Over the past few years, Tesla has been without question the biggest and most interesting story in the car business.
But it hasn’t been completely alone. There are, after all, lots of other automakers in the world, and for the most part, they had a terrific 2015.
We don’t yet know the exact number, but chances are excellent that the year 2015 will come in as the best year ever for the US auto market, with something close to 18 million new cars and trucks having rolled off dealer lots.
Tesla will also have its best-ever year, delivering on the order of 50,000 vehicles and launching its Model X SUV.
I like to take a moment at the beginning of every year to check out the relative market performance of several major car makers. Usually, it’s just Ford and General Motors, but since 2013, Tesla has been in the mix because its market cap, at around $30 billion, has become so impressive. Since 2014, Fiat Chrysler Automobiles (FCA) has been included, and this year Ferrari dropped into the party, with an IPO in October.
These charts show that FCA is a company whose peaks and swoons, although not as jagged, mirrored Tesla’s. These are two exciting carmakers that offer a great reward for investors willing to take on risk, but neither one is stable enough to comfortably right out even a mild recession.
This chart gives you an idea of what’s happening with the big automakers:
As you can see, FCA was the best investment you could have made with a few bucks at the beginning of the year. Tesla wasn’t bad. Ford was weak, GM was flat, and Ferrari, thus far, has been disappointing.
Here’s the thing
Here’s the thing that caught my eye. Tesla has long been a stock for the strong of stomach. Volatility is the norm — except for a short period in 2015 when Elon Musk’s startup car marker started to show some slow-and-steady behaviour (quickly vanquished by the time autumn came around).
Of course, no one is looking for Tesla’s stock to behave like Ford’s or GM’s. Executives at both companies have expressed some dismay that their objective excellent results in 2015 weren’t rewarded on Wall Street, but they also know that traders see neither company as a growth story.
Have a close gander at Fiat Chrysler, which is hardly a go-go startup. Structurally, FCA is not that much different from GM or Ford.
Well, that’s not entirely true. It is different in one major way, which is that its CEO, Sergio Marchionne, appears convinced that FCA isn’t sturdy enough to survive the next downturn in the auto industry. I’m not talking about a catastrophic collapse here, either, like we saw in 2008-09. The concern in this case is a run-of-the-mill business-cycle recession, of the sort that the car business is organised to deal with.
Except that Marchionne thinks that FCA isn’t. That’s why he spent a lot of time in 2015 in a somewhat embarrassing effort to get GM to merge with FCA. It didn’t go well.
FCA’s core problem is that, apart from being tied up with Fiat and the fortunes of the European auto market — which are much less promising than in the US or China — the company is relying heavily on one brand, Jeep, to bring in the bacon. Its Ram brand is solid in the US pickup truck market, but it’s generally a third choice among consumers, after Ford and GM’s Chevrolet and GMC.
This isn’t exactly a new situation. Chrysler has long been a boom-and-bust car maker, the “sick man” of Detroit. Prior to the downturn, Chrysler was a real basket case and there was a debate in Washington about whether, after the bailout of the company, it should be let go, leaving the Big Three as the Big Two.
The 2015 chart proves that it still has that boom-and-bust dynamic. Ford and GM, meanwhile, move more or less in lockstep — boring, predictable lockstep.
The troubling thing for Tesla here is that its stock bounces around in a way that’s similar to FCA’s. Now, the stock price doesn’t necessarily reflect in any meaningful way the underlying business, but it can be analytically useful. In this case, you can conclude that FCA is the most troubled of the US automakers, but also that it presented in 2015 the most reward for taking on risk — 18%, a nice premium over the next best performer, Tesla, which managed 5%.
I took it as a positive sign in mid-2015 when Tesla’s stock started behaving more like a “normal” car maker’s. It didn’t last, but we were briefly permitted to look at how Tesla was operating its business, rather than fixating on how many billions Elon Musk was gaining or losing on his net worth every week.
Now Tesla shares are again rising and plunging, which means that in terms of my chart, we have two thrilling automakers that are not by any stretch capable of riding out a recession (although frankly I’d say Tesla has the better chance given its attractiveness as an acquisition target — it’s pretty clear that nobody wants to hook up with FCA). We have two legacy car companies that aren’t going to enjoy much share-price action, and one wild card, Ferrari, which could surge or continue to decline.
If Tesla manages to cross some execution thresholds — namely, bringing out a prototype of its Model 3 mass-market car on schedule in 2016, ramping up Model X production, and doubling Model S production over the next two years — then I think its stock price could settle down once again. That, rather than the “bull case” in which shares rocket to $450, is preferable.
I’m not lining up with the “bear case,” which sees Tesla collapsing. I’m suggesting that Tesla needs to mellow out. Effectively, I’m with the crowd that thinks Tesla’s current price range reflects already-baked-in-future growth. Bottom line: A boring Tesla stock price would be good for business, because it would mean there’s less news for the shares to trade on.
That said, it’s hard to get past the similarities between Tesla’s and FCA’s 2015. These are companies facing major challenges in 2016 and beyond. It’s far from certain that they will be able to overcome them.
If I’m Elon Musk, I’d like to get out of this relationship, even if it only shows up on my yearly stock chart.
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