Optimism for Ford, Less So for Tesla
We expect things to get better for GM as the year unfolds.
David Whiston: Telsa, Ford, and GM all made a lot of news in the their first-quarter results that have been reported over the past week or so. Starting with Telsa, who reported first: Elon Musk had guided to a loss for the quarter--that did indeed come true. They did badly miss consensus, however, and they're certainly having a lot of problems being able to meet demand in all geographic regions of the world, for the Model 3 at the same time. That's a problem that's not going to go away anytime soon. The issue here, of course, is for now, cash burn. They did have their cash balance from year-end decrease from $1.5 billion, and Musk did really reverse course on being willing to raise capital. He has recently said he wasn't going to. And instead they announced on May 2 that they're issuing about 1.5 billion in convertible debt due in 2024. And roughly 800 million of oversubscribed common stock. I had added about $2 billion into my model for capital raise. I assumed all equity, and I'd prefer, frankly, they did all equity. I don't want to see this balance sheet taking on more debt, but for now that's going to ease some cash flow concerns, and the stock did rally on the news. They saw a lot of problems, though, with the Model S and X combined. Those deliveries have been down year over year three of the past five quarters. It's an older vehicle. They did improve the range recently, but for now they've just gotta get more Model 3 volume going and get it going ASAP.
For Ford, though, it's a more optimistic story. They actually had a really good quarter. They beat consensus pretty handily. The story here is pickup trucks. The F150 is still fairly old, especially relative to GM's new truck. They had adequate inventory and really strong pricing, and North American earnings were up 14% year over year. I would caution, though, it's probably going to be the best quarter of the year for Ford. They're going to have a lot of launch costs for all these various crossovers they've got coming out. They've the Escape Explorer, some Lincoln crossovers. Then next year, you've got the Bronco and the new generation F150. These are very profitable vehicles, but you still have to go through some launch costs to get up to speed before all the cash starts coming in. So don't expect the rest of 2019 to be as quite as good for Ford as it was in Q1. Management did raise their guidance, though, and is expecting year-over-year improvement, whereas before they were just saying 2019 would potentially be better than 2018. The other interesting thing from Ford is that they announced a $500 million investment in EV startup, Rivian Automotive, also based in Michigan. This was apparently GM's deal to lose, but they couldn't work out a deal, and Ford swooped in and quickly worked out a deal. Ford executive Joe Hinrichs, president of automotive, will also be joining Rivian's board. Ford's going to use a so-called Rivian skateboard platform to have Ford be EV. This will enable Ford to get a vehicle out to market faster than they could on their own. Purely off our operational point of view, I don't think they necessarily had to do this deal, but it makes some splashy headlines, it aligns them with the company that some think is the next Telsa, and a $500 million investment that could certainly be worth a lot more than $500 million over time.
David Whiston does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.
Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.
We’d like to share more about how we work and what drives our day-to-day business.
We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.
How we use your information depends on the product and service that you use and your relationship with us. We may use it to:
To learn more about how we handle and protect your data, visit our privacy center.
Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.
To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.
Read our editorial policy to learn more about our process.