Go Long on Tesla

My friend Bill Grimes sent the following in an email:

For reasons disclosed below I ordered the movie?"Cabaret"?from Amazon and watched it again. Not because I remembered liking it. I recall the plot was insipid: a tongue-tied American grad student comes to Berlin to study German and falls in love with the older, more sophisticated Liza Minnelli character, a star singing and dancing performer on stage at a nightclub, cabaret. It’s a Bob Fosse's dance-a-thon?set in Berlin in the 1930s. The story takes place over a four- or five-year period with scenes of the performance and audience in the cabaret changing slightly over this span of years.

At the beginning of the movie, year one, the patrons sitting at the tables near the stage are delighting in the performance are mostly bourgeois customers, German well-fed capitalists and managers. In the next year or two we have the same view from the stage but the audience is younger, virtually all male with a few wearing brown shirts. On our last visit to the cabaret, three years or four years later, most all in the audience are in Nazi uniform wearing indulgent and contentious smirks.

I thought this visual conceit was a clever way to show time passing and the increasing power of the Nazi party.??

When I moved to Marin County six years ago the fancy automobiles passing through the highways and streets were mostly foreign cars, Mercedes, Jaguars, BMWs, Hondas, and an occasional Rolls Royce.

Soon thereafter I recall seeing a different car, new to our community. What’s that? Could it be an American car? Doubtful, it was too cool looking. But it was an American-made auto, powered by electricity, with the subtle T emblem nameplate and called Tesla. Time sped by and one day I noticed two Ts, both black followed soon thereafter in colors white, red and blue. I thought of the movie?"Cabaret"?as seemingly slow passing time changed an entire country and later the world. About the US automobile market the words of a Bob Dylan song came to mind:?“Something is happening but you don’t know what it is, do you Mr. Jones?”?

Today in a twenty-minute ride to and from my fitness center in the next town I counted six Ts. I had to know more about this changing market phenomenon and so I googled. In 2021 Tesla sold 936,172 cars worldwide; 292,902 in the US and sixty percent of e-cars in the US are Teslas. Here I note Tesla has achieved this without a dollar spent on advertising?

Its market share is not that of the Nazi’s in?"Cabaret"?a few years before the war but it’s enough to frighten the lethargic GM which promises to have an electric auto on the market in scale in 2035. Cathie Wood, founder and CEO of Ark Investments who invested early in Tesla, says,??“It’s going to be awfully difficult for those (US auto makers) companies to manage during the next five to 10 years,” Wood told Barron’s. “And we would bet that they will not be alive in their current state. They may be in combination with someone else, or they may go bankrupt.”

Now, according to press releases a super performing and stylish Chinese car, the XPeng, will enter the US market this fall. I’m not a stock market investor but I wonder if the “shorts” on GM are rising.?

I responded by writing:

After I read Bill’s insightful email about Tesla selling 936,172 cars in 2021 without advertising, I looked at my AD AGE 2021 Fact Pack to check out 2020 auto advertising investments.

In 2020 in the top 25 spenders?world-wide?were:?Amazon was #1 with $11 billion,Volkswagen was #12 with $5.7 billion, Toyota #16 with $4.3 billion, GM was #21 with $3.7 billion and Ford was #23 with $3.6 billion.

In 2020 in the US the top 25 ad spenders: Amazon was #1 with $6.8 billion, Comcast #2 with $6.142 billion, ATT #3 with $5.48 billion, P&G #4 with $4.281 billion, GM #10 with $2.952 billion, Ford #17 with $2.280 billion and FiatChrysler #20 with $2.053 billion.?Toyota was not on the top 25 list.?The top auto marketers in market share, ad spend in millions, ad efficiency ratios (ad spend divided by market share) and efficiency rank in the US are as follows:

1. GM?????16.9%?$2.952?174.8 Rank 9
2. Ford.????14.2%?$2.280?160.5 Rank 8
3. Toyota.??13.9%. $1.508?108.4 Rank 1
4. FiatChrys?12.9% $2.053?159.1 Rank 7
5. Honda.????9.4% $1.390?147.8 Rank 4
6. Nissan????7.9%?$990?125.3 Rank 2
7. Hyundai???4.2%?$627?149.6 Rank 6
8. Subaru????4.1%?$523?128.0 Rank 3
9. Volkswagen?3.8%?$777??204.5 Rank 1
10. Kia.???????3.6%?$534.?148.3 Rank

Note in the list above that Toyota is by far the most efficient (#1) in ad spend-to-market share ratio and Volkswagen the least efficient (#10).?Also note that the three US carmakers rank at 7, 8 and 9 in ad efficiency.?

I’m not sure what all the implications are for these numbers (by the way, the decimals in the efficiency numbers are way off), but one thing is clear: the US car makers are not getting market-share bang for their ad bucks.?For investors this fact must be disconcerting, especially considering Tesla’s success without ad spend.?

Do these numbers reflect on the effectiveness of individual ads or of advertising in general? Is the differentiation in the product or in the advertising?

Should we short GM, Ford, FiatChrysler?and?their ad agencies and go long on Tesla … and Toyota?