The whole automotive sector is surely facing headwinds lately. Supply chain issues are hurting the performance of all the major automakers. Even as the sector undergoes a massive transformation toward a focus on electric vehicles (EVs), the current backdrop has made it more challenging to identify the most likely winners.
Tesla is managing challenges better
Even though the macro environment is tough, Tesla managed to keep its production relatively flat sequentially in 2022's first quarter, with 305,407 vehicles rolling off the assembly lines compared to 305,840 in the fourth quarter of 2021. Compared to the prior-year quarter, Tesla's deliveries grew 68%. By comparison, Ford's vehicle sales fell 17.1% year over year in Q1.
This is not the first time that Tesla has managed a supply chain crisis better than the competition.
Tesla's revenue has been rising consistently for the past several quarters. By comparison, Ford's top line dipped largely in sync with the drops in total U.S. vehicle sales during the last two years. It hasn't quite risen back to pre-pandemic levels yet. (The data on total U.S. vehicle sales in the chart above is monthly.)
Even as the total vehicle sales dropped, EV sales in the U.S. continued to rise.
The green line on the chart above traces the sales growth of full battery electric vehicles (BEVs); it does not include plug-in hybrid vehicles. Tesla's revenue growth reflects the growth in EV sales in the U.S.
Tesla's higher margins
Not only is Tesla growing its revenue, but it's also generating higher margins on its sales.
Tesla's profit margin exceeded that of Ford and General Motors (GM 0.70%) in the last three consecutive quarters. Ford's margin in the chart above includes the impact of a gain on its Rivian investment. The company's adjusted EBIT (earnings before interest and tax) margin for the fourth quarter was 5.4% -- well below Tesla's margin.
Which EV stock is better?
Tesla has already established a leading position in the EV segment. Though the company faces some challenges, mainly due to supply shortages and pandemic-related restrictions in China, it looks well-placed to overcome these.
Ford is also investing heavily to grow its EV production. Yet, with nearly 36,000 electrified vehicle sales, including plug-in hybrids, in the U.S. in Q1 2022, Ford will have a long way to go to hit its target of producing 2 million EVs annually. Importantly, Tesla is likely to have further strengthened its position by then.
So far so good. However, when it comes to valuation, Ford is a clear winner. Tesla's stock is trading at a forward price-to-earnings ratio of nearly 95 compared to Ford's ratio of around 8. Value investors have always found it difficult to wrap their head around Tesla's gigantic valuation.
For investors believing Tesla stock can grow into its massive valuation, it looks like a better way than Ford to bet on EVs right now.