Tesla Inc. (TSLA, Financial) and Ford Motor Co. (F, Financial) both released encouraging delivery updates recently. Many investors pair the two stocks into the same category for growth in electric vehicle (EV) sales. However, I believe these two stocks are set for opposing destinies with the economy and stock market environment considered.
Tesla
Tesla's preliminary June report revealed an increase in its China-produced vehicles. According to the report, Tesla sold about 78,000 China-produced vehicles during the month, which is a 1.42-fold increase from May of this year and a 1.35-fold increase from June 2021.
I assume the recent surge in sales is due to the easing of pandemic restrictions in the nation as suspensions on factory operations were lifted.
Tesla's China results must be juxtaposed with the company's broad-based second-quarter results. The company reported its total sales earlier this month and revealed production of 258,000 vehicles and delivery of over 254,000. The results show a 17.9% year-over-year decrease in sales, conveying a slowdown in consumer strength.
From a valuation vantage point, Tesla looks overhyped. The stock is trading at a price-sales ratio of 8.55 and a price-to-cash-flow ratio of 52.32. Although relative valuation metrics can be counterproductive analysis tools for growth stocks, the current bear market demands a margin of safety. As such, Tesla could get crushed by risk aversion.
Ford
Like Tesla, Ford also reported its June sales recently. The company's U.S. sales rose significantly, with broad-based sales up 31.5% and EV sales up by a stunning 76.6% for the month.
Ford's sales report comes as a surprise as the company's demand dipped in May, causing many investors to believe that it was set for a cyclical downturn. However, the company's resiliency conveys its "best in class" attributes as an established legacy automaker, which could help it dodge an economic downturn.
On the flip side, Ford's gross margins have been suppressed to 11.36%, suggesting that it's struggling to pass through rising input costs to consumers.
The stock looks fairly valued versus the rest of the auto industry as its price-earnings ratio is trading at a 65.75% discount to the sector median. Additionally, Ford's stock is trading at a price-sales ratio of just 0.31, implying that the market undervalues its top-line.
My verdict
I want to conclude by referencing the yield curve and how Ford and Tesla could react to it. The yield curve implies that interest rates will be hiked significantly in the next few years, which would contract consumer spending power. Evidence is abundant that sales of durable and discretionary goods such as vehicles exhibit negative correlations to rising interest rates.
Tesla's Beta coefficient of 2.13 means that it could be more sensitive to any changes in the yield curve, but Ford's Beta of 1.15 is nearer to the broader market's. Furthermore, Ford offers a dividend (yielding 2.68%) whereas Tesla doesn't, making it a more attractive investment than Tesla for risk-off investors.
Lastly, Tesla is exclusively exposed to the high-growth and volatile EV industry, whereas Ford is diversified into various auto offerings. As such, Tesla could face significant drawdowns in the coming months, but Ford has better ability to weather the storm.
