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Internship at evergreen wealth advisors
For my senior project I completed an internship at Evergreen Wealth Advisors focused around investment funds and their operations. I specifically focused on the research analyst role within an investment fund as it applies most-directly with my future career interests.
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I was inspired to look into mutual funds and sector-specific research due to my interest in each of these things from a career standpoint. I wanted to start my project off by doing some of my own research and seeing what it looked like to be a research analyst and what the job I'm interested really entails. After creating my senior thesis in the form of a report on the sector of my choice, I chose to do an internship at Evergreen Wealth Advisors in order to get a better understanding of investment funds and the analyst position within an actual firm. I chose to do this because my previous internship were more about operating background programs and such but wanted to shift my focus and look more into the career that interests me most right now.
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TED TalkPresenting the findings from my sector research during my thesis defense.
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Which company should you put your money on when it comes to the future of electric vehicles?
Abstract
Electric vehicles represent the future of the automotive industry. As electric vehicle sales continue to rise, it creates a great investment opportunity in a rapidly growing industry. In this research paper, I look at the auto manufacturers that I believe will be the most successful in regards to electric vehicle sales and compare these companies against each other in order to figure out which manufacturer will provide for the best investment. My research revealed that factors such as battery cost and charging networks are key to long-term success and healthy sales, which will lead to profits and share price gains for the respective companies that focus on these factors. From my research, Tesla has shown massive opportunity for growth, albeit with high risk, while General Motors has shown consistent success of a lesser degree with very limited risk attached. This puts Tesla in a position of a much more short-term investment with an opportunity for rapid growth, and General Motors in a position for a much longer investment with more gradual returns and lower risk. These conclusions indicate that independent of your investment strategy and risk factor there are solid opportunities for success when it comes to investing in electric vehicle manufacturers.
Part I: Introduction
If you had invested 20,000 dollars in Tesla Inc. the day the Model S was released, just over five and a half years ago, you would have 230,000 dollars as of January 2018. While it would have been hard to predict Tesla’s amazing success, if you are able to figure out where a market is going, a lot of money can be made. There are many factors that affect a company’s success in the stock market, but with enough research, a market forecast can predict with reasonable accuracy the direction of a company, index, or even the market as a whole. Looking specifically at the electric vehicle sector, an accurate market prediction will reap huge monetary reward given the expected growth over the coming years. This raises the obvious question of which company to put your money on when it comes to the future of electric vehicles. After researching this topic extensively, Tesla, with its electric vehicles still proving themselves will be a risky investment but could reap huge rewards. General Motors, with massive funding and already successful hybrids, will provide for a steady investment in the long-term.
Part II: Historical Context and Background
Electric vehicle sales are expected to maintain double-digit growth until at least the end of the decade, which is extremely impressive given the overall decline in the auto industry that was experienced last year (Electric vehicles: U.S. market growth 2017-2025) (Vehicle sales in the United States 1977-2017). This growth will mainly be caused by decreasing battery costs and increased manufacturer interest (Rissman 1).
The electric vehicle market has already been growing exponentially for years, and automakers want in on this booming sector (Rissman 1). The automakers that I believe will have the most success in the EV (Electric Vehicle) market are Tesla, General Motors, Ford Motor Company, and Volkswagen AG. These manufacturers have all shown serious interest in EVs and have already begun their plans for research and development of new models to enter the market with. Manufacturers need to focus on solid financial performance in order to be successful in the stock market, and a major aspect of this in the future will be electric vehicles. If these manufacturers want to see continued success in the EV market, there are three criteria that each manufacturer needs to implement, if not entirely focus on.
Importantly, the main focus of these manufacturers should be keeping Wall Street content. If an automaker is not able to generate interest from analysts and investors, their price will remain stagnant and potential shareholders will lose interest in the company and move on. This lost interest will result in limited growth and low returns, which will make the company a worse investment than those companies that keep their perceived values high in the eyes of those who matter.
The best way to keep shareholders happy is to maintain steady profits. If this can’t be done, the manufacturer will face serious problems and struggle to provide positive stock performance (Divine). Ford is a great example of this issue. As a brand, it sells the most vehicles in the US every year and has held that title for many years (Ford Closes 2017 As America’s Best-Selling Brand). With that being said, it has not been able to pull steady profits and its price per share has fallen 42.7 percent since 2011. GM, on the other hand, has risen 6.8 percent over the same amount of time. If a company cannot become profitable with their vehicles, shareholders will abandon that company for something better, so becoming profitable with EV sales at some point down the road is critical to long-term success. Tesla is a rare exception to this general rule, and it has been able to keep shareholders interested in its promises of the future of the market and the new vehicles it has under development instead (Dergunov). It should be noted that if these profits do not come, the price will surely plummet.
Focusing in on what manufacturers can do to become profitable in the long-term, an important factor to focus on is EV market share. Market share is the portion of a market controlled by a particular company. Whoever can gain the largest share of the market will have a dominant position, and will attain the most success. Gaining market share may seem obvious, but getting models onto the roads and into driver’s minds is critical, especially in the early phase of a market expansion. A great example of the effect market share has on the long-term success of a vehicle is the Lincoln Navigator and Cadillac Escalade competing in the large luxury SUV market. The 2018 Lincoln Navigator is better than the 2018 Cadillac Escalade in almost every way. It is more powerful, has better fuel economy, has more technology, is slightly cheaper, but Cadillac still sold twice as many Escalades in January of this year as compared to the Navigator (Matthews).
This success can be traced back to the beginning of the luxury SUV craze in the late 1990’s. While Lincoln was able to create the Navigator before the Escalade, Cadillac pushed their vehicle heavily into the emerging market, taking only ten months to begin production after design approval, something that is almost unheard of in the auto industry. Cadillac pushed their new SUV into full production, getting it into dealerships as fast as possible and soon the vehicle became the staple luxury SUV in America (Williams). Even as Lincoln offers an objectively better SUV, Cadillac still holds the number one sales spot in the market due to their early influence. Being able to get vehicles on to the road and into the public eye is critical for the long-term success of the brand, and justifies the lack of profit seen by the electric vehicle departments of Ford and GM (General Motors) as it will likely pay off down the road.
The second criterion to focus on is battery cost reductions. Whichever automaker is able to lower the cost of their battery the fastest will have a huge advantage in the EV market which is just starting to hit regular auto consumers within the 30,000-40,000 dollar price range. While there are already electric models in this price range, their performance is not on par with what most drivers would find acceptable for daily use. The Tesla Model 3 is the first mass-market EV to attain over two-hundred miles of all-electric range while maintaining such attractive pricing. This has led to massive pre-orders for the vehicle, which evidently proves the pent-up demand for such a vehicle (Mingis). Lowering battery cost as fast as possible is a huge element of profitability, and each manufacturer must show considerable focus on this task in order to achieve success.
