Much like Ford (NYSE:F) pioneered the original automobile with its Model T, over 100 years later Tesla (NASDAQ:TSLA) is pioneering the era of electric automobiles, leading some investors to question "whether Tesla today in EVs is akin to the Ford Model T in1908-26."
Speaking on the subject, Bernstein analysts draw five parallels between the two companies:
- "Both came with the backdrop of a period of dramatic market growth (up 90x in 18 years)."
- "Tesla, like Ford, appears to have a cost advantage compared to competing OEMs."
- "Both Ford and Tesla drove down price to capture share."
- "Ford used its cost advantage to capture outsized share but did not see improving margins over time."
- "Both companies experienced significant cyclicality from product cycles."
Despite the similarities, the analysts also point out that the "auto market today is increasingly global and structurally more competitive than it was in the 1920s, and as a result, Tesla's cost advantage may not be as sustainable/long-lasting as Ford's was."
They see two key factors that may get in the way of Tesla replicating Ford's early success story:
- "While Ford was able to maintain its cost advantage for ~20 years, Chinese competitors are rapidly closing the gap vs Tesla and BYD may already be at parity."
- "Public and private capital today has been willing to finance Tesla and competing startups through years of losses, while ICE OEMs are deploying cash flows from their legacy businesses to ramp loss-making EV businesses. Neither was the case at the time of the Model T."
As such, they conclude that even if "Tesla can replicate the success of the Model T and Tesla's EV share and op margins revert back to peak levels, it points to a DCF valuation of ~$180/share for Tesla's autos business."
They additionally warn investors to remain mindful of "the specter of further price cuts and downward revisions this year and in FY 24 in advance of a new low cost platform shipping in volume, likely in 2025."
Based on the above, Bernstein reiterates an Underweight rating on the shares with $150 Price Target.
TSLA closed at $255.90 yesterday and has gained over 137% YTD.