Tata Motors (NYSE: TTM) has long attracted my interest as a possible value investment because it is a carmaker that nobody pays attention to. Yet Tata’s subsidiaries are leaders in some cutting-edge vehicle technologies.
Tata is the sixth largest automaker in India, but it is best known as the owner of the historic British brands Jaguar and Land Rover. Jaguar-Land Rover (JLR) is the Britain’s largest automaker. The company is was responsible for 30% of British vehicle production; or 544,401 vehicles in 2016, the company’s website reported. Around 80% of those vehicles were exported to 136 countries.
Nor is Tata resting on its laurels, the company is testing a self-driving Hexa in Coventry, Autocar reported. Another Tata subsidiary, TMETC, previously tested a self-driving Tata Tiago in December 2016. JLR and TMETC are part of the UK Autodrive Project to create autonomous vehicles.
The autonomous drive is not the only cutting-edge technology that Tata subsidiaries are working with. Jaguar’s I-Pace concept electric is supposed to go on sale and compete with Tesla’s S Series in the second half of 2018.
Tata Motors vs. Tesla – guess what wins
All this compares very favorably to Tesla Motors (NASDAQ: TSLA) from a value-investing standpoint. The biggest attraction is the price; at Tata Motors was trading for $30.59 a share on 6 December 2017; while Tesla was trading for $313.22 a share on the same day.
More importantly, Tata was making money in the form of a net income of $1.336 billion on 30 September 2017. Tesla reported a $-1.407 billion loss on the same day.
Nor is it just income that was negative at Tesla, Elon Musk’s company reported a “free cash flow of -$1.545 billion and a “profit margin” of -31.64% on 30 September 2017. Tata Motors did not report a free cash flow, because of differences between American and British law, but it did report a profit margin of 3.53% on 30 September.
The two companies also compared very favorably win the cash and short-term investments category. Tata Motors reported $6.578 billion in cash assets on 30 September 2017, and Tesla reported $3.53 billion in the bank on the same day.
The bottom line is that Tata Motors is making money, Tesla is burning money. Musk’s company reported losing $1.109 billion in cash from operations on 30 September 2017. No cash from operations figure is available for Tata but at ycharts, but it would be safe to assume to assume that its cash from operations is better than Tesla’s.
Something else to be scared of at Tesla is the $23.40 billion in liabilities and $10.01 billion in long-term debt reported on 30, 2017. The amount of liabilities of is disturbingly close to Tesla’s assets which were estimated at $28.11 billion 30 September. This lends credence to the contention that Musk is financing the expansion at Tesla with debt and little else.
Tata Motors reported total liabilities of $11.69 billion and assets of $44.58 billion on 30 September 2017. There was also a long-term debt of $11.69 billion at Tata Motors on 30 September. That means Tata’s resources exceed its debts, Tesla’s debts are rapidly expanding to the point where they might exceed its resources.
Tata is a Better Stock than Tesla
There is one simple reason why Tata Motors is a far better stock than Tesla Motors. Tata shareholders made money with a return on equity of 12.77% on September 30, 2017.
Tesla shareholders took a bath with a return on equity of -31.64% on 30 September 2017. That means Tesla investors lost nearly third of every dollar they invested with Elon Musk. They did not even earn a dividend because Tesla has never paid one.
There was no dividend at Tata Motors either but at least Tata stockholders received a return on equity. The moral of the story is that you might make some money by owning Tata Motors, you will lose money if buy Tesla stock.
Tesla and Tata prove Mr. Market is Insane
The comparison between Tesla and Tata proves the contention of the great British-American value investor Benjamin Graham that Mr. Market is insane.
Tesla reported a market capitalization of $52.64 billion on 5 December 2017 even though it lost -$1.407 billion during 3rd Quarter 2017. Tata had a market cap of $20.78 billion on the same day, even though it made $1.336 billion during the 3rd Quarter.
These figures gave Tesla; which produced 83,922 vehicles and delivered 76,230 cars and SUVs in 2016 according to CleanTechnica, an “Enterprise Value” of $58.58 billion on 6 December 5, 2017. Meanwhile, Tata; which shipped 554,401 vehicles from just one subsidiary in 2016, had an enterprise value of $26.33 billion.
How and Why Tesla Motors will Collapse
The obvious inference to make here is that most of Tesla’s enterprise value comes from its ridiculous stock price. That means Tesla would collapse if its stock price collapsed.
Were Tesla’s stock price to fall to levels of comparable competitors such as Tata Motors and Fiat Chrysler Automotive (NYSE: FCAU) the company would be unviable. The only way Musk can avoid that would be to produce auto sales comparable to those of Jaguar-Land Rover.
That eventuality is highly-unlikely because Tesla has just one large car plant in Freemont, California, a smaller factory in the Netherlands, and a plant in Shanghai on the drawing board. JLR has three large auto factories in England alone.
Does Elon Musk Really Want to Build a Major Auto Company?
The sorry truth is that Tesla lacks the resources to build and sell enough vehicles to pay off its debts. That raises a serious question, does Elon Musk really want to create a major auto brand or promote electric vehicles?
The real goal of Tesla seems to be to convince people to buy electric cars and other companies to build electric vehicles. Musk is certainly achieving those goals, which gives rise to an obvious endgame his fans will hate.
At some point Musk will simply sell Tesla to another automaker; possibly Tata Motors, and pocket the cash. Carmakers will want Tesla because it has a lot of great technology they’d love to get their hands on. Then he’ll move on to his next dream; such as building Musk City on Mars and leave a lot of very angry and disappointed investors in his wake.
Smart investors should stay far away Tesla and buy Tata. Tata shareholders will make money, Tesla shareholders will be betrayed by their hero and lose money.