India’s largest automaker Tata Motors (NYSE: TTM) could be the future of electric vehicles.
There are two ways to do electric cars that Tata and its rival Tesla Motors (NASDAQ: TLSA) embody. To elaborate, Elon Musk’s method at Tesla is to build a new brand that provides everything electric vehicles need. Consequently, Tesla owns the battery factory, the auto factory, the distribution system, and even the chargers for the vehicles.
Tata Motors; however, leverages existing brands and concentrates on the cars. Accordingly, Tata is building its market outside India through two historic British auto brands Jaguar and Land Rover.
The electric I-PACE accounted for 5.7% of Jaguar’s US sales in March 2019, Inside EVs estimates. In detail, Jaguar sold 1,001 I-PACES in America during March. IPACE sales are small but they are growing fast, increasing by 13% in March 2019. However, IPACE sales are still behind the Tesla Model X, Tesla sold over 4,000 of its electric SUVS in December 2018, Inside EVs calculates.
Is Tata Better than Tesla?
For instance, Tata is systematically adding electric models to Jaguar’s lineup rather than trying to build a new car company. Specifically, Jaguar is offering the battery-electric I-PACE and could offer an electric version of its XJ convertible.
The advantage to this strategy is that Tata only needs to design and build the car. The dealership network and brand are already in place. In addition, Tata lets somebody else worry about making the batteries and providing the charging system for the vehicles.
Tata does not have to invest the money and resources to build brands because the brands already exist. Both Jaguar and Land Rover have long histories and loyal followings.
An obvious plus to these brands is that they can appeal to more conservative drivers who are skeptical of electric cars and new brands. A danger to Tesla is that most auto buyers are conservative. To explain, most people buy one particular brand of car, like Toyota (NYSE: TM) because they know it is reliable.
People buy cars for transportation and transportation has to be reliable. Specifically, you probably need the vehicle to get to work or to the grocery store. However, Tesla sells a new brand based on a technology most drivers are unfamiliar with.
Is Tesla Better than Tata?
However, the disadvantage is that Tata has far less control over the supply chain. For example, Jaguar and Land Rover dealers are independent while Tesla owns the Tesla Stores.
Finally, Tesla ensures a supply of batteries and other parts through its Gigafactory. Tata hopes suppliers will build enough batteries to meet its needs. An obvious advantage, Tata has is that it can switch suppliers if a company can provide batteries. Musk cannot fire the Gigafactory if its battery production fails.
Given these circumstances, I think Tata is the better company because it is taking fewer risks in its electric vehicle push. In particular, Tata is not betting the company on electrics in the way Musk and Volkswagen are.
Is Tata Motors a Value Investment?
Value investors will look at Tata because it is cheap compared to Tesla. For example, Tata Motors shares were trading at $12.50 on 5 June 2019. Meanwhile, Mr. Market was paying a moronic $196.59 a share for Tesla Motors on the same day.
Yet Tata manufactures vehicles that compete directly with Tesla’s while taking none of the ridiculous risks, Mr. Musk loves. Specifically, Tata’s executives do not feud with the SE, smoke pot in videos, and sell flamethrowers.
Conversely, Tata is trying to perfect one basic model of electric (I-PACE) with a proven market before expanding its lithium-ion line. Tesla, however, is trying to build everything at once including semi-tractors and pickup trucks.
Finally, Jaguar Land Rover operates factories in several countries including the UK, India, Slovakia, Austria, Brazil, and China. Musk is trying to figure out where to locate his next factory and building tents in the parking lot.
Is Tata Making Money?
In contrast to Tesla, Tata Motors makes some money. For instance, Tata reports a gross profit of $15.766 billion on revenues of $44.285 billion for 2018.
However, Tata reported an operating loss of -$1.671 billion and a net income of $1.024 billion for 2018. Plus, Tata Motors records an operating cash flow of $4.129 billion, and a financing cash flow of $309 million. Yet Tata had a negative free cash flow of -$1.255 billion for 2018.
Finally, Tata Motors accumulated $2.261 billion in cash and equivalents and $6.201 billion on March 31, 2019. Thus Tata had $8.461 billion in the bank at the end of the last fiscal year.
Tata has Some Value Attributes
Therefore, Tata Motors makes some money unlike Tesla. Tesla famously had an operating loss of -$388.07 million and a net income of -$976.09 million for 2018. Conversely, Tesla made a gross income of $4.042 billion on revenues of $21.461 billion for 2018.
Moreover Tesla reports an operating cash flow of $2.098 billion, a negative free cash flow of -$221.71 million, and a financing cash flow of $573.75 billion on December 31, 2018.
Thus, I think Tesla looks like other automakers like Tesla and Ford. Unfortunately, Mr. Market does not treat Tesla like an automaker. Instead, Mr. Market values Tesla like a Silicon Valley tech company, which it is not. Even though its headquarters is in the Bay Area, Tesla is an automaker and we need to treat it as one.
I think this makes Tata a value investment because it builds vehicles similar to Tesla’s, makes money, and its stock is cheap. Tata is even partnering with Alphabet’s (NASDAQ: GOOG) self-driving car subsidiary Waymo to deploy up to 20,000 self-driving I-Pace SUVs.
Like Tesla, Tata Motors pays no dividend but it is a bargain. If you are looking for a bargain in electric vehicles and self-driving cars Tata Motors (NYSE: TTM) is worth investigating. I think Tata, unlike Tesla has some real value attributes, despite its losses.