Ford (F) apparently believes that electric vehicles are more than a fad, and a big part of its future.
Ford CEO Mark Fields said on Thursday that the company will add 13 electric vehicles by 2020, making it 40% of Ford’s lineup.
In total, Ford will invest $4.5 billion to develop these new models. This adds to a $9 billion fund that Ford created in part for a University of Michigan lab that is working on new battery technologies.
Naturally, this looks catastrophic for Tesla (TSLA) stock, but could be a blessing for Ford stock.
How Ford’s Investment Compares to TSLA
If you consider the $4.5 billion R&D investment and the $9 billion fund for creating more efficient batteries and technologies, Ford is willing to spend more than $13 billion to push its electric vehicle initiatives forward.
There’s no question that this marks the biggest push of any automaker to penetrate and disrupt the electric vehicle market, which could not be worse for Tesla stock.
What many forget is that Ford already has the capabilities to not only get into EVs, but to crush its rivals. Ford boasts the manufacturing capabilities, an oversized engineering team and the ecosystem in place to deliver millions of vehicles, not thousands like Tesla.
Meanwhile, the money Tesla spends not only goes into R&D, but also toward boosting its manufacturing capabilities, such as its $5 billion gigafactory.
With $500 million more in capital expenditures planned for Q4, TSLA will have spent about $1.7 billion in capex by the end of its fiscal year, of which $660 million went toward R&D.
Therefore, Ford is not only willing to spend more on electric vehicles than Tesla, but because Ford already has large scale manufacturing in place, it can allocate all of those funds on R&D and battery technologies, whereas Tesla can’t.
Ford Is More Than a Thorn in Tesla’s Side
Beyond that, Ford’s plan to launch 13 new electric vehicles over the next four years poses a huge risk to the growth plan that Tesla has sold investors.
Tesla has repeatedly said that it can increase shipments to half-a-million over the next several years, and potentially above the millions, long term.
However, Tesla has a long ways to go from 50,000 this year.
TSLA currently has its Model S and X, with plans to launch a cheaper mass market Model 3 in 2017. Much of Tesla’s growth outlook is tied to the completion of its gigafactory and mass production of the Model 3.
Ford, however, will likely target that mass market with lower prices than TSLA, which suggests that Tesla will have more competition for the Model 3 than it originally foresaw.
Nevertheless, Ford ships several million compared to Tesla’s 50,000 units, yet Tesla stock is about half as valuable as Ford stock. This suggests a high investor appetites for electric vehicles, and particularly high expectations for TSLA future shipments.
Bottom Line on Tesla and Ford Stock
TSLA is sure to feel the effects of that $4.5 billion investment by Ford, which combined with other factors, could push Tesla stock much lower over the next few years.
To the contrary, Ford’s big bet on electric vehicles could be very rewarding for shareholders.
Clearly, Tesla stock has managed to support far higher multiples than Ford stock over the last few years, based solely off its electric vehicle goals and speculation.
But now that Ford has made this huge push, putting billions of dollars behind its future in electric vehicles, don’t be surprised if Ford stock gains some of what Tesla stock loses, and then some.
As of this writing, Brian Nichols was long F stock.
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