The third and last factor that automakers need to focus on is charging. A large supercharger network is key to attracting more traditional buyers. Tesla is extremely strong in this area, having an independent charging network across the continental United States in addition to providing chargers for home use, which is just as if not more critical for drawing in buyers (How important are the charging stations to electromobility development?). In order to become competitive, other manufacturers must focus on expanding charging options for potential customers. Whichever manufacturer can hit the most criteria and outperform their competition will be on a path to long-term success.
Part III: Research and Analysis
To drive sales early-on, manufacturers need to meet current consumer demands. EV customers have made their wants and needs known through various surveys and polls, and this data is critical to attracting buyers in a rapidly expanding market. The primary reason consumers listed for buying an electric vehicle was the environmental benefits. This point does not offer any distinctions between manufacturer’s hard products but could become advantageous for a manufacturer through marketing or some other approach. The second most popular reasoning for buying an EV was the performance, mainly the smoothness of the ride and the instant torque. This was an especially popular answer for owners of the Tesla Model S and X, who listed this point above financial savings, which was the third most common reason listed overall.
Those who pre-ordered a Tesla Model 3 were allowed to participate in this poll, which is listed by CleanTechnica, the organization that collected the data, as the main reason behind the popularity of the financial savings answer choice, with only a minority of other Tesla buyers choosing this as their answer for obvious reasons. This reasoning was also commonly listed by buyers of the Ford Focus Electric and Chevrolet Bolt, but these models are relatively new compared to the Tesla Model S, which was the most common vehicle owned by those responding to the poll. It should be noted, as acknowledged by CleanTechnica, that Tesla buyers were much more likely to answer the poll than other EV buyers due to their generally higher level of interest in their vehicles. The last criterion listed by consumers that has the opportunity to draw major distinctions between brands was a desire for new technology, listed as the fifth most popular answer. Tesla is known for their large infotainment screens on the Model S and Model X, and this along with their autopilot system has definitely attracted consumers to their brand based on the innovative and revolutionary nature of the vehicles (Electric Car Drivers: Desires, Demands, & Who They Are).
The next major step that needs to be taken by manufacturers in order to compete in this new forming market is a redirection of funding towards technological development and innovation. The four manufacturers being focused on have all shown considerable interest in electric vehicles and have all announced their planned funding and investments for electric vehicle research and development. This puts them in advantageous positions, allowing them to get a jump on other manufacturers that have not made their plans quite as clear or public, such as Fiat Chrysler Automobiles. While redirecting money towards electric vehicles is the most important step, researching and producing autonomous vehicles is also extremely important, although less so. This ties in with consumer demand for newer technologies. One of the main reasons for the success of Tesla has been their automated driving system, which as seen above from consumer polling was a major reason why buyers were willing to pay the premiums for those vehicles versus other electric vehicles and even other luxury cars such as the Mercedes Benz S-Class (Electric Car Drivers: Desires, Demands, & Who They Are). Tesla is one obvious manufacturer focusing on autonomous driving, but Volkswagen AG has also shown serious interest in this idea, launching a partnership with Silicon Valley self-driving startup Aurora Innovation in early January (Hook and Mcgee).
Electric vehicles are expected to explode in terms of popularity once gas prices eventually rise up due to surging demand globally, mainly in India and Africa. (Rapier). This change is expected to take full effect in the mid-2020’s when EVs will achieve twenty percent of new light-duty vehicle sales. From this point, market share is expected to skyrocket up until the late 2030’s, when growth will slow down at around fifty to sixty percent of LDV (Light-duty Vehicle) sales (Rissman 2). Right now, low gas prices are stalling the so-called green car revolution, and multiple articles have pointed this out. Due to gas prices dropping and staying low, “Roughly 75 percent of Americans who traded in a hybrid or electric car this year took home an all-gas car, an 11-point spike from 2015…” (Worland 1). This quote is from an article posted in 2016, and with gas prices staying low, it is reasonable to assume that this number has not gone down, and could have even gone up as buyers see prices continually staying low: “Consumers are happy with hybrids and gas-powered cars that get 30 miles per gallon…” (qtd. in Newman 2). As gas prices stay low, consumers see less of a reason to pay the price premiums for electric vehicles, but once these prices go up, the rapid switch manufacturers have been looking for will take place, and it will happen very fast.
While most analysts expect EV sales to skyrocket in the coming years, there are some that question the predicted success of electric vehicles. One aspect of the market that has been repeatedly called into question is a situation of too much supply and too little demand. This has been the thought of some, and it is easy to see why they think this way. Many automakers are announcing plans for new electric vehicles, but demand does not seem to be rising at the same pace. This argument is inherently flawed and does not make sense upon closer examination, however. Keith Naughton on the subject, a proponent of this argument, states:
Electric cars-which today comprise only 1 percent of auto sales worldwide, and even less in the U.S.-will account for just 2.4 percent of U.S. demand and less than 10 percent globally by 2025, according to researcher LMC Automotive. But while consumer appetite slogs along, carmakers are still planning a tidal wave of battery-powered models that may find interested buyers few and far between. (1)
While taking this quote at face value the point may appear valid, looking deeper it reveals a certain short-sightedness on Mr. Naughton’s part.
Mainly, electric car sales going from less than one percent of auto sales to almost ten percent in only one decade is extremely rapid growth. This point cannot be skimmed over, especially when it goes exactly against what Mr. Naughton is saying about weak demand. On top of this, it can be easy to be overwhelmed when it seems as though almost every week another manufacturer is announcing a planned electric vehicle. Looking at when these vehicles will actually enter the market, the vast majority of them won’t come into play for years and are in extremely early development.
To quote another section of Mr. Naughton’s article, “In total, 127 battery-electric models will be introduced worldwide in the next five years...with LMC predicting pure electric offerings will increase by more than five-fold to 75 models in the U.S. alone” (2). While this sounds like a lot of new vehicles hitting the market, it seems very consistent with the demand given earlier. Right now, there are only seventeen electric vehicle models for sale globally, with fifteen of those available in the United States (List of Electric Vehicles 2018). Worldwide, sales are going from less than one percent to almost ten percent, and in the U.S. sales are going from less than one percent to over two percent. Focusing purely on the global outlook, EV sales make up just .2 percent of LDV sales (Global EV Outlook 2017 3). Based on this data, and assuming a market share of nine percent, the market will experience a 4,400 percent increase in market share over the next decade. For comparison, the number of models to choose from will increase by 647 percent in half the time. While this is not an exact comparison due to the increase in new car models being over a five year period and the sales growth being over a ten year period if anything the amount of models does not seem to be keeping up with the massive increase in demand. This thinking appears to mainly come from a lack of understanding about the expected demand, combined with the excessive reporting on the future of electric vehicles. Once the numbers are looked at more clearly, this argument seems to collapse in on itself, and it appears as though manufacturers are not over-saturating the market, and might even be doing too little to capitalize on the demand.
