Ford Motor (NYSE:F) is laying off about 3,200 European workers in product development and administration as it moves toward making electric vehicles (EVs).
Unions there are reacting angrily, demonstrating the cuts won’t come without cost. They also illustrate, again, why Tesla (NASDAQ:TSLA) trades at a premium multiple to Ford and other makers of gas-powered cars.
Tesla Battery Premium
Ford stock was down about .5% overnight, opening Jan. 24 at $12.80 with a market capitalization of $51.5 billion.
Tesla is worth $448 billion, priced at 5.4 times sales and more than 41 times earnings. Ford trades for barely one-third its sales and less than 6 times earnings, with a dividend yielding 4.8%. Ford’s value is up just 10% over the last five years. Tesla is up 525%.
The reason is the cost of converting from gas to electric power, which Ford is addressing with the layoffs. Ford laid off 8,000 U.S. employees last year who were working on gas-powered cars. The reckoning is necessary as Europe moves to eliminate all gas-powered car sales in 2035.
Tesla’s premium valuation is less about cars and more about batteries. Battery supplies define how many cars an electric auto company can produce. Tesla can produce more than Ford because it got a head start in batteries.
Ford committed to making its own batteries, the key component in any EV, in 2021. Tesla already mass produces batteries for all its cars and for power storage.
Ford will report fourth-quarter earnings Feb. 2, with analysts expecting net income to double last year’s levels and reach 59 cents per share. Tesla will report after the market closes Jan. 25, with $1.13 per share of earnings expected.
What Happens Next With Ford Layoffs?
The Ford layoffs show the costs of converting from gas to electricity have yet to be paid. As long as Tesla’s battery dominance remains intact, its stock will sell at a premium. However, its lead will not last forever.
On the date of publication, Dana Blankenhorn did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
