Tesla is crazy overvalued, this portfolio manager says

There’s good reason for investors to be gaining exposure to the growing electric vehicle market, but owning Tesla (Tesla Stock Quote, Chart, News, Analysts, Financials NASDAQ:TSLA) shouldn’t be your first choice, portfolio manager Gordon Reid says. Rather, a company like General Motors (General Motors Stock Quote, Chart, News, Analysts, Financials NYSE:GM) is trading at a much more reasonable valuation, according to Reid.

“In the last few months we have purchased General Motors and that’s our way of participating in the EV revolution,” said Reid, president and CEO of Goodreid Investment Counsel, speaking on BNN Bloomberg on Thursday.

“It’s been long and coming and it’s now a practical opportunity, and we’re seeing companies like General Motors invest billions of dollars in electric vehicles,” Reid said.

GM announced at the end of January a more concerted push in the direction of electric vehicles and sustainability by saying the company’s operations would be carbon neutral by 2040, have zero emissions from all its light-duty vehicles by 2035 and have 30 electric vehicle models available globally by 2025. In total, the company plans on spending a whopping $27 billion on electric and autonomous vehicles over the next five years.

“General Motors is joining governments and companies around the globe working to establish a safer, greener and better world,” said Mary Barra, GM Chairman and CEO. “We encourage others to follow suit and make a significant impact on our industry and on the economy as a whole.”

The shift by GM is a sign of the times where auto makers around the globe are ditching gas engines and ratcheting up their production of EVs as the world makes the transition to a post-oil economy.

But GM has gained attention of late for its innovation on many fronts, from its Ultium next-generation battery system to its logistics arm, BrightDrop, which earlier this year unveiled an all-electric delivery van.

The buzz around the company has GM’s share price hitting all-time highs. Where the stock had floated along in the $30-$40 range for much of the past decade, GM rise over the past 11 months has been nothing short of phenomenal, with the stock going from a low of about $17 in the depths of last year’s pandemic-created pullback to now above $50 since mid-January.

“They’re going to invest $27 billion in EV development between now and 2025, they’re going to have 30 per cent of their offerings be electrified by 2025 and by 2035 they say they will only have EV offerings and there’ll be no gas powered offerings by General Motors,” said Reid. “So, this is a great opportunity and one we’ve been waiting for.”

But, of course, no discussion of electric vehicles can avoid the issue of Tesla, which has itself had a bit of an interesting last 12 months. The stock has only more than tripled in value over that time span, a reflection of investor interest in the EV space but just as importantly a vote of confidence in both the Tesla brand and the draw of CEO Elon Musk.

“The poster boy for EV has been Tesla, but I’ve always pushed it away because it’s just far, far too expensive for us,” said Reid. “They’ve built a fantastic brand, but we believe that there’s a disconnect between the fundamentals of the company and the stock price and we’ll let that play out.”

Reid says the numbers are clearly in GM’s favour.

“General Motors is exactly the opposite [of Tesla]. It’s undervalued, in our view. In fact, if you compare GM to Tesla on an enterprise value to EBITDA basis, GM is trading at about 6x and Tesla is at 95x,” Reid said.

“So, we believe there’s very good opportunity in the stock of General Motors and we’re a holder and a buyer,” Reid said.

Tesla’s share price dropped three weeks ago when the company delivered fourth quarter earnings that came in below expectations. The company managed adjusted EPS of $0.80 per share versus analysts’ consensus estimate at $1.03 per share. Meanwhile, revenue came in at $10.7 billion compared to $7.4 billion a year earlier and adjusted EBITDA was up to $1.85 billion compared to $1.18 billion a year earlier. For the 2020 year, Tesla generated $31.5 billion in revenue and turned a profit for the first time on an annual basis with net income of $721 million.

Commenting on the upcoming year, Tesla said it will have over 50-per-cent growth in vehicle deliveries in 2021, with the company starting up production at two new factories, one in Austin, Texas, and one in Brandenburg, Germany.

Tesla has been taking advantage of its soaring share price by raising capital, making three dips into the capital markets over 2020 for a total of $12 billion, the latest being a $5-billion raise in December to help fuel the company’s expansion plans.