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Tesla vs McLaren – which to invest in?


McLaren released their full year results for 2018 last week. The niche supercar maker is speeding ahead with ambitious growth plans that are now coming through in their results. Tesla, meanwhile, was a bit of a car crash.

Tesla earnings were as expected by analysts. The firm reported a net loss of $702m, equivalent to $2.90 per share – well south of the $0.69 consensus expected. Revenues were also a miss – coming in at $4.54 billion against the $5.2 billion expected. The company does not expect to return to profitability until Q3, but even this could be a stretch.

Net cash fell to $2.2bn, down $1.5bn from the end of 2018, largely down to the repayment of that $920m convertible bond.

The effect of the cut to federal tax credits paid to buyers of Tesla vehicles on January 1st has had a clear impact. Sales revenues were down 41% from the fourth quarter. Going forward, the erratic pricing policy of the Model 3 is a worry – can Tesla make it at a price that is acceptable to consumers but is still profitable?

Tesla reaffirmed prior guidance of 360,000 to 400,000 vehicle deliveries in 2019, representing an increase of approximately 45% to 65% compared to 2018. However as previously noted, at the lower end it would be flat on the second half of last year, whilst at the top end it would mean growth in sales of 10%, which is hardly inspiring.

McLaren: a very different performance to Tesla

Things are looking a lot better at McLaren. Compared to 2017, car shipments have increased 45% to nearly 5,000 in the year. With an average selling price of well over £200,000 per car, this delivered remarkable revenue growth in the automotive division of 76%. This growth looks set to continue, with a healthy pipeline of new models almost at the start line; the McLaren Senna GTR production run has already sold out.

These new models will help inject even more power into McLaren’s earnings. Their new model, the Speedtail, is set to arrive in 2020 and will have a price of £1.75m (yes, that’s right, million). And like the Senna GTR, it’s already sold out.

Never mind the fact McLaren haven’t even announced the planned successor to the McLaren P1 yet, which will presumably cost even more. This success has driven EBITDA margins in the automotive segment of the business from 10% last year to 22% this year.

“In our view, McLaren has a clear road ahead of it over the next few years to success in its automotive division,” says David McFadyen, High Yield Investment Analyst at fund manager Kames Capital. “Some may worry that McLaren is the ‘old’ automotive industry, that companies like Tesla and electric vehicles in general will leave McLaren as a dinosaur. We disagree.”

McFadyen says that McLaren has been using electric technology in its cars for years. The P1 was the world’s first hybrid supercar. The SpeedTail will also have a petrol-electric powertrain. McLaren is the sole supplier of high-tech batteries for Formula E.

“This is a company delivering a niche, highly desirable product at the bleeding edge of engineering innovation,” says McFadyen. “And besides, a car like this is more than just what gets you from A to B, it’s an experience and a trophy asset that the super-rich are clearly happy to pay for.”

So while Tesla might get all the attention, compare Tesla’s latest results with McLaren’s. “We know which company we’d rather lend to,” says McFadyen at Kames Capital.

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This article does not constitute investment advice. Do your own research or consult a professional advisor.

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