A more interesting argument against electric vehicles that seems more effective is the questionable environmental benefit provided by these vehicles, at least based on current power sources in the U.S. specifically. Due to the heavy reliance on coal for electric power in the United States, a wider adoption of electric vehicles would actually result in more deaths from air pollution every year: “The researchers estimate that if the U.S. has 10 percent more gasoline cars in 2020, 870 more people will die each year in the U.S. from air pollution. Hybrids, because they are cleaner, will kill just 610 people. But 10 percent more electric vehicles powered on the average U.S. electricity mix will kill 1,617 more people every year, mostly from coal pollution” (Lomborg et al.). This point is very interesting to note given the fact that as shown from the CleanTechnica poll looked at earlier, the environmental benefits of electric vehicles were the most common reasoning given for buying one.
This data will most likely be negligible when it comes to the overall success of electric vehicles. If more people find out this information, it could hypothetically lead to a drop in EV sales, although most buyers will probably either ignore this information or question its authenticity, especially since buyers currently choose to purchase such vehicles based on only the myth of environmental benefits. Looking deeper into this argument, the point of overall emissions is also mentioned. A Tesla Model S will emit about forty-four metric tons of CO2 over a 90,000-mile lifespan, including production and scraping with electricity consumption based off of the average U.S. fuel mix. A comparable luxury sedan, the Audi A7 Quattro, will only emit five more tons of CO2 over the same lifespan (Lomborg et al.). While the Tesla outperforms the Audi, it does so only slightly and is almost negligible. Avoiding five tons of CO2 on the European emissions trading market would only cost around forty-five dollars based on 2015 trading prices (The EU Emissions Trading System).
Lastly, the most obvious critique of this emissions based argument is that the U.S. will become less-reliant on coal as the years go by, but one of the articles I found covers this critique specifically:
Of course, electric car proponents would venture that the perceived rapid ramp-up of renewables will make future electric cars much cleaner. This, however, is mostly wishful thinking. Today, the U.S. gets 14% of its electric power from renewables. In 25 years, Obama's Energy Information Administration estimates this will have gone up just 3 percentage points to 17%. Similarly, fossil fuels generate 65% of U.S. electricity today and will generate 64% in 2040, although natural gas will gain four percentage points and lead to slightly cleaner power. (Lomborg et al.)
Based on this evidence, it seems as though the argument for the environmental benefits of EVs is all but disproven, but as mentioned above, this data will most likely not have a considerable effect on the EV market and should not impact sales growth.
Heading into brand-specific research, the most obvious brand to start with is Tesla. It is the most popular EV manufacturer in the U.S. and has by far the most exposure in the media right now. The main critique of Tesla right now is the young age of the company and the lack of positive cash flow. In fact, Tesla is not expected to be profitable until 2020, and this figure is heavily based off of Model 3 sales which given the heavy production delays makes 2020 even less of an attainable goal (Archer). On top of this, Tesla has recently been forced to tap into the public debt market with junk bond offerings, which is highly unique given their current market cap. In fact, there are only three companies out there with higher market caps offering speculative-grade debt ratings: Charter Communications, Citigroup, and Netflix (Ploutos). This offering by Tesla is especially crucial given the dramatic increase in spending that was seen at the company last year: “The company's earnings statement released Wednesday showed that Tesla's negative free cash flow expanded to a record -$1.2 billion from -$622.4 million a year earlier“ (Oyedele). This data is from August of last year, and the situation is unlikely to have improved given the continued production issues with Model 3 production. On top of this, while Tesla is big, it is not too big to fail. A great example of a rapidly expanding company falling apart quickly is Webvan, one of the most famous dot-com flops in history. Webvan at its peak was valued at 1.2 billion dollars, but within a few months filed for bankruptcy (Ramalingegowda). The company reported 830 million dollars in losses shortly before their collapse, eerily similar to Tesla’s skyrocketing losses: “The focus was GBF (Get Big Fast), at any cost. Webvan was no exception to this rule” (Ramalingegowda). Tesla is notorious for its visions of the future, but it might not survive long enough to get there.
While all of this sounds bad for Tesla’s future, it has some major positives to look at. It is by far the most famous electric vehicle manufacturer and the high demand for its vehicles should allow for Tesla to pull into financial stability. Tesla also has the most market share and is becoming more and more dominant in battery production, mainly due to the new GigaFactory in Nevada (Ayre). Tesla also produces lithium-ion energy storage systems and solar photovoltaic roof systems, leading to some considering them to be more of a battery technology company rather than a car company, which is a definite positive for being on the leading edge of battery cost development (Ayre). Tesla also has their own independent charging network containing 1,130 Supercharger stations with 8,496 Superchargers in North America alone (Ayre). This Supercharger network is the largest of its kind in the United States and is currently only open to Tesla owners. The network is also rapidly expanding and will soon have a station in every state and allow for cross-country EV travel in Canada for the first time (Ayre). In regards to financial performance, Tesla is showing signs of improvement as well. Tesla is expected to greatly increase operational efficiency this year, due to lower losses and higher revenues (Dergunov). This leads to Tesla being a rather risky investment in my opinion. It has the sales numbers to facilitate major growth in the future but is running into some financial struggles that could lead to a collapse in the future. Overall, there is an opportunity for major reward in the future, but it comes with major risk.
The next company to look at is General Motors, its much more traditional introduction of electric vehicles is leading to moderate successes, and the massive size of the company makes failure unlikely. General Motors has also seen success in the stock market, with the share price increasing by twenty-two percent over the last year, impressive gains which show strong shareholder support and interest. Focusing on EVs, GM has announced a predicted profit on electric vehicle sales by 2021, and unlike Tesla, it is not reliant upon electric vehicles in order to turn a profit (Gardner). All it needs to do in order to achieve success is push its vehicles into the consumer spotlight, even if that means ignoring profitability for the time being. A similar example of this strategy is the Volkswagen and Bugatti situation. After acquiring the Bugatti brand in 1998, Volkswagen decided to push this brand as the maker of the most luxurious high-end supercar (Newell). The first model produced by the company under new ownership was the Veyron. This car cost an estimated 5.5 million dollars per unit for Bugatti to manufacture, but each vehicle was only sold for around 1 million dollars. Each vehicle was sold for an estimated loss of 4,617,000 dollars per car, with 450 cars produced (Bernstein). While this was horrible performance for the company financially, the Veyron’s world record speed and luxurious interior established Bugatti as the best supercar manufacturer. When Bugatti rolled out their next model, the Chiron, it sold over two-hundred cars before the first one even rolled off of the production line, with an average price of 2.7 million dollars per vehicle, and production costs lowered in order to be profitable (Golson).
