Tesla And Ford Are Not Comparables

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The wisdom of the crowd identifies where Goldman and UBS analysis of Tesla took a wrong turn. (Picture: Shutterstock)

In February, Goldman Sachs and UBS downgraded Tesla to a rare Sell rating in part because they think it is overvalued compared to Ford. At that time, Tesla’s market cap exceeded Ford’s, $50 billion to $48 billion, but Ford’s sales of $151 billion for 2016, far surpassed Tesla’s $4 billion. Here's where their analysis took a wrong turn.

The main factor that determines whether two companies should be valued comparably is whether their products compete for the same customers.

Goldman and UBS assume they are comparable because both companies produce cars. However, this may be a gross oversimplification. If Tesla’s cars appeal to a different customer than Ford’s, then the argument that both companies should be valued similarly falls apart.  

A month ago, I invited Ford owners to tell me if they would consider buying a Tesla. At the same time, I invited Tesla owners to tell me if they would consider buying a Ford. Here are the results.

Out of 26 Tesla owners who contacted me, only 2 (about 8%) would consider buying a Ford.

Of the 32 Ford owners who contacted me, 15 (or 47%) would consider buying a Tesla.

If Tesla and Ford were competing for the same customers, we would expect that nearly all of Tesla’s customers would consider a Ford and vice-versa.

The fact that the numbers are not even close to a 100% in either direction tells us that the two companies are not producing comparable products so there is little reason to expect that their valuations should be comparable.

Although comparing the valuations of Tesla and Ford seemed to justify a conclusion that Tesla is overvalued, it does not hold up under scrutiny. Let’s put a stake in this argument and move on.

If I owned Ford stock, it would concern me that Tesla is competitive for nearly 50% of Ford’s customers. At this point, Ford has a lot more customers than Tesla. But, if half of Ford’s customers would jump ship, Tesla has much better growth prospects than Ford does providing another reason why the valuations of these two companies should not be comparable.

Both Tesla and Ford have appreciated since Goldman and UBS recommended selling Tesla. Tesla at $53 billion is still valued more than Ford at $50 billion. Goldman and UBS made a bad call in February in part because Tesla does not have any good comparables.

Given the problems Tesla is having scaling up manufacturing, the people who are in the best position to know whether Tesla will make money for investors are those with firsthand experience in manufacturing.

There are most likely people reading this who have the right background and experience to answer our questions but perhaps don't know the investment implications of their knowledge.

If you are following Tesla, I invite you to collaborate with us.Click here to send me an email with your first and last name along with your preferred email address and I will set up a free account for you to access our forums. Read this to see how it would work.

No one has all the answers. By collaborating we can answer the questions that will determine Tesla’s success better than anyone else.

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