Which Car Company is Shifting into Drive?

Michael is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

In the famous sequel to the trilogy that would make Michael J. Fox a global superstar, Back to the Future Part II showed what the automotive industry might be like in the year 2015: flying cars, retro designs, holograms, and blazing speeds.  However, it is 2012 and mass-produced flying cars for individual use are still in the imaginations of scientists and engineers – although the independent company Terrafugia has a concept flying car called the Transition in the testing phase now ( but it looks nowhere near as cool as the old DeLorean).

Tesla

Tesla Motors (NASDAQ: TSLA) reminds me much of the original DeLorean Motor Company (DMC).  Like DMC in the late 1970s, Tesla is burning through piles of money quicker than the Joker did in The Dark Knight.  Also like DMC, Tesla has relied heavily on government assistance for building factories and getting the supply chain in order.   Lastly, like DMC, Tesla’s car has a price significantly higher than the average car on the market today.  The DMC had a sticker price of $25,000 (which is over $60,000 in today’s dollars).  Tesla’s first production vehicle, the Tesla Roadster has a base price of $109,000, while its new “affordable” Model S has a base price of $57,400. 

Although Tesla’s stock has gone up over 40% since its IPO in July of 2010, the future is far more important for the company and the stock.  Tesla has recently completed a secondary share offering in order to compensate its extraordinary burn rate.  In the end, the numbers speak the truth.  And speaking of numbers, why isn’t Tesla being straight forward with investors about their estimates and current performance?  It looks like investors are now losing their patience, as the stock has dropped nearly 20% the past 3 months and looks to drop further. 

<table> <tbody> <tr> <td> <p><strong>Quarter </strong></p> </td> <td> <p><strong>Net Income</strong></p> </td> <td> <p><strong>Quarter</strong></p> </td> <td> <p><strong>Net Income</strong></p> </td> </tr> <tr> <td> <p>December 2010</p> </td> <td> <p>-$154,330,000</p> </td> <td> <p>December 2011</p> </td> <td> <p>-$254,410,000</p> </td> </tr> <tr> <td> <p>March 2011</p> </td> <td> <p>-$173,750,000</p> </td> <td> <p>March 2012</p> </td> <td> <p>-$295,340,000</p> </td> </tr> <tr> <td> <p>June 2011</p> </td> <td> <p>-$194,140,000</p> </td> <td> <p>June 2012</p> </td> <td> <p>-$342,040,000</p> </td> </tr> <tr> <td> <p>September 2011</p> </td> <td> <p>-$224,280,000</p> </td> <td> <p>September 2012</p> </td> <td> <p>?</p> </td> </tr> </tbody> </table>

The reason why DMC ultimately failed is simply because it had insufficient funds to keep the company alive.  Tesla seems to be DMC version 2.0.  Safety recalls, over-promising and under-delivering, and the unique groundbreaking product that Tesla is attempting to push mainstream all mirror the issues that DMC faced decades ago. 

Oct. 29 is the next earnings announcement for Tesla.  With a recent history of negative EPS, Tesla might actually shock analysts by losing the same amount this quarter that it did in the previous one.  This may actually boost the stock up in the short-term.  However, long-term, Tesla’s future looks like it is slowly fading away; and in this world, there is no time machine to change the course of history.

Toyota

Toyota (NYSE: TM) looks like the better long-term automotive stock than Tesla, although Toyota has seen its share price decline over 30% the past 5 years.  Much of this drop is due to the broader global financial crisis, some of the recent vehicles plagued with recalls, and more competition in the electric vehicle and hybrid market.  The company’s overall global production and sales have fallen a little from its peak in 2007, with over 9.4 million vehicles produced, to 7.8 million produced in 2011.

The future for Toyota looks very promising, despite the recent struggles.  Its EPS is picking back up, with its past quarter breaking $4.50 per share.  Revenue has soared year-over-year, with June 2012 revenue of $69.37 billion blowing away revenue of $42.62 billion for the same quarter a year ago. 

Much of Toyota’s success comes from its grasp of what most people want, and more importantly, what most people can afford.  Some people were saying Toyota was being stubborn for not going all-in with electric cars and staying behind its successful Toyota Prius.  I say Toyota is just playing the game correctly and understands what is trending in the automotive world.  From the Toyota Prius to its successful Scion brand, Toyota’s share price should continue to trend up in the coming years. 

<img src="http://media.ycharts.com/charts/0a96e777c7fe2bba63549e6666e9f851.png" />

TM Total Return Price data by YCharts

Tata Motors

Tata Motors (NYSE: TTM) is a company to consider if you want to capitalize on the growing economy and population of India.  Since its debut on the New York Stock Exchange in 2004, Tata has seen its share price soar over 220%, including dividends.  Year-to-date, the stock has already gone up over 43%.  The stock’s performance is largely due to how successful Tata has performed as a company recently, making international headlines for some of its recent car concepts.  The net income from the company has nearly tripled the past three years from $837.1 million at the end of fiscal year 2010 to $2.286 billion at the end of this past fiscal year 2012.

Tata develops various vehicles that include passenger cars, trucks, vans, coaches, buses, military vehicles, and electric vehicles.  Ford recently gave its Jaguar Land Rover brand to Tata in 2008, providing Tata a luxury brand to complement its traditionally very affordable passenger cars.  Additionally, Tata Technologies provides engineering and design services for much of the automotive industry.  Some of its client list includes Ford, General Motors, Toyota, and Honda.

In the end, don’t overlook Tata as a company or as a stock.  You may have not seen one on the road here in the states, but we are definitely not the only country with mass produced automobiles. 

<img src="http://media.ycharts.com/charts/00235ecfc72a882dee18742619cbce18.png" />

TTM Total Return Price data by YCharts


mikecart1 has no positions in the stocks mentioned above. The Motley Fool owns shares of Tesla Motors. Motley Fool newsletter services recommend 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.

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