Tying this back into General Motors, like Volkswagen with Bugatti, GM has the financial ability to throw away money for years on new projects in order to reign in huge profits down the road. So far, while GM does not sell as many pure electric vehicles as Tesla, it is the largest competition and also has multiple successful hybrids for sale, namely the Chevrolet Volt (Rapoza). These hybrids help consumers to switch into fully-electric vehicles and are a crucial step in getting the average consumer into an electric vehicle down the road (Newman). GM’s battery production capabilities are very limited compared to Tesla, and while this raises some concern, it has announced plans on cutting these costs dramatically over the coming years (Gardner). GM is currently reliant on public charging stations and does not have an independent network like Tesla, a critical concern of buyers. Overall, while GM has a lower market share than Tesla, it is a strong competitor in terms of sales, has the trust of Wall Street, has the financial ability to produce vehicles at a loss for years to come, and has a successful hybrid vehicle line-up to introduce drivers into electric vehicles.
Moving on to Ford, while it is just starting to jump into the electric vehicle market, there are some concerns that should be noted before investing. Ford’s former CEO, Mark Fields, was let go less than a year ago after huge problems keeping Wall Street interested in the brand (Hoffman). While the Ford brand sells the most vehicles in the U.S. every year, its share price has been declining consistently for the past decade (Ford Closes 2017 As America’s Best-Selling Brand). Keeping investors interested is key to success, and Ford is having major issues with that. Focusing specifically on electric vehicles, just last month Ford announced a dramatic increase in its planned investments into electric vehicles to 11 billion dollars by 2022. This is up from a previously announced target of 4.5 billion dollars by 2020 and shows an increased interest in the market. On top of this, plans for sixteen new fully-electric models and twenty-four new hybrids have also been announced (White et al.). While this shows Ford is serious about electric vehicles, it does not have Wall Street’s trust and is getting into the hybrid game a little late. In terms of battery cost, Ford has nothing notable announced regarding cost-reduction plans, and it is a similar story with charging network plans. Both of these points are important to focus on, but Ford has not announced anything notable in regards to either one.
Volkswagen AG, the last manufacturer looked at, it is in a similar position to Ford. Shareholders have serious issues with the company as a result of the ongoing DieselGate scandal. Shareholders have called for massive reforms, and the current price is still far below where it was before the scandal (VW shareholders call for reforms in wake of $4.3 billion US deal). While it is running into serious problems of trust, as the world’s largest automaker conglomerate the company has been able to pledge an astounding forty billion dollars towards electric vehicles by 2023 along with a significant focus on autonomous driving, both of which are good signs for the future of the company (White et al.). While it has pledged a lot of money, currently Volkswagen only has two electric vehicle models for sale, and neither is on the level of success attained by GM and Tesla. Similarly to Ford, no solid plans for charging networks have been announced, but unlike Ford, Volkswagen has pledged around sixty billion dollars towards battery production by 2030. This is a huge investment and involves plans for up to forty battery factories (Lambert). Overall, this leaves Volkswagen AG with a considerable chance of selling models successfully in the future, but due to a serious lack of trust from investors, it is unlikely to see huge success in the stock market which is the main purpose of investing.
Part IV: Conclusion
In regards to which investment is strongest, two brands have emerged from my research as the best places to put your money and each has different strengths and risks, creating two unique investments to choose from. The first brand is a somewhat obvious choice, and that is Tesla. Tesla has been the stock market’s darling in recent years through massive stock price gains, on top of support from the EV community themselves and these huge advantages combined are a strong counter against the Model 3 production troubles and lack of profitability. Tesla is currently dominant in battery production and charging networks, and these advantages will allow for continued success if Tesla can work on its cash flow. These issues still make Tesla’s future clouded, however, and the long-term success of the company has been called into question many times for good reason. Tesla’s high share price is based heavily off of the assumption of success down the road, and that success is required for major gains and even maintaining the current price, which is around 340 dollars. If Tesla does not fall apart financially, it will definitely be a major player in the EV market for years to come, but due to the challenges faced, there is serious risk associated with a Tesla investment. Many have written on Tesla’s ability to break one-thousand dollars per share, but this will only be attainable if it is able to get the spending under control (Tessien). Due to the high risk associated with investing in Tesla, I would recommend going small on your investment and focusing primarily on short-term growth since this is much more of a high-risk, high-reward opportunity. In terms of future pricing, I see either a total collapse or prices skyrocketing up to the high-hundreds or low-thousands. It is unlikely for Tesla to have stagnant pricing due to the massive changes underway at the company, which will either cause the price to go much higher as Tesla becomes profitable or completely collapse as Tesla fails.
The other manufacturer that stood out in my research was General Motors. The ability to afford losses for years on electric vehicles with no consequences, huge size, and Wall Street support makes it a very solid and safe investment. This reveals a major difference between Tesla and GM, however, as Tesla is highly dependent on its EV success in order to achieve overall success. GM, Ford, and Volkswagen AG are all large traditional automakers that only have relatively small electric vehicle divisions within the companies. This means that the growth of the electric vehicle division at these automakers will not have as drastic of an effect on the share price of the company when compared to Tesla, where the majority of the company is dedicated to electric vehicles. While it will likely not achieve the same growth as Tesla might, a General Motors collapse independent of overall market conditions is almost impossible. This is especially true when taking the 2008 financial crisis into consideration and how the government supported the big three U.S. automakers during those times in the face of bankruptcy. It was said at the time in regards to these bailouts that "...if these companies are not allowed to go bankrupt now, they never will be" (Brooks). On top of the non-existent risk of collapse, GM has also been rolling out highly successful hybrids such as the Chevrolet Volt, which has sold over 100,000 vehicles since coming out in 2011 and has also pushed out competitive fully-electric vehicles such as the Chevrolet Bolt (Rapoza).
The main issue with GM right now is that Tesla dominates the market, with forty-five percent market share, but GM is their only real competitor in the sector and has a lot of room for growth (McCarthy). This puts GM in a great position for a long-term investment opportunity. The risk associated is very low and GM is in a position to regularly and consistently please shareholders for years to come. In regards to share prices, if GM is able to climb back up to the low forties by June, it will have shown a steady ability to please shareholders. I expect GM to hover around sixty dollars a share at the turn of the decade, and after profits on EVs are expected in 2021, I see a rapid acceleration up to around ninety dollars a share, especially if GM becomes profitable off of EVs before Tesla is able to.
Ford and Volkswagen AG are both running into serious problems pleasing shareholders, and both automakers are far below General Motors in terms of electric vehicle market share. General Motors has sixteen percent of the U.S. market, Volkswagen has four percent, and Ford has two percent (McCarthy). The only caveat to this would be Volkswagen’s sizeable planned investment into EV research and development, but this is not enough to overcome GM’s advantages. Ford does have the opportunity for solid growth, but this would be about becoming competitive with GM again rather than outperformance. If Ford can pull steady profits out of their EV sales and get the rest of the company back together, it is not out of the question for them to head back up to around forty dollars a share from current pricing in the low teens, which would be tremendous for investors. This is not too realistic and would require huge changes at the company, but if it happens there will be a lot of money to be made on top of Ford’s famous dividends. With this being said, there is a solid reasoning behind the lack of trust associated with Ford and the risk associated with buying Ford outweighs the unlikely future success of the manufacturer. A Ford investment should be considered if the price is able to achieve fifteen dollars a share by September, up from ten dollars currently. Right now, a lot is going on at the company, and we should see Wall Street’s reaction by September. If it has not seen considerable improvement by then, I would avoid Ford altogether.
