Which Is a Better Buy — Ford or Tesla?
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Ford’s Mustang Mach-E was recently named Consumer Report’s 2022 EV of the year, replacing Tesla’s Model 3.
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New models like the Maverick and Bronco should further broaden the appeal of Ford’s impressive new lineup.
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Ford is currently valued way lower than Tesla.
Is the legacy Detroit automaker gaining on the industry’s electric pioneer?
A few years ago, asking if Ford ( F -4.07% ) or Tesla ( TSLA -0.25% ) was a better investment may have garnered some quizzical looks from those around you. Tesla was blazing a path to a trillion-dollar market cap and becoming a multibagger many times over, whereas Ford stock had been stuck in neutral for years. Tesla was the glamorous disrupter, and Ford was decidedly less attractive.
But fast forward to 2022, and Ford just beat Tesla at its own game, winning the award for top electric vehicle (EV) from Consumer Reports for its Mustang Mach-E, unseating Tesla as the king of electric (at least for now) . So which is the better long-term investment going forward, the 118-year old legacy Detroit auto giant or Elon Musk’s supernova that took both the auto industry and the stock market by storm for the past decade?
Massive gulf in valuations
Looking at how the companies are valued, Ford wins easily on basically every valuation metric. Ford trades at just 4 times this year’s earnings versus 174 times for Tesla. Zooming out to next year, the gap narrows as Tesla comes down to a still-steep 67 times earnings and Ford goes up to 8 times earnings, but Ford still wins handily. Even on a price-to-sales basis, which just takes revenue into account and ignores profitability, Ford looks like a bargain at 0.5 times sales, whereas Tesla trades at 16 times sales. Looking at the PEG ratio (price-to-earnings-to-growth ratio), which should level the playing field by taking Tesla’s higher earnings growth into account, Ford still looks better, trading at a remarkably cheap PEG ratio of under 0.1, whereas Tesla’s PEG ratio is 8.
Product portfolio
Elon Musk is a visionary who has revolutionized the auto industry. But looking ahead, it seems that Ford is starting to catch up with Tesla in terms of its vehicles. For example, as stated above, the Mustang Mach-E just beat Tesla’s Model 3 for the best EV of 2022.
Ford’s F-150 Lightning is in high demand, with 200,000 reservations booked already.Tesla’s much-discussed Cybertruck has accrued 250,000 reservations , but it has been delayed for several years now and looks unlikely to be released in 2022, whereas the F-150 Lightning should be out this spring.
Ford is also rolling out other new models, which look like they are going to be hits. The new revamped Maverick just won North American truck of the year at the North American International Auto Show, and its remake of the iconic Bronco won the same award for utility vehicle of the year.
Outside of electric vehicles, the F-150 series was the No.1-selling vehicle in the United States in 2021, with over 700,000 units sold. While Tesla has some great products and is a pioneer in the industry, Ford seems to be catching up with it in the EV segment and also has a broader overall portfolio of models, so I am giving the edge to Ford here, especially as its new models like the Maverick, Bronco, and F-150 Lightning are gaining momentum.
Returns to shareholders
Ford currently pays out a dividend with a yield of just over 2%, after it briefly suspended its dividend to preserve capital during 2020’s uncertain economic climate. Tesla does not pay a dividend. Neither company is actively engaging in share repurchases, so that area is a wash. Ford gets the edge here thanks to its dividend.
And the winner is…
Based on its far-less-expensive valuation, a broader product portfolio that is adding new hits like the Maverick, Bronco, and F-150 Lightning, and better returns to shareholders, I view Ford as the better investment going forward over the long term.