Howes: Two Automakers
The stock market’s tanking, thanks to rising rates and an aimless trade war with China.
But two American automakers battling their own separate demons are making real money. And they’re getting decidedly different reactions on Wall Street -- which tells you a little something about Detroit you might not want to hear.
In a hastily arranged news conference this week, tiny Tesla confirmed it booked a rare profit in the third quarter precisely what the short sellers are betting it would never do. Its battered shares rose 30 percent in after-hours trading, even as the Dow Jones industrials took a 600-point pounding.
Over in Dearborn, Ford Motor reported a billion-dollar profit for the same three-month period said its mix was getting richer, thanks to selling more pickups and SUVs and revealed that its cash hoard had swelled to more than $23 billion dollars.
Blue Oval shares moved just four percent after-hours.
The contrast couldn’t be more stark and revealing of what amounts to two auto industries competing for investor respect. So far, Detroit’s losing.
Here’s a Silicon Valley start-up with dodgy vehicle quality, a mercurial CEO and a well-established record of capital incineration getting major props for finally posting a profitable quarter.
And there’s a legacy automaker 100 years its senior producer of tens of billions in profits since 2010 and America's best-selling vehicle for more than 40 years. It’s greeted with demands for more: more detail about its restructuring and how much cost it’s cut so far more about how many salaried jobs it plans to eliminate next year … more about how it will fix China, Europe and South America.
What’s most apparent about these two automakers is the different standards set for them by investors and the public. Jeremy Acevedo of Edmunds says, quote, “Ford’s feet are being held to the fire while Tesla’s stocks are likely going to soar. It’s easy to forget that Ford is still a sales titan and produces the perennially best-selling vehicle in the United States.”
The difference is who’s more likely to be ready for the future. And the answer from investors seems pretty clear not Detroit.
Forget that Tesla tanked in the latest reliability survey by Consumer Reports … and that Ford ranked highest among American automakers. Their valuations tell an important tale and right now, shareholders value Tesla about $17 billion dollars higher than much-larger Ford.
As interest rates and vehicle prices rise and consumer demand plateaus allegedly smart money is betting this town’s automakers will be revealed for the Old Economy manufacturers they still are. That 100-year-old corporate cultures can’t change as fundamentally as needed to drive innovation, to take risks and to win.
That’s why the slightest hint of financial success at Tesla is greeted so positively, despite its well-documented quality problems. And it’s why yet more profit from Ford gets a collective shoulder shrug because profitability is not sufficient to prosper in the next automotive century that won’t necessarily be made in Detroit.
I’m Daniel Howes of The Detroit News.
Daniel Howes is a columnist at The Detroit News. Views expressed in his essays are his own and do not necessarily reflect those of Michigan Radio, its management or the station licensee, The University of Michigan.