Automobile: the stock market throws itself on the new Tesla, like Rivian, and abandons the historical manufacturers – teller report

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One room, two atmospheres … The contrast is implacable between the enthusiasm of the financial markets for electric car startups and their disenchantment for traditional manufacturers. The first explode on the stock market, the second row …

Rivian smashes the New York Stock Exchange

Latest episode to date: the sensational IPO of Rivian this Wednesday. While the American electric car maker, backed by Ford and Amazon, had set its IPO price at $ 78 (well above the range of $ 57 to $ 62 considered less than ten days ago), the stock exploded on Wednesday and Thursday to reach $ 122.99, valuing the company at nearly 105 billion dollars! As a reminder, last July, it was still valued at around $ 30 billion. Rivian, which has barely started building electric vehicles, is thus worth almost as much as its main shareholder Ford, and more than ten times Renault, which already produces 3 million cars (including 60,000 electric cars sold in 2020).

Rivian has indeed delivered its first pick-up, baptized R1T, in September and plans to sell its first SUV, the R1S, in December. At the end of October, it had an order book for 55,4000 R1T and R1S which it expected to deliver by the end of 2023. Rivian also plans to deliver 100,000 vans to Amazon by 2030.

The other manufacturers of the same type are not treated less well since the Chinese Nio and Xpeng are respectively worth around 68 and 41 billion dollars on Wall Street. The most spectacular remains, however, the threshold of trillion dollars crossed two weeks ago by Tesla, making the company that will produce 750,000 cars this year, one of the world’s largest capitalizations, all sectors combined.

Tesla is soaring on the stock market and close to the $ 1,000 billion in market capitalization

These figures make traditional manufacturers dizzy … Only Toyota is caressing the $ 300 billion. Daimler is around 100 billion, and Volkswagen is sailing just below that threshold.

“The valuation of Tesla is a bubble,” said without hesitation a portfolio manager, a good connoisseur of the automotive sector. “Imagine that the single valuation of a company corresponds to almost two thirds of the total business volume of the world market …”, he explains.

A bubble that does not deflate

Yet, for years, market specialists have predicted a drop in Tesla’s price … Some had even bet down through the mechanism of short purchases. As the stock did not fall as expected, these funds found themselves in financial difficulties.

Because investors clearly do not have the same requirements with the players of the new world as with those of the old one. So, no penalty when Tesla has been promising profits since 2015 … and has barely gone green for an entire fiscal year. No stock market sanction either when Elon Musk, its CEO, had promised the production of 500,000 cars for 2018 and the target was not met until two years later. No sanction either when he announced via Twitter a withdrawal from the quotation on the basis of a so-called agreement with a Saudi group … and that he had to change his mind, not without consequences for the shareholders (in particular those who had bet on the fall of the title) … Never, the operational mistakes of a boss resulted in an explosion of the share price.

Conversely, traditional car manufacturers pay cash to the least decimal of its operating margin, which does not conform to the consensus of analysts. How to explain this double standard even though the historic manufacturers are now registered in the race for the electric car with serious advantages?

Electric car: Act II of Renault and Stellantis

Investors simply no longer believe in the “legacy” business model. They believe that the advent of the electric car will complete the historic model in which the value chain was based primarily on industrial performance and engine innovation. The electric car de facto eliminates the heat engine and the entire powertrain, pollution control equipment included. It is almost a third of the value of the car that disappears. The value chain, on the other hand, is driven by batteries. Except that in the historical model of the manufacturers, this part is necessarily subcontracted … In China in particular.

The Tesla model, a new market compass

Tesla has decided to switch to a vertical integration model. It produces the batteries itself, deploys its own recharging network … It has even invented an Operating System which revolutionizes the technical operation of a car. Software is taking a new place in the automotive value chain. According to the PwC firm, software will represent nearly 60% of the value of a car in 2030.

Software, the surprise guest of the automotive revolution

With its OS, genuine Windows for the car, Tesla has therefore taken a step ahead of traditional manufacturers. For investors, Tesla’s valuation reflects this leadership in the value chain of tomorrow. They also anticipate that the Rivians, XPeng, Nio and other Lucids are part of this same process. The latter, however, still have to provide pledges on their industrial model. The hunt for programmers is raging in the automotive industry, especially since Volkswagen launched Cariad, a new subsidiary dedicated to software which aims to recruit 11,000 computer engineers.

With its 18 billion euros in profits per year, Volkswagen has the means to finance a real industrial shift. By keeping industrial expertise, brands well established geographically, the German group has thus managed to break through the shackles of “legacy” assigned to it, with a title that has increased by 68% since the start of the year, against 47% for Stellantis, and -3% for Renault. The latter does not believe in a single truth about the model of tomorrow. Its boss, Luca de Meo believes that it is possible to work on a horizontal model through an ecosystem. In his electrification plan announced in July, Luca de Meo was thus largely detached from the Tesla model. He had disappointed the markets, and the Renault title was immediately sanctioned on the stock market.