The Electric Vehicle Earthquake
This past Wednesday, the coast of Malibu was hit with a wave of earthquakes (one of which hit 4.2 on the Richter scale!). But California isn’t the only place getting rocked by earthquakes recently: The ground is rumbling under the electr…
This past Wednesday, the coast of Malibu was hit with a wave of earthquakes (one of which hit 4.2 on the Richter scale!). But California isn’t the only place getting rocked by earthquakes recently: The ground is rumbling under the electric vehicle (EV) industry following Tesla Inc.’s (TSLA) price cuts.
At the beginning of the year, Tesla effectively sent a “kill shot” out to the entire automotive industry with its price cuts on its lower-priced models in both the U.S. and China. In fact, I noticed that due to Tesla’s price cuts, both Audi and Porsche dealers were eager to sell their new EVs and seemed to suddenly have sufficient inventory.
As we learned from Tesla’s fourth-quarter earnings report (released on Wednesday), future sales are expected to remain strong due to the recent European and U.S. price cuts.
The company also announced that the Tesla Cybertruck would be built in Nevada, which inspired confidence of the company’s cash flow and long-term prospects. I should also add that adjusted fourth-quarter earnings came in at $4.1 billion, or $1.19 per share, which compared to $2.8 billion, or $0.85 per share, in the same quarter a year ago. Analysts expected adjusted earnings of $1.13 per share, so Tesla posted a 5.3% earnings surprise. Fourth-quarter revenue was $24.3 billion, just shy of estimates for $24.9 billion.
Tesla CEO Elon Musk also stated during the conference call:
The most common question we’ve been getting from investors is about demand. Thus far – so I wanted to put that concern to rest. Thus far in January, we’ve seen the strongest orders year-to-date than ever in our history… So I mean, it’s hard to say whether that will continue twice that rate of production, but the orders are high.
His comments helped alleviate concerns about Tesla’s growth in the first quarter. Fears about Tesla’s operating margins are also diminishing, but until its Shanghai plant reopens and its first-quarter results are announced, the company’s margins are anticipated to remain under compression.
In the longer term, Tesla is facing more competition from Chinese EV companies as well as Ford Motor Company (F), Hyundai/Kia, Nissan and Volkswagen AG (VWAGY). Ford currently has the lead on pickups with the F-150 Lightening, while VW has the lead on vans with the ID.Buzz. Porsche is expected to sell many Macan EVs in 2024 when it makes its top-selling SUV electric. Hyundai Motor is currently 3rd in U.S. EV sales and is expected to sell a lot of the SUV EVs, due to its joint venture with Kia.
The next interesting development in the EV world pertains to Tesla’s massive giga presses that it has installed in its new factories in Austin, Texas, and Berlin, Germany. Essentially, the EVs from these factories have fewer body panels and should be more reliable.
But the real question is: Do these massive giga presses make manufacturing cheaper?
Virtually all major automakers make their vehicle bodies with robots that weld and glue body panels together, so I am not sure that Tesla’s giga presses are an advantage, unless it helps vehicles age better with less squeaks and rattles.
Following Tesla’s latest quarterly result, it will likely remain the EV leader for 2023; however, I believe Ford will eventually slide into first place.
Earlier this month, Ford revealed that its sales of EVs surged to a new record high. The company sold 61,575 EVs in 2022, up 126% over 2021. The F-150 Lightning was the number-one electric truck in the U.S., with 15,617 Lightnings sold since it was introduced in May 2022. The company also sold 6,500 E-Transit vans and 39,458 Mustang Mach-E SUVs last year.
Ford, though, is far from a one-trick pony – it actually has several horses in its stable, like the traditional Mustang and the recent return of the Bronco, as well as its top brands like the F-150, which remained the top-selling tuck and best-selling overall vehicle in 2022.
As a result, Ford has robust forecasted earnings and sales growth for the fourth quarter: The current consensus estimate calls for fourth-quarter earnings of $0.62 per share on $40.37 billion in sales, which represents 138.5% year-over-year earnings growth and 14.5% year-over-year sales growth.
Ford will release its fourth-quarter earnings results next Thursday, February 2, and I expect Wall Street will be very interested in what company management has to say about Ford’s potential EV growth this year. If it reports strong quarterly results and a positive outlook for the first quarter, I think we could see a similar pop in Ford shares after its numbers are out.
With that said, because Ford currently holds a D-rating in Portfolio Grader, I wouldn’t recommend picking up shares of the company until after Wall Street has more insight on Ford’s earnings. Instead, I recommend focusing on investing in companies with superior fundamentals – which my Growth Investor Buy Lists stocks are chock-full of.
My average Growth Investor stock is characterized by 65.5% annual sales growth and 217.7% annual earnings growth. In the past three months, the analyst community has revised their consensus earnings estimates up by an average 24.8%, so I am expecting wave-after-wave of position quarterly announcements and positive forward-looking guidance.
I should add that I just recommended three brand-new stocks in my Growth Investor Monthly Issue for February on Friday, as well as my Top Stocks lists.
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Source: InvestorPlace unless otherwise noted
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