The EV Maker That Far Surpasses Tesla

For the last several years, Tesla Inc. (NASDAQ:TSLA) has been the world’s best auto stock. General Motors Co. (NYSE:GM) has not.

Depth of field shot of an electric vehicle being charged.
Source: Shutterstock

But Prince never sang a song about a “Little Red Model X.” No one in East Los Angeles ever converted a Model 3 into a “lowrider.” Frank Sinatra didn’t drive a Tesla onto the set of Ocean’s Eleven.

Corvettes, El Caminos, and Cadillacs are as “Americana” as Coca-Cola and Marilyn Monroe.

But that’s not all.

GM is now taking aim at Tesla’s current cultural prominence. A couple of weeks ago, CEO Mary Barra pledged to phase out internal combustion engines and go all-electric by 2035. She said at the time:

General Motors is joining governments and companies around the globe working to establish a safer, greener and better world … We encourage others to follow suit and make a significant impact on our industry and on the economy as a whole.

Then last Sunday, GM took another stab at pop-culture relevance in one of the best Super Bowl ads of this year.

In the TV spot, Will Ferrell discovers that in Norway, more than half of all vehicles sold are electric … while here at home, that number is just 4%. He’s outraged! He believes — he knows — that the United States (and GM, naturally) can do better than that.

So he travels to Norway (or maybe Sweden) in order to deliver a message: “We’re coming, Norway.”

GM isn’t alone in targeting Tesla and setting ambitious electric vehicle (EV) goals.

Toyota Motor Corp. (NYSE:TM), the No. 1 global automaker by several measures, plans to sell 5.5 million electrified vehicles per year by 2030 — a figure that includes hybrid electric cars as well as fuel-cell vehicles.

That’s an example of the Technochasm — the sharp, and growing, wealth divide in our world — taking form in the formerly hidebound auto industry.

On Thursday, in the brand-new Fry’s Investment Report Monthly Issue, I recommended another automaker that far surpasses current favorite Tesla in many ways.

In fact, the only true comparison between the two is no comparison whatsoever.

Let’s take a look …

The Real No. 1

Tesla isn’t the No. 1 automaker. Unlike the globe’s other premiere car manufacturers, it doesn’t earn billions.

In fact, if not for the environmental “regulatory credits” Tesla sells to other auto manufacturers, the company wouldn’t earn any money at all.

And yet, Tesla is the auto stock, par excellence. It is the ultimate “one decision” stock. It has been lavishing gains on its shareholders for several years running, especially last year when its market value rocketed from $75 billion to $669 billion.

As if that stupendous gain wasn’t sufficient, the stock has tacked on another $93 billion so far in 2021.

By contrast, the shares of the automaker I recommended on Thursday have been doing a whole lot of nothing for quite a while. The stock is up about 30% over the last two years and sports a market value of just shy of $110 billion.

Given Tesla’s stunning stock market performance, a financially savvy visitor from Mars (or from any other planet) might imagine that Tesla would top this company on all relevant measures of industry dominance and financial prowess.

But that Martian would be mistaken.

While it’s true that Tesla sells about twice as many battery-electric vehicles (BEVs) as it, the company trails far behind its counterpart on all other relevant metrics. The differences between the two automakers are enormous.

  • Tesla built half a million cars last year. This automaker built 18 times more than that.
  • Tesla spent $1.5 billion on research and development (R&D) last year. My recommendation spent 10 times more than that.
  • Tesla generated $31 billion in revenues last year. This company generated eight times more. It also produced about eight times the net income Tesla produced.

And yet, its market value is not eight times larger than Tesla. On the contrary, Tesla’s market value is eight times larger.

Consider this mind-boggling data point …

A buyer of Tesla stock is paying about $1.7 million per vehicle the company produces each year. A buyer of the stock I’m talking about is paying just $11 per vehicle it produces each year.

On a per-vehicle-produced basis, therefore, Tesla stock is 149 times more expensive.

Perhaps this valuation chasm is just as it should be. On the other hand, it may be a fluke that is opening the door to an opportunity.

It is true that Tesla makes about twice as many BEVs as this company. But even on this metric, my pick shines brightly. It tripled its EV sales last year and has been quickly closing the gap on Tesla. It is on pace to top Tesla’s EV production by 2022.

But before diving into its EV future and investment prospects, let’s take a closer look at the company itself.

Under the Hood

In all, this company produces up to 10 million cars every year. And it does so very profitably.

Despite the COVID-challenged conditions of 2020, it posted gross earnings (EBITDA) in the tens of billions for the year and net income in the billions.

Moreover, auto sales have been rebounding, and the company’s gross earnings are on track to bound even higher this year.

But those numbers are no match for the alluring story that is powering Tesla shares from record high to record high.

By contrast, my recommendation’s shares merely plod along at a respectable pace — tacking on a few percentage points per year while paying a solid dividend.

Kind of boring really.

But I’m expecting the boredom to end in 2021, as it not only recovers from the COVID bust but also establishes itself as the world’s No. 1 electric vehicle maker.

Last year, it produced just five EV models. But it will be launching several new models this year, and every year after that throughout the rest of this decade.

Importantly, this company isn’t simply introducing new BEVs. It is introducing several models that compete head-to-head with Teslas.

For example, it sells a four-door sedan that rolls off the showroom floor for about $100,000 and can blast from 0 to 60 miles per hour in well under three seconds.

So too can the Tesla S. But my recommendation’s vehicle “can replicate those blastoffs 10 times in a row, unlike the Tesla, which becomes sluggish with repeat use as the battery wears down,” The New York Times reports.

In all, this company expects to offer more than more than four dozen BEV models and more than two dozen plug-in hybrids and to be selling 3 million EVs annually by 2025.

Its income statement might not reflect huge success immediately, but earnings should accelerate rapidly during the 2022 to 2025 time frame.

As its BEV production overtakes Tesla’s, and the automaker rolls out a broader range of vehicles from all of its brands, its stock could begin to attract a richer, “Tesla-like” valuation.

Obviously, no one can say with certainty what it will earn two or three years from now. But I believe the company has the potential to surprise on the upside.

Whenever a company has been delivering mediocre results for several quarters in a row, like this one has, Wall Street analysts tend to underestimate the upside.

I suspect that’s exactly what happening here. Therefore, as it begins to fulfill its EV ambitions over the coming months, I expect analysts to ratchet up their estimates – and for the stock to gain a much higher valuation.

A double by the end of 2022 is well within reach.

I put together a much fuller report on this company in the new Fry’s Investment Report Monthly Issue, which I released on Thursday. In every issue, I issue new stock recommendations — and our focus is often on EVs and battery technology.

To learn how to join us, go here.

On the date of publication, Eric Fry did not have (either directly or indirectly) any positions in the securities mentioned in this article.

Eric Fry is an award-winning stock picker with numerous “10-bagger” calls — in good markets AND bad. How? By finding potent global megatrends … before they take off. And when it comes to bear markets, you’ll want to have his “blueprint” in hand before stocks go south.


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