An off-the-cuff remark by Tesla Motors Inc (NASDAQ:TSLA) CEO Elon Musk about working with Google Inc(NASDAQ:GOOG) on a driverless car made headlines recently. The notion was quickly squashed by both Musk and Google Inc (NASDAQ:GOOG). Is Tesla Motors Inc (NASDAQ:TSLA)’s quick price advance over, too?
News
Tesla Motors Inc (NASDAQ:TSLA) shares have seen a heady advance over the last six months, with the bulk of the gain coming in the last month or so. The reason for the quick ascent was news that Tesla Motors Inc (NASDAQ:TSLA) was going to report its first profit. Investors piled into the stock.
There’s good reason for that. Very often a company going from building its business to turning a profit is an important turning point. It has the potential to lead to years of growing profitability. So there is logic behind the optimism about Tesla Motors Inc (NASDAQ:TSLA)’s future.
What to Watch
The metrics to watch will be car sales and backlog. The company has just introduced its first sedan with a plan for an SUV in the works. Although the long-term goal is an affordable electric car for the masses, right now Tesla Motors Inc (NASDAQ:TSLA)remains stuck at the high end of the market. It actually scrapped the “cheap” version of the sedan because of a lack of demand.
If the high-end niche that the company has stumbled onto is large enough, it could have years of growth ahead while it figures out how to make an affordable electric car. If, however, the launch of the sedan has already eaten up a lot of the demand that there was for an electric car, then profitability will be short lived and so, too, will be the dream of an affordable model.
A Little Hyperbole
The problem that investors have is that Musk has a slightly different take on the world than most. For example, after noting that profitability was around the corner, he announced that there would be even bigger news down the line. When that news came out, it was about a complex financing plan for car buyers. Nice, but not nearly as exciting as a company going from red ink to black ink.
More recently, the company has announced plans to raise cash via equity and debt issuances. That’s not a positive comment on its ability to be self-sustaining.
The Driverless Car
That said, a driverless car is an amazing concept and Google Inc (NASDAQ:GOOG) is working hard on such a project. It is also achieving impressive results. While such a vehicle is a bit of a mismatch with Google Inc (NASDAQ:GOOG)’s core business, it is the type of “far out” project that a massively profitable company can afford to take on. And since the driving is more important than the car, it may not be as far afield as it first seems.
Still, no matter how exciting a driverless car is, Google Inc (NASDAQ:GOOG)’s Glass is probably a more exciting project today. The eyeglasses that act as a digital display are inching closer and closer to market. The project also has the potential to move Google Inc (NASDAQ:GOOG) into greater competition with other device makers, which could cause long-term harm to its business model of openly sharing its technology.
For Google investors, Glass is the technology to watch today. That’s particularly true since Google shares are priced for perfection. Even a small misstep could lead to a steep sell off. Only momentum investors should be buying Google at this point, while long-term shareholders should be thinking about pulling some money off the table.
Cars
Momentum investors are the ones driving Tesla shares, too. The electric car is a wonderful idea, but still largely a novelty. A driverless electric car, meanwhile, is a far-off dream. Still, there is a lot of money to be made if electric cars take off, but Tesla won’t be the only one in the market. For investors with a longer-term focus, Ford Motor Company (NYSE:F) might be a better option.
Ford Motor Company (NYSE:F) was the only car maker to get through the deep 2007 to 2009 recession without taking a government handout or going through bankruptcy protection. That’s an impressive feat. Moreover, it has been posting solid operating results, with strong overall sales and what looks like a turnaround brewing at its Lincoln brand. Using the same parts across different cars has also helped to keep costs in check.
While Ford’s shares are up notably over the last six months, they are still bumping along at a relatively low level since the company is still in turnaround mode. However, add in the company’s dividend (the shares yield nearly 3%), which was just recently doubled, and the long-term potential for investors seems bright. Perhaps more important, Ford’s future is far more certain than Tesla’s. More conservative investors looking for a good car company would be better off owning Ford.
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