By MIke Bigioni
After the hard times automakers suffered in 2009 and the whole government bailout situation many people have chosen to stay away from car companies. At one time it was believed that the big 3 automakers were here to stay. That clearly wasn’t so. Poor management led to the downfall of the American automakers and then a controversial government bailout package to revive what was left of 2 shattered companies. General Motors (NYSE:GM) and Chrysler had to take government loans in order to stay afloat while Ford Motor Company (NYSE:F) managed to keep operations alive without assistance. Many of the problems stemmed from lack of vision and planning. The companies were riding on their once loyal following while both management and employees were pulling in excessively large wages while producing products that weren’t practical for the new marketplace. These problems were isolated to the American automakers while foreign companies like Honda Motor Company (NYSE:HMC) were hardly affected. Now there are new companies emerging and trying to capitalize on the mistakes made by the Detroit manufacturers.
On the low-end of the scale, India’s Tata Motors (NYSE:TTM) now offers the cheapest car on the market, but the company is diverse and makes a range of products from passenger vehicles to construction equipment. The company has come under criticism in the past for safety and emission standards associated with its Nano model, however, it is developing both electric and hybrid cars in order to keep up with the demands of today’s consumers, who are both more environmentally and economically aware. In 2009 the stock was below $2 and today it currently trades around $18. The 52-week range is $14.33-$31.04. Few analyst opinions are available in the U.S., but the company is recommended as a buy or strong buy with a target price of $32. TTM has been trying to capture the low-end market with the Nano product in order to sell to the many poor people who can afford little more than a motorbike. The car has had safety concerns from the beginning, but the company has been working to alleviate the problems and meet safety and emission standards for both Europe and the United States. To be able to gain popularity in these markets could open the doors for future sales of higher quality models, much like what happened with Hyundai.
Currently TTM, which also owns the Jaguar and Land Rover brands, is valued at approximately $17.25 billion, while it has a market capitalization of only $11.8 billion, 68% of its total value. While revenue is expected to grow from $26.83 billion (ttm) to $29.24 billion this year according to analysts the company’s earnings per share are actually expected to drop from $2.84 to $1.92. Next year’s numbers are no better with revenue expected to remain relatively flat and earnings expected to drop to $0.42. TTM’s return on assets is 8.18% and the return on equity is 49.8%. It has cash reserves of close to $3 billion while carrying $8.6 billion in debt. Its debt-to-equity ratio is high at over 187. The company is currently paying a dividend of $0.42
Tesla Motors (NASDAQ:TSLA) is at the opposite end of the spectrum. It is a relatively new company that began in 2003 in Palo Alto, California. The company designs and produces high-performance electric cars. It also sells advanced electric vehicle powertrain components to other automakers. Its business strategy has been to sell to the upper end of the car market with a high-performance sports car before creating the affordable everyday sedans for the mid-range buyers. Tesla Motors is applying the marketing strategy typically used by technology companies of going after the money of the “must have” people before mass producing its product for the middle and lower classes. It has been trading publicly for less than 2 years and currently trades for around $34. The 52-week range is $21.11-35.00 and analysts have a target price of $37.50 on the stock. The company’s plan is unique and the product certainly stands out.
For being a young car company, TSLA has a surprisingly large market capitalization of $3.6 billion and an estimated value of $3.4 billion. Its debt is only $226 million and its debt-to-equity ratio is 76.9, much lower than Ford’s and Tata’s. The company’s returns are still negative, but it is losing less and less each year. Last year’s earnings came in at -2.53. Analysts expect this year’s earnings to come in at -2.14 and losses are expected to be -1.91 in 2012. Even though earnings are negative, sales growth is strong and expected to increase from $204 million to $526.8 million in 2012. The young company is showing strong and steady growth. It is producing a top-notch product and using an innovative marketing strategy to gain market share.
Ford is an old, well established and a prominent name all over the world. It has produced iconic cars and trucks and now boasts advanced hybrids that are getting good consumer and critic reviews. The company has survived the crisis that decimated its American competitors. Management has been strong and the company has tried to remain progressive in the car market. Its stock price still took a major hit and dropped to below $2 in 2009. It currently trades around $11 and has a 52-week range of $9.05-18.97. Analysts have put a target price of $15 on the stock and rate it anywhere from hold to strong buy.
Market capitalization of F is only $43 billion, which is only 37% of its estimated $116 billion value. It is a sign that American investors are still wary of the U.S.-based car companies. The company has a huge debt-to-equity ratio of 1,578, but a high return on assets of 317%. The company’s earnings are still positive and estimated to come in at $1.87, down $0.04 from last year. Earnings are expected to drop to $1.62 for 2012. Revenue, on the other hand, is expected to be up in 2011 and continue to increase for 2012. The company’s sales growth is forecast to be strong, but expenses still need to be reined in to make it more attractive to investors.
- Market caps for F and TTM are well under their estimated values
- Both F and TTM trade under their target prices
- TSLA is a new company with a unique product and marketing strategy
- TSLA is losing money, but progressively and steadily improving financially
- TSLA has a relatively low debt-to-equity ratio
If you are looking to get into the car market you have two companies that will likely see gains in their stock prices over the next 6 months to a year in F and TTM. TSLA on the other hand is a sound company with a great product and excellent strategy that one day may be a big player in the green auto manufacturer market. Gradually building up shares in TSLA for the long term could be very profitable for your future.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.