Tesla (TSLA +3.93%) has been one of the all-time great investments over the past decade, with a return of over 12,000%. But looking ahead, could a newly combined auto giant with more humble beginnings outperform it over the next decade? Let's compare the 800-pound gorilla in the electric vehicle (EV) space with Stellantis (STLA +3.48%), the parent company of brands ranging from Jeep and Dodge to Fiat and Maserati, which is embarking on an electric transformation of its own.
Image Source: Stellantis
Passionate fanbases
While it's hard for any corporation to match Tesla in terms of a passionate fanbase, brands like Jeep and Ram have quite a following of their own. Throw in Maserati, and Stellantis has a bit more swagger than meets the eye. Some of the brands in Stellantis' portfolio, such as Opel and Peugeot, may have a somewhat staid image, but these lower-cost models give it exposure to more cost-conscious consumers and make it a viable option for consumers in emerging markets. Stellantis will also become a bigger part of the EV space that Tesla calls home in the very near future; the company is rolling out an electric Jeep in early 2023 and an electric Ram in 2024.
Overall, I think that Tesla has to be given the edge in terms of brand value and products, but Stellantis is not as far behind as one might think. Car and Driver reports that Tesla had one of the top 25-selling cars in the United States in 2021, with the Model Y coming in at seventeenth with an estimated 172,000 units sold (Tesla does not report U.S. sales numbers). On the other hand, Stellantis made multiple appearances with the Dodge Ram pickup climbing to second on the list with nearly 570,000 sold. Jeep made the list with its Grand Cherokee and Wrangler models coming in at eighth and fifteenth, respectively.
Two different but effective CEOs
Whether he's your cup of tea or not, Elon Musk is a visionary who created the first commercially successful, all-electric auto manufacturing company, while simultaneously pioneering private space travel and launching a satellite network. He is certainly one of the most high-profile CEOs, if not the highest-profile CEO, in public markets today.
But Stellantis' Carlos Tavares is a strong leader in his own right. He helped return France's largest automaker, Peugeot, back to profitability after years of struggle, and he turned around Germany's Opel after acquiring the company. Tavares then used his growing portfolio of automakers to initiate and complete a merger with Fiat Chrysler, which led to the birth of Stellantis in early 2021. While he may not get the credit that Musk does as a visionary, Tavares clearly has a strong track record.
Image Source: Tesla
Valuation
Ultimately, this is where the companies really separate. There is a massive gulf in valuation between Stellantis and Tesla. While Stellantis trades at a meager price-to-earnings (P/E) ratio of 3, Tesla trades at a P/E ratio of 90. In fairness to Tesla, its P/E multiple is expected to come down to 40 next year, but this is still a sky-high valuation, especially when compared to Stellantis.
In other words, an investor is buying Stellantis for the profits it generates in just a three-year time frame, whereas an investor buying Tesla is buying it for eight decades worth of profits now. When you start with the valuation bar set low, as it is for Stellantis, you have a better chance of better future returns than when the bar is set high like it is with Tesla. The low multiple gives investors some margin of safety. All auto stocks have struggled this year, but Stellantis is only down 23% year to date, while Tesla is down 37%. Not a lot has to go right for Stellantis to be a good investment from here, but a lot has to go right for Tesla to keep being a good investment.
To be clear, Stellantis trades at a low multiple because it faces a variety of challenges, ranging from those facing all automakers like the semiconductor shortage and rising freight costs, to concerns about the war in the Ukraine and surging gasoline prices in Europe hurting demand. That being said, these issues already seem to be accounted for in the current stock price.
NASDAQ: TSLA
Key Data Points
Returns to shareholders
Tesla has never paid a dividend, nor has it been an active buyer of its own shares. That is all well and good as it is focused on growth and is not a stock that appeals to dividend investors. But in this comparison, Stellantis wins hands down, with a current yield well over 7%. Unlike the quarterly dividend many U.S. investors are used to, it's paid annually and will change based on the performance of the business. In Stellantis' Dare Forward 2030 plan, management states that its goal is to target a dividend payout ratio of 25% to 30% going forward. Furthermore, the plan says that Stellantis will buy back up to 5% of shares outstanding by 2025.
NYSE: STLA
Key Data Points
Conclusion
Tesla has been an incredible investment over the past decade, with long-term shareholders enjoying life-changing gains in many cases. But over the next decade, I think that Stellantis is likely to outperform Tesla based on the much lower valuation it is starting at, its superior returns to shareholders, its large global footprint, and product offerings that cover all markets. Tesla still has a slight edge in terms of brand, product, and CEO, but Stellantis is closer than you might think. I like both companies, but I think that Stellantis is the better buy-and-hold option for the next decade.
