Tesla (NASDAQ: TSLA) has disrupted the global automotive industry, and is easily the most valuable automaker on earth. However, investors also give the company a lot of credit for what they expect it to do, not what it has already done. In the coming years, the company will have to invest heavily to build its manufacturing capacity, while continuing to invest in technology and its products to continue to grow.
December 8 edition of “The Wrap” on Motley Fool Live, guest Jason Hall made a bold suggestion: Tesla should get it Ford (NYSE: F). Not only would this go a long way toward a leap-start of the company’s growth needs with the discovery of Ford’s global manufacturing giant, but Tesla founder and CEO Elon Musk would get a leg up in a complete overhaul of the automotive industry. This time alone, with manufacturing building one of the heavyweights in the industry.
Transcription:
Jason Hall: Tesla is in pretty good shape as far as their balance is concerned, they have some money. Not much debt. But that is set to change in the next few years as the company needs to build scale. It needs to build more manufacturing capacity around the world if it is to grow. That’s expensive, it’s a huge investment that will take several years to pay off before these factories rise and start getting to profit potential.
I want to make a recommendation to Tesla. This is something that Elon Musk said recently, that he would listen to if he was talked about talking to another major automaker. I think it’s time that Tesla has to put in a lot of effort to buy Ford Motor Company. I know some of you are out there laughing or going through some sort of draft right now. You could be horrified by two very different views on Tesla and Ford.
Now I’m going to do a screen sharing to show you why I think this would be a good idea. [Shares screen] We’ll start here. You should be able to see, the purple is Tesla and the Ford Motor Company is the yellow. This is the market cap. Less than the $ 37 billion market cap for Ford, the current $ 613 billion market cap for Tesla. Tesla is currently selling $ 5 billion worth of stock because the stock is so rich right now. That’s the quickest way to raise capital. If there is a demand for that stock, you sell as much of it as you can and generate a lot of money.
Now, I’m going to do a flip here and we’re going to take a look at some financial metrics. So what do you see here? This, and this back over the past three years, Ford Motor Company has consistently generated more than $ 16 billion in cash from operations. That number rose sharply after its most recent quarter. Nearly $ 23 billion in cash from operating versus $ 4 billion in operating cash from our friends over at Tesla. Free cash flow. Again, the amount of free cash flow that Ford Motor Company generates is huge.
Now, why does this matter? This is all important because at this stage, one of these two companies has not reached a major global manufacturing stage and there is one, and that is Ford. Ford has two hundred plants worldwide. He has complete experience in manufacturing at the kind of scale that Tesla ultimately needs to acquire, if it is to be worth what investors pay for the company today.
Yes, he has a choice. It is developing and constantly evolving battery technology, which has applications and a wide range of modes in addition to just being in vehicles. It has potential as a solar company; solar panel manufacturing, solar panel installation. There is some choice.
But at the end of the day, the company’s biggest business for a very long time has been the manufacture and sale of cars. A great way to do that is to work with a company that has proven, for decades, that they are very good at manufacturing cars at full scale.
This is the second thing I want to say. I think this is something that is easy to miss. There is no doubt that Tesla has fundamentally changed the car industry permanently. Tesla could disappear overnight, and the way manufacturers think about cars and the cars they’re trying to make in the future looks different. now what it would be if Elon Musk had not created Tesla. There is no doubt about that. There has been some external unrest.
Now, do you really want to change the global industry? Change it from the inside. Take over Ford, start rebuilding everything they do, speed up all their timelines for moving away from internal combustion engines, and that’s it, Elon Musk, that’s how you reach the future EV that you think will be how people travel around the world.
Now, let me tell you why it is unlikely to happen, and it is very simple. It is described in the four letters on almost every car that the company makes, FORD, Ford. The Ford family still has de facto control of the company. They own a minority of shares, but the shares they own largely control the majority voting share between the Ford family and between affiliates and relationships they have with other major shareholders. They can say no to any contract.
So I’m not even talking to Elon Musk, I’m talking to the Ford family. I think the best thing for the automotive industry that could happen is, honestly, that Tesla would take this bold step and start changing from the outside.