Ford, like Rivian, is launching an EV truck and it already sells the electric Mustang Mach E.
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Old-school auto makers must envy the sky-high valuations of electric-vehicle start-ups. At one point this past week, Rivian Automotive was worth as much as Ford Motor and General Motors combined.
But maybe there is a way for traditional auto makers to close that valuation gap: Take a page from Liberty Media’s John Malone’s playbook and issue tracking stocks. “The way to solve this is for GM and Ford to issue tracking stocks for their next-gen vehicle operations, such as EV, robo-taxi, etc.,” Scion Asset Management’s Michael Burry told Barron’s in an email exchange. “This is an absolute no-brainer.”
Burry is best known for a successful bet against the housing market ahead of the subprime mortgage collapse. He is a major character in Michael Lewis’s book The Big Short, and the movie based on it.
A tracking stock “tracks” the financial performance of a specific business unit. Shareholders of a tracking stock have a financial interest only in the division tracked, rather than in the entire business.
Burry’s idea builds on another, similar call from earlier in the week. On Wednesday, Data Trek Research’s Nick Colas, a former Wall Street auto analyst, wrote that Ford (F) and GM (GM) needed to spin out their EV businesses. “When it was just Tesla with a crazy valuation, they could afford to dismiss this [spinoff] idea. Now, with Rivian [RIVN], Lucid [LCID], etc., they can’t,” Colas wrote. “Automotive is a capital-intensive business, so cost of capital matters.”
Put it this way: Building a new EV plant that could produce, say, 500,000 EVs a year, along with the batteries to power them, costs several billion dollars. That‘s less than 1% of Tesla’s (TSLA) market cap, but roughly 5% to 10% of Ford’s or GM’s.
Not that Colas believes spinoffs will actually happen. Car makers are too complex, with many manufacturing plants doing several jobs for other factories in a network.
Tracking stocks, though, might be feasible. Liberty Media Formula One (FWONA), for instance, tracks the financial performance of the Formula One racing series. And General Motors did the first tracking stock ever, for Ross Perot’s Electronic Data Systems, or EDS, back in 1984.
How to value a Ford or GM tracking stock? The possibilities are tantalizing.
Ford, like Rivian, is launching an EV truck and it already sells the electric Mustang Mach E. Ford’s EV business should be about four times the size of Rivian’s by 2023, if the company hits its goals.
As for GM, it’s essentially the second-largest U.S. EV maker behind Tesla. GM’s global EV volume is at about 300,000 units when factoring in sales from GM’s Chinese joint ventures. With Lucid worth almost as much as GM and planning to sell roughly just 20,000 units in 2022, GM’s EV company could be worth multiples of Lucid.
If all electric-vehicle companies and EV tracking stocks were valued like some EV shares, auto industry valuation could easily top $4 trillion, roughly four times the value before Tesla went on its epic 2020 run.
That might be a bit aggressive.
Write to Al Root at [email protected]
