Buy This, Not That: The Only Race That Matters

Shah Gilani|October 30, 2024

It’s a fascinating face-off between two automotive giants…

One a legacy powerhouse, the other a tech-driven disruptor.

One is dirt cheap while the other commands a premium valuation.

But the real story?

It’s about legacy versus innovation, debt versus cash, and the wild card of autonomous driving.

Plus, we’ll look at how recent earnings surprises and potential political shifts could reshape the landscape.

Don’t miss my verdict on which stock should be driving profits for your portfolio right now.

Get the details in my latest Buy This, Not That episode.

Click on the thumbnail to dive in.

 

TRANSCRIPT

Hey everybody. Shah Gilani here with your weekly BTNT, as in “Buy This, Not That.”

Talking cars this week. We’re talking two giants of the automotive landscape in the United States: General Motors (GM), of course, and – did you guess it? – Tesla (TSLA). Yes, two giants.

Now, Tesla dwarfs General Motors on a lot of things… except debt and a few other things like that.

But which one should you buy? Which one should you not buy?

I’m going to start with General Motors.

General Motors is cheap. It’s trading at $51.50 or so. That’s pretty reasonable, because on a trailing P/E basis, the P/E multiple for General Motors is 5.56. Forward P/E, 5. That’s dirt cheap.

Tesla?

Are you sitting down? The trailing P/E on Tesla is 72. The forward P/E on Tesla is close to 80.

Now, the difference there is that Tesla isn’t considered just a car company. It’s considered a technology company before it’s a car company… and with good reason.

General Motors is all about cars, and it’s also about financing, and it’s got other areas that serve what its core business is.

Tesla is a little bit different. You think of Tesla as the EV maker, but Tesla also has built out into two segments. You’ve got the automotive segment, and the energy generation and storage segment. Energy generation, i.e., battery generation and storage.

So, yes, it’s got two components to it. General Motors can’t really say that.

Tesla does all the other things that General Motors does as far as designing, manufacturing, leasing, selling, servicing, etc. It’s got all of that stuff that General Motors has.

But it’s got a technology component, which some people say justifies the higher P/E multiples.

Jury’s out on that.

Now, for revenues…

General Motors’ revenues dwarfs Tesla’s.

Tesla’s revenues are about half what General Motors’ revenues are. General Motors’ revenues are $182 billion. Tesla revenues are $97 billion and change.

So much higher revenue for General Motors.

The problem with General Motors is its balance sheet. It’s got $27 billion in cash… but it’s got $129 billion in debt. The debt-to-equity ratio for General Motors is 174%.

That’s a lot of debt relative to the equity.

Tesla, on the other hand, has $33.65 billion in cash and $12.78 billion – only $12.78 billion – in debt. That’s $12.78 billion in debt relative to General Motors’ $130 billion in debt.

For that reason alone, I don’t care that General Motors is cheap.

You BUY Tesla, NOT General Motors.

You look at the chart of Tesla, and a lot of people think, “Oh my gosh, Tesla has outperformed.”

But, actually, General Motors has done really well too.

Here’s a one-year chart of Tesla.

Now, I want to point out this recent gap here. That’s an earnings gap. That’s an earnings report gigantic gap here.

That gap is between $220 and $240. It can be filled to the downside. There’s a bit of a worry there, but I’m saying Tesla is a BUY and General Motors is NOT a buy because of Tesla’s technology, its battery prowess, and Elon Musk.

This earnings beat here caused the stock to skyrocket. For a company that has a market cap of $842 billion to see its stock jump something like 25% to 26% is staggering.

There was some short covering in there, but it was more about Elon Musk, the circus leader, talking up Tesla in terms of “what ifs.”

He talked about – without directly mentioning Donald Trump, without mentioning the election – but in a roundabout way talked about inefficiencies and how he as the efficiency czar would do the right thing by paving the way for autonomous driving. He’s talking the Tesla book, and that’s what made Tesla stock really pop.

Look at Tesla’s stock. It’s looking pretty good here, but then again, you look at General Motors and people say, “Wait a second. General Motors has had a nice run too. Its earnings were pretty good also.”

If you look at General Motors’ stock just on a chart basis, you could say, “Listen. This looks pretty good.”

It’s had a nice move higher, and that’s a pretty steady looking one-year chart and a nice move up here.

It’s already rolling over a little bit here.

But between the two, I’m going to say buy Tesla over General Motors. You don’t have the legacy pension issues and debt that General Motors has. You have the technology aspect for Tesla.

You’ve got Elon Musk leading the show. And if Donald Trump wins, Tesla’s going to see a nice pop. If Elon becomes something of an efficiency czar and clears the way for autonomous driving, Tesla is obviously going to benefit.

BUY Tesla, NOT General Motors.

Catch you guys next week. Cheers.