Is major history unfolding in the auto industry?
04/05/17

If you want to see a week for the history books, look no further than what’s happening in the U.S. auto industry right now.

Two of the most iconic companies in American history, Ford Motor (NYSE: F) and General Motors (NYSE: GM), are in in the process of getting displaced by Tesla Motors (NASDAQ: TSLA), at least by market standards. It started grabbing headlines in a big way on Monday after TSLA’s market capitalization surpassed F’s. The very next session, the electric-car maker’s value surged past $52 billion, topping GM’s $50 billion.

Take a minute to consider what this may mean: GM and F have been around for a combined 223 years, and employ over 400,000 people between the two of them. Their vehicles have dominated pop culture and movies for decades. Their dealerships sprawl across our country, while their stocks and bonds are in millions of investors’ portfolios. They are part of the fabric of America.

Then along comes Elon Musk’s company (which wouldn’t even be old enough to vote if it were a person.) Its delivery of 25,000 cars in the first quarter was arguably a rounding error compared to the millions of units cranked out by GM and F. It has fewer than one-tenth the headcount and revenue. Why is it worth more than either?

Tesla vs Ford, 6 month chart

Source: OptionsHouse by E*TRADE

First, the chart watchers are calling TSLA’s price action very bullish. They liked it when the stock bounced at its 50-day moving average last month, and were downright giddy when it surged to new highs this week. Now they’re looking for the current breakout to carry the stock even higher into the summer.1

Beyond those technicals are some potentially interesting fundamentals -- even though TSLA looks seriously expensive based on traditional multiples. Investors had a clue to the improving news in February, amid reports production of its key Model 3 was coming online.2 (Is it just an accident that almost sounds like Ford’s Model T?) The next indication of good tidings occurred on March 15 when the market gobbled up $1 billion of TSLA equity and convertible shares.3 Normally those kinds of secondary offerings depress a stock price, but not when your name is Tesla.

At the same time TSLA was moving into the fast lane, the wheels were coming off its Motown rivals. Both are near their lowest stock price levels of the year after sales numbers suggested a sharp slowdown in business. There have also been profit warnings, bearish option activity, and signs that dealers were dependent on increasingly risky loans to move inventory. Even international trade numbers released just yesterday showed auto-related commerce stalling.4

Traders may be rejoicing though, as TSLA, GM, and F have very active options, with tens of thousands of contracts changing hands every day. That kind of liquidity can help either bulls or bears place their bets. 

Bottom line: A new champion of American business may be emerging while some old stalwarts are losing ground. These separate events don't have to happen at the same time, but they are, which makes for an exciting story in the sector. 


1. CNBC: Tesla shares break $300 for first time ever - and this chart shows 'there's still food on the table', 4/4/17.

2. Reuters: Exclusive: Tesla pausing factory for Model 3 preparation this month, 2/8/17. 

3. Marketwired: Tesla Announces Offerings of Common Stock and Convertible Senior Notes, 3/15/17.

4. Marketwatch.com: Ford's stock drops after profit outlook was below expectations, 3/23/17. Barron's: CarMax Could Stall as Risky Loans Rise, 4/1/17. Marketwatch.com: U.S. trade deficit drops 10% in February, 4/4/17.