Hey investors: Aston Martin or Tesla?

Shares in Aston Martin fell sharply on debut, at Tesla they have been going up. Should investors put their money into either company, or both?

Article updated: 4 October 2018 7:00am Author: Michael Baxter

One thing that Aston Martin and Tesla have in common is Lotus. In the very early days of Tesla — pre the era when Musk was CEO — a partnership with Lotus was fundamental to Tesla’s evolution. Early days, Tesla used the Lotus chassis to house its electric engine, as the company sought to raise money.

In an interview with Business Insider, Malcolm Powell, former engineer at Lotus and now VP at Tesla said that “Lotus was always a progressive company” and “lots of people would approach the carmaker trying to make their ill-conceived ideas into a reality.

"Most people outside of the industry have little idea how complex and difficult it is to design and develop a production vehicle, even one using conventional technology. Don't forget, at that time, no one was making a high-performance electric vehicle, nor was anyone achieving adequate range. Their product was therefore out of the ordinary."

It turns out that back then, in the relationship with Tesla, Lotus held all the cards. Rather a shame they didn’t negotiate shares for themselves — me thinks.

What Lotus has in common with Aston Martin is that the two companies make cars that are often compared with each other, they have a tortuous history, both are fundamentally British companies, even if they are not always British owned, and they have a relationship with James Bond. It was a Lotus that was used in the movie ‘The Spy who Loved Me’ — it was the car that turned into a submarine. Today, Lotus is battling Aston to provide the next Bond car.

Oh yes, the Lotus driven by Roger Moore in that famous scene when it emerged from the water, like Ursula Andress, but with curves in different places, is now owned by Elon Musk.

Musk relief

Talking of Elon Musk, it seems he has got off lightly. Talk was that the US regulator, the SEC, was going to throw the book at him over his Tweets about taking Tesla private. Instead, he was fined a mere $20 million, ‘tsk, tis nothing’.

Meanwhile, Tesla has revealed that it made 80,000 vehicles in the last quarter. We don’t know at what cost.

Poor old Elon, I gather that to make the production target he had to work 30 hours a day, one moment working on the assembly line, the next emptying the bins and then working in the Tesla kitchens.

Now that he is no longer allowed to be Tesla chair, I wonder if he will use his free time to take a holiday.

On the news of the ‘modest fine’ and surging production, shares have risen sharply, but are still around a quarter off the August high. Some are speculating that shares in the company with a PE off the charts are going cheap.

Aston Martin IPO

Meanwhile, shares in Aston Martin fell sharply on debut — its PE ratio of around 65 scared off many investors. (Notice how I avoided jibes about investors pressing the ejector button.)

Torque

But there is something else Tesla and Aston Martin have in common — Torque.

You see electric high performance cars can go like the clappers, from zero to 60 in less time it takes Musk to write a Tweet.

It’s a market that Tesla has had to itself. Now Aston Martin with Porsche and — well just about everyone — is entering the market that Tesla pretty much created.

Because this market is so new, the playing fields are quite flat — as it were. By that I mean the opportunity for smaller niche companies like Aston Martin, or maybe even more niche like Lotus, to grab more market share is pretty strong.

That’s what Aston Martin has going for it.

As for Tesla, it’s good at the things other car companies are learning — making lithium ion batteries, AI and electric cars. It’s not so good at the things traditional car makers, such as GM and Ford, do — namely making cars at scale. I read in today’s FT that GM is in a race to the starting line in autonomous cars. Meanwhile, Tesla has left the grid and has completed a half a dozen laps.

Personally, I think speciality in AI, lithium ion batteries etcetera trumps expertise on the production line.

As for Aston Martin, well it has this incredible brand name — and making electric cars at scale appears less complex than making internal combustion engine cars at scale. I think opportunity shines on this company too.

Not sure how convergence between autonomous cars, electric cars and the Uber economy will effect Aston Martin. I think that to the car industry, these changes will be akin to the meteorite that wiped out the dinosaurs, allowing birds and mammals to fill the gap in the market that was created. I can see, however, how Tesla could be akin to an animal that benefited from this great disruption.


These views are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees

Michael Baxter portrait photo
Michael Baxter

Economics Commentator

Michael is an economics, investment and technology writer, known for his entertaining style. He has previously been a full-time investor, founder of a technology company which was floated on the NASDAQ, and a director of a PR company specialising in IT.