As the companies formerly known as the "Big Three" report earnings, investors are keeping one eye on the future. Ford's (F) on an uptick today, General Motors' (GM) down in the face of a buoyant market and Fiat Chrysler's (FCAU) shares have given up most of their at-the-open gains.
Forgetting about quarterly profit reports and looking at the big picture, though, it's important to remember that if you own U.S automakers as long-term buy-and-holds, you are really investing in a future that will be dominated by autonomous vehicles (AVs) that are built with the construct of electrified powertrains. Or, put another way, battery-electric vehicles (BEVs).
So, one must not ignore the fact that GM and Ford are earning magnificent profits from the pickup trucks and SUVs that dominate their North American Operations (NAO, in industry parlance). Fiat Chrysler is an even more extreme example, as the Jeep brand represents the vast majority of profitability there. I estimate at least 85 % of FCAU's automotive (ex-Maserati) earnings come from Jeep, and that estimate could be conservative.
The dirty little secret that Detroit loses money on most of its passenger car models while subsidizing them with profits from trucks was exposed by Ford CEO Jim Hackett's pronouncement that Ford is all but exiting (only the Mustang and Focus Active will survive) the NAO passenger car market. Good for him; it was a rare, but pleasant burst of candor emanating from Dearborn, and has led to a rare, but pleasant green day for Ford's stock. GM CEO Mary Barra needs to watch what the Blue Oval is doing.
So, that's the key point here. The U.S consumer does not want to buy passenger cars. The issue for the futurists is that the high-volume, highly touted BEVs that are currently being sold in the U.S. market are, yes, passenger cars, and really ape the shape of the classic "three-box" sedan despite the fact that there is no need for an engine compartment.
I believe this is the reason for the poor sales performance of the Chevy Bolt. With sales of 1,774 units in March, the Bolt was outsold by its predecessor, the Volt, and is running well below the monthly sales that could be supported by the Bolt's production capacity of 25,000-30,000 per year.
The Nissan Leaf has never sold well in the U.S., and the other mass market BEV currently on sale in the U.S. is another passenger car, Tesla's (TSLA) Model 3. Delving into the Musk-mania behind the production hell Tesla has experienced with the 3 would require too much column space, but I will certainly circle back to Tesla in another Real Money column, especially since TSLA's crucial first-quarter earnings report is scheduled for Wednesday, May 2.
Even if he has been frustratingly unable to master the very basic tenets of mass-market car production, Elon Musk certainly got the order of introduction right. Western world auto customers (and increasingly those in China and India, too) are clearly interested in two segments: luxury and SUVs. So that's where Tesla's Model S and X are positioned, and that's where the Model 3 can't quite reach and the Bolt and Leaf are not even close to.
So, why not build BEVs in the segments consumers want? Why not use those SUV/crossovers as the architecture for AVs, which will be used in ride-sharing applications where more interior room is a virtue? It's a darn good idea, and the company that is optimizing that strategy is Tata Motors (TTM) .
Tata's Jaguar and Land Rover divisions are the perfect platforms for BEVs and AVs, and Alphabet (GOOGL) division Waymo's decision to use the upcoming Jaguar I-Pace battery-electric SUV as the basis for its AV fleet is not a coincidence.
TATA shares are languishing near a 52-week low as the company cuts production due to weak sales -- especially of diesels -- in its core U.K. market, but I believe the future is bright for both brands, and concerns over the U.K.'s demise have been exaggerated.
All my friends at the European car makers are talking about the I-Pace as the first true "Tesla-killer" to hit the market, and that buzz should help the stock. TATA shares are currently trading at just over 6x the consensus forecast for EPS for the March 2019 fiscal year, a slight discount to TSLA's impossible-to-comprehend valuation of 13,690x its trailing 12-month EBITDA.
So, take a look at TATA here. I'll have more ways to play the future of automotive mobility in my next Real Money column.
