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Tesla passes Ford as investors bet on electric dream

Tesla, the upstart electric carmaker, surpassed US motor pioneer Ford in market value on Monday, as investors look to a future beyond the internal combustion engine.

Shares of Tesla, founded in 2003, rose 7.3 per cent to a market capitalisation of $48.7bn, gliding past the 100-year-old Ford, whose shares fell 1.7 per cent after disappointing March sales results to a market value of $45.3bn.

While it is symbolic for a Silicon Valley start-up to surpass the valuation of a company that helped make motor cars ubiquitous in early 20th century America, car market analysts point out that Tesla achieved the feat based on global deliveries of only 76,000 cars last year, compared with Ford’s global sales in 2016 of 6.6m.

“The stock market has always treated Ford like an industrial stock while Tesla has been considered a tech stock,” said Michelle Krebs of Autotrader.com.

“Let’s remember — Ford earns money — lots of it. Tesla does not. The real test for Tesla comes when it launches the Model 3, the high-volume, mainstream-priced electric vehicle that is supposed to help the company achieve profitability.”

While Tesla’s stock market value surpassed Ford’s for the first time, the electric carmaker had already surpassed its rival in terms of the broader measure of enterprise value.

Based on enterprise value — a more complete measure of companies’ respective values, since it takes account of their net debt or net cash positions — Tesla is worth just under $60bn, while Ford is worth $39.1bn. 

Ford has net cash of $5.7bn, after deducting its unfunded pension liability of $5.9bn. Deducting that from the market capitalisation gives an enterprise value of $39.1bn.

Investors appear to be betting that Tesla’s Model 3 can do for electric cars what Henry Ford’s Model T did for traditionally powered cars a century ago: make them cheap and convenient.

Electric car demand has fallen far behind projections for decades, though much of that has to do with the high price of electric cars, analysts say. But the market is also betting on Tesla to beat traditional carmakers in the race to develop self-driving cars, though Ford has said that it hopes to be among the first to introduce high-volume fully self-driving cars by 2021.

Tesla’s share price boost followed news released at the weekend that Tesla delivered 25,000 cars during the first quarter of this year, higher than analysts had expected. 

At the same time, disappointing US sales figures came out for the traditional motor industry on Monday which underline market concerns that established carmakers are running out of steam.

US light vehicle sales for March, traditionally one of the strongest months of the year and a bellwether of full-year performance, came in well below expectations with sales ending the quarter at 3.93m, down 1.5 per cent from a year earlier, according to Wards Auto.

Light-vehicle sales totalled 1.55m in March, well below Wards’ forecast of 1.61m. Shares of carmakers from Ford to General Motors to Fiat Chrysler fell as they announced weaker than expected sales. 

Weak US first-quarter sales raise the possibility that full-year US sales could fall this year for the first time since the American motor industry bottomed out during the great recession, or end flat at last year’s 17.55m level. 

“No one should be in panic mode. March sales were still very respectable. Incentives are higher but not out of control, the industry is at a sales plateau, albeit at a very high level,” said Ms Krebs, but she added that double-digit declines in sales of some passenger cars year on year could lead to more production cuts. 

Via FT