Overall, I believe that Tesla provides for a risky investment, but has the opportunity for massive growth. On the other hand of the spectrum, General Motors represents a lower-yield investment but with relatively safe returns. Each strategy has its pros and cons and either investment is a solid choice if you know what you are getting into.
Electric vehicles represent the future of the automotive industry. As electric vehicle sales continue to rise, it creates a great investment opportunity in a rapidly growing industry. In this research paper, I look at the auto manufacturers that I believe will be the most successful in regards to electric vehicle sales and compare these companies against each other in order to figure out which manufacturer will provide for the best investment. My research revealed that factors such as battery cost and charging networks are key to long-term success and healthy sales, which will lead to profits and share price gains for the respective companies that focus on these factors. From my research, Tesla has shown massive opportunity for growth, albeit with high risk, while General Motors has shown consistent success of a lesser degree with very limited risk attached. This puts Tesla in a position of a much more short-term investment with an opportunity for rapid growth, and General Motors in a position for a much longer investment with more gradual returns and lower risk. These conclusions indicate that independent of your investment strategy and risk factor there are solid opportunities for success when it comes to investing in electric vehicle manufacturers.
Part I: Introduction
If you had invested 20,000 dollars in Tesla Inc. the day the Model S was released, just over five and a half years ago, you would have 230,000 dollars as of January 2018. While it would have been hard to predict Tesla’s amazing success, if you are able to figure out where a market is going, a lot of money can be made. There are many factors that affect a company’s success in the stock market, but with enough research, a market forecast can predict with reasonable accuracy the direction of a company, index, or even the market as a whole. Looking specifically at the electric vehicle sector, an accurate market prediction will reap huge monetary reward given the expected growth over the coming years. This raises the obvious question of which company to put your money on when it comes to the future of electric vehicles. After researching this topic extensively, Tesla, with its electric vehicles still proving themselves will be a risky investment but could reap huge rewards. General Motors, with massive funding and already successful hybrids, will provide for a steady investment in the long-term.
Part II: Historical Context and Background
Electric vehicle sales are expected to maintain double-digit growth until at least the end of the decade, which is extremely impressive given the overall decline in the auto industry that was experienced last year (Electric vehicles: U.S. market growth 2017-2025) (Vehicle sales in the United States 1977-2017). This growth will mainly be caused by decreasing battery costs and increased manufacturer interest (Rissman 1).
The electric vehicle market has already been growing exponentially for years, and automakers want in on this booming sector (Rissman 1). The automakers that I believe will have the most success in the EV (Electric Vehicle) market are Tesla, General Motors, Ford Motor Company, and Volkswagen AG. These manufacturers have all shown serious interest in EVs and have already begun their plans for research and development of new models to enter the market with. Manufacturers need to focus on solid financial performance in order to be successful in the stock market, and a major aspect of this in the future will be electric vehicles. If these manufacturers want to see continued success in the EV market, there are three criteria that each manufacturer needs to implement, if not entirely focus on.
Importantly, the main focus of these manufacturers should be keeping Wall Street content. If an automaker is not able to generate interest from analysts and investors, their price will remain stagnant and potential shareholders will lose interest in the company and move on. This lost interest will result in limited growth and low returns, which will make the company a worse investment than those companies that keep their perceived values high in the eyes of those who matter.
The best way to keep shareholders happy is to maintain steady profits. If this can’t be done, the manufacturer will face serious problems and struggle to provide positive stock performance (Divine). Ford is a great example of this issue. As a brand, it sells the most vehicles in the US every year and has held that title for many years (Ford Closes 2017 As America’s Best-Selling Brand). With that being said, it has not been able to pull steady profits and its price per share has fallen 42.7 percent since 2011. GM, on the other hand, has risen 6.8 percent over the same amount of time. If a company cannot become profitable with their vehicles, shareholders will abandon that company for something better, so becoming profitable with EV sales at some point down the road is critical to long-term success. Tesla is a rare exception to this general rule, and it has been able to keep shareholders interested in its promises of the future of the market and the new vehicles it has under development instead (Dergunov). It should be noted that if these profits do not come, the price will surely plummet.
Focusing in on what manufacturers can do to become profitable in the long-term, an important factor to focus on is EV market share. Market share is the portion of a market controlled by a particular company. Whoever can gain the largest share of the market will have a dominant position, and will attain the most success. Gaining market share may seem obvious, but getting models onto the roads and into driver’s minds is critical, especially in the early phase of a market expansion. A great example of the effect market share has on the long-term success of a vehicle is the Lincoln Navigator and Cadillac Escalade competing in the large luxury SUV market. The 2018 Lincoln Navigator is better than the 2018 Cadillac Escalade in almost every way. It is more powerful, has better fuel economy, has more technology, is slightly cheaper, but Cadillac still sold twice as many Escalades in January of this year as compared to the Navigator (Matthews).
This success can be traced back to the beginning of the luxury SUV craze in the late 1990’s. While Lincoln was able to create the Navigator before the Escalade, Cadillac pushed their vehicle heavily into the emerging market, taking only ten months to begin production after design approval, something that is almost unheard of in the auto industry. Cadillac pushed their new SUV into full production, getting it into dealerships as fast as possible and soon the vehicle became the staple luxury SUV in America (Williams). Even as Lincoln offers an objectively better SUV, Cadillac still holds the number one sales spot in the market due to their early influence. Being able to get vehicles on to the road and into the public eye is critical for the long-term success of the brand, and justifies the lack of profit seen by the electric vehicle departments of Ford and GM (General Motors) as it will likely pay off down the road.
The second criterion to focus on is battery cost reductions. Whichever automaker is able to lower the cost of their battery the fastest will have a huge advantage in the EV market which is just starting to hit regular auto consumers within the 30,000-40,000 dollar price range. While there are already electric models in this price range, their performance is not on par with what most drivers would find acceptable for daily use. The Tesla Model 3 is the first mass-market EV to attain over two-hundred miles of all-electric range while maintaining such attractive pricing. This has led to massive pre-orders for the vehicle, which evidently proves the pent-up demand for such a vehicle (Mingis). Lowering battery cost as fast as possible is a huge element of profitability, and each manufacturer must show considerable focus on this task in order to achieve success.
The third and last factor that automakers need to focus on is charging. A large supercharger network is key to attracting more traditional buyers. Tesla is extremely strong in this area, having an independent charging network across the continental United States in addition to providing chargers for home use, which is just as if not more critical for drawing in buyers (How important are the charging stations to electromobility development?). In order to become competitive, other manufacturers must focus on expanding charging options for potential customers. Whichever manufacturer can hit the most criteria and outperform their competition will be on a path to long-term success.
