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Volkswagen’s software delays underscore why Tesla will be so hard to catch, according to one analyst.
Sean Gallup/Getty Images
Tesla
is disrupting the car business, a little like how
Apple
disrupted the cellphone industry about 15 years ago.
The parallels between the two firms and the two industries are a warning for traditional automotive companies and investors, according to one analyst.
New Street Research analyst Pierre Ferragu noted software issues are creating development delays for
Volkswagen
(VOW3.Germany) electric vehicles, according to recent reports by the German media.
Volkswagen
didn’t immediately respond to a request for comment about the reports.
“Remember
Nokia
vs.
Apple
,
” wrote Ferragu. He says that
Nokia
(NOK) tried to redesign its operating system after the introduction of the Apple (AAPL) iPhone. It didn’t work and Nokia “disappeared from the smartphone market.”
Just like cellphone makers, Ferragu doubts that traditional auto makers can develop the kinds of EV systems and technology that
Tesla
(TSLA) has created over its 19-year history. “Even if auto manufacturers around the world are moving to electric in a massive and forceful way, it remains unlikely they will be decently competitive against Tesla,” added Ferragu in his report.
He has a point. Tesla operating-profit margins in the first quarter hit almost 20%, while Volkswagen’s were about 13%. Tesla makes EVs more profitably than other firms produce either EVs or gasoline-powered vehicles right now.
Tesla’s historical advantages are a big reason Ferragu sees the company getting roughly 20% of the global market for light vehicles by 2030. That is significant because
Toyota Motor
(TM) and Volkswagen, the largest auto makers by volume today, have market share of roughly 10% each.
It’s an optimistic take from a bull. Ferragu rates Tesla stock at Buy with a $1,580 price target, the highest among Wall Street analysts tracked by Bloomberg.
History, of course, doesn’t have to repeat itself. The traditional car business is trying to adapt.
“I probably spend 25% of my day on the phone with people not in the car business, learning about embedded systems, learnings about supply chain management, learning about how do you spark innovation teams,”
Ford Motor
(F) CEO Jim Farley told Barron’s Jack Hough in a recent interview. “That’s probably my most important work.”
Farley is leaning into digital trends. “The most important things is that we finally made a digital product,” added the CEO. Over-the-air software updates and subscription sales for things such as self-driving features are where Farley is steering Ford.
Ford is spending billions on its vehicle electrification and self-driving ambitions. The company chose to turn its biggest sellers into EVs: the Mustang, F-150 and Transit Van. The all-electric F-150 started shipping to customers this year.
What’s more, cars aren’t phones. There is a regulatory apparatus related to safety that is a significant factor when designing and selling cars. There is no test to let a 16-year-old operate an iPhone.
And the fundamentals of the car business are a little different than phones. They cost more and last longer. A new-car buyer will drive a vehicle for roughly seven years. In smartphone terms, that’s like still having an iPhone 6 today.
Tesla stock and the
S&P 500
were both near the break-even line on Tuesday afternoon.
Tesla stock is down roughly 33% so far this year. Most car stocks have struggled so far in 2022. Inflation, rising interest rates, and recession fears have hit investor sentiment toward the sector. Coming into Tuesday trading, automotive stocks in the
Russell 3000 Index
were down about 35% year to date on average.
Write to Al Root at [email protected]
Source: https://www.barrons.com/articles/tesla-stock-apple-nokia-51657639231?siteid=yhoof2&yptr=yahoo