Are Environmentally Friendly Electric Cars Also Financially Sound Investment Vehicles?
Jay is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
How far do you think your investment vehicle can take you if it is loaded with shares of electric-car companies? Well, we all know that an electric car won’t go too far on the road even after a full charge of many hours. Given electric cars’ current inferior functionality, one may suspect that the stock performance of electric-car companies might bear the same metaphorical interpretation. It’s possible that the electric cars could stall your investment if they suddenly run out of power.
It’s true that electric cars have made progress along the way. Think about the many improvements by Tesla Motors (NASDAQ: TSLA). The company’s newest Model S can now travel 200 miles per charge, requiring a more tolerable charging time of around 30 minutes. But one problem remains: you have to be lucky to be at a charging place when you need it. Not to mention that a conventional gasoline car with a normal 15-gallon gas tank can travel about 400 miles with a fill-up time of less than, say, three minutes.
But while mileage matters, for investors of Tesla, or any other electric-car company, financial numbers matter more. A quick look at Tesla’s financial statements finds that its sales and operating profits have been extremely minimal and persistently negative, respectively, ever since the company opened its doors almost 10 years ago.
Now that Tesla has become a publicly-traded company, the financial burden has thus shifted from private venture capitalists to safety-minded public shareholders. But meanwhile, both its market demand and supply capability have yet to reach any economies of scale. For Tesla cars, we are talking about a sticker price of over $50,000 and a mere few thousand units in annual production.
The only scale that does seem to exist is in the company’s valuation metric. Tesla’s stock is currently trading at almost 14 times its shareholders’ equity, compared to the average price-to-book ratios in the low single digit for many companies. We can forget about its P/E ratio for now, as Tesla has yet to post any earnings. The fact that Tesla has recently filed regulatory papers for a second round of share offerings is more evidence that the company’s capital supply is hardly keeping up with its capital spending, due to high-cost operations at this stage of the electric-car business. The additional share offering is certainly going to dilute value for new shareholders.
If you’re worried about the future of electric cars, exposure to this market can easily be achieved by investing in traditional car companies that also have their eyes on the changing makeup of the future car industry. In fact, few car makers today don’t have some electric element in their model lineups, be it conventional hybrid, plug-in hybrid or all electric.
Although it was partly a bow to political pressure, General Motors’ (NYSE: GM) Chevy Volt elevated GM’s image in the battery-powered car scene. But at barely 40 miles per charge, the Volt won’t be able to dial up any higher as a solution for the long haul. To remedy this, next year GM will release its first all-electric car, the Spark mini EV. But with the constant presence of the government, the GM situation is somewhat peculiar, meriting careful evaluation by investors.
While government financial support is welcome by companies that receive them, they are susceptible to criticism and may alter the nature of innovation and competition. With all the turnarounds happening at GM, investors have to wonder why its stock hasn’t been able to close in on its book value, trading instead at 10% below.
Meanwhile, GM’s close domestic competitor Ford (NYSE: F) is seeing its stock trading at more than twice its equity book value. Ford already has an all-electric car on the market, the 5-door Focus EV hatchback, which drives over 70 miles per charge. Moreover, Ford expects all electric-related cars to account for about 25% of its total sales by 2020. That would be a fair amount of exposure for investors wishing to get a piece of the changing landscape of the future car industry.
In all likelihood, the car industry will gradually evolve over a long period of time. Thus, it’s wise not just to hop into one single investment vehicle for the entire ride.
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JJtheArdent has no positions in the stocks mentioned above. The Motley Fool owns shares of Ford and Tesla Motors. Motley Fool newsletter services recommend Ford, General Motors Company, and Tesla Motors . Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.