Part III: Research and Analysis
To drive sales early-on, manufacturers need to meet current consumer demands. EV customers have made their wants and needs known through various surveys and polls, and this data is critical to attracting buyers in a rapidly expanding market. The primary reason consumers listed for buying an electric vehicle was the environmental benefits. This point does not offer any distinctions between manufacturer’s hard products but could become advantageous for a manufacturer through marketing or some other approach. The second most popular reasoning for buying an EV was the performance, mainly the smoothness of the ride and the instant torque. This was an especially popular answer for owners of the Tesla Model S and X, who listed this point above financial savings, which was the third most common reason listed overall.
Those who pre-ordered a Tesla Model 3 were allowed to participate in this poll, which is listed by CleanTechnica, the organization that collected the data, as the main reason behind the popularity of the financial savings answer choice, with only a minority of other Tesla buyers choosing this as their answer for obvious reasons. This reasoning was also commonly listed by buyers of the Ford Focus Electric and Chevrolet Bolt, but these models are relatively new compared to the Tesla Model S, which was the most common vehicle owned by those responding to the poll. It should be noted, as acknowledged by CleanTechnica, that Tesla buyers were much more likely to answer the poll than other EV buyers due to their generally higher level of interest in their vehicles. The last criterion listed by consumers that has the opportunity to draw major distinctions between brands was a desire for new technology, listed as the fifth most popular answer. Tesla is known for their large infotainment screens on the Model S and Model X, and this along with their autopilot system has definitely attracted consumers to their brand based on the innovative and revolutionary nature of the vehicles (Electric Car Drivers: Desires, Demands, & Who They Are).
The next major step that needs to be taken by manufacturers in order to compete in this new forming market is a redirection of funding towards technological development and innovation. The four manufacturers being focused on have all shown considerable interest in electric vehicles and have all announced their planned funding and investments for electric vehicle research and development. This puts them in advantageous positions, allowing them to get a jump on other manufacturers that have not made their plans quite as clear or public, such as Fiat Chrysler Automobiles. While redirecting money towards electric vehicles is the most important step, researching and producing autonomous vehicles is also extremely important, although less so. This ties in with consumer demand for newer technologies. One of the main reasons for the success of Tesla has been their automated driving system, which as seen above from consumer polling was a major reason why buyers were willing to pay the premiums for those vehicles versus other electric vehicles and even other luxury cars such as the Mercedes Benz S-Class (Electric Car Drivers: Desires, Demands, & Who They Are). Tesla is one obvious manufacturer focusing on autonomous driving, but Volkswagen AG has also shown serious interest in this idea, launching a partnership with Silicon Valley self-driving startup Aurora Innovation in early January (Hook and Mcgee).
Electric vehicles are expected to explode in terms of popularity once gas prices eventually rise up due to surging demand globally, mainly in India and Africa. (Rapier). This change is expected to take full effect in the mid-2020’s when EVs will achieve twenty percent of new light-duty vehicle sales. From this point, market share is expected to skyrocket up until the late 2030’s, when growth will slow down at around fifty to sixty percent of LDV (Light-duty Vehicle) sales (Rissman 2). Right now, low gas prices are stalling the so-called green car revolution, and multiple articles have pointed this out. Due to gas prices dropping and staying low, “Roughly 75 percent of Americans who traded in a hybrid or electric car this year took home an all-gas car, an 11-point spike from 2015…” (Worland 1). This quote is from an article posted in 2016, and with gas prices staying low, it is reasonable to assume that this number has not gone down, and could have even gone up as buyers see prices continually staying low: “Consumers are happy with hybrids and gas-powered cars that get 30 miles per gallon…” (qtd. in Newman 2). As gas prices stay low, consumers see less of a reason to pay the price premiums for electric vehicles, but once these prices go up, the rapid switch manufacturers have been looking for will take place, and it will happen very fast.
While most analysts expect EV sales to skyrocket in the coming years, there are some that question the predicted success of electric vehicles. One aspect of the market that has been repeatedly called into question is a situation of too much supply and too little demand. This has been the thought of some, and it is easy to see why they think this way. Many automakers are announcing plans for new electric vehicles, but demand does not seem to be rising at the same pace. This argument is inherently flawed and does not make sense upon closer examination, however. Keith Naughton on the subject, a proponent of this argument, states:
Electric cars-which today comprise only 1 percent of auto sales worldwide, and even less in the U.S.-will account for just 2.4 percent of U.S. demand and less than 10 percent globally by 2025, according to researcher LMC Automotive. But while consumer appetite slogs along, carmakers are still planning a tidal wave of battery-powered models that may find interested buyers few and far between. (1)
While taking this quote at face value the point may appear valid, looking deeper it reveals a certain short-sightedness on Mr. Naughton’s part.
Mainly, electric car sales going from less than one percent of auto sales to almost ten percent in only one decade is extremely rapid growth. This point cannot be skimmed over, especially when it goes exactly against what Mr. Naughton is saying about weak demand. On top of this, it can be easy to be overwhelmed when it seems as though almost every week another manufacturer is announcing a planned electric vehicle. Looking at when these vehicles will actually enter the market, the vast majority of them won’t come into play for years and are in extremely early development.
To quote another section of Mr. Naughton’s article, “In total, 127 battery-electric models will be introduced worldwide in the next five years...with LMC predicting pure electric offerings will increase by more than five-fold to 75 models in the U.S. alone” (2). While this sounds like a lot of new vehicles hitting the market, it seems very consistent with the demand given earlier. Right now, there are only seventeen electric vehicle models for sale globally, with fifteen of those available in the United States (List of Electric Vehicles 2018). Worldwide, sales are going from less than one percent to almost ten percent, and in the U.S. sales are going from less than one percent to over two percent. Focusing purely on the global outlook, EV sales make up just .2 percent of LDV sales (Global EV Outlook 2017 3). Based on this data, and assuming a market share of nine percent, the market will experience a 4,400 percent increase in market share over the next decade. For comparison, the number of models to choose from will increase by 647 percent in half the time. While this is not an exact comparison due to the increase in new car models being over a five year period and the sales growth being over a ten year period if anything the amount of models does not seem to be keeping up with the massive increase in demand. This thinking appears to mainly come from a lack of understanding about the expected demand, combined with the excessive reporting on the future of electric vehicles. Once the numbers are looked at more clearly, this argument seems to collapse in on itself, and it appears as though manufacturers are not over-saturating the market, and might even be doing too little to capitalize on the demand.
A more interesting argument against electric vehicles that seems more effective is the questionable environmental benefit provided by these vehicles, at least based on current power sources in the U.S. specifically. Due to the heavy reliance on coal for electric power in the United States, a wider adoption of electric vehicles would actually result in more deaths from air pollution every year: “The researchers estimate that if the U.S. has 10 percent more gasoline cars in 2020, 870 more people will die each year in the U.S. from air pollution. Hybrids, because they are cleaner, will kill just 610 people. But 10 percent more electric vehicles powered on the average U.S. electricity mix will kill 1,617 more people every year, mostly from coal pollution” (Lomborg et al.). This point is very interesting to note given the fact that as shown from the CleanTechnica poll looked at earlier, the environmental benefits of electric vehicles were the most common reasoning given for buying one.
