It is Volkswagen (OTC: VLKAY); and not Tesla Motors (NASDAQ: TSLA), that owns the electric-vehicle future. If just one-third of VW’s electric ambitions bear fruit, Tesla is doomed.
The German-auto giant plans to spend $82.5 billion (€70 billion) on electrification, an unidentified source told Reuters. That source claimed VW has as many as 80 electric models on the drawing board, Fortune reported in November 2017. Note: Volkswagen itself refused to comment on this rumor which means it is nothing but speculation.
Some impressive specifics that indicate the rumor might be true include:
· Those plans will include five electric models in China by 2025 Volkswagen China CEO Jochem Heizmann told The Financial Times. Production of first VW electric vehicles (VW) in the People’s Republic is supposed to begin in 2018.
· Volkswagen plans to start building its first all-electric vehicle in the United States by 2020, Elektrek reported. The I.D. Crozz Concept sport utility vehicle (SUV) will be built in Chattanooga, Tennessee, a Volkswagen press release stated.
· A second electric the e-Golf hot hatchback will also be built at Chattanooga at some point in the future.
· Production of the e-Golf in Germany will be doubled to meet demand.
· Volkswagen plans to market two electric cars in California; the e-Golf and the ID Cross in, by 2019, Green Car Reports revealed.
· VW subsidiary Electrify America announced that it will build 500 fast-charging stations across the United States by June 2019, The Verge reported. Chargers will be installed at dealerships and on highways, Porsche Cars North America CEO Klaus Zellme told Automotive News.
· Volkswagen subsidiary Porsche is planning two electric models the Mission E and an electric SUV based on the Cross Turismo, The Verge reported. Both vehicles are scheduled to be on the market in 2020.
· Volkswagen is so committed to electrics that it will change its logo to reflect a commitment to electrics, Bloomberg reported.
· Volkswagen will need up to 40 factories producing one enough batteries to hold gigawatt (one billion watts) of electricity by 2030, CNN reported. Each would be the equivalent of one of Tesla’s gigafactories. VW will need 150 gigawatts of electricity to power all the cars it wants to electrify, CNN claimed.
· Volkswagen’s Scania division has invested €10 ($12.5 billion) in Northvolt plans to build a gigafactory battery-production facility and lab at Västerås, Sweden, Elektrek reported.
· Volkswagen’s MAN subsidiary is testing an electric semi-tractor Clean Technica reported.
· Volkswagen might have plans to electrify all 300 of its models by 2030, Electrek claimed.
Volkswagen has the money to Electrify
Volkswagen has the money to electrify the automaker had $45.18 billion (€37.19 billion) in cash and short-term investments on December 31, 2017, ycharts reported. That number was up from $43.3 billion (€35.65 billion) in December 2016.
This means Volkswagen can pay for much; or perhaps all of its electric ambitions with the money it has in the bank. There will be no need to borrow, or issue additional stock.
Volkswagen also reported a net income of $12.75 billion (€10.5 billion), and making $19.96 billion (€16.43 billion) in cash from financing on 31 December 2017. Those moneys came from annual revenues of $260.62 billion (€214.55 billion) at the end of 2017, that number was up from $240.48 billion (€197.97 billion) in December 2016, and $236.67 billion (€194.83 billion) in December 2015.
Revenue figures indicate that VW has recovered quickly from the “dieselgate” scandal. The December 2017 annual revenue of $260.62 billion (€214.55 billion) almost matches the December 2014 revenue number of $268.63 billion (€221.14 billion). If this continues, Volkswagen’s revenues will exceed the September 2014 high of $270.15 billion (€222.39 billion) sometime next year.
To add icing to the electric cake, Volkswagen reported $506.508 billion (€416.96 billion) in assets on 31 December, 2017. That means it should have trouble borrowing money if it needs to finance new plants or equipment to electricity.
Volkswagen not only has the money to electrify, it has the resources to borrow the money, and develop the technology needed to make EVs a reality. That gives it an advantage Tesla will never be able to match: money.
Tesla has no Money
Tesla Motors reported an “annual net income” of -$1.961 billion (-€1.61 billion) on December 31, 2017. That mean it lost nearly $2 billion (€1.65 billion) dollars during the course of the year instead of making money.
Elon Musk’s company reported an “annual operating income” of -$1.632 billion (-€1.64 billion) on December 31, 2017. That means Tesla lost $1.632 billion (€1.64 billion) from its operations.
Disturbingly, Tesla’s actual losses might be far larger, the company reported an annual “free cash flow” of -$4.142 billion (€3.41 billion) on December 31, 2017. That means Tesla may have lost more than $4 billion (€3.29 billion) from its operations in 2017.
Tesla is not Making any Money from Its Operations
Tesla Motors also reported an “investing cash flow” of around -$4.19 billion (-€3.45 billion) and an operating cash flow of -$60.65 million (-€49.93 million) which sounds incredibly low on the same day. There was one positive cash flow number at Tesla, it had a financing cash flow of $4.415 billion (€3.63 billion) that comes from borrowing, and the financing of cars the company sells.
The bottom line is that Tesla is not making any money from its operations. Despite the losses it had some cash in the bank in the form of $3.523 billion (€2.9 billion) in cash and short-term investments on 31 December 2017. This figure is low for the auto industry, the Ford Motor Company (NYSE: F) reported cash and short-term investments of $38.927 billion (€32.05 billion) on the same day.
A disturbing conclusion that one can make here is that the money Tesla has in the bank came from the financing cash flow. That is it might be money that Elon Musk borrowed. It might explain why Tesla has so little money in the bank; when the ailing Fiat Chrysler Automobiles (NYSE: FCAU) reported having $15.756 billion (€12.97 billion) cash and short-term investments on New Year’s Eve 2017.
Tesla cannot compete with Volkswagen
Here are a few nonfinancial numbers that prove Tesla simply cannot compete with Volkswagen:
· Volkswagen operates 120 production plants in Europe alone. This is an undercount because the figure does not include the VW factories in North and South America, Asia, and elsewhere.
· Tesla has two automobile production facilities, a large plant in Freemont, California, and a small facility in the Netherlands. A third factory in China is still on the drawing board.
· Volkswagen currently manufacturers around 44,170 vehicles every week worldwide.
· News stories indicate that Musk is struggling to manufacture 6,000 cars a week by June 2018. Elon himself admitted that the company is stuck in “production hell,” Wired reported.
· Volkswagen plans to increase production at its factory in Zwickau, Saxony, to 1,500 cars a day in the near future, Electrek reported. That means one VW factory can produce more than twice as many cars a week as Tesla’s maximum production.
A glance at the Volkswagen Group reveals that the $294.08 (€242.09) Tesla share price from 27 April 2018 was pure fantasy. The company lacks the resources to justify that price. The same data shows that Volkswagen AG (ETR: VOW3) was fairly priced at €172.72 (209.81) a share on the the same day.
Skeptics will wonder what the future of Tesla is. The simple answer is that Tesla will collapse and its remains will be gobbled up by another automaker. There are just too many customers; and too much good technology, at Tesla for a competitor like Tata Motors (NYSE: TTM) or Volkswagen to pass up. The Tesla brand will survive but Elon Musk’s company will disappear.
I would not be surprised to see Tesla join the Volkswagen Group at some point in the future. Smart investors will ignore Tesla and buy traditional automakers like VW.
This commentary originally appeared at Market Mad House — please visit it to see which stocks I am bashing.