{"id":32846,"date":"2023-07-07T20:32:08","date_gmt":"2023-07-08T00:32:08","guid":{"rendered":"https:\/\/ifintechworld.com\/news\/tesla-vs-ford-risky-for-different-reasons-nysef\/"},"modified":"2023-07-07T20:32:15","modified_gmt":"2023-07-08T00:32:15","slug":"tesla-vs-ford-risky-for-different-reasons-nysef","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=32846","title":{"rendered":"Tesla Vs. Ford: Risky For Different Reasons (NYSE:F)"},"content":{"rendered":"
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Risky For Different Reasons<\/h2>\n

The primary risk with Tesla, Inc.<\/strong> (NASDAQ:TSLA<\/span>) is its valuation, which seems to be decoupled from reality as misconceptions swirl around Tesla’s autonomous drive, EV semis, and Superchargers. On the other hand, the primary risk with <\/span>Ford Motor Company<\/strong> (<\/span>NYSE:F<\/span>) is leverage. Let’s dig in.<\/span><\/p>\n

Ford’s Leverage And How Tesla Compares<\/h2>\n

First of all, we need to understand that Ford has a massive financing business compared to Tesla. Ford Credit offers customers financing in the form of loans and leases. The company also offers financing to Ford dealerships, allowing them to afford their inventory and high operational costs. All of this is leverage, and it’s inherently risky. But, Ford is paid for the risk it takes on in the form of interest (Sort of like a bank).<\/p>\n

Tesla also offers loans and leases in select locations, but it simultaneously leans on financial institutions to provide 3rd party financing. <\/span>Tesla doesn’t appear to be financing dealerships, but instead sells vehicles through its website and “company-owned stores.” I like this business model better because it has less leverage. However, I wonder if Tesla can expand to be the size of Ford or General Motors (<\/span>GM) using this business model. This remains to be seen.<\/span><\/p>\n

Tesla’s business model is also made possible by its share dilution, which raises cash from investors:<\/p>\n

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Data by YCharts<\/figcaption><\/figure>\n<\/p>\n

Because of Tesla’s business model and share dilution, it has the better balance sheet on an assets to equity basis (a lower number means less risk):<\/p>\n

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\"Chart\"
Data by YCharts<\/figcaption><\/figure>\n<\/p>\n

It’s more difficult for the shareholder (you) to be wiped out by recession losses when you have a larger amount of equity compared to liabilities and assets.<\/p>\n

Notice that both these companies have been de-risking their balance sheets over the past 10 years. Still, Ford’s balance sheet is more levered than many of its competitors:<\/p>\n

<\/span><\/p>\n\n\n\n\n\n\n\n\n\n
Automaker ______<\/strong><\/td>\nAssets To Equity<\/strong><\/td>\n<\/tr>\n
Ford<\/td>\n6.1<\/td>\n<\/tr>\n
General Motors<\/td>\n3.6<\/td>\n<\/tr>\n
Volkswagen (OTCPK:VWAGY)<\/td>\n3.1<\/td>\n<\/tr>\n
Stellantis (STLA)<\/td>\n2.6<\/td>\n<\/tr>\n
Toyota (TM)<\/td>\n2.5<\/td>\n<\/tr>\n
Honda (HMC)<\/td>\n2.1<\/td>\n<\/tr>\n
Tesla<\/td>\n1.8<\/td>\n<\/tr>\n<\/table>\n

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