This data will most likely be negligible when it comes to the overall success of electric vehicles. If more people find out this information, it could hypothetically lead to a drop in EV sales, although most buyers will probably either ignore this information or question its authenticity, especially since buyers currently choose to purchase such vehicles based on only the myth of environmental benefits. Looking deeper into this argument, the point of overall emissions is also mentioned. A Tesla Model S will emit about forty-four metric tons of CO2 over a 90,000-mile lifespan, including production and scraping with electricity consumption based off of the average U.S. fuel mix. A comparable luxury sedan, the Audi A7 Quattro, will only emit five more tons of CO2 over the same lifespan (Lomborg et al.). While the Tesla outperforms the Audi, it does so only slightly and is almost negligible. Avoiding five tons of CO2 on the European emissions trading market would only cost around forty-five dollars based on 2015 trading prices (The EU Emissions Trading System).
Lastly, the most obvious critique of this emissions based argument is that the U.S. will become less-reliant on coal as the years go by, but one of the articles I found covers this critique specifically:
Of course, electric car proponents would venture that the perceived rapid ramp-up of renewables will make future electric cars much cleaner. This, however, is mostly wishful thinking. Today, the U.S. gets 14% of its electric power from renewables. In 25 years, Obama's Energy Information Administration estimates this will have gone up just 3 percentage points to 17%. Similarly, fossil fuels generate 65% of U.S. electricity today and will generate 64% in 2040, although natural gas will gain four percentage points and lead to slightly cleaner power. (Lomborg et al.)
Based on this evidence, it seems as though the argument for the environmental benefits of EVs is all but disproven, but as mentioned above, this data will most likely not have a considerable effect on the EV market and should not impact sales growth.
Heading into brand-specific research, the most obvious brand to start with is Tesla. It is the most popular EV manufacturer in the U.S. and has by far the most exposure in the media right now. The main critique of Tesla right now is the young age of the company and the lack of positive cash flow. In fact, Tesla is not expected to be profitable until 2020, and this figure is heavily based off of Model 3 sales which given the heavy production delays makes 2020 even less of an attainable goal (Archer). On top of this, Tesla has recently been forced to tap into the public debt market with junk bond offerings, which is highly unique given their current market cap. In fact, there are only three companies out there with higher market caps offering speculative-grade debt ratings: Charter Communications, Citigroup, and Netflix (Ploutos). This offering by Tesla is especially crucial given the dramatic increase in spending that was seen at the company last year: “The company's earnings statement released Wednesday showed that Tesla's negative free cash flow expanded to a record -$1.2 billion from -$622.4 million a year earlier“ (Oyedele). This data is from August of last year, and the situation is unlikely to have improved given the continued production issues with Model 3 production. On top of this, while Tesla is big, it is not too big to fail. A great example of a rapidly expanding company falling apart quickly is Webvan, one of the most famous dot-com flops in history. Webvan at its peak was valued at 1.2 billion dollars, but within a few months filed for bankruptcy (Ramalingegowda). The company reported 830 million dollars in losses shortly before their collapse, eerily similar to Tesla’s skyrocketing losses: “The focus was GBF (Get Big Fast), at any cost. Webvan was no exception to this rule” (Ramalingegowda). Tesla is notorious for its visions of the future, but it might not survive long enough to get there.
While all of this sounds bad for Tesla’s future, it has some major positives to look at. It is by far the most famous electric vehicle manufacturer and the high demand for its vehicles should allow for Tesla to pull into financial stability. Tesla also has the most market share and is becoming more and more dominant in battery production, mainly due to the new GigaFactory in Nevada (Ayre). Tesla also produces lithium-ion energy storage systems and solar photovoltaic roof systems, leading to some considering them to be more of a battery technology company rather than a car company, which is a definite positive for being on the leading edge of battery cost development (Ayre). Tesla also has their own independent charging network containing 1,130 Supercharger stations with 8,496 Superchargers in North America alone (Ayre). This Supercharger network is the largest of its kind in the United States and is currently only open to Tesla owners. The network is also rapidly expanding and will soon have a station in every state and allow for cross-country EV travel in Canada for the first time (Ayre). In regards to financial performance, Tesla is showing signs of improvement as well. Tesla is expected to greatly increase operational efficiency this year, due to lower losses and higher revenues (Dergunov). This leads to Tesla being a rather risky investment in my opinion. It has the sales numbers to facilitate major growth in the future but is running into some financial struggles that could lead to a collapse in the future. Overall, there is an opportunity for major reward in the future, but it comes with major risk.
The next company to look at is General Motors, its much more traditional introduction of electric vehicles is leading to moderate successes, and the massive size of the company makes failure unlikely. General Motors has also seen success in the stock market, with the share price increasing by twenty-two percent over the last year, impressive gains which show strong shareholder support and interest. Focusing on EVs, GM has announced a predicted profit on electric vehicle sales by 2021, and unlike Tesla, it is not reliant upon electric vehicles in order to turn a profit (Gardner). All it needs to do in order to achieve success is push its vehicles into the consumer spotlight, even if that means ignoring profitability for the time being. A similar example of this strategy is the Volkswagen and Bugatti situation. After acquiring the Bugatti brand in 1998, Volkswagen decided to push this brand as the maker of the most luxurious high-end supercar (Newell). The first model produced by the company under new ownership was the Veyron. This car cost an estimated 5.5 million dollars per unit for Bugatti to manufacture, but each vehicle was only sold for around 1 million dollars. Each vehicle was sold for an estimated loss of 4,617,000 dollars per car, with 450 cars produced (Bernstein). While this was horrible performance for the company financially, the Veyron’s world record speed and luxurious interior established Bugatti as the best supercar manufacturer. When Bugatti rolled out their next model, the Chiron, it sold over two-hundred cars before the first one even rolled off of the production line, with an average price of 2.7 million dollars per vehicle, and production costs lowered in order to be profitable (Golson).
Tying this back into General Motors, like Volkswagen with Bugatti, GM has the financial ability to throw away money for years on new projects in order to reign in huge profits down the road. So far, while GM does not sell as many pure electric vehicles as Tesla, it is the largest competition and also has multiple successful hybrids for sale, namely the Chevrolet Volt (Rapoza). These hybrids help consumers to switch into fully-electric vehicles and are a crucial step in getting the average consumer into an electric vehicle down the road (Newman). GM’s battery production capabilities are very limited compared to Tesla, and while this raises some concern, it has announced plans on cutting these costs dramatically over the coming years (Gardner). GM is currently reliant on public charging stations and does not have an independent network like Tesla, a critical concern of buyers. Overall, while GM has a lower market share than Tesla, it is a strong competitor in terms of sales, has the trust of Wall Street, has the financial ability to produce vehicles at a loss for years to come, and has a successful hybrid vehicle line-up to introduce drivers into electric vehicles.
