Tesla Vs. Diamler AG
David ButlerDavid Butler
Tesla Vs. Diamler AG
Jun. 23, 2017 8:46 AM•DDAIF
Summary
Tesla's greatest rival may come from Germany rather than the US.
Daimler's $10 billion investment in electric vehicles, along with its strong reputation and infrastructure make it a huge threat to not only Tesla's future, but its luxury brands as well.
Actual earnings, capital, and health of balance sheet make it a far wiser investment than Tesla.
Daimler is also working its way into electric semis and home batteries, directly challenging Tesla's path of future growth.
Tesla vs. Daimler
I've been a noted critic of Tesla's (NASDAQ:TSLA) market capital versus actual profitability. The entire market valuation seems based on the notion that the company will literally wipe out all competition, and take the entire car market by storm. That notion is simply ridiculous. The entire consumer body is not going to magically shift to electrical vehicles overnight. Furthermore, these continuously low oil prices are making traditional internal combustion engines very economical, negating the average consumers demand for an alternative product. I fail to see the appeal of investing in a stock that trades at more than 382 times it actual earnings. There are none, by the way.
Up to this point, I've mainly focused on the American market's competitors to Tesla as more viable investments. Perhaps an even bigger threat to Elon Musk's vision lies overseas. In terms of technology and innovation, Daimler AG's (OTCPK:DDAIF) Mercedes brand is arguably the best in the world. Their massive spending initiative into electric vehicles marks what could be the biggest threat yet to Tesla.
The financial situations of these companies are obviously almost polar opposites, but they're very integral to Daimler's long term advantage as an investment. One the one hand, Tesla has ridiculous market capital, but nonexistent profits. Daimler's market capital doesn't come close to that of Tesla, but its profits and availability of capital are amazing. Daimler did $153 billion in sales last year; making a profit of $8.53 billion. Tesla lost $674.91 million on sales of $7 billion.
In the first quarter of a year marked by slowing auto sales, particularly in the US, Daimler's first quarter revenue of $38.78 billion outpaced last year's by 10.64%. The income from that quarter was 100.7% higher year over year at $2.71 billion. The excitement of the first quarter amounted to a nice $2.53 per diluted share. Tesla's first quarter involved higher losses on higher revenue. Sales were up 134% to $2.7 billion, but losses increased by 17% to ($330.28) million in net income.
Obviously the comparisons can be argued as askew since Tesla is in "startup" mode for its monumental Model 3. I question that viewpoint; as Tesla has been around for a while now with a product line that garners high price tags for every vehicle. On top of that, the sales figures on things like their flagship Model S should have been enough for Tesla to turn a profit at some point; especially prior to all the buildup for the Model 3. The company has had opportunities to make money, and instead piggy backed shareholders so that Elon Musk could keep pushing his idealist initiatives.
These financials are the bedrock of my thesis that Daimler can drastically outmaneuver Tesla in the coming years in terms of EV success. Whereas Tesla is forced to sell stock and borrow money to finance its endeavors, Daimler has a tried and true infrastructure that can spew out cars at rate far grander than anything Tesla is capable of. Musk's company already has a reputation of not meeting production deadlines. To cover the gigafactory needs, electric semi-truck, new Model Y crossover, and production scale needed for mass Model 3 deliveries next year, the company will need to raise and spend even more cash.
I'm not so sure that Model 3 sales alone will be enough to catch everything up. I foresee more sales of those incredibly overpriced shares in the future. How long will everyone put up with the spending? At what point will Tesla slow down, and do one thing right, then move on?
Daimler on the other hand has loads of cash on hand to make its moves into EV's. With over $20 billion in cash and short term investments, and over $12 billion in cash alone, it has the ability to finance its upcoming EQ electric SUV without the incessant losses and production shortfalls of Tesla.
The inherent flaw in the Tesla culture is the assumption that they're doing something special. They're not. Elon Musk might have succeeded in making EV's "cool" to those predisposed to green energy, but Tesla is not doing anything that can't be done by rivals. General Motors (NYSE:GM) already has the Chevy Bolt. Ford (NYSE:F) is working on a bunch of electric vehicles. Substitute goods are going to exist for Tesla's lineup.
Daimler is already developing electric semis, a widely advertised part of Tesla's future, and they appear to be well ahead. In case you were unaware, Daimler makes Freightliner, a very successful brand in the trucking industry. Factor in the infrastructure already in place for production, and they've already won half the battle. Tesla still needs billions to create the facilities necessary to build. Daimler is also building its own in house battery, directly challenging another of Tesla's targets.
I'm not entirely sure that everyone will be jumping on the EV bandwagon anyway. Oil prices are low. They are very low. It is not very expensive to run a gas powered car right now, and that will undoubtedly dampen demand for electric vehicles among the less "green" consumer base. It certainly doesn't bode well for a time when Tesla is trying to bring EV's to the masses. And unlike Daimler, Tesla can't fall back onto internal combustion engines.
America's love for German luxury brands is equivalent to kids and candy. Find the faculty parking lot at a hospital and you'll see an array of physician's Mercedes', BMW's, Audi's and Cadillac's (Shout out to America). After ten years, how many luxury Tesla's do you see in comparison? Stop by the local country club and the story is the same. The irony is that wealthier Americans can afford to own a car that only goes some 300 miles unless you plug it in. There was a real business there, and Tesla failed to focus and execute on it.
In terms of investment, the raw future "potential" of something like Tesla is compelling, but Daimler is developing the same technology, and it has positive earnings, cash flow, and working capital to get the deal done. Plus you can get your hands on the stock at a much lower P/E of 7.18. That's right, the ultra successful German carmaker is trading at a price to earnings of 7.18, while Tesla, a company with nothing but losses and promises, is trading at over $380 a share. It needs a drastic uptick in capital to keep its expansion going, and has yet to prove itself as a profitable automaker. The choice is yours, but money and infrastructure on are Daimler's side. Mercedes is putting over $10 billion into its EV initiative. Tesla doesn't have that much in total equity.
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