The Machines That Build Machines, Porsche Vs Tesla

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There is evidence consumers now favor electric vehicles over comparable internal combustion engine cars and trucks. It is a big deal for automakers and investors.

Porsche executives announced on Monday that global sales of Taycan, its next generation electric vehicle, have surpassed those of the iconic 911. It’s a milestone. The EV era is here.

Investors should consider buying Tesla  TSLA (TSLA). Let me explain.

There was never any doubt Porsche customers would eventually choose the Taycan over its lineup of ICE vehicles. The surprise is how quickly they made the jump.

For 70 years the Porsche 911 has been the pinnacle of German sportscars. Its frog-like front fascia and wide rear-end have barely changed since 1963. That design language influenced every Porsche since, from its SUVs, the Cayenne and Macan, to Panamera, a four-door sedan, to Taycan, the first foray into EVs.

When Porsche launched the Taycan Turbo in 2019 analysts immediately began touting the asphalt shredding monster as a Tesla-killer. The relationship proved more symbiotic. The sleek four-door sports sedan has a lot in common with the top of the line Tesla Model S. Both cars leverage the advantages of EVs. Instant torque and a low center of gravity weighed down by heavy batteries make the cars fast and furiously sticky in corners. They put smiles on customers’ faces.

Writers at Car and Driver magazine said the Taycan set the benchmark for driver satisfaction.

Taycan is full of Tesla-like EV inconsistencies, too.

The car wears a “turbo” badge yet it does not have a turbocharger, or gas engine for that matter. Taycan features an all-wheel drive system that makes 616-hoursepower, enough to push the car from 0-60 mph in less than 3 seconds, yet its electric motors produce no greenhouse gases.

And with prices ranging from $84,050 to $186,350 the vehicle is a big money-maker for Porsche.

The company sold 41,296 Taycans in 2021, versus only 38,464 911s, and 30,220 Panameras.  The 911 and Panamera are comparable in performance and price.

The unexpected demand for EVs at Porsche means the company is accelerating production schedules and investment. It’s also leading to a marketing campaign. Volkswagen (VWAGY), the parent of Porsche is going all-in on EVs.

General Motors  GM (GM), Ford (F), Volkswagen and others spent $248 million during 2021 on EV advertising, a fourfold increase from 2020 and 2019, according to a report last week at Bloomberg.

This new spending validates the business model at Tesla. Large legacy automakers have now conceded executives were wrong about consumer demand for EVs, adoption rates and preference.

It also puts them in a bind: They are not going to have enough inventory to satisfy demand moving forward. This benefits Tesla, the clear production leader.

Tesla built 930,422 EVs during 2021, an 87% increase from a year ago, according to a press release in early January. And the Austin, Tex.-based company is perhaps days away from opening massive new manufacturing facilities in Texas and Berlin, Germany. Production in 2022 could reach 1.6 million units.

This comes as manufacturing at Tesla Shanghai is accelerating. According to drone footage posted to YouTube, the Chinese factory is producing one new Tesla Model Y every 38 seconds.

Tesla is a widely misunderstood.

First the company pioneered the adoption of EVs by making a vehicle that seemed to defy logic. It was efficient, yet sublimely quick and fun to drive. Then Tesla engineers turned their focus to perfecting the manufacturing process. They built a better machine to build the machine. The remarkable productivity of Tesla Shanghai is a testament to this process.

The company will release fourth quarter and full year financial results on January 26. Elon Musk, chief executive officer says he will update production and product plans for the rest of the year. This update should force analysts to lift their sales and profit forecasts. FactSet notes that the current consensus production for 2022 is only 1.2 million units.

EVs are the future of automobiles and Tesla is in best position to deliver units. Longer-term investors should consider adding new positions.