In the last two weeks, both Ferrari and Tesla have reported their 2020 full year results. This article is the first time I have analyzed Tesla’s results. I decided to do so alongside Ferrari’s as these are the two car companies that Wall Street values very differently from other car companies. Tesla’s current market capitalization of $820 billion is larger than the next twelve most valuable car companies combined, which includes Ferrari with a market cap of $50 billion. Looked at another way, the market values Tesla at $1.59 million for every car it produced in 2020. The comparable number for Ferrari is $5.48 million. To put these extraordinary numbers in reference, Aston Martin is valued at around $500k for every vehicle it produces currently. Moving furthering into the mass market BMW is at $24k per car, with Ford sitting at $23k. Another way to look at it is you could buy 29 top of the line Tesla Model 3 cars for the same $ value that Wall Street gives to Tesla for each car it produces. Applying the same math to Ferrari would get you 3 Monza SP1s or 8 SF90s. On the more mass-market side, BMWs per car produced valuation would only by you a 1/3rd of a M3. Not sure if any of this is really relevant but I do find it interesting. Looking at the more established benchmark of P/E (Trailing), Ferrari’s currently is 45 which puts it squarely in the middle of other luxury goods companies like LVMH and Hermes. Telsa’s P/E is 1,331 which is more in line with a high growth tech company that has just turned profitable. Most other car companies carry P/Es in the single to low double digits. The question is what sort of results did Ferrari and Tesla deliver in 2020 to deserve these rich valuations. The summary from the last look at Ferrari was when they delivered a strong Q3 2020:
Unlike Aston Martin, which is still basically a train wreck with the hope that the light at the end of the tunnel isn’t another train coming at them, Ferrari turned in another very solid quarter given the circumstances. In fact, if it was a normal year, you would look at Ferrari’s Q3 results and probably walk away with the impression that they are only mildly disappointing. Shipments were down 7% vs. Q3 2019, with Sales at negative 3% and net profit up €2 million which is highly impressive. How they did this is quite interesting and shows the depth and experience of their management team. It also presents some risk going forward as I not sure that some of the levers they pulled to deliver these results are repeatable.
Starting with Ferrari, their2020 Earnings Call was led by the CFO, Antonio Picca Piccon. Piccon stepped in after former CEO Louis Camilleri retired suddenly in early December after catching Covid-19. While Piccon doesn’t quite have the same presence, he did do a nice job in a tough situation. The acting CEO, John Elkann was also on the call but largely stayed in the background. The earning’s call webcast is posted: Ferrari Q4 and FY 2020 Earnings Call. There were some specific comments that I found interesting:
Overall, Ferrari has, and continues to be, very well managed.
Moving on to Tesla, I went through the transcript of Tesla’s earning call twice looking for signs of a car company. There are hard to find. What I did find was a mobile power storage & transport company that is making rapid progress towards full autonomous vehicles. The data Tesla provides in the shareholder deck is quite light compared to its major competitors. The Tesla Earnings Call Webcast was dominated by Elon Musk with Tesla’s CFO, Zach Kirkhorn, and a couple of other executives participating. There were some specific areas & comments that I found interesting:
And then later in answer to an analyst’s question, Musk further states: “we do think that we can maintain a growth rate in excess of 50% per year for many years to come.” When I looked at Tesla’s recent CAGRs (compounded annual growth rates) they are, last 5 years – 33.8%, most recent 3 years – 13.7%, so the actual growth rate in the automotive business has actually slowed. Using the $50 billion in car sales referenced in the paragraph above and doing a bit of back of the envelop math, at the current levels of operating margin, Tesla would still have a P/E of 664. If Tesla was able to achieve Ferrari type margins, the P/E would drop to 220. Other cutting-edge hardware and subscription software tech companies such as Apple and Microsoft have P/Es of 37 and 36 respectfully. As Tesla matures as a company, this P/E gap to the norm will naturally close. So either the stock price will eventually come back down to earth or Tesla’s profitability will need to increase dramatically.
Ferrari is a highly successful company doing a great job navigating in a challenging environment. Losing a great CEO in Louis Camilleri hurts but Ferrari clearly has a highly skilled executive team that will be able to carry the business during the transition. The F1 team continues to struggle and is unlikely to bounce back until 2022 at the earliest. The drop in free cash flow is a major concern and this needs to be recovered quickly in 2021 and 2022. How Ferrari manages the SUV launch plus the transition to hybrids and EVs will determine its long-term future. If the past, present, and future plans are clear, logical, and well documented at Ferrari, Tesla is the wild west. While I personally can’t get my head around Tesla $820 billion market cap, I know lots of very bright people have lost fortunes betting against Tesla. Can they deliver what they claim? It’s possible but a lot needs to go right, and the playing field is starting to get a lot more crowded. So, is Tesla worth $820 billion? I’m not sure that’s actually the right question. Is Tesla + Elon Musk worth $820 billion? Might be, if you are willing to assign a several hundred billion dollar valuation to Musk’s leadership & vision. Amazon with Bezos is now worth $1,650 billion. On the flip side, if I look at the value another brilliant celebrity CEO had on a company, GE under Jack Welsh was worth approximately $500 billion at its peak, today GE’s market cap is $100 billion.
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Note: pictures are from Ferrari Media Center & Tesla’s shareholder presentation.