Tesla (NASDAQ:TSLA) stock gets a lot more media coverage than Ferrari (NYSE:RACE). Perhaps that’s unsurprising when CEO Elon Musk is at the helm, with all the headlines he generates.
By contrast, Ferrari assembles its exquisite sportscars in a quiet town in northern Italy. It’s run by a professorial CEO who’s pretty low-key, and the firm isn’t interested in robotaxis, humanoid robots, or Dojo supercomputers.
As exciting as these Tesla ventures are, I’m backing Ferrari over Tesla in my portfolio. Here’s why.
Iconic brand
Let’s start with the brand, which is unrivalled, in my opinion. Ferrari deliberately limits production to under 15,000 vehicles a year to promote scarcity and exclusivity. For context, Porsche delivered more than 20 times that amount last year (over 300,000).
This stays true to the strategy of the founder (Enzo Ferrari), who said the firm will always deliver “one less than the market demands“. It has also been deliberately limiting sales to China, so as not to overexpose the brand there yet. China can wait.
I mean, what other company does that? Tesla attempts to sell as many cars as possible in China, as does Porsche and nearly all other automakers.
Unfortunately, I fear Tesla’s brand has genuinely been damaged in recent years by Musk’s toxic foray into politics. Look at the resale value of a Tesla, which has fallen sharply over the past 18 months, whereas Ferrari’s remains strong.
Incredible pricing power
If I want to buy a new Tesla, I can just log on the app and place an order. Not so a Ferrari. Around two-thirds of new vehicles are sold to existing customers (very rich ones, including billionaires).
The upshot of this powerful dynamic is that Ferrari has enormous pricing power. It can keep volumes low and still grow profits.
Again, by contrast, Tesla’s struggled here. It’s suffering from falling electric vehicle (EV) sales despite repeatedly lowering prices, whereas Ferrari’s order book extends over two years.
We always want to push the quality of revenues over quantity.
Ferrari CEO Benedetto Vigna.
Financials
Turning to the numbers, Tesla’s automotive revenue last year fell 6% to $77.1bn, though overall revenue rose 1% due to strong growth in its energy business. Profitability dropped sharply.
The Italian automaker’s annual revenue grew 11.8% to €6.7bn, with everything else up double digits, including earnings per share (+22.6%). Margins are industry-leading and Ferrari also pays a modest but growing dividend.
Valuation
In reality, neither company’s valued as a run-of-the-mill car manufacturer. Tesla’s seen as a tech/AI company, and could be worth considerably more if it can eventually capture a big chunk of the global robotaxi market.
If it can’t, the stock’s price-to-earnings (P/E) ratio of 184 is likely unsustainable, as Musk has warned.
Meanwhile, Ferrari’s valued as an ultra-luxury goods firm, which is reflected in a forward P/E ratio of 46.
The risk with this premium is that investors demand perfection. If Ferrari’s margins disappoint when it reports Q2 earnings today (31 July), investors might sell.
Also, Ferrari’s first fully electric car is upcoming. Were that to flop, it could damage the brand and cast doubt on the EV strategy.
However, despite the high valuation, I believe it’s worth considering, especially on dips (I’m hoping for one myself). The wealthier some get, the more Ferrari stands to gain.