Moving on to Ford, while it is just starting to jump into the electric vehicle market, there are some concerns that should be noted before investing. Ford’s former CEO, Mark Fields, was let go less than a year ago after huge problems keeping Wall Street interested in the brand (Hoffman). While the Ford brand sells the most vehicles in the U.S. every year, its share price has been declining consistently for the past decade (Ford Closes 2017 As America’s Best-Selling Brand). Keeping investors interested is key to success, and Ford is having major issues with that. Focusing specifically on electric vehicles, just last month Ford announced a dramatic increase in its planned investments into electric vehicles to 11 billion dollars by 2022. This is up from a previously announced target of 4.5 billion dollars by 2020 and shows an increased interest in the market. On top of this, plans for sixteen new fully-electric models and twenty-four new hybrids have also been announced (White et al.). While this shows Ford is serious about electric vehicles, it does not have Wall Street’s trust and is getting into the hybrid game a little late. In terms of battery cost, Ford has nothing notable announced regarding cost-reduction plans, and it is a similar story with charging network plans. Both of these points are important to focus on, but Ford has not announced anything notable in regards to either one.
Volkswagen AG, the last manufacturer looked at, it is in a similar position to Ford. Shareholders have serious issues with the company as a result of the ongoing DieselGate scandal. Shareholders have called for massive reforms, and the current price is still far below where it was before the scandal (VW shareholders call for reforms in wake of $4.3 billion US deal). While it is running into serious problems of trust, as the world’s largest automaker conglomerate the company has been able to pledge an astounding forty billion dollars towards electric vehicles by 2023 along with a significant focus on autonomous driving, both of which are good signs for the future of the company (White et al.). While it has pledged a lot of money, currently Volkswagen only has two electric vehicle models for sale, and neither is on the level of success attained by GM and Tesla. Similarly to Ford, no solid plans for charging networks have been announced, but unlike Ford, Volkswagen has pledged around sixty billion dollars towards battery production by 2030. This is a huge investment and involves plans for up to forty battery factories (Lambert). Overall, this leaves Volkswagen AG with a considerable chance of selling models successfully in the future, but due to a serious lack of trust from investors, it is unlikely to see huge success in the stock market which is the main purpose of investing.
Part IV: Conclusion
In regards to which investment is strongest, two brands have emerged from my research as the best places to put your money and each has different strengths and risks, creating two unique investments to choose from. The first brand is a somewhat obvious choice, and that is Tesla. Tesla has been the stock market’s darling in recent years through massive stock price gains, on top of support from the EV community themselves and these huge advantages combined are a strong counter against the Model 3 production troubles and lack of profitability. Tesla is currently dominant in battery production and charging networks, and these advantages will allow for continued success if Tesla can work on its cash flow. These issues still make Tesla’s future clouded, however, and the long-term success of the company has been called into question many times for good reason. Tesla’s high share price is based heavily off of the assumption of success down the road, and that success is required for major gains and even maintaining the current price, which is around 340 dollars. If Tesla does not fall apart financially, it will definitely be a major player in the EV market for years to come, but due to the challenges faced, there is serious risk associated with a Tesla investment. Many have written on Tesla’s ability to break one-thousand dollars per share, but this will only be attainable if it is able to get the spending under control (Tessien). Due to the high risk associated with investing in Tesla, I would recommend going small on your investment and focusing primarily on short-term growth since this is much more of a high-risk, high-reward opportunity. In terms of future pricing, I see either a total collapse or prices skyrocketing up to the high-hundreds or low-thousands. It is unlikely for Tesla to have stagnant pricing due to the massive changes underway at the company, which will either cause the price to go much higher as Tesla becomes profitable or completely collapse as Tesla fails.
The other manufacturer that stood out in my research was General Motors. The ability to afford losses for years on electric vehicles with no consequences, huge size, and Wall Street support makes it a very solid and safe investment. This reveals a major difference between Tesla and GM, however, as Tesla is highly dependent on its EV success in order to achieve overall success. GM, Ford, and Volkswagen AG are all large traditional automakers that only have relatively small electric vehicle divisions within the companies. This means that the growth of the electric vehicle division at these automakers will not have as drastic of an effect on the share price of the company when compared to Tesla, where the majority of the company is dedicated to electric vehicles. While it will likely not achieve the same growth as Tesla might, a General Motors collapse independent of overall market conditions is almost impossible. This is especially true when taking the 2008 financial crisis into consideration and how the government supported the big three U.S. automakers during those times in the face of bankruptcy. It was said at the time in regards to these bailouts that "...if these companies are not allowed to go bankrupt now, they never will be" (Brooks). On top of the non-existent risk of collapse, GM has also been rolling out highly successful hybrids such as the Chevrolet Volt, which has sold over 100,000 vehicles since coming out in 2011 and has also pushed out competitive fully-electric vehicles such as the Chevrolet Bolt (Rapoza).
The main issue with GM right now is that Tesla dominates the market, with forty-five percent market share, but GM is their only real competitor in the sector and has a lot of room for growth (McCarthy). This puts GM in a great position for a long-term investment opportunity. The risk associated is very low and GM is in a position to regularly and consistently please shareholders for years to come. In regards to share prices, if GM is able to climb back up to the low forties by June, it will have shown a steady ability to please shareholders. I expect GM to hover around sixty dollars a share at the turn of the decade, and after profits on EVs are expected in 2021, I see a rapid acceleration up to around ninety dollars a share, especially if GM becomes profitable off of EVs before Tesla is able to.
Ford and Volkswagen AG are both running into serious problems pleasing shareholders, and both automakers are far below General Motors in terms of electric vehicle market share. General Motors has sixteen percent of the U.S. market, Volkswagen has four percent, and Ford has two percent (McCarthy). The only caveat to this would be Volkswagen’s sizeable planned investment into EV research and development, but this is not enough to overcome GM’s advantages. Ford does have the opportunity for solid growth, but this would be about becoming competitive with GM again rather than outperformance. If Ford can pull steady profits out of their EV sales and get the rest of the company back together, it is not out of the question for them to head back up to around forty dollars a share from current pricing in the low teens, which would be tremendous for investors. This is not too realistic and would require huge changes at the company, but if it happens there will be a lot of money to be made on top of Ford’s famous dividends. With this being said, there is a solid reasoning behind the lack of trust associated with Ford and the risk associated with buying Ford outweighs the unlikely future success of the manufacturer. A Ford investment should be considered if the price is able to achieve fifteen dollars a share by September, up from ten dollars currently. Right now, a lot is going on at the company, and we should see Wall Street’s reaction by September. If it has not seen considerable improvement by then, I would avoid Ford altogether.
Overall, I believe that Tesla provides for a risky investment, but has the opportunity for massive growth. On the other hand of the spectrum, General Motors represents a lower-yield investment but with relatively safe returns. Each strategy has its pros and cons and either investment is a solid choice if you know what you are getting into.
