 on 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.
General Motors Co. GM -3.37% reported a 1.6% 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 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.
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 17:12 ET (21:12 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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