Wall Street loves electric cars, America loves trucks

DETROIT (Reuters) - Wall Street may love the shares of Silicon Valley electric carmaker Tesla Inc, but Americans love big, fuel-thirsty trucks like Ford Motor Co’s bestselling F-Series pickups and are paying ever higher prices to buy them.

The auto industry is at a crossroads, with the future of legacy automakers like Ford, General Motors Co and Fiat Chrysler Automobiles NV uncertain as governments float proposals to ban internal combustion engines over the next two decades.

But in the present, consumer enthusiasm for trucks and sport utility vehicles is strong, especially in the United States. And that is providing Ford, GM and other established automakers with billions in cash to mount a challenge to Tesla.

Tesla has ambitions to boost annual sales to 500,000 vehicles a year. But it is wrestling with the sort of production problems that old-line automakers have largely put behind them, and has reported a net loss of $666.7 million through the first six months of 2017. Analysts expect the company to post a third quarter net loss of $380.4 million when it reports results next Wednesday.

Electric cars are money losers, which explains why global automakers have been slow to roll them out until now. But regulatory and consumer pressures are forcing established automakers to put more electric vehicles in their fleets over the next several years. In a cash-intensive industry, profits from pickups and SUVs may give them a competitive edge.

Ford said on Thursday that the average price of one of its F-series pickups rose $2,800 to an average $45,400 a truck in the third quarter. Sales of F-series trucks, which range from spartan work trucks to Platinum models with the features - and price tags - of a European luxury sedan, were up nearly 11 percent to 658,636 vehicles for the first nine months of this year.

GM has driven its share price up nearly 30 percent so far in 2017 as Chief Executive Mary Barra has talked up plans for putting self-driving, electric Chevrolet Bolts into ride services fleets within a few quarters.

Barra told investors on Tuesday improved profit margins on trucks were “one of the big drivers of the overall 8.3 percent margins” in the automaker’s North American business during the latest quarter.

GM has forecast free cash flow for the full year of roughly $6 billion. That is $1 billion less than forecast earlier this year, but strong enough to fund the company’s promise to develop 20 more electric vehicles by 2023 and send $7 billion back to shareholders.

GM, which emerged from a government funded bankruptcy eight years ago, now has $31.4 billion in available funds, including $17.3 billion in cash.

Ford lags behind GM in sales of battery electric models, but the company has said it will spend $5 billion developing battery electric and hybrid models. Ford’s new Chief Executive Officer Jim Hackett has said the plans include shifting $500 million into electric vehicle development from internal combustion projects.

Ford’s share price has been flat for the year as the No. 2 U.S. automaker ushered out former CEO Mark Fields. Still, it had $28 billion in cash and marketable securities as of Sept. 30.

Automakers also are becoming more confident they can make money on electric cars as battery costs come down.

Volkswagen AG’s (VOWG_p.DE) Audi brand is gearing up a fleet of electric models that the company expects will account for 25 percent of sales by 2025. In the United States, Audi plans to launch an electric SUV “in the sweet spot of the market” in 2019, Scott Keogh, head of Audi’s U.S. operations, told Reuters on Thursday.

Sales of Audi’s current lineup of SUVs “pay for what we want to do, which is lead the future,” Keogh said.

Renault SA Chief Executive Carlos Ghosn expressed confidence earlier this month that electric cars will become “a significant contributor to our performance.”

Tesla, by comparison to its legacy rivals, is market value rich, and cash poor. It had $3 billion in cash on hand at the end of the second quarter, and some analysts predict the automaker will have to raise more to cover the expected cash drain from the slow launch of the Model 3, which is lower priced than other Teslas and aimed at the market for $35,000 to $45,000 cars.

Tesla Chief Executive Elon Musk has outlined ambitious plans to expand its network of factories and service facilities, including potentially an assembly plant in China and up to three more electric battery Gigafactories. He told investors in July the company could sell more shares to fund that expansion.

“I‘m sure there will be some funding rounds that happen in the